TIDMINCH
RNS Number : 2728Q
Inchcape PLC
25 February 2021
Results for the year to 31 December 2020
Encouraging second half performance - exciting future ahead
2020 highlights:
-- Group revenue GBP6.8bn, down 19% on an organic basis and 27%
reported. Q4 organic decline of 9% (Q3: (10)%)
-- Pre-exceptional PBT of GBP129m (2019: GBP326m); supported by
gross margin resilience in the second half (vs prior year)
-- Statutory loss before tax of GBP128m, reflecting GBP257m of
exceptional charges (largely non-cash)
-- Further strengthened our financial position: net cash of
GBP266m (Dec-19: GBP103m), with 2020 free cash flow of GBP177m
-- Returning to the dividend list: dividend of 6.9p proposed for
the year
-- Continued shift towards Distribution: signed four new
distribution agreements and made further Retail disposals
2020 2019 % change % change % change
reported constant organic(2)
FX(1)
====================================== ========== ========== ========== ========== ============
Key financials
Revenue GBP6,838m GBP9,380m (27)% (25)% (19)%
Operating profit (pre exceptionals)
(1) GBP166m GBP373m (56)% (54)%
Operating margin(1) 2.4% 4.0% (160)bps (150)bps
Profit before tax (pre exceptionals)
(1) GBP129m GBP326m (61)% (59)%
Basic EPS (pre exceptionals)
(1) 23.6p 59.9p (61)%
Dividend per share 6.9p 8.9p (22)%
Free cash flow (1) GBP177m GBP213m (17)%
Statutory financials
Operating (loss) / profit GBP(92)m GBP449m
(Loss) / Profit before tax GBP(128)m GBP402m
Basic EPS (35.6)p 79.0p
====================================== ========== ========== ========== ========== ============
1. These measures are Alternative Performance Measures, see note
13.
2. Organic growth is defined as sales growth in operations that
have been open for at least a year at constant foreign exchange
rates
Duncan Tait, Group CEO:
"Our 2020 results came in ahead of recently upgraded
expectations, supported by increased resilience of demand for both
Vehicles and Aftersales services in the fourth-quarter. The Group's
inherently cash-generative business model contributed to the
strengthening of our overall financial position during the second
half.
While the COVID-19 situation remains dynamic, as of today almost
all of our markets are open. In many markets where we are facing
restrictions, we are able to deliver vehicles, offer a
click-and-collect service and to continue to perform Aftersales
services. These capabilities helped our top-line performance in the
second half of 2020 and contributed to the operating margin
recovery from the first half.
In response to COVID-19, the Group implemented a significant
cost-restructuring programme. This is now substantially complete,
and we are leveraging our leaner structure to build a better
business for the future. In addition, we continued to rebalance our
portfolio towards the more attractive Distribution segment,
securing new distribution business in both Americas and Europe, and
further reducing our Retail business.
Inchcape has strong foundations, and the growth of Distribution
remains its central focus. As we enter the next phase of our
journey, we will be supercharging certain elements - in particular,
our use of data and digital - which will drive even faster growth
of our distribution core. At the same time, we see significant
opportunity to capture more of a vehicle's lifetime value - an area
that is underserved by us today. This will in turn drive growth
within our current footprint, and open up opportunities for even
faster expansion in new markets, with both existing and new OEM
partners. In setting the future direction we concluded that there
are plenty of opportunities for an ambitious Inchcape to thrive in
this new world of mobility, and established the goal to become the
undisputed distributor of choice for OEMs.
I am confident that the momentum we were seeing prior to the
pandemic will return, and that our focus on the long-term growth
opportunities in Distribution will create value for all our
stakeholders. As a result of our strengthened financial position
and confidence in the future, we are pleased to resume dividend
payments with a proposed final dividend of 6.9p for 2020."
Results presentation today
A presentation for analysts and investors will be held today,
Thursday 25(th) February, at 08:30 (UK time). To register please
contact Instinctif Partners at inchcape@instinctif.com . An
audiocast of the presentation will be available via the Company's
website, www.inchcape.com later today.
Financial calendar
Q1 trading update 29(th) April 2021
Ex-dividend date for 2020 final dividend 13(th) May 2021
Annual general meeting 27(th) May 2021
Half year results 29(th) July 2021
Q3 trading update 28(th) October 2021
Contacts
Inchcape plc:
Raghav Gupta-Chaudhary Investor queries +44 (0)7933 395 investors@inchcape.com
158
+44 (0)20 7546
Finn Lawrence Media queries 0022
Instinctif Partners:
Mark Garraway +44 (0)7771 860 inchcape@instinctif.com
938
American Depository Receipts
Inchcape American Depositary Receipts are traded in the US on
the OTC Pink market: (OTC Pink: INCPY)
http://www.otcmarkets.com/stock/INCPY/quote
About Inchcape
Inchcape is the leading independent multi-brand Automotive
Distributor and Retailer, operating in 34 markets with a portfolio
of the world's leading automotive brands. Inchcape has diversified
multi-channel revenue streams including sale of new and used
vehicles, parts, service, finance and insurance. The Company has
been listed on the London Stock Exchange (INCH) since 1958, is
headquartered in London and employs around 15,000 people .
www.inchcape.com .
Operational review
Our results are stated at actual rates of exchange. However, to
enhance comparability we also present year-on-year changes in sales
and operating profit pre-exceptionals 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 exceptional items.
Key performance indicators
2020 2019 % change % change % change
reported constant organic(1)
FX(1)
===================================== ========= ========= ========== ========== ============
Revenue GBP6.8bn GBP9.4bn (27)% (25)% (19)%
Operating profit before exceptional
items(1) GBP166m GBP373m (56%) (54%)
Operating margin(1) 2.4% 4.0% (160)bps (150)bps
Profit before tax and exceptional
items(1) GBP129m GBP326m (61%) (59%)
Free cash flow(1) GBP177m GBP213m (17%)
Return on capital employed(1) 12% 22%
1. See note 13 for definition of Key Performance Indicators and
other Alternative Performance Measures.
Performance review: Full year 2020
2020 was a year with three distinct periods. We made an
encouraging start to the year, but in Q2 our operations were
materially impacted by COVID-19. While several markets faced
disruption in the second half, overall we observed an improving
trend across our New, Used and Aftersales revenue streams. The
trends we saw reflected to a certain extent pent-up demand, but
also less stringent lockdown conditions - with Aftersales allowed
to remain open, our ability to deliver vehicles to customers, and
the offer of click-and-collect services.
Over the course of the year, the Group generated revenue of
GBP6.8bn, operating profit pre-exceptionals of GBP166m and free
cash flow of GBP177m.
Group revenue of GBP6.8bn was down 27% year-on-year reported and
25% in constant currency. During the period we disposed of several
retail businesses, which further reduced our Retail revenue
exposure. We completed four Distribution deals - most notably the
acquisition of Daimler's distribution business in Colombia, and the
addition of the JLR distribution contract in Poland.
On an organic basis revenue declined 19% in 2020, as most of our
markets were weighed down by COVID-19. While the spread of the
virus continued to cause disruption, our organic performance
improved in the second half, falling 9% compared to the 29% decline
in the first half.
The Group delivered an operating profit before exceptional items
of GBP166m, down 56% year-on-year reported and 54% in constant
currency. The decline reflects the profits lost as COVID-19 caused
disruption to our operations across the globe. This was evident in
the 120bps contraction of Group gross margins in the first half. In
the second half, while our operations continued to be impacted,
albeit to a lesser extent, gross margins remained stable. As a
direct response to COVID-19, the Group took prompt action to reduce
discretionary costs (e.g. marketing, office, travel), the Board /
senior management took a 20% reduction in fees / salary in the
second quarter and we accessed government support schemes in the
first half in some markets (predominantly the UK). Subsequently, at
the start of the third quarter we implemented a cost-restructuring
programme - targeting GBP90m of overheads reduction - which is now
substantially complete. These cost-mitigation measures have helped
support profitability during the year and created a leaner overhead
base for 2021. D uring the second half, the Board took the decision
not to claim further government support in respect of the period
from July onwards.
Profit before tax and exceptional items of GBP129m is down 61%
year-on-year reported and 59% in constant currency. The decline in
absolute terms is slightly below that observed at the operating
profit level, owing to a lower (GBP10m) interest charge versus the
prior year. This is a result of a combination of lower interest
rates and strict inventory discipline, which reduced the related
interest expenses.
During the period we booked exceptional charges of GBP257m,
largely non-cash, and primarily due to the impact of COVID-19. The
majority (GBP223m) of this relates to goodwill and site
impairments. As a result, the reported loss before tax was GBP128m,
compared to a profit before tax of GBP402m in 2019 - which was
supported by gains on disposal of our Retail assets.
In spite of the operational challenges, our free cash flow
generation remained extremely resilient, with GBP177m (2019:
GBP213m) generated over the 12 month period - this represents a
conversion of 107% (57% in 2019), significantly higher than the
long-term average of 60-70%. While operating profit
pre-exceptionals was significantly lower, we mitigated this by a
number of measures resulting in a meaningful improvement in the
Group's working capital position, a more disciplined approach to
capital expenditure programmes, and reduced tax and interest
payments.
Other notable elements of the cash flow bridge include: net
acquisitions and disposals, which amounted to an inflow of GBP40m
(acquisition of Daimler Colombia offset by proceeds from Retail
disposals), share buybacks (GBP31m of the GBP150m was completed
prior to termination) and the cancellation of the 2019 final
dividend in response to COVID-19.
The Group closed the reporting period in a net cash position of
GBP266m (excluding lease liabilities), which compares to GBP103m at
the end of December 2019, and GBP89m as at 30(th) June 2020. On an
IFRS 16 basis (including lease liabilities), we ended the period
with net debt of GBP67m (2019: GBP250m).
Return on capital employed over the period was 12%, compared to
22% for the equivalent period last year. The decline was driven by
the steep reduction in profits.
Fourth quarter 2020
Group revenue for the fourth quarter was GBP1.9bn, down 16%
reported. On an organic basis, revenue fell 9%, compared to a
decline of 10% in Q3.
In Distribution, revenue contracted 13% organically, following a
21% decline in Q3. Top-line performance improved sequentially
across most regions, with Asia, Australasia and the Americas all
posting their highest quarterly growth rate since Q1. Revenue in
Europe was held back by further COVID-19 related restrictions in
Belgium, Greece and Romania, while Africa was solid in the context
of a high prior year comparator.
In Retail, revenue contracted 2% organically (Q3: +5%; supported
by the bounce-back) as a second lockdown in the UK weighed on
sales. While the restrictions impacted performance, the
deterioration was less pronounced than we experienced during the
first lockdown, as we were able to continue delivering vehicles and
permitted to perform Aftersales services.
Strategic priorities
The Ignite strategy has laid strong foundations for the Group
and catalysed a shift towards the more attractive Distribution
segment. As we embark on the next phase of the Group's journey,
Distribution remains at the core of the business. In setting the
future direction we have reflected on the structural changes taking
place across the automotive industry, and how these provide
opportunity across our core competencies as a distributor of
mobility services in fast-growing markets.
We concluded that an ambitious Inchcape could benefit
significantly from and thrive in this new world, one where we can
both leverage our existing distribution infrastructure and drive
expansion across new markets and competencies.
Our new strategy will focus on two key growth pillars:
1. Distribution Excellence; and
2. Vehicle Lifecycle Services
In 'Distribution Excellence' we see an opportunity to take our
core Distribution business, and make it both better and bigger. In
'Vehicle Lifecycle Services' we believe there is significant
untapped potential, across all of our markets, that the business
has not fully realised in the past. In summary, we are putting more
emphasis on capturing the lifetime value, of both customers and
vehicles. We will approach our growth in a prudent and structured
manner, in close collaboration with our OEM partners.
We have identified three key enablers that will play an integral
role in making our strategy a success:
- People, Culture and Capabilities: attracting, developing and retaining talent to enable a high-performance innovation culture
- Digital, Data and Analytics: integrate data and analytics to
drive decision-making, and digitalise customer journeys
- Efficient Scale Operations: standardisation of processes regionally and globally
We are confident that this will drive growth within our current
geographic footprint and even faster expansion in new markets, with
both existing and new partners.
In conjunction with the development of our mid-term plan, we are
building a responsible business plan that is deeply connected to
our strategy and to all of our stakeholders. We will share the
details of our progress at our Capital Markets Day later in the
year.
Inchcape is a strong business, with significant unrealised
potential. With our strategy we are striving to create an excellent
business, with meaningful growth opportunities to deliver
shareholder value through organic growth, consolidation and cash
returns.
People
The Board and Management would like to express their sincere
gratitude to colleagues around the world for their dedication
during a very challenging year. Our better than expected
performance is credit, in no small part, to our people's spirit and
can-do attitude. Inchcape employs a diverse talent pool that will
be a major asset in the context of our evolving strategy. This is a
business that strongly believes in supporting people to grow in
their careers, just as they contribute to the growth of the
business. This approach will continue to drive how we attract,
develop and retain talented individuals as we look to support the
further development and implementation of the strategy.
Sector reclassification
Given the shift of the business towards distribution, the London
Stock Exchange reconsidered the appropriateness of Inchcape's
sector classification. As of 19(th) June 2020, the Group has been
classified within 'Business Support Services' (previously
'Speciality Retail').
Capital allocation
Our capital allocation policy remains unchanged and, in order,
our priorities are: to invest in the business to position it
strongly for the future; to make dividend payments; to conduct
value-accretive M&A; and, in the absence of appropriate
inorganic opportunities, consider share buyback programmes.
With a considerably strengthened financial position and
confidence in the future, the Board, having taken into account the
extraordinary circumstances that the business endured during the
year, and a broad stakeholder perspective, believes it is the right
time to resume dividends and has proposed a payment of 6.9p for
FY2020.
Investment proposition
Distribution is at the core of Inchcape. Given our geographic
footprint, with exposure to high growth markets and our diversified
revenue streams, the Group aims to deliver global GDP-plus organic
growth. The highly fragmented nature of distribution also provides
significant scope for inorganic expansion.
As the largest independent automotive distributor, we have a
unique opportunity to leverage our scale and efficiencies, which we
are doing today with our digital developments. In addition to the
attractive growth prospects, the business is asset-light with a
history of delivering a strong 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
attractive shareholder value.
Looking ahead
We are excited to be entering the next phase of the Group's
distribution focused growth strategy, with an emphasis on greater
use of technology to improve our business for the benefit of our
consumers, our OEMs and our people.
As of today, the COVID-19 situation remains dynamic. While we
saw good momentum in the business in the second-half, volatility
and unpredictability is likely to continue throughout 2021. Our
operations are better equipped to continue to operate in this
rapidly changing environment, and we have materially reduced our
cost base. Absent any severe restrictions, in 2021 we expect
material growth in profits and an improved operating margin. This
takes account of a c.GBP15m translational currency headwind to
Group profits based on prevailing rates.
Looking beyond the short term, our vision is to both strengthen
and further broaden our OEM relationships and to continue to expand
our geographic reach - enabling us to bring mobility to the world's
communities.
We look forward to sharing more details about our vision for the
future at our Capital Markets Day later this year.
Operating and financial review
Following an internal reorganisation of the management structure
we have redefined our regions. This has resulted in a
reclassification of our retail business in Russia from 'Emerging
Markets' to within 'UK & Europe', and 'Emerging Markets' has
been redefined as 'Americas & Africa'. We have also
consolidated our Asia and Australasia businesses to form a new
region; 'APAC'. Given Australasia's contribution to the overall
Group, we have decided to continue to disclose its results. We had
historically disclosed Central costs separately, which we now fully
allocate to each segment.
Distribution
The Distribution segment saw revenue down 21% year-on-year, with
performance significantly impacted by the spread of COVID-19 from
March onwards. While the top-line trend improved in the second
half, with fewer and less severe closures, several markets
continued to face disruption. In addition to our operational
improvements, our cost-mitigation measures supported the overall
result, particularly in the second half, culminating in an
operating profit(1) of GBP140m (2019: GBP333m). The operating
margin fell 310bps to 3.7%.
% change % change % change
reported constant organic
2020 2019 FX
---------- ---------- ---------
GBPm GBPm
-------- -------- ---------- ---------- ---------
Revenue
Asia 1,026.6 1,522.5 (33)% (32)% (32)%
Australasia 876.0 1,070.9 (18)% (17)% (17)%
APAC 1,902.6 2,593.4 (27)% (26)% (26)%
Europe 1,120.2 1,329.6 (16)% (17)% (17)%
Americas & Africa 797.1 993.5 (20)% (13)% (24)%
Total Distribution 3,819.9 4,916.5 (22)% (21)% (23)%
Operating profit (1)
Asia 78.8 168.7 (53)% (53)%
Australasia 1.2 58.0 (98)% (98)%
APAC 80.0 226.7 (65)% (64)%
Europe 25.3 41.7 (39)% (40)%
Americas & Africa 34.4 65.0 (47)% (42)%
Total Distribution 139.7 333.4 (58)% (57)%
Operating margin
Asia 7.7% 11.1% (340)bps (340)bps
Australasia 0.1% 5.4% (530)bps (530)bps
APAC 4.2% 8.7% (450)bps (450)bps
Europe 2.3% 3.1% (80)bps (80)bps
Americas & Africa 4.3% 6.5% (220)bps (210)bps
Total Distribution 3.7% 6.8% (310)bps (310)bps
---------------------- -------- -------- ---------- ---------- ---------
-- Asia revenue contracted 32%, and operating profit(1) was down
53%. We expected 2020 would be a challenging year in Asia prior to
COVID-19, forecasting volumes in both Singapore and Hong Kong would
decline 25% and 20%, respectively. The spread of the virus
exacerbated this decline, weighing on performance in all markets.
Singapore endured a prolonged closure from early April to mid-June
(resulting in the suspension of vehicle licence auctions), and upon
reopening the government announced it would phase missed licenses
over a 12 month period - as such the number of vehicle licences
available in 2021 is expected to exceed 2020. While our operations
in Hong Kong remained open, demand was clearly subdued, albeit we
observed an improving trend in the second half. In spite of the
challenges, we retained our triple crown status (for being the
number one in passenger cars, commercial vehicles and in the market
as a whole) in both Singapore and Hong Kong.
-- Australasia revenue contracted 17%, and operating profit(1)
was down 98%. It was the only region to see a weaker revenue trend
and margin result in the second half compared to the first half.
Having remained open throughout the first half, COVID-19 related
restrictions impacted the Australian operations in the third
quarter. Profitability was substantially lower as gross margins
came under pressure owing to lower volumes and competitive
pressures, but also unfavourable currency effects. The
transactional currency (AUD:JPY) headwind in the period was
cGBP15m. The launch of the new Outback (one of Subaru's most
popular models) in the first quarter of this year should support
the brand's market share performance in 2021.
-- Europe revenue contracted 17%, and operating profit(1) was
down 40%. It was the first of our regions to face widespread
COVID-19 enforced market closures, starting in mid-March and
peaking in April. All impacted markets had reopened in May,
although several markets did face subsequent restrictions following
a second wave of the virus in the fourth quarter. While the
environment was competitive, we gained market share across a number
of markets in the second half. The launch of the new Toyota Yaris,
an extremely popular model in several of our European markets,
should drive further outperformance in 2021.
-- Americas & Africa revenue contracted 13%, and operating
profit(1) was down 42%. Geographic diversification meant that there
were some pockets of good performance that helped offset challenges
elsewhere. The Americas was hardest hit in terms of number of our
markets forced to close, as governments tried to control the spread
of the virus. This weighed heavily during the first half, but as
markets began to reopen we noticed a meaningful improvement. In
Africa, our operations remained open throughout the year with
limited impact from COVID-19 and consequently made a significant
contribution to the segment's operating profit. All markets
remained open throughout the fourth quarter, and it was the
strongest quarter for the region. Looking ahead, given the low
penetration of vehicles per capita in the Americas & Africa
region, we are optimistic about the growth prospects of over the
medium and long term.
Retail
The Retail segment saw revenue down 30% year-on-year, or down
14% on an organic basis (adjusting for the Retail disposals over
the period). Prolonged shutdowns in both UK and Russia in the first
half weighed heavily on sales, although demand proved to be more
resilient in the second half. Operating profit(1) in the second
half was supported by gross margin improvement and our
cost-mitigation measures, resulting in a profit of GBP26m for the
year compared to GBP40m in 2019. The operating margin improved in
the second half, finishing the year flat overall.
% change % change % change
reported constant organic
2020 2019 FX
---------- ---------- ---------
GBPm GBPm
-------- -------- ---------- ---------- ---------
Revenue
Asia - 159.5 (100)% (100)%
Australasia 9.4 272.0 (97)% (96)%
APAC 9.4 431.5 (98)% (98)%
UK & Europe 3,008.5 4,031.7 (25)% (23)% (15)%
Total Retail 3,017.9 4,463.2 (32)% (30)% (14)%
Operating profit (1)
Asia - 8.7 (100)% (100)%
Australasia 0.4 (1.2) nmf nmf
APAC 0.4 7.5 (94)% (95)%
UK & Europe 25.4 32.2 (21)% (15)%
Total Retail 25.8 39.7 (35)% (31)%
Operating margin
Asia - 5.4% n/a n/a
Australasia 4.3% (0.4%) nmf nmf
APAC 4.3% 1.7% nmf nmf
UK & Europe 0.8% 0.8% 0bps 0bps
Total Retail 0.9% 0.9% 0bps 0bps
---------------------- -------- -------- ---------- ---------- ---------
nmf = not meaningful
-- UK and Europe is home to the Group's remaining Retail
operations in the UK, Russia and Poland. Revenue for the region was
down 23% year-on-year (down 15% on an organic basis), as closures
from late-March weighed on the performance of both the UK and
Russia businesses. We experienced a step-up in the second half,
with solid demand for New and Used Vehicles, as well as Aftersales
services. During the first half, the UK business received GBP23m of
government support (employment and business rates), but was
nevertheless still heavily loss-making. We have not accessed any
such support in the second half. Performance improved in the second
half as we experienced higher Vehicle gross margins and the benefit
from our cost-restructuring efforts. We finished the year with
operating profit(1) of GBP25m (vs GBP32m in the prior period, which
included profits from businesses disposed in December 2019,
including Inchcape Fleet Solutions), and slightly higher margins
than 2019.
-- Asia: the China Retail business (disposed in December 2019)
was reclassified from Distribution-Asia to Retail-Asia, and did not
provide any contribution to the region's performance in 2020.
-- Australasia: the majority of the Retail business in Australia
was sold during 2019. Two additional sites were sold in 2020, and
their contribution until the date of disposal has been included.
The comparative includes these two sites, and the rest of the
Australian Retail business that was sold in 2019. Following the
disposals, there will be no further contribution to this
segment.
Value drivers
We provide disclosure on the value drivers behind our gross
profit (pre-exceptional). This includes:
-- Gross profit attributable to Vehicles - New Vehicles, Used
Vehicles and the associated F&I (Finance & Insurance)
income; and
-- Gross profit attributable to Aftersales - Service and Parts.
% change % change
reported constant
2020 2019 FX
---------- ----------
GBPm GBPm
------ -------- ---------- ----------
Gross Profit
Vehicles 516.9 772.3 (33)% (31)%
Aftersales 372.5 499.8 (25)% (23)%
Total 889.4 1,272.1 (30)% (28)%
-------------- ------ -------- ---------- ----------
Weighed down by the effects of market closures caused by the
spread of COVID-19, over the reporting period we saw a 31% decrease
in Vehicles gross profit, while Aftersales gross profit was more
resilient, decreasing 23%.
We operate across the automotive value chain and during 2020, we
generated 42% of gross profit through Aftersales, compared to 39%
in the prior year.
Other financial items
Government support schemes: The Group has recognised an amount
of GBP30m as a credit against employee costs and GBP3m as a credit
against other operating expenses. These have been presented net
within operating costs before exceptional items and the majority
(GBP23m) was received by the UK Retail business. In some cases
salaries were paid in excess of the amount received under the
government support schemes, and these schemes were utilised instead
of other cost reduction measures that would have adversely impacted
employees (e.g. redundancies). During the second half of the year,
the Board took the decision not to claim further government
support. Due to the nature of the government support schemes,
amounts claimed prior to the Board decision totalling GBP11m from
governments in Australia and the UK have been recognised as a
liability as at 31 December 2020 as they have not yet been repaid.
The Group has also benefitted from the deferral of tax payments due
to governments amounting to GBP7m as at 31 December 2020.
Exceptional items: Exceptional charges in 2020 amounted to
GBP257m, arising primarily as a result of COVID-19. Goodwill and
site impairments totalled GBP223m, with the majority attributable
to the Retail segment and booked in the first half. With the
pandemic continuing to cause disruption in the second half, the
impairment review resulted in a cGBP37m write-off of intangible
assets related to our acquisition of Grupo Rudelman (in 2018).
Management remain confident about the attractiveness of the
business in the medium term. In July we announced GBP70m of future
restructuring costs linked to our cost-restructuring programme, of
which cGBP40m has been incurred in 2020, with the balance falling
into 2021. We also incurred a GBP10m charge relating to the write
down of inventory, and a net cost of GBP2m relating to acquisitions
and disposals. We benefited from an GBP8m gain, relating to the
recycling of foreign exchange gains previously recognised in other
comprehensive income, following the liquidation of a subsidiary. In
2019, the Group benefited from a GBP76m exceptional operating gain
which reflected a GBP109m gain largely relating to the disposal of
our UK fleet and China Retail businesses, offset by some
restructuring costs and asset impairments relating to those
disposals, as well as acquisition costs. Further details in note
3.
Net financing costs: Net finance costs were GBP37m (2019:
GBP47m). The decrease is largely due to a reduction in the cost of
financing inventory following the retail disposals in Australia,
the UK and China in 2019, further disposals in 2020 and the overall
reduction in inventory and associated inventory financing in
response to the COVID-19 pandemic. The interest charge is stated on
an IFRS 16 basis, and excluding interest relating to leases, our
net finance charge was GBP23m compared to GBP28m in 2019. We expect
net financing costs in 2021 will amount to cGBP40m.
Tax: The Group's effective tax rate for the year is 26% before
exceptional items (2019: 23%). The increase compared to the prior
year primarily arose because the Group was not able to recognise
the tax benefit associated with losses in certain markets. This
impact was partially offset by the release of a provision
associated with the European Commission State Aid issue. We believe
an effective tax rate of c25% is appropriate for the mid-term.
Non-controlling interests: Profits attributable to our
non-controlling interests were GBP3m (2019: GBP6m). The Group's
non-controlling interests comprise a 33% minority holding in UAB
Vitvela in Lithuania, a 30% share in NBT Brunei, a 10% share of
Subaru Australia and 6% of the Motor Engineering Company of
Ethiopia.
Dividend: The Board recommends a final ordinary dividend of 6.9p
per ordinary share which is subject to the approval of shareholders
at the 2021 Annual General Meeting. In reaching its decision, the
Board has taken into account the extraordinary circumstances that
the business endured during the year, and a broad range of
stakeholder perspectives. If approved, t he dividend will be paid
on 21 June 2021 to all shareholders on the register on 14 May
2021.
Cash flow and net debt: The Group generated free cash flow of
GBP177m (2019: GBP213m) driven primarily by an improvement in the
level of working capital. After the acquisition of four
Distribution businesses, as well as the proceeds received from our
Retail disposals, and GBP32m of share buybacks, the Group had net
cash excluding lease liabilities of GBP266m (2019: GBP103m).
Including lease liabilities (IFRS 16), our net debt stood at GBP67m
(2019: GBP250m).
Capital expenditure: During 2020, the Group incurred net capital
expenditure of GBP41m compared to GBP54m in 2019. The year-on-year
reduction reflects lower investment in tangible assets in response
to the economic uncertainty following the outbreak of the COVID-19
pandemic partially offset by lower disposal proceeds. Key 2020
projects included investments around our development of an
omnichannel proposition and capacity investments in Ethiopia. In
2021, we expect net capital expenditure of cGBP70m.
Financing: During the year, the Group was confirmed as an
eligible issuer under the UK Government's COVID Corporate Financing
Facility (CCFF). GBP100m was issued under this facility in May 2020
and repaid on 17 July 2020. As at 31 December 2020, the committed
funding facilities of the Group comprised a syndicated revolving
credit facility of GBP700m (2019: GBP700m) and sterling Private
Placement loan notes totalling GBP210m (2019: GBP210m). As at 31
December 2020, none of the GBP700m syndicated revolving credit
facility was drawn (2019: GBP60m).
Pensions: At the end of 2020, the IAS 19 net post-retirement
surplus was GBP20m (2019: GBP10m), with the increase driven largely
by a higher value of plan assets and changes in demographic
assumptions which were partially offset by changes in financial
assumptions. In line with the funding programme agreed with the
Trustees, the Group made additional cash contributions to the UK
pension schemes amounting to GBP4m (2019: GBP3m). Discussions with
the Trustees of the Inchcape Motors Pension Scheme in respect of
the actuarial valuation as at 5 April 2019 have been finalised and
the Group has agreed to contribute an additional GBP3m per annum to
the scheme over the next seven years.
Acquisitions and disposals: During 2020, the Group acquired the
Mercedes-Benz passenger car and private vans distribution
operations in Colombia from Daimler Colombia S.A. The business was
acquired to strengthen the Group's partnership with
Daimler-Mercedes-Benz in South America. In the second half of 2020,
the Group acquired the Daimler distribution business in El
Salvador, the MINI distribution business in Chile and the MINI and
Motorrad distribution businesses in Peru. The aggregate cash
consideration for these businesses was GBP32m.
During the year, the Group has continued to optimise its retail
portfolio and has disposed of 13 retail sites in the UK and two
retail sites in Australia generating aggregate net disposal
proceeds of GBP64m. The Group has also received GBP8m of deferred
consideration relating to the disposal of retail operations in
China in 2019.
Clarifying our financial metrics
The following table shows the key profit measures that we use
throughout this report to most accurately describe operating
performance and how they relate to statutory measures.
Metric GBPm Use of Metric
------------------------------------- ------- -------------------------------
Gross Profit 877.8 Direct profit contribution from
Value Drivers (e.g. Vehicles
and Aftersales)
Add back: Exceptional items
charged to gross profit 11.6
------------------------------------- ------- -------------------------------
Gross Profit (before exceptional
items)(1) 889.4
Less: Segment operating expenses (723.9)
------------------------------------- ------- -------------------------------
Operating Profit (before exceptional 165.5 Profit generated by the Group
Items)(1)
------------------------------------- ------- -------------------------------
Less: Exceptional items (257.1)
------------------------------------- ------- -------------------------------
Operating Loss (91.6) Statutory measure of Operating
Profit
------------------------------------- ------- -------------------------------
Less: Net Finance Costs and
JV profit (36.6)
------------------------------------- ------- -------------------------------
Loss before Tax (128.2) Statutory measure of profit
after the costs of financing
the Group
------------------------------------- ------- -------------------------------
Add back: Exceptional Items 257.1
Profit Before Tax & Exceptional
Items(1) 128.9
------------------------------------- ------- -------------------------------
1. APM (alternative performance measure), see note 13
Reconciliation of free cash flow(1)
2020 2020 2019 2019
GBPm GBPm GBPm GBPm
---------------------------------------------- ------ ------ ------ ------
Net cash generated from operating activities 254.8 327.2
Add back: Payments in respect of exceptional
items 24.3 10.5
---------------------------------------------- ------ ------ ------ ------
Net cash generated from operating activities,
before exceptional items 279.1 337.7
Purchase of property, plant and equipment (27.4) (44.9)
Purchase of intangible assets (20.1) (24.7)
Proceeds from disposal of property, plant
and equipment 6.7 15.7
---------------------------------------------- ------ ------ ------ ------
Net capital expenditure (40.8) (53.9)
---------------------------------------------- ------ ------ ------ ------
Net payment in relation to leases (56.7) (65.1)
------ ------ ------ ------
Dividends paid to non-controlling interests (4.3) (5.8)
------ ------ ------
Free cash flow 177.3 212.9
---------------------------------------------- ------ ------ ------ ------
Included within free cash flow are movements in cash balances
where prior approval is required to transfer funds abroad, as
described in note 9
Return on capital employed(1)
2020 2019
GBPm GBPm
-------------------------------------------- ------- -------
Operating Profit (before exceptional items) 165.5 373.1
-------------------------------------------- ------- -------
Net assets 1,083.7 1,298.6
Add net debt 66.5 249.9
-------------------------------------------- ------- -------
Capital employed 1,150.2 1,548.5
-------------------------------------------- ------- -------
Effect of averaging 199.2 129.6
-------------------------------------------- ------- -------
Average capital employed 1,349.4 1,678.1
-------------------------------------------- ------- -------
ROCE 12.3% 22.2%
-------------------------------------------- ------- -------
1. APM (alternative performance measure), see note 13
Appendix - business models
APAC
At the heart of the Asia region, we are the Distributor and
exclusive Retailer for Toyota, Lexus, Hino and Suzuki and operate
Distribution and exclusive Retail for Jaguar Land Rover in Hong
Kong with additional Distribution and Retail franchises across the
region. In Australasia we are the distributor for Subaru.
Country Route to market Brands
----------- ------------------------ ----------------------------------------
Hong Kong Distribution & Exclusive Toyota, Lexus, Hino, Jaguar, Land Rover,
Retail Maxus
Macau
----------- ------------------------ ----------------------------------------
Singapore Distribution & Exclusive Toyota, Lexus, Hino, Suzuki
Retail
----------- ------------------------ ----------------------------------------
Brunei Distribution & Exclusive Toyota, Lexus
Retail
----------- ------------------------ ----------------------------------------
Guam Distribution & Exclusive Toyota, Lexus, BMW, Chevrolet
Retail
----------- ------------------------ ----------------------------------------
Saipan Distribution & Exclusive Toyota
Retail
----------- ------------------------ ----------------------------------------
Thailand Distribution & Exclusive Jaguar, Land Rover
Retail
----------- ------------------------ ----------------------------------------
Australia Distribution & Retail Subaru, Peugeot, Citroen
----------- ------------------------ ----------------------------------------
Retail VW, Isuzu, Kia, Mitsubishi, Jeep
----------- ------------------------ ----------------------------------------
New Zealand Distribution Subaru
----------- ------------------------ ----------------------------------------
UK & Europe
We have scale Retail operations across the UK focused on premium
and luxury brands. Our European operations are centred on Toyota
and Lexus Distribution and Retail in Belgium, Greece and the
Balkans, and both Distribution and Retail businesses across
Northern Europe focused on BMW, Jaguar Land Rover and other
brands.
Country Business Model Brands
---------- -------------- -------------------------------------------
UK Retail Toyota, Lexus, Audi, BMW, MINI, Jaguar,
Land Rover, Mercedes-Benz, VW, Porsche,
Smart
---------- -------------- -------------------------------------------
Belgium Distribution & Toyota, Lexus
Retail
-------------- -------------------------------------------
Luxembourg
-------------- -------------------------------------------
Greece
Romania
Bulgaria
Macedonia
---------- -------------- -------------------------------------------
Finland Distribution & Jaguar, Land Rover, Mazda
Retail
Estonia Distribution & Jaguar, Land Rover, Mazda, BMW, MINI
Retail
Latvia Distribution & BMW, MINI, Ford, Jaguar, Land Rover, Mazda,
Retail
Lithuania Distribution & Jaguar, Land Rover, Mazda, Ford, Hyundai,
Retail BMW, MINI, Rolls Royce
Poland Distribution & BMW, MINI, Jaguar Land Rover
Russia Retail Toyota, Audi, BMW, Jaguar, Land Rover,
Retail Lexus, MINI, Rolls-Royce, Volvo
---------- -------------- -------------------------------------------
Americas & Africa
In South America, we have BMW Distribution and Retail businesses
in Chile and Peru as well as Subaru operations across these
markets, Colombia and Argentina. We also hold the Distribution
contracts and operate Retail for Daimler across four markets in the
region, and Suzuki in Costa Rica, Panama and Argentina. Our
business in Ethiopia is centred on Distribution and exclusive
Retail for Toyota, while in Kenya we are the distributor and
retailer for premium marques Jaguar Land Rover and BMW.
Country Business Model Brands
------------ ------------------------ ---------------------------------------
Ethiopia Distribution & Exclusive Toyota, Daihatsu, Komatsu, New Holland,
Djibouti Retail Hino, BMW
Distribution Toyota, BMW, Komatsu
Kenya Distribution & Retail Jaguar, Land Rover, BMW, BMW Motorrad
Chile Distribution & Retail BMW, BMW Motorrad, MINI, Subaru, Rolls
Royce, Hino, DFSK,
Peru Distribution & Retail BMW, BMW Motorrad, MINI, Subaru, DFSK,
BYD
Colombia Distribution & Retail Subaru, Hino, Jaguar, Land Rover, DFSK,
Mack, Doosan, Dieci, Mercedes-Benz
Argentina Distribution & Retail Subaru, Suzuki
Costa Rica Distribution & Retail Suzuki, JAC, Changan, Kubota
Panama Distribution & Retail Suzuki
Uruguay Distribution & Retail Mercedes-Benz, Freightliner and Fuso
Ecuador Distribution & Retail Mercedes-Benz
El Salvador Distribution & Retail Mercedes-Benz
------------ ------------------------ ---------------------------------------
Consolidated income statement
For the year ended 31 December 2020
Exceptional Exceptional
items items
Before Before
exceptional (note exceptional (note
items 3) Total items 3) Total
2020 2020 2020 2019 2019 2019
Notes GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Revenue 2 6,837.8 - 6,837.8 9,379.7 - 9,379.7
Cost of sales (5,948.4) (11.6) (5,960.0) (8,107.6) - (8,107.6)
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Gross profit 889.4 (11.6) 877.8 1,272.1 - 1,272.1
Net operating expenses (723.9) (245.5) (969.4) (899.0) 75.5 (823.5)
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
2,
Operating profit / (loss) 3 165.5 (257.1) (91.6) 373.1 75.5 448.6
Share of profit after tax of
joint ventures and associates - - - 0.3 - 0.3
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Profit / (loss) before finance
and tax 165.5 (257.1) (91.6) 373.4 75.5 448.9
Finance income 4 14.4 - 14.4 24.1 - 24.1
Finance costs 5 (51.0) - (51.0) (71.2) - (71.2)
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Profit / (loss) before tax 128.9 (257.1) (128.2) 326.3 75.5 401.8
Tax 6 (33.2) 24.2 (9.0) (75.6) 2.5 (73.1)
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Profit / (loss) for the year 95.7 (232.9) (137.2) 250.7 78.0 328.7
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
(Loss) / profit attributable
to:
* Owners of the parent (140.1) 322.9
* Non-controlling interests 2.9 5.8
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
(137.2) 328.7
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Basic (loss) / earnings per
share (pence) 7 (35.6)p 79.0p
Diluted (loss) / earnings per
share (pence) 7 (35.6)p 78.4p
--------------------------------- ----- ------------- ----------- --------- ------------- ----------- ---------
Consolidated statement of comprehensive income
For the year ended 31 December 2020
2020 2019
GBPm GBPm
---------------------------------------------------------- ------- -------
(Loss) / profit for the year (137.2) 328.7
Other comprehensive (loss) / income:
Items that will not be reclassified to the consolidated
income statement
Changes in the fair value of equity investments at
fair value through other comprehensive income (2.7) -
Defined benefit pension scheme remeasurements 14.8 (71.7)
Current tax recognised in consolidated statement of -
comprehensive income -
Deferred tax recognised in consolidated statement
of comprehensive income (2.5) 10.1
----------------------------------------------------------- ------- -------
9.6 (61.6)
Items that may be or have been reclassified subsequently
to the consolidated income statement
Cash flow hedges (3.2) (25.9)
Exchange differences on translation of foreign operations (51.5) (98.6)
Current tax recognised in consolidated statement of
comprehensive income 0.3 -
Deferred tax recognised in consolidated statement
of comprehensive income (0.9) 7.0
----------------------------------------------------------- ------- -------
(55.3) (117.5)
---------------------------------------------------------- ------- -------
Other comprehensive loss for the year, net of tax (45.7) (179.1)
----------------------------------------------------------- ------- -------
Total comprehensive (loss) / income for the year (182.9) 149.6
----------------------------------------------------------- ------- -------
Total comprehensive (loss) / income attributable to:
* Owners of the parent (186.2) 146.8
* Non-controlling interests 3.3 2.8
----------------------------------------------------------- ------- -------
(182.9) 149.6
---------------------------------------------------------- ------- -------
Consolidated statement of financial position
As at 31 December 2020
2020 2019
Notes GBPm GBPm
----------------------------------------------------------- ------ --------- ---------
Non-current assets
Intangible assets 450.2 577.9
Property, plant and equipment 569.8 695.1
Right-of-use assets 257.3 313.3
Investments in joint ventures and associates 2.4 4.3
Financial assets at fair value through other comprehensive
income 3.6 6.9
Trade and other receivables 49.2 38.7
Deferred tax assets 68.6 58.3
Retirement benefit asset 101.0 78.7
----------------------------------------------------------- ------ --------- ---------
1,502.1 1,773.2
Current assets
Inventories 1,216.2 1,566.9
Trade and other receivables 369.6 512.3
Financial assets at fair value through other comprehensive
income 0.2 0.2
Derivative financial instruments 13.3 16.2
Current tax assets 20.6 21.6
Cash and cash equivalents 9 481.2 423.0
----------------------------------------------------------- ------ --------- ---------
2,101.1 2,540.2
Assets held for sale and disposal group 31.2 149.4
----------------------------------------------------------- ------ --------- ---------
2,132.3 2,689.6
----------------------------------------------------------- ------ --------- ---------
Total assets 3,634.4 4,462.8
----------------------------------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables (1,610.3) (1,996.4)
Derivative financial instruments (42.4) (27.4)
Current tax liabilities (65.0) (82.4)
Provisions (26.8) (23.0)
Lease liabilities (58.5) (56.8)
Borrowings (6.1) (50.1)
----------------------------------------------------------- ------ --------- ---------
(1,809.1) (2,236.1)
Liabilities directly associated with the disposal
group (7.7) (106.1)
----------------------------------------------------------- ------ --------- ---------
(1,816.8) (2,342.2)
Non-current liabilities
Trade and other payables (69.3) (77.2)
Provisions (19.8) (12.9)
Deferred tax liabilities (79.1) (96.7)
Lease liabilities (274.3) (296.0)
Borrowings (210.0) (270.0)
Retirement benefit liability (81.4) (69.2)
----------------------------------------------------------- ------ --------- ---------
(733.9) (822.0)
----------------------------------------------------------- ------ --------- ---------
Total liabilities (2,550.7) (3,164.2)
----------------------------------------------------------- ------ --------- ---------
Net assets 1,083.7 1,298.6
----------------------------------------------------------- ------ --------- ---------
Equity
Share capital 39.4 40.0
Share premium 146.7 146.7
Capital redemption reserve 141.2 140.6
Other reserves (248.5) (190.4)
Retained earnings 985.6 1,141.4
----------------------------------------------------------- ------ --------- ---------
Equity attributable to owners of the parent 1,064.4 1,278.3
Non-controlling interests 19.3 20.3
----------------------------------------------------------- ------ --------- ---------
Total equity 1,083.7 1,298.6
----------------------------------------------------------- ------ --------- ---------
Duncan Tait, Gijsbert de Zoeten,
Group Chief Executive Chief Financial Officer
Consolidated statement of changes in equity
For the year ended 31 December 2020
Total
equity
attributable
Capital to owners Non- Total
Share Share redemption Other Retained of the controlling shareholders'
capital premium reserve reserves earnings parent interests equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ----- ------- ------- ---------- -------- -------- ------------ ----------- -------------
At 1 January 2019 41.6 146.7 139.0 (75.9) 1,093.1 1,344.5 23.3 1,367.8
Profit for the year - - - - 322.9 322.9 5.8 328.7
Other comprehensive loss
for the year - - - (114.5) (61.6) (176.1) (3.0) (179.1)
------- ------- ---------- -------- -------- ------------ ----------- -------------
Total comprehensive income
for the year - - - (114.5) 261.3 146.8 2.8 149.6
Share-based payments,
net of tax - - - - 6.8 6.8 - 6.8
Share buyback programme (1.6) - 1.6 - (100.0) (100.0) - (100.0)
Net purchase of own shares
by the Inchcape Employee
Trust - - - - (9.3) (9.3) - (9.3)
Dividends:
* Owners of the parent 8 - - - - (110.5) (110.5) - (110.5)
* Non-controlling interests - - - - - - (5.8) (5.8)
-------------------------------- ----- ------- ------- ---------- -------- -------- ------------ ----------- -------------
At 1 January 2020 40.0 146.7 140.6 (190.4) 1,141.4 1,278.3 20.3 1,298.6
(Loss) / profit for the
year - - - - (140.1) (140.1) 2.9 (137.2)
Other comprehensive loss for
the year - - - (58.1) 12.0 (46.1) 0.4 (45.7)
------- ------- ---------- -------- -------- ------------ ----------- -------------
Total comprehensive loss for
the year - - - (58.1) (128.1) (186.2) 3.3 (182.9)
Share-based payments,
net of tax - - - - 3.7 3.7 - 3.7
Share buyback programme (0.6) - 0.6 - (31.4) (31.4) - (31.4)
Dividends:
* Owners of the parent 8 - - - - - - - -
* Non-controlling interests - - - - - - (4.3) (4.3)
-------------------------------- ----- ------- ------- ---------- -------- -------- ------------ ----------- -------------
At 31 December 2020 39.4 146.7 141.2 (248.5) 985.6 1,064.4 19.3 1,083.7
-------------------------------- ----- ------- ------- ---------- -------- -------- ------------ ----------- -------------
Share-based payments include a net tax credit of GBP0.4m
(current tax charge of GBPnil and a deferred tax credit of
GBP0.4m)
(2019 - net tax credit of GBP0.7m (current tax charge of GBPnil
and a deferred tax credit of GBP0.7m)).
Consolidated statement of cash flows
For the year ended 31 December 2020
2020 2019
Notes GBPm GBPm
-------------------------------------------------------- ----- ------- -------
Cash generated from operating activities
Cash generated from operations 9a 338.8 445.9
Tax paid (51.8) (74.1)
Interest received 13.9 22.0
Interest paid (46.1) (66.6)
-------------------------------------------------------- ----- ------- -------
Net cash generated from operating activities 254.8 327.2
-------------------------------------------------------- ----- ------- -------
Cash flows from investing activities
Acquisition of businesses, net of cash and overdrafts
acquired 10 (31.5) (41.2)
Net cash inflow from sale of businesses 10 71.8 230.4
Net cash inflow from disposal of investments in joint
ventures and associates 2.0 0.1
Purchase of property, plant and equipment (27.4) (44.9)
Purchase of intangible assets (20.1) (24.7)
Proceeds from disposal of property, plant and equipment 6.7 15.7
Proceeds from disposal of intangible assets 0.2 -
Receipt from sub-lease receivables 0.7 0.6
Net cash generated from investing activities 2.4 136.0
-------------------------------------------------------- ----- ------- -------
Cash flows from financing activities
Share buyback programme (32.1) (99.3)
Net purchase of own shares by the Inchcape Employee
Trust - (9.3)
Cash inflow from Covid Corporate Financing Facility 99.6 -
Repayment of Covid Corporate Financing Facility (99.6) -
Repayment of Private Placement loan notes - (75.4)
Net cash outflow from other borrowings (66.1) (122.0)
Payment of capital element of lease liabilities (57.4) (65.7)
Equity dividends paid 8 - (110.5)
Dividends paid to non-controlling interests (4.3) (5.8)
-------------------------------------------------------- ----- ------- -------
Net cash used in financing activities (159.9) (488.0)
-------------------------------------------------------- ----- ------- -------
Net increase / (decrease) in cash and cash equivalents 97.3 (24.8)
Cash and cash equivalents at beginning of the period 379.2 463.4
Effect of foreign exchange rate changes (0.2) (59.4)
-------------------------------------------------------- ----- ------- -------
Cash and cash equivalents at the end of the year 476.3 379.2
-------------------------------------------------------- ----- ------- -------
Cash and cash equivalents consist of:
* Cash at bank and cash equivalents 9 378.5 321.5
* Short-term deposits 9 102.7 101.5
* Bank overdrafts (6.1) (43.8)
* Cash at bank and cash equivalents included in
disposal groups held for sale 1.2 -
-------------------------------------------------------- ----- ------- -------
476.3 379.2
-------------------------------------------------------- ----- ------- -------
Notes to the financial statements
1 Basis of preparation and accounting policies
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union and International Financial
Reporting Interpretation Committee (IFRIC) interpretations and with
those parts of the Companies Act 2006 applicable to companies
reporting under IFRS.
The condensed set of financial information presented for the
years ended 31 December 2019 and 2020 do not constitute statutory
accounts within the meaning of Section 434 of the Companies Act
2006. The Group's published consolidated financial statements for
the year ended 31 December 2019 have been reported on by the
Group's auditors and filed with the Registrar of Companies. The
report of the auditors was unqualified and did not contain an
emphasis of matter paragraph or a statement under Section 498 of
the Companies Act 2006. The financial information for the year
ended 31 December 2020 and the comparative information have been
extracted from the audited consolidated financial statements for
the year ended 31 December 2020 prepared under IFRS, which have not
yet been approved by the shareholders and have not yet been
delivered to the Registrar. The report of the auditors on the
consolidated financial statements for 2020 was unqualified and did
not contain a statement under Section 498 (2) or (3) of the
Companies Act 2006.
Accounting policies
The condensed set of consolidated financial information have
been prepared using accounting policies consistent with those in
the Group's Annual Report and Accounts 2019 with the exception of
the following standards, amendments and interpretations which have
been newly adopted from 1 January 2020:
Newly adopted accounting policies
From 1 January 2020, the following standards became effective in
the Group's consolidated financial statements:
-- Amendments to References to the Conceptual Framework in IFRS Standards;
-- Amendments to IAS 1 and IAS 8 - Definition of Material;
-- Amendments to IFRS 3 - Definition of a Business;
-- Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate benchmark reform; and
-- Amendment to IFRS 16 in relation to COVID-19 Related rent concessions
The accounting policies have been applied consistently
throughout the reporting period, other than in respect of the
amendment to IFRS 16, which has been newly adopted. The other
standards that became applicable for the current period did not
have any impact on the Group's accounting policies and did not
require adjustments.
The Group has not early adopted other standards, amendments to
standards or interpretations that have been issued but are not yet
effective.
Amendment to IFRS 16 - COVID-19 Related Rent Concessions
The amendment provides lessees with relief in the form of an
optional exemption from assessing whether a rent concession related
to COVID-19, and that meets certain conditions, is a lease
modification. Lessees can elect to account for qualifying rent
concessions in the same way as they would if they were not lease
modifications. In applying the practical expedient a lessee would
generally account for a forgiveness or waiver of lease payments as
a variable lease payment, and recognise the concession in the
period in which the event or condition that triggers those payments
occurs. The lessee also makes a corresponding adjustment to the
lease liability, in effect derecognising the part of the lease
liability that has been forgiven or waived. On adoption of the
amendment, the Group has recognised a credit of GBP1.1m in the
consolidated income statement.
Standards not effective at the balance sheet date
The following standards were in issue but were not yet effective
at the balance sheet date. These standards have not yet been early
adopted by the Group, and will be applied for the Group's financial
years commencing on or after 1 January 2021:
-- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 -
Interest Rate Benchmark Reform - Phase 2;
-- Annual Improvements to IFRS Standards 2018-2020;
-- Amendments to IAS 16 - Property, Plant and Equipment - Proceeds before Intended Use;
-- Amendments to IAS 37 - Onerous Contracts - Cost of Fulfilling a Contract;
-- Amendments to IFRS 3 (May 2020) - Reference to the Conceptual Framework;
-- IFRS 17 - Insurance Contracts; and
-- Amendments to IAS 1 - Classification of liabilities as current or non-current;
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.
Going concern
Based on the Group's cash flow forecasts and projections, the
Board is satisfied that the Group will be able to operate within
the level of its committed facilities for the foreseeable future.
For this reason, the Board continues to adopt the going concern
basis in preparing its financial statements. In assessing whether
the Group is a going concern, the implications of COVID-19 have
been considered together with measures taken to mitigate its impact
on the Group. In making this assessment the Group has considered
available liquidity in relation to net debt and committed
facilities, the Group's latest forecasts for 2021 and 2022 cash
flows together with COVID-19 adjusted scenarios. The forecasts used
reflected the likely economic downturn triggered by COVID-19, with
a key emphasis on the Board approved operating plan for 2021 and a
forecast for 2022 based on a set of reasonably defined forecast
principles.
Given the global political and economic uncertainty resulting
from the COVID-19 pandemic, we expect to see volatility, business
disruption and the impact of economic downturns in the markets in
which the Group operates during 2021 and into 2022. During 2020 and
the early part of 2021, the business has been impacted by
government action to control the COVID-19 pandemic with a number of
the Group's businesses suffering restricted trading from
time-to-time and to a greater or lesser extent.
During 2020, action was taken to strengthen the Group's
resilience to the trading volatility and liquidity position in
light of the environment and circumstance. These actions
included:
-- initiation of a major cost-restructuring programme to
rationalise the Group's footprint, a reduction in the global
workforce and re-negotiation of third-party expenditure;
-- temporary reduction in advertising and promotional
expenditure, reducing executive pay for four months, freezing other
pay and recruitment and reductions in operating expenditure;
-- in the first half of 2020, the utilisation of government
support measures such as the UK job retention scheme combined with
UK business rates suspension and international government support
measures, where available;
-- collaborating closely with OEMs and banks to manage inventory and inventory financing levels;
-- suspending the share buyback programme; and
-- cancelling the final dividend for 2019 and not declaring an interim dividend for 2020.
Committed bank facilities and Private Placement borrowings
totalling GBP910m, of which GBP210m was drawn at 31 December 2020,
are subject to the same interest cover covenant based on an
adjusted EBITA measure to interest on consolidated borrowings
measured on a trailing 12 month basis at June and December. While
the UK Government's Covid Corporate Financing Facility (CCFF)
scheme remains available to the Group, the CCFF is not considered
to be a committed facility for the purposes of the going concern
assessment.
The Board approved operating plan for 2021 and the Group's
forecast for 2022 indicate that the Group is expected to be
compliant with this covenant throughout the forecast period and to
have sufficient liquidity to continue in operation 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:
-- further periods of COVID-19 restrictions similar in nature
and impact to those seen in the second half of 2020, impacting half
of the Group's markets simultaneously throughout 2021;
-- an overall reduction in gross margins;
-- an appreciation in Sterling against the Group's main trading companies; combined with
-- working capital sensitivities.
In a scenario 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 2021. 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 2021 and throughout the forecast period.
Additionally, under these circumstances, the Group expects to have
sufficient funds to meet cash flow requirements. In a scenario
where such restrictions impacted half of the group markets
simultaneously for a period of 24 months, the Group is forecasted
to be compliant with the interest cover covenant.
Reverse stress test scenario analysis has been applied to the
forecasts to assess particular scenarios in which the Group would
breach its covenant or have insufficient funds to meet cash flow
requirements. One such scenario was to model more severe trading
restrictions in all markets simultaneously with the impact
comparable to those experienced in a few markets in H1 2020, which
amounts to a material cessation in operations and revenue. Under
this scenario, the Group could sustain such restrictions for a
period of approximately five months before breaching the interest
cover covenant, but even in this circumstance, would still have
sufficient liquidity. We deem this circumstance to be highly
unlikely due to the geographic diversity of the Group's operations
and our increased ability to trade digitally through the trading
restrictions.
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
financial statements for the year ending 31 December 2020.
Critical accounting judgements and sources of estimation
uncertainty
The preparation of 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. These are
discussed below:
Sources of estimation uncertainty
The key assumptions about the future, and other key sources of
estimation uncertainties at the reporting period end that may have
a significant risk of causing a material adjustment to the carrying
amount of assets and liabilities within in the next period are
discussed below:
Impairment of goodwill and other indefinite life intangible
assets
Distribution Distribution
Goodwill agreements Total Goodwill agreements Total
2020 2020 2020 2019 2019 2019
Reporting segment CGU group GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ----------------------- -------- ------------ ----- -------- ------------ -----
UK and Europe
Retail UK Retail - - - 80.2 - 80.2
--------------------- ----------------------- -------- ------------ ----- -------- ------------ -----
UK and Europe
Distribution Baltics - BMW 6.2 28.9 35.1 5.8 27.4 33.2
--------------------- ----------------------- -------- ------------ ----- -------- ------------ -----
Americas and
Africa Distribution Americas - Daimler 4.4 27.7 32.1 3.8 13.8 17.6
---------------------
Americas - Hino/Subaru 47.2 137.8 185.0 45.7 134.6 180.3
Americas - Suzuki 37.6 52.2 89.8 44.8 85.3 130.1
Kenya 1.1 - 1.1 1.2 - 1.2
--------------------------------------------- -------- ------------ ----- -------- ------------ -----
APAC Distribution Singapore 22.5 - 22.5 22.8 - 22.8
---------------------
Australia Retail - - - 9.6 - 9.6
Peugeot Citroën
Australia - - - 1.8 - 1.8
--------------------------------------------- -------- ------------ ----- -------- ------------ -----
119.0 246.6 365.6 215.7 261.1 476.8
--------------------------------------------- -------- ------------ ----- -------- ------------ -----
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.
Impairment tests were performed for all CGU groups during the year
ended 31 December 2020.
The recoverable amounts of all CGU groups were determined based
on the higher of the fair value less costs to sell and value in use
calculations. The recoverable amount is determined firstly through
value in use calculations. Where this is insufficient to cover the
carrying value of the relevant asset being tested, fair value less
costs to sell is also determined.
If the carrying amount of a CGU or CGU group exceeds its
recoverable amount, an impairment loss is recognised and allocated
between the assets of the unit to reduce the carrying amount. This
allocation is initially applied to any site-based assets within a
CGU based on the results of impairment testing performed over
individual site CGUs and then to any indefinite-life intangible
assets. If a further impairment charge still remains, then to the
carrying amount of any goodwill is allocated to the CGU or CGU
group.
The value in use calculations mainly use cash flow projections
based on five-year financial forecasts prepared by management. The
key assumptions for these forecasts are those relating to volumes,
revenue, gross margins, overheads, the level of working capital
required to support trading and capital expenditure.
Forecast revenue is based on past experience and expectations
for near-term growth in the relevant markets. Key assumptions used
to determine revenue are expectations of market size, represented
by Total Industry Volume (TIV), Units in Operation (UIO) and market
share. Operating profits are forecast based on historical
experience of gross and operating margins, adjusted for the impact
of changes to product mix and cost-saving initiatives that had been
implemented at the reporting date. Cash flows are forecast based on
operating profit adjusted for the level of working capital required
to support trading and capital expenditure.
The assumptions used in the value in use calculations are based
on past experience, recent trading and forecasts of operational
performance in the relevant markets including the impact of
COVID-19 and the UK trading arrangements with the European Union.
They also reflect expectations about continuing relationships with
key brand partners and the impact climate change may have on its
operations. Whilst at this stage there is significant uncertainty
regarding what the long-term impact of climate change initiatives
may be on the markets in which we operate, the forecasts reflect
our best estimate.
For CGU groups in the Americas and Africa reporting segment,
cash flows after the five-year period are extrapolated for a
further five years using declining growth rates which reduces the
year five growth rate down to the long-term growth rate appropriate
for each CGU or CGU group, to better reflect the medium-term growth
expectations for those markets. A terminal value calculation is
used to estimate the cash flows after year ten using these
long-term growth rates. For all other markets, a terminal value
calculation is used to estimate the cash flows after year five.
Where applicable, the Group has adopted a probability weighted
scenario approach for the discounted cash flows used in the
impairment assessment. A range of expected outcomes was modelled
including a base case, which reflected management's best estimate
of future performance, an optimistic case scenario incorporating a
better than expected recovery from COVID-19 and a pessimistic
scenario incorporating an extended closure period / lower recovery
from COVID-19.
Cash flows are discounted back to present value using a discount
rate specific to each CGU. The discount rates used are calculated
using the capital asset pricing model to derive a cost of equity
which is then weighted with an estimated cost of debt and lease
liabilities based on an optimal market gearing structure. The Group
uses several inputs to calculate a range for each discount rate
from which an absolute measure is determined for use in the value
in use calculations. Key inputs include benchmark risk free rates,
inflation differentials, equity risk premium, country risk premium
and a risk adjustment (beta) calculated by reference to comparable
companies with similar retail and distribution operations. Each
CGU's weighted average cost of capital is then adjusted to reflect
the impact of tax in order to calculate an equivalent pre-tax
discount rate.
Key assumptions used
Pre-tax discount rates and long-term discount rates used in the
value in use calculations for each of the Group's CGUs are shown
below:
Goodwill:
Peugeot
Americas Americas Americas Australia Citroën
2020 UK Retail Baltics - Daimler - Hino/Subaru - Suzuki Kenya Singapore Retail Australia
--------------- --------- ------- ---------- -------------- --------- ----- --------- --------- -------------
Pre-tax
discount
rate (%) 7.8 6.4 12.8 9.8 12.2 13.5 7.2 10.3 10.3
Long-term
growth
rate (%) 2.0 2.1 2.7 2.7 2.6 5.0 1.5 2.0 2.0
--------------- --------- ------- ---------- -------------- --------- ----- --------- --------- -------------
Peugeot
Americas Americas Americas Australia Citroën
2019 UK Retail Baltics - Daimler1 - Subaru/Hino - Suzuki Kenya Singapore Retail Australia
-------------- --------- ------- ----------- -------------- --------- ----- --------- --------- -------------
Pre-tax
discount
rate (%) 8.8 9.1 n/a 12.8 13.3 17.3 8.9 10.2 10.2
Long-term
growth
rate (%) 2.0 2.0 n/a 2.5 2.5 2.5 2.01 2.0 2.0
-------------- --------- ------- ----------- -------------- --------- ----- --------- --------- -------------
1. Due to the proximity of the acquisition of the Autolider
business being immediately prior to the reporting date, no
impairment test was carried out.
Indefinite-life intangible assets:
2020 Baltics - BMW Americas - Daimler Americas - Hino Americas - Subaru Americas - Suzuki
-------------------------- ------------- ------------------ --------------- ----------------- -----------------
Pre-tax discount rate (%) 6.3 12.8 12.1 9.7 12.2
Long-term growth rate (%) 2.1 2.7 2.9 2.7 2.6
-------------------------- ------------- ------------------ --------------- ----------------- -----------------
2019 Baltics - BMW Americas - Daimler(1) Americas - Hino Americas - Subaru Americas - Suzuki
------------------------- ------------- --------------------- --------------- ----------------- -----------------
Pre-tax discount rate (%) 9.1 n/a 12.9 12.7 13.3
Long-term growth rate (%) 2.0 n/a 2.5 2.5 2.5
------------------------- ------------- --------------------- --------------- ----------------- -----------------
1. Due to the proximity of the acquisition of the Autolider
business being immediately prior to the reporting date, no
impairment test was carried out.
Impairment
Central America
The Group acquired the Suzuki focused Distribution businesses in
Costa Rica and Panama in 2018 with the aim of establishing a
presence in markets with structural growth potential. Since
acquisition, prior to the impact of COVID-19, the TIV in both
markets had declined by an average of 19% based on externally
available data. In the period to 30 June 20, the impact of COVID-19
further contributed to a further steep decline in TIV and the
impairment assessment carried out indicated a low headroom. As a
result, sensitivity disclosures were included in the 2020 interim
financial statement relating to the key assumptions included in the
model.
The current ongoing situation with respect to the spread of
COVID-19 in Central America has continued to cause uncertainty
regarding the impact of the pandemic on the region. As the
situation deteriorated, both markets, particularly Costa Rica, were
late into lockdown and the two markets have some of the highest
numbers of confirmed cases of COVID-19 in the region. Management
have updated the impairment assessment, with revised revenue
forecasts based on historical market growth in the region and
average market share achieved for the Suzuki brand. Margin
assumptions were aligned to those achieved by the business in prior
years.
The recoverable value of the CGU was determined based on
value-in-use calculations, consistent with the approach used as at
both 31 December 2019 and 30 June 2020. Cash flows were discounted
back to present value using a pre-tax discount rate of 12.2% (2019
- 13.3%) and resulted in the impairment of the goodwill balance of
GBP6.2m and an impairment of the distribution agreement of
GBP31.2m.
As at 31 December 2020, the recoverable amount of the CGU was
GBP146.5m. The cash flows used within the impairment model are
based on assumptions which are sources of estimation uncertainty
and small movements in these assumptions could lead to a further
impairment. Management have performed sensitivity analysis on the
key assumptions in the impairment model using reasonably possible
changes in these key assumptions.
Effect
Increase on
/ value-in-use
(decrease) calculation
in assumption GBPm
-------------------------- -------------- -------------
Revenue CAGR (%) (1.0) (30.7)
Pre-tax discount rate (%) 1.0 (16.7)
Average gross margin (%) (0.5) (11.4)
Long-term growth rate (%) (0.5) (7.1)
-------------------------- -------------- -------------
In addition to the above, management has performed a sensitivity
analysis in relation to the potential impact of climate change on
the value-in-use model, which we expect to manifest itself
primarily in an accelerated adoption of electric vehicles in the
market. The scenario modelled reflected an increase to 30% electric
vehicles penetration in the market over the period 2030 to 2040 and
a 100bps change in market share while holding all other assumptions
constant. Under this scenario, the impact on the value-in-use model
would be cGBP6m.
UK Retail
In 2019, the UK New car market declined by a further 2.4%
(source: SMMT) broadly in line with previous forecasts and the UK
Retail business made meaningful progress in reshaping its Retail
footprint through the selective sale of less productive UK Retail
sites. In light of the reduction in the UK Retail footprint, the
Board revisited its short and medium-term forecast for the UK
Retail CGU group and updated the value in use calculations. The
results of the impairment review indicated that the value in use
calculation exceeded the carrying value of the assets attributable
to the UK Retail CGU group by c GBP70m as at 31 December 2019.
The UK Retail business was materially impacted by the COVID-19
pandemic with sites closed at the end of March and only reopening
again in June. The Group continued to reshape its Retail footprint
through further disposals against a backdrop of an uncertain
outlook and forecasts for the business were updated for the
goodwill impairment assessment carried out in the period to 30 June
2020. The cash flows used for impairment testing were based on the
latest short-term forecasts for the business, covering a two-year
period, and took into account historical performance and knowledge
of the current market, including the expected volume and gross
margin impact from COVID-19. Cash flows beyond the forecast initial
period were extrapolated using externally sourced volume
projections. Margin assumptions were largely aligned to the prior
year impairment exercise and our expectation of future performance,
again supported by historical performance and current market data
available.
Cash flows were discounted back to present value using a pre-tax
risk discount rate of 7.8% (2019 - 8.8%). The results of the
impairment review carried out indicated that the estimated
recoverable value was now less than the carrying value of the
assets attributable to the UK Retail CGU group and an impairment
charge of GBP80.2m was recognised, fully impairing the remaining
goodwill attributable to the UK Retail CGU group.
Australia Retail and Peugeot Citroën Australia
In the period to 30 June 2020, the impact of COVID-19 on the
Australian economy has been severe and the country entered its
first recession in 29 years in the period. The Retail business,
having undertaken significant restructuring through the disposal of
selective Retail operations that completed in February 2020, had
expected to see an improvement in performance in 2020. The Peugeot
Citroën Distribution business was initially expected to deliver an
improvement in performance in 2020 in light of recent changes to
operations within the country. However, the impact of COVID-19
materially affected both businesses, with a decline in performance
expected over the forecast period, due to a reduction in new car
sales leading to a decline in the car parc which, in turn, impacts
higher margin aftersales.
The recoverable value of the two CGUs was determined based on
value-in-use calculations, consistent with the approach used as at
31 December 2019. Cash flows were discounted back to present value
using a pre-tax discount rate of 10.3% (2019 - 10.2%) and resulted
in the full impairment of the goodwill balance of GBP11.1m
attributable to these two CGUs.
Other CGUs
The Group's value in use calculations are sensitive to a change
in the key assumptions used. However, except for the cash
generating unit represented by the Daimler business in Americas, a
reasonably possible change in a key assumption will not cause a
material impairment of goodwill or indefinite-life intangible
assets in any of the CGU groups.
The recoverable amount of Americas - Daimler is estimated to
exceed the carrying amount of the CGU at 31 December 2020 by
GBP12.0m. Due to the impact of COVID-19, the level of headroom for
the cash generating unit represented by the Daimler business in the
Americas is considered low. As such, management have performed
sensitivity analysis on the key assumptions in the models using
reasonably possible changes in key assumptions to determine what
change is required that would cause the carrying amount to exceed
the recoverable amount calculated in the model.
The table below shows by how much key assumptions would have to
change in order for the recoverable amount of this CGU to equal its
carrying amount, while holding all other assumptions constant:
Increase
/
(decrease)
in assumption
-------------------------- --------------
Revenue CAGR (%) (0.7)
Pre-tax discount rate (%) 1.8
Average gross margin (%) (0.5)
-------------------------- --------------
The Directors and management have considered and assessed
reasonably possible changes for other key assumptions and have not
identified any instances that could cause the carrying amount of
the Americas - Daimler CGU to exceed its recoverable amount.
Impairment of other intangible assets, property, plant and
equipment and right-of-use assets
Computer software, property, plant and equipment and
right-of-use assets are reviewed for impairment if events or
circumstances indicate that the carrying value may not be
recoverable. When an impairment review is carried out, the
recoverable value is determined based on the higher of value in use
calculations, which require estimates to be made of future cash
flows, or fair value less costs of disposal. In light of the
COVID-19 pandemic, impairment triggers were identified in a number
of markets and impairment reviews were performed where appropriate.
The approach to test computer software, property, plant and
equipment and right-of-use assets for impairment was consistent
with the approach used to test goodwill and other indefinite-life
intangible assets.
The value in use calculations use cash flow projections based on
five-year financial forecasts prepared by management. The key
assumptions for these forecasts are those relating to volumes,
revenue, gross margins, overheads, the level of working capital
required to support trading and capital expenditure. Where the
value in use calculations did not support the carrying value of an
asset, an estimate for fair value less costs of disposal was
determined by obtaining property valuations for the relevant
locations.
The results of the testing indicated that impairment charges
totalling GBP93.5m were required against site and other assets,
principally in relation to Retail businesses in the UK, Australia
and Russia.
2 Segmental analysis
The Group has five reportable segments which have been
identified based on the operating segments of the Group that are
regularly reviewed by the chief operating decision-maker, which has
been determined to be the Executive Committee, in order to assess
performance and allocate resources. Operating segments are then
aggregated into reporting segments to combine those with similar
economic characteristics.
Following the disposal of the Group's business in China and the
Retail disposals in Australia in 2019, the management and reporting
of the previous Asia and Australasia regions has changed to
encompass the combination of these to form an Asia Pacific (APAC)
region. The Retail businesses in the APAC region which were
disposed of in 2019 and 2020 have been maintained as a separate
reportable segment. This segment solely represents the disposed of
businesses in both Australia and China, as the Group previously
aggregated its small Retail business in China with its larger
Distribution activities in the Asia region.
In addition, reflecting the OEM partners represented and the
management of the European region, the Retail operations in Russia,
previously representing its own separate Retail segment, are now
combined within the UK and Europe Retail segment. The new region
encompasses Retail operations in the UK, Poland and Russia.
The Group has historically reported the performance of its
reporting segments before unallocated central costs. These
represent costs of Group functions and, previously, these costs
were reported separately from the results of the Group's reportable
segments. The Group now fully allocates these costs in arriving at
the results reported for each segment.
Comparatives for the prior period have been restated to reflect
the above changes.
Distribution APAC Exclusive distribution and sale of New vehicles
and parts in Asia-Pacific markets, together with
associated Aftersales activities of service and
bodyshop repairs.
Distribution of New vehicles and parts in Australia
and New Zealand together with associated
marketing and logistics operations. Sale of New
and Used vehicles in Australia where the Group
is also the Distributor of those vehicles, together
with associated Aftersales activities of service,
bodyshop repairs and parts sales.
UK and Europe Distribution of New vehicles and parts, together
with associated marketing activities, in mature
European markets. Sale of New and Used vehicles
in Europe where the Group is also the distributor
of those vehicles, together with associated Aftersales
activities of service, bodyshop repairs and parts
sales.
-------------- --------------------------------------------------------
Americas Distribution of New vehicles and parts in growing
and Africa markets, together with associated Aftersales
activities of service and bodyshop repairs.
------------- -------------- --------------------------------------------------------
Retail APAC Sale of New and Used vehicles in Australia and
China together with associated Aftersales activities
of service, bodyshop repairs and parts sales.
-------------- --------------------------------------------------------
UK and Europe Sale of primarily New and Used premium vehicles
in mature markets, together with associated Aftersales
activities of service, bodyshop repairs and parts
sales.
------------- -------------- --------------------------------------------------------
Distribution Retail
-------------------------------------------- -------------------------- -------
UK Americas UK
and and Total and Total
APAC Europe Africa Distribution APAC Europe Retail Total
2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- -------- --------- -------------- ------ -------- -------- -------
Revenue
Total revenue 1,902.6 1,120.2 797.1 3,819.9 9.4 3,008.5 3,017.9 6,837.8
--------------------------------- ------- -------- --------- -------------- ------ -------- -------- -------
Results
Operating profit before
exceptional
items 80.0 25.3 34.4 139.7 0.4 25.4 25.8 165.5
Operating exceptional items (257.1)
--------------------------------- -------
Operating loss after exceptional
items (91.6)
Share of profit after tax of
joint ventures and associates -
--------------------------------- -------
Loss before finance and tax (91.6)
Finance income 14.4
Finance costs (51.0)
--------------------------------- -------
Loss before tax (128.2)
Tax (9.0)
--------------------------------- -------
Loss for the year (137.2)
--------------------------------- -------
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:
2020 GBPm
------------------ -------
UK 1,978.9
Russia 835.6
Australia 838.7
Rest of the world 3,184.6
----------------------- -------
Group 6,837.8
----------------------- -------
Distribution Retail
-------- -------- --------- -------------- ------ -------- -------- ----------
UK Americas UK
and and Total and Total
APAC Europe Africa Distribution APAC Europe Retail Total
2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------- -------- --------- -------------- ------ -------- -------- ----------
Segment assets and liabilities
Segment assets 402.7 281.6 361.7 1,046.0 - 618.4 618.4 1,664.4
------------------------------- -------- -------- --------- -------------- ------ -------- -------- ----------
Other current assets 515.3
Other non-current assets 1,454.7
Segment liabilities (602.1) (295.8) (299.3) (1,197.2) - (566.4) (566.4) (1,763.6)
------------------------------- -------- -------- --------- -------------- ------ -------- -------- ----------
Other liabilities (787.1)
------------------------------- ----------
Net assets 1,083.7
------------------------------- ----------
Segment assets include net inventory, receivables and derivative
assets. Segment liabilities include payables, provisions and
derivative liabilities.
Distribution Retail
------ -------- --------- -------------- ------ -------- -------- -------
UK Americas UK
and and Total and Total
APAC Europe Africa Distribution APAC Europe Retail Total
2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------ -------- --------- -------------- ------ -------- -------- -------
Other segment items
Capital expenditure:
* Property, plant and equipment 6.0 2.4 9.2 17.6 - 9.9 9.9 27.5
* Interest in leased vehicles 2.3 0.7 0.1 3.1 - - - 3.1
* Right-of-use assets 10.4 3.4 3.5 17.3 - 5.3 5.3 22.6
* Intangible assets 7.3 3.3 3.5 14.1 - 6.4 6.4 20.5
Depreciation: -
* Property, plant and equipment 9.5 4.0 9.3 22.8 - 13.1 13.1 35.9
* Interest in leased vehicles 3.1 0.1 0.8 4.0 - 0.1 0.1 4.1
* Right-of-use assets 28.5 4.7 10.6 43.8 - 10.4 10.4 54.2
Amortisation of intangible
assets 8.5 3.5 3.3 15.3 - 3.5 3.5 18.8
Impairment of goodwill 11.1 - 6.2 17.3 - 80.2 80.2 97.5
Impairment of distribution
agreements - - 31.2 31.2 - - - 31.2
Impairment of other intangible
assets 5.7 1.2 1.5 8.4 - 9.4 9.4 17.8
Impairment of property, plant
and equipment 9.7 1.2 1.4 12.3 - 30.4 30.4 42.7
Impairment of right-of-use
assets 24.7 - 0.2 24.9 - 8.4 8.4 33.3
Net provisions charged / (credited)
to the consolidated income
statement 15.9 4.7 11.8 32.4 - (3.4) (3.4) 29.0
------------------------------------ ------ -------- --------- -------------- ------ -------- -------- -------
Net provisions include inventory, trade receivables impairment
and other liability provisions.
Distribution Retail
------- -------- --------- -------------- -------------------------- -------
UK Americas UK
and and Total and Total
APAC Europe Africa Distribution APAC Europe Retail Total
2019 (restated) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------- -------- --------- -------------- ------ -------- -------- -------
Revenue
Total revenue 2,593.4 1,329.6 993.5 4,916.5 431.5 4,031.7 4,463.2 9,379.7
----------------------------------- ------- -------- --------- -------------- ------ -------- -------- -------
Results
Operating profit before exceptional
items 226.7 41.7 65.0 333.4 7.5 32.2 39.7 373.1
Operating exceptional items 75.5
----------------------------------- -------
Operating profit after exceptional
items 448.6
Share of profit after tax of
joint ventures and associates 0.3
----------------------------------- -------
Profit before finance and tax 448.9
Finance income 24.1
Finance costs (71.2)
----------------------------------- -------
Profit before tax 401.8
Tax (73.1)
----------------------------------- -------
Profit for the year 328.7
----------------------------------- -------
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:
2019 GBPm
------------------ -------
UK 2,808.8
Russia 1,026.8
Australia 1,287.0
Rest of the world 4,257.1
------------------ -------
Group 9,379.7
------------------ -------
Distribution Retail
------- -------- ------------ -------------- ------ -------- -------- ----------
UK UK
and Americas Total and Total
APAC Europe and Africa Distribution APAC Europe Retail Total
2019 (restated) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------- -------- ------------ -------------- ------ -------- -------- ----------
Segment assets and
liabilities
Segment assets 504.3 332.5 413.2 1,250.0 30.0 810.9 840.9 2,090.9
----------------------------- ------- -------- ------------ -------------- ------ -------- -------- ----------
Other current assets 636.8
Other non-current assets 1,735.1
Segment liabilities (746.9) (305.3) (297.9) (1,350.1) (17.8) (716.6) (734.4) (2,084.5)
----------------------------- ------- -------- ------------ -------------- ------ -------- -------- ----------
Other liabilities (1,079.7)
----------------------------- ----------
Net assets 1,298.6
----------------------------- ----------
Segment assets include net inventory, receivables and derivative
assets. Segment liabilities include payables, provisions and
derivative liabilities.
Distribution Retail
------ -------- --------- -------------- ------ -------- -------- -------
UK Americas UK
and and Total and Total
APAC Europe Africa Distribution APAC Europe Retail Total
2019 (Restated) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------ -------- --------- -------------- ------ -------- -------- -------
Other segment items
Capital expenditure:
* Property, plant and equipment 6.0 4.2 10.3 20.5 0.4 22.4 22.8 43.3
* Interest in leased vehicles 7.5 0.3 0.5 8.3 - 0.8 0.8 9.1
* Right-of-use assets 6.3 0.2 5.0 11.5 4.7 10.1 14.8 26.3
* Intangible assets 8.3 4.1 5.1 17.5 2.8 4.9 7.7 25.2
Depreciation:
* Property, plant and equipment 12.2 3.4 8.5 24.1 2.0 16.5 18.5 42.6
* Interest in leased vehicles 4.1 - 1.4 5.5 - 1.4 1.4 6.9
* Right-of-use assets 34.7 4.6 11.9 51.2 3.7 11.4 15.1 66.3
Amortisation of intangible
assets 6.5 2.2 1.7 10.4 0.1 5.5 5.6 16.0
Impairment of other intangible
assets - - - - 0.7 - 0.7 0.7
Impairment of property, plant
and equipment 1.8 - - 1.8 - 3.0 3.0 4.8
Impairment of right-of-use
assets 3.8 - - 3.8 4.9 - 4.9 8.7
Impairment of disposal group - - - - - 2.8 2.8 2.8
Net provisions charged / (credited)
to the consolidated income
statement (1.5) 4.6 0.7 3.8 (1.4) 26.0 24.6 28.4
------------------------------------ ------ -------- --------- -------------- ------ -------- -------- -------
Net provisions include inventory, trade receivables impairment
and other liability provisions.
3 Exceptional items
2020 2019
GBPm GBPm
---------------------------------------------------------- ------- ------
Goodwill and distribution agreement impairments (see note
1) (128.7) -
Other asset write-offs and impairments (see note 1) (94.3) (21.9)
Inventory and other provisions (11.9) -
Disposal of businesses (see note 10) 1.9 108.8
Restructuring costs (28.4) (8.9)
Acquisition of businesses (4.1) (2.5)
Other operating exceptional items 8.4 -
Total exceptional operating items before tax (257.1) 75.5
Exceptional tax (see note 6) 24.2 2.5
---------------------------------------------------------- ------- ------
Total exceptional items (232.9) 78.0
---------------------------------------------------------- ------- ------
Total exceptional items are analysed as follows:
Exceptional cost of sales (11.6) -
Exceptional net operating expenses (245.5) 75.5
Exceptional tax (see note 6) 24.2 2.5
---------------------------------------------------------- ------- ------
Total exceptional items (232.9) 78.0
---------------------------------------------------------- ------- ------
In the first half of the year, due to the initial impact of
COVID-19 and the subsequent temporary closure of operations across
the Group's many markets, impairment assessments were carried out
using cash flow forecasts updated for latest available market data
and estimates of fair value less costs of disposal. As a result of
these reviews, the Group recognised goodwill impairment charges of
GBP80.2m and GBP11.1m in the UK and Australia respectively. A
further full impairment review was conducted across the Group in
connection with the results for the year ending 31 December 2020.
The impact of the impairment assessment performed was to recognise
further impairment charges against the Americas - Suzuki CGU of
GBP6.2m and GBP31.2m against goodwill and distribution agreement
assets respectively. Exceptional items also include asset
impairments and write-offs of GBP94.3m following an impairment
review of site-based assets across the Group, primarily in the UK,
Australia and Russia.
The Group sells new and used vehicles which are subject to
changing consumer demands. As a direct result of the restrictions
imposed in various markets in relation to the COVID-19 pandemic and
the subsequent lifting of those restrictions, where relevant, our
ability to sell certain vehicles has been significantly impacted.
Accordingly, management have reviewed the level and quality of
inventory and applied assumptions in relation to estimated selling
prices, together with costs to be incurred in marketing and selling
those vehicles. As a result, additional inventory provisions to
write-down inventory to net realisable value have been required. In
certain instances, management have determined that inventory
provisions have been required that are directly attributable to the
COVID-19 pandemic, principally in relation to inventory in the
Peugeot Citroën Distribution business in Australia and commercial
vehicles in Ecuador. The impact of COVID-19 on the Australian
economy has been severe and, as disclosed in relation to goodwill
and other non-financial assets, there has been a material decline
in the forecast performance of the Peugeot Citroën Distribution
business. Estimated selling prices have been revised downwards
which has required a provision to be recognised to write-down
inventory to net realisable value. In Ecuador, the COVID-19
pandemic has impacted the economy and had a significant impact on
the market for buses with operators delaying purchasing decisions
and a build-up of inventory by competitors resulting in
falling prices. Management have therefore revised estimated
selling prices downwards and recognised a provision to write-down
bus chassis inventory to estimated net realisable value. Management
have concluded that the provisions recognised in these markets are
directly attributable to the COVID-19 pandemic and have therefore
been disclosed as an exceptional charge.
In addition, in Guam and Saipan, the Group sells vehicles which
are financed through loans offered by banks. In some circumstances
of consumer default, the Group carries an obligation to repurchase
the vehicle from the bank on repossession, absorbing any loss or
gain between net realisable value and the outstanding amount on the
loan (up to a cap). Due to the impact of COVID-19 on the tourism
industry in those markets, management have concluded that an
increase in provision for losses totalling GBP1.3m is required
following an expected increase in consumer default rate which is
directly attributable to the COVID-19 pandemic and therefore should
be disclosed as an exceptional charge
The Group has continued to optimise its Retail market portfolio
and an exceptional operating profit of GBP1.9m has been recognised,
mainly related to the disposal of Retail sites in the UK and
Australia.
Due to the expected medium-term impact of COVID-19 on the
Group's operations a proposal was presented to the Board to
rationalise and restructure operations. This proposal was approved
by the Board and has led to significant restructuring activity
being undertaken by the Group, the costs incurred being recognised
as exceptional costs in line with the Group's policy. Restructuring
costs have only been recognised once formal plans are in place and
their implementation has commenced or announced to those affected.
Furthermore, additional restructuring costs have been recognised,
mainly in relation to Group-wide transformation projects impacting
across the front and back office, encompassing a review of
organisational structures, internal processes and the Group's
physical setup. Execution of the Group-wide restructuring commenced
in the first half of 2020 and significant progress has been made by
the year-end, with some COVID-19 related restructuring activities
to continue into 2021.
During the year exceptional operating costs of GBP4.1m have been
incurred in connection with the acquisition and integration of
businesses. These primarily relate to the Daimler businesses
acquired in South and Central America. Other operating items of
GBP8.4m includes the recycling of a cumulative gain previously
recorded in other comprehensive income (OCI) which arises due to
the reorganisation of the ownership structure for some of the
Group's operations in the APAC region.
In 2019, an exceptional operating profit of GBP108.8m was
recognised related to the disposal of the Group's Retail operations
in China and the Fleet Solutions business in the UK, together with
several retail sites in Australia and the UK. As a direct result of
the Group's optimisation of its Retail market portfolio, asset
write-offs of GBP4.9m and impairments of GBP17.0m, including
leasehold improvements and right-of-use assets, and GBP8.9m of
restructuring costs were incurred, principally following the
disposal of several Retail sites in the UK and Australia. The
restructuring costs incurred comprised headcount reduction and
costs associated with exiting certain properties. During the year
exceptional operating costs of GBP2.5m were incurred in connection
with the acquisition and integration of business, primarily the
Krasta Auto business in Lithuania and the Autolider business in
South America.
4 Finance income
2020 2019
GBPm GBPm
------------------------------------------------------- ----- -----
Bank and other interest receivable 11.6 17.2
Net interest income on post-retirement plan assets and
liabilities 0.4 2.7
Sub-lease finance income 0.5 0.6
Other finance income 1.9 3.6
------------------------------------------------------- ----- -----
Total finance income 14.4 24.1
------------------------------------------------------- ----- -----
5 Finance costs
2020 2019
GBPm GBPm
------------------------------------------------------ ----- -----
Interest payable on bank borrowings 6.5 12.9
Interest payable on Private Placement 6.6 6.9
Finance costs on lease liabilities 13.9 20.0
Fair value adjustment on Private Placement - 3.3
Fair value gain on cross currency interest rate swaps - (3.4)
Stock holding interest 18.5 27.6
Other finance costs 5.5 4.0
Capitalised borrowing costs - (0.1)
------------------------------------------------------ ----- -----
Total finance costs 51.0 71.2
------------------------------------------------------ ----- -----
The Group capitalisation rate used for general borrowing costs
in accordance with IAS 23 was a weighted average rate for the year
of 2.0% (2019 - 2.9%).
6 Tax
2020 2019
GBPm GBPm
----------------------------------------------------- ------ -----
Current tax:
* UK corporation tax (0.7) 0.1
* Overseas tax 47.9 78.6
----------------------------------------------------- ------ -----
47.2 78.7
Adjustments to prior year liabilities:
* UK (4.8) 4.4
* Overseas (2.7) (2.6)
----------------------------------------------------- ------ -----
Current tax 39.7 80.5
Deferred tax (30.7) (7.4)
----------------------------------------------------- ------ -----
Total tax charge 9.0 73.1
----------------------------------------------------- ------ -----
The total tax charge is analysed as follows:
* Tax charge on profit before exceptional items 33.2 75.6
* Tax credit on exceptional items (24.2) (2.5)
----------------------------------------------------- ------ -----
Total tax charge 9.0 73.1
----------------------------------------------------- ------ -----
Details of the exceptional items for the year can be found in
note 3. Not all of the exceptional items will be taxable/allowable
for tax purposes. Therefore, the tax credit on exceptional items
represents the total of the current and deferred tax on only those
elements that are assessed as taxable/allowable.
Factors affecting the tax expense for the year
The effective tax rate for the year after exceptional items is
-7.0% (2019 - 18.2%). The underlying effective tax rate before the
impact of exceptional items is 25.8% (2019 - 23.2%). The weighted
average tax rate is 25.9% (2019 - 20.6%). The weighted average tax
rate comprises the average statutory rates across the Group,
weighted in proportion to accounting profits and losses.
On 25 April 2019, the European Commission issued a Decision that
the Group Financing Exemption ("GFE") in the UK's controlled
foreign company legislation could, in some circumstances,
constitute unlawful State Aid in respect of periods to 31 December
2018. After applying the Commission's Decision to Inchcape's
circumstances, HMRC has now confirmed that Inchcape's use of the
GFE did not result in the receipt of State Aid.
Inchcape had previously recognised a provision of GBP5.4m for
the estimated amount of the alleged State Aid. Given the
confirmation from HMRC, the provision has been released and the
impact has been included in the results for the year ended 31
December 2020.
The table below explains the differences between the expected
tax expense at the weighted average tax rate and the Group's total
tax expense.
2020 2019
GBPm GBPm
------------------------------------------------------------ ------- ------
(Loss) / profit before tax (128.2) 401.8
------------------------------------------------------------ ------- ------
(Loss) / profit before tax multiplied by the weighted
average tax rate of 25.9% (2019 - 20.6%) (33.2) 82.8
* Permanent differences 8.1 5.4
* Non-taxable income (2.4) (2.6)
* Prior year items (5.1) (5.5)
* Derecognition / (recognition) of deferred tax assets 26.9 (0.4)
* Tax audits and settlements (4.8) 6.5
* Taxes on undistributed earnings 1.6 2.0
* Other items (including tax rate differentials and
changes) (0.6) 0.4
* Goodwill impairment (see note 1) 20.5 -
* Acquisition and disposals of businesses (1.8) (20.5)
* Other asset write-offs and impairment (see note 1) (0.2) 5.0
------------------------------------------------------------ ------- ------
Total tax charge 9.0 73.1
------------------------------------------------------------ ------- ------
Factors affecting the tax expense of future years
The Group's future tax expense, and effective tax rate, could be
affected by several factors including; the resolution of audits and
disputes, changes in tax laws or tax rates, 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 expense.
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.
The Group has published its approach to tax on www.inchcape.com
covering its tax strategy and governance framework.
7 Earnings per share
2020 2019
GBPm GBPm
------------------------------------ ------- ------
(Loss) / profit for the year (137.2) 328.7
Non-controlling interests (2.9) (5.8)
------------------------------------ ------- ------
Basic (loss) / earnings (140.1) 322.9
Exceptional items 232.9 (78.0)
------------------------------------ ------- ------
Adjusted earnings 92.8 244.9
------------------------------------ ------- ------
Basic (loss) / earnings per share (35.6)p 79.0p
Diluted (loss) / earnings per share (35.6)p 78.4p
Basic Adjusted earnings per share 23.6p 59.9p
Diluted Adjusted earnings per share 23.4p 59.5p
------------------------------------ ------- ------
2020 2019
number number
-------------------------------------------------------- ----------- -----------
Weighted average number of fully paid ordinary shares
in issue during the year 394,448,982 409,513,387
Weighted average number of fully paid ordinary shares
in issue during the year:
- Held by the Inchcape Employee Trust (535,394) (763,509)
Weighted average number of fully paid ordinary shares
for the purposes of basic EPS 393,913,588 408,749,878
Dilutive effect of potential ordinary shares 2,616,104 2,988,393
-------------------------------------------------------- ----------- -----------
Adjusted weighted average number of fully paid ordinary
shares in issue during the
year for the purposes of diluted EPS 396,529,692 411,738,271
-------------------------------------------------------- ----------- -----------
Basic (loss) / earnings per share is calculated by dividing the
Basic (loss) / earnings for the year by the weighted average number
of fully paid ordinary shares in issue during the year, less those
shares held by the Inchcape Employee Trust and repurchased as part
of the share buyback programme.
Diluted (loss) / earnings per share is calculated on the same
basis as Basic (loss) / earnings per share with a further
adjustment to the weighted average number of fully paid ordinary
shares to reflect the effect of all dilutive potential ordinary
shares. Dilutive potential ordinary shares comprise share options
and other share-based awards.
Basic Adjusted earnings (which excludes exceptional items) is
adopted to assist the reader in providing an additional performance
measure of the Group. Basic Adjusted earnings per share is
calculated by dividing the Adjusted earnings for the year by the
weighted average number of fully paid ordinary shares in issue
during the year, less those shares held by the Inchcape Employee
Trust 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 Dividends
The following dividends were paid by the Group:
2020 2019
GBPm GBPm
------------------------------------------------------- ----- -----
Interim dividend for the six months ended 30 June 2020
of nil per share
(30 June 2019 of 8.9p per share) - 36.3
Final dividend for the year ended 31 December 2019 of
nil per share
(31 December 2018 of 17.9p per share) - 74.2
------------------------------------------------------- ----- -----
- 110.5
------------------------------------------------------- ----- -----
The Board previously recommended a final ordinary dividend for
the year ended 31 December 2019 of 17.9p per ordinary share. The
dividend was due to be paid on 19 June 2020. As announced on 7
April 2020, given the impact of COVID-19, the Group decided to
preserve cash and no longer recommend the payment of the previously
announced final ordinary dividend. The Directors did not propose an
interim dividend for 2020.
A final proposed dividend for the year ended 31 December 2020 of
6.9p per share amounting to GBP27.2m is subject to approval by
shareholders at the Annual General Meeting and has not been
included as a liability as at 31 December 2020.
The Group has sufficient distributable reserves to pay dividends
to its ultimate shareholders. Distributable reserves are calculated
on an individual legal entity basis and the ultimate parent
company, Inchcape plc, currently has adequate levels of realised
profits within its retained earnings to support dividend payments.
At 31 December 2020, Inchcape plc's company-only distributable
reserves were GBP472.6m. On an annual basis, the distributable
reserve levels of the Group's subsidiary undertakings are reviewed
and dividends paid up to Inchcape plc where it is appropriate to do
so.
9 Notes to the consolidated statement of cash flows
a. Reconciliation of cash generated from operations
2020 2019
GBPm GBPm
--------------------------------------------------------------- ------- -------
Cash flows from operating activities
Operating (loss) / profit (91.6) 448.6
Exceptional items (see note 3) 257.1 (75.5)
Amortisation of intangible assets 18.4 16.0
Depreciation of property, plant and equipment 35.3 42.6
Depreciation of right-of-use assets (including non-exceptional
impairment charges) 54.0 66.3
Profit on disposal of property, plant and equipment - (4.4)
Gain on disposal of right-of-use assets (1.6) (0.1)
Share-based payments charge 3.3 6.1
Decrease in inventories 351.0 94.8
Decrease / (increase) in trade and other receivables 124.4 (29.4)
Decrease in trade and other payables (413.0) (121.5)
Increase in provisions 5.1 1.7
Pension contributions less than the pension charge for
the year1 3.3 2.3
Decrease in interest in leased vehicles 15.9 7.3
Payments in respect of operating exceptional items (24.3) (10.5)
Other non-cash items 1.5 1.6
--------------------------------------------------------------- ------- -------
Cash generated from operations 338.8 445.9
--------------------------------------------------------------- ------- -------
1. Includes additional payments of GBP3.7m (2019 - GBP2.8m).
b. Net debt reconciliation
Liabilities from financing activities Assets
----------------------------------------- ---------------------- ---------------------------
Total
Borrowings Leases Sub-total Cash / bank overdrafts net debt
GBPm GBPm GBPm GBPm GBPm
---------------------- --------------- ---------- ------------ ---------------------- ---------------------------
Net debt at 1 January
2019 (448.9) (460.4) (909.3) 463.4 (445.9)
---------------------- --------------- ---------- ------------ ---------------------- ---------------------------
Cash flows 197.4 65.7 263.1 (214.0) 49.1
Acquisitions (22.9) (12.5) (35.4) (41.2) (76.6)
Disposals - 41.8 41.8 230.4 272.2
New lease liabilities - (30.2) (30.2) - (30.2)
Transferred to
liabilities held for
sale - 30.1 30.1 - 30.1
Foreign exchange
adjustments (1.8) 12.7 10.9 (59.4) (48.5)
Net movement in fair
value (0.1) - (0.1) - (0.1)
Net debt at 1 January
2020 (276.3) (352.8) (629.1) 379.2 (249.9)
---------------------- --------------- ---------- ------------ ---------------------- ---------------------------
Cash flows 66.1 57.4 123.5 55.3 178.8
Acquisitions - (1.1) (1.1) (31.5) (32.6)
Disposals - - - 73.5 73.5
New lease liabilities - (35.7) (35.7) - (35.7)
Transferred to
liabilities held for
sale - 1.0 1.0 - 1.0
Foreign exchange
adjustments 0.2 (1.6) (1.4) (0.2) (1.6)
Net debt at 31
December 2020 (210.0) (332.8) (542.8) 476.3 (66.5)
---------------------- --------------- ---------- ------------ ---------------------- ---------------------------
Net debt is analysed as follows:
2020 2019
GBPm GBPm
------------------------------------------------------------ ------- -------
Cash and cash equivalents as per the statement of financial
position 481.2 423.0
Cash and cash equivalents included in disposal groups
held for sale 1.2 -
Borrowings - disclosed as current liabilities (6.1) (50.1)
Add back: amounts treated as debt financing (see below) - 6.3
------------------------------------------------------------ ------- -------
Cash and cash equivalents as per the statement of cash
flows 476.3 379.2
Debt financing
Borrowings - disclosed as current liabilities and treated
as debt financing (see above) - (6.3)
Borrowings - disclosed as non-current liabilities (210.0) (270.0)
Lease liabilities (332.8) (352.8)
Debt financing (542.8) (629.1)
------------------------------------------------------------ ------- -------
Net debt (66.5) (249.9)
------------------------------------------------------------ ------- -------
Add back: lease liabilities 332.8 352.8
------------------------------------------------------------ ------- -------
Net cash 266.3 102.9
------------------------------------------------------------ ------- -------
Cash and cash equivalents are analysed as follows:
2020 2019
GBPm GBPm
---------------------------------- ----- -----
Cash at bank and cash equivalents 378.5 321.5
Short-term deposits 102.7 101.5
---------------------------------- ----- -----
481.2 423.0
---------------------------------- ----- -----
GBP81.2m (2019 - GBP88.0m) of cash and cash equivalents is held
in Ethiopia where prior approval is required to transfer funds
abroad, and currency may not be available locally to effect such
transfers.
10 Acquisitions and disposals
a. Acquisitions
On 24 March 2020, the Group acquired the Mercedes-Benz passenger
car and private vans Distribution operations in Colombia from
Daimler Colombia S.A., for a total cash consideration of GBP27.1m.
A distribution agreement with a provisional fair value of GBP14.2m
has been recognised at the date of acquisition. The business was
acquired to strengthen the Group's partnership with
Daimler-Mercedes-Benz in South America and follows on from the
acquisition on 2 December 2019 of Autolider, the distributor of
certain Daimler brands such as Mercedes-Benz passenger and
commercial vehicles, Freightliner and Fuso in Uruguay and
Mercedes-Benz passenger and commercial vehicles in Ecuador.
Details of the provisional fair values of the identifiable
assets and liabilities as at the date of acquisition are set out
below:
Fair value
GBPm
-------------------------------------------------- ----------
Assets and liabilities acquired
Distribution agreements recognised on acquisition 14.2
Property, plant and equipment 0.4
Right-of-use assets 0.6
Inventory 13.3
Lease liabilities (0.6)
Provisions (0.8)
Net identifiable assets 27.1
Goodwill -
-------------------------------------------------- ----------
Net assets acquired 27.1
-------------------------------------------------- ----------
Consideration comprises
Cash consideration 27.1
-------------------------------------------------- ----------
Total consideration 27.1
-------------------------------------------------- ----------
Revenue and profit contribution
Total
Income statement items GBPm
--------------------------------------------------- -----
Revenue recognised since the acquisition date in
the consolidated income statement 41.7
Profit after tax since the acquisition date in the
consolidated income statement 0.4
----------------------------------------------------- -----
Other acquisitions
On 31 July 2020, the Group was awarded the Daimler Distribution
contract in El Salvador and entered into an asset purchase
agreement to acquire assets from the exiting distributor, with a
cash purchase price at completion of GBP0.8m. During the year, the
Group also entered into distribution contracts with BMW to
distribute the MINI and Motorrad brands in Peru and the MINI brand
in Chile. The total cost of these acquisitions was GBP3.6m. Total
goodwill arising on the transactions was GBP0.5m.
Measurement period adjustments
During the year, adjustments have been made to the fair value of
assets and liabilities acquired in business combinations in 2019.
These fair value adjustments were not material and therefore prior
periods have not been restated. These changes, together with the
finalisation of the purchase consideration, have resulted in an
increase in the amount of goodwill recognised on acquisition of
GBP0.7m.
2020 2019
GBPm GBPm
--------------------------------------------------------------- ----- -----
Cash outflow to acquire businesses, net of cash and overdrafts
acquired
Cash consideration 31.5 43.4
Less: Cash acquired - (2.2)
--------------------------------------------------------------- ----- -----
Net cash outflow 31.5 41.2
--------------------------------------------------------------- ----- -----
b. Disposals
Australia
Retail UK Retail Total
GBPm GBPm GBPm
----------------------------------- --------- --------- ------
Assets and liabilities disposed of
Goodwill 5.5 2.1 7.6
Property, plant and equipment 2.4 53.5 55.9
Right-of-use assets 11.7 9.3 21.0
Tax assets 0.2 - 0.2
Inventory 21.9 40.8 62.7
Trade and other payables (19.1) (36.8) (55.9)
Provisions (0.4) - (0.4)
Lease liabilities (15.5) (13.8) (29.3)
Net assets disposed of 6.7 55.1 61.8
Consideration received 6.1 59.5 65.6
Disposal costs incurred - (1.5) (1.5)
----------------------------------- --------- --------- ------
(Loss) / gain on disposal (0.6) 2.9 2.3
----------------------------------- --------- --------- ------
During the period, the Group continued to optimise its UK Retail
portfolio and has disposed of thirteen sites, generating disposal
proceeds of GBP59.5m. In Australia, two further sites in our Retail
business were disposed of in February 2020, generating disposal
proceeds of GBP6.1m. The Group also received deferred consideration
of GBP7.9m and incurred GBP0.4m of costs relating to the disposal
of Retail operations in China in 2019.
None of these disposals are material enough to be shown as
discontinued operations on the face of the consolidated income
statement as they do not represent a separate major line of
business or geographical area of operations.
c. 2019 acquisitions and disposals
In 2019, the Group acquired the full share capital of Krasta
Auto in Lithuania, an authorised dealer of BMW Group, from Modus
Group for a total cash consideration of GBP16.3m (net of cash
acquired). The business was acquired to strengthen the Group's
partnership with BMW in Northern Europe. A distribution agreement
with a fair value of GBP19.0m has been recognised at the date of
acquisition. The goodwill arising on the acquisition represents
intangible assets that do not qualify for separate recognition and
the premium paid to complete the Group's consolidation of BMW's
representation across the Baltic region. None of the goodwill is
expected to be deductible for tax purposes.
The Group also acquired the full share capital of Autolider, a
distributor of Mercedes-Benz passenger and commercial vehicles in
both Uruguay and Ecuador, for cash consideration of GBP24.9m (net
of cash acquired) and contingent consideration with a fair value of
GBP3.9m. A distribution agreement with a provisional fair value of
GBP14.2m has been recognised at the date of acquisition. This
business builds further on the Group's presence in Latin America,
adding two new markets, and is consistent with the focus on core
Distribution capabilities. The goodwill arising on the acquisition
represents intangible assets that do not qualify for separate
recognition and the Group strengthening its Latin American
platform. None of the goodwill is expected to be deductible for tax
purposes.
The Group disposed of six Retail sites in Australia and seven in
the UK, generating disposal proceeds of GBP96.6m. Additionally, the
Group sold its Retail sites in China for total proceeds of
GBP91.9m, out of which GBP8.1m was deferred for payment over 12
months, as well as the Inchcape Fleet Solutions business for cash
proceeds of GBP100m.
11 Foreign currency translation
The main exchange rates used for translation purposes are as
follows:
Average rates Year-end rates
--------------- ----------------
2020 2019 2020 2019
------------------ ------- ------ ------- -------
Australian dollar 1.87 1.84 1.78 1.89
Chilean peso 1,024.2 908.04 973.00 996.59
Ethiopian birr 45.18 37.39 52.91 42.42
Euro 1.13 1.14 1.12 1.18
Hong Kong dollar 10.01 10.01 10.59 10.34
Russian rouble 94.11 82.96 101.21 82.13
Singapore dollar 1.78 1.74 1.81 1.78
US dollar 1.29 1.28 1.37 1.33
------------------ ------- ------ ------- -------
12 Events after the reporting period
The Group disposed of a retail business in Luxembourg in January
2021 for GBP4.7m.
Lenders with total syndicated revolving credit facility
commitments of GBP620m approved a 2(nd) extension option in
February 2021, resulting in GBP620m of commitments being further
extended to 2026.
13 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 trends, performance and position of the Group.
The Group's income statement and segmental analysis identify
separately adjusted measures and exceptional items. These adjusted
measures reflect adjustments to IFRS measures. The Directors
consider these 'adjusted' measures to be an informative additional
measure of the ongoing trading performance of the Group. Adjusted
results are stated before exceptional items.
Exceptional items can include gains or losses on the disposal of
businesses, restructuring of businesses, acquisition costs, asset
impairments and the tax effects of these items. Exceptional items
excluded from adjusted results can evolve from one financial period
to the next depending on the nature of exceptional items or one-off
type activities.
Changes to APMs
Net cash is introduced as a measure of the Group's net
indebtedness. It is based on cash and cash equivalents less
borrowings adjusted for the fair value of derivatives that hedge
interest rate or currency risk. Organic growth is also introduced
and is a measure of growth in sales in operations that have been
open for at least a year at constant foreign exchanges rates.
Trading profit is removed as central costs are now fully allocated
to the Group's reporting segments. Central costs represent the
costs of Group functions and were previously reported
separately.
Constant currency
Some comparative performance measures are translated at constant
exchange rates, called 'constant currency' measures. This restates
the prior period results at a common exchange rate to the current
period and therefore excludes the impact of changes in exchange
rates used for translation.
Performance Definition Why we measure it
measure
------------------- ------------------------------------- -----------------------------------
Gross profit Gross profit before exceptional A key metric of the direct
before exceptional items. profit contribution from the
items Refer to the consolidated income Group's revenue streams (e.g.
statement. Vehicles and Aftersales)
------------------- ------------------------------------- -----------------------------------
Operating profit Operating profit before exceptional A key metric of the Group's
before exceptional items. business performance.
items Refer to the consolidated income
statement.
------------------- ------------------------------------- -----------------------------------
Operating margin Operating profit (before exceptional A key metric of operational
items) divided by revenue. efficiency, ensuring that
we are leveraging global scale
to translate sales growth
into profit.
------------------- ------------------------------------- -----------------------------------
Profit before Represents the profit made A key driver of delivering
tax & after operating sustainable and growing earnings
exceptional and interest expense excluding to shareholders.
items the impact of exceptional
items and before tax is charged.
Refer to consolidated income
statement.
------------------- ------------------------------------- -----------------------------------
Exceptional Items that are charged or The separate reporting of
items credited in the consolidated exceptional items helps provide
income statement which are additional useful information
material and non-recurring regarding the Group's business
in nature. Refer to note 3. performance and is consistent
with the way that financial
performance is measured by
the Board and the Executive
Committee.
------------------- ------------------------------------- -----------------------------------
Free cash flow Net cash flows from operating A key driver of the Group's
activities, before exceptional ability to 'Invest to Accelerate
cash flows, less normalised Growth' and to make distributions
net capital expenditure and to shareholders.
dividends paid to non-controlling
interests.
------------------- ------------------------------------- -----------------------------------
Return on capital Operating profit (before exceptional A key measure of Ignite (Invest
employed (ROCE) items) divided by the average to Accelerate Growth), ROCE
of opening and closing capital is a measure of the Group's
employed, where capital employed ability to drive better returns
is defined as net assets add for investors on the capital
net debt / less net funds. we invest.
------------------- ------------------------------------- -----------------------------------
Net funds / Cash and cash equivalents A measure of the Group's net
(debt) less borrowings and lease indebtedness that provides
liabilities adjusted for the an indicator of the overall
fair value of derivatives balance sheet strength.
that hedge interest rate or
currency risk on borrowings.
Refer to note 9.
------------------- ------------------------------------- -----------------------------------
Net cash Cash and cash equivalents A measure of the Group's net
less borrowings adjusted for indebtedness that provides
the fair value of derivatives an indicator of the overall
that hedge interest rate or balance sheet strength and
currency risk on borrowings is widely used by external
and before the incremental parties.
impact of IFRS 16 lease liabilities.
Refer to note 9.
------------------- ------------------------------------- -----------------------------------
Net capital Cash outflows from the purchase A measure of the net amount
expenditure of property, plant and equipment invested in operational facilities
and intangible assets less in the period.
the proceeds from the disposal
of property, plant and equipment
and intangible assets.
------------------- ------------------------------------- -----------------------------------
Constant currency Presentation of reported results A measure of business performance
% change compared to prior period translated which excludes the impact
using constant rates of exchange. of changes in exchange rates
used for translation.
------------------- ------------------------------------- -----------------------------------
Organic growth Organic growth is defined A measure of business performance
as sales growth in operations which excludes the impact
that have been open for at of acquisition and disposals
least a year at constant foreign in the period.
exchange rates.
------------------- ------------------------------------- -----------------------------------
Managing our risks in a professional and consistent way allows
us to operate with 'peace of mind'.
Inchcape Peace of Mind (iPOM) is our Group-wide risk management
and governance framework which focuses on empowering each and every
one of our colleagues to consider the risks associated with the
decisions they take.
As a Group, we continue to experience an ever-changing, dynamic
risk environment where economic, political, environmental, social,
legal and technological changes present a complex risk landscape
which threatens our ability to achieve our strategic objectives.
However, we believe that our diversity of brand portfolio and
geographic spread, combined with our strong balance sheet, cost
control and risk-aware decision-making processes, make us resilient
to all but the most significant and persistent risks.
Principal risks
The principal risks to achievement of our strategy are:
Key risks
A Loss of Distribution contract.
B Digitisation
C Covid-19 Pandemic
D Cyber incident / data breach
E OEM brand damage / supply chain disruption
F Acquisition Return on Investment (ROI)
G Political risk, social unrest
H Legal / regulatory compliance
I Legal / regulatory change
J Foreign exchange
K IT systems failure / interruption
L People retention and development
M Credit retrenchment impacts demand
N Health, safety, environmental incident
O Disruption: go-to-market model
P Fraud, financial mis-statement
Q 'Brexit'
R Electrification of the drivetrain
S Portfolio optimisation
UK trading arrangements with the European Union ('Brexit')
In late December 2020, the UK agreed the basis for its future
trading arrangements with the European Union. At that point, the
Group's exposure to 'Brexit' risks reduced significantly.
Any remaining exposure is not considered material and relates
principally to our UK Retail business where we are the retailer for
major German brands. We also import certain Toyota and JLR models
from the UK into Europe. In the short term, any impact on the Group
relates to disruptions in the supply of new vehicles and parts,
which we believe is manageable. Given the nature of our business,
we are reliant upon the
actions taken by our OEM partners in response to any disruption
and we continue to work closely with them. The medium-term
macro-economic impact on the UK economy also remains uncertain. A
slowdown in economic activity or a retrenchment of credit
availability in the UK would impact our UK Retail business.
Contingency plans were implemented in 2020 and in 2021 in
anticipation of any disruption. The Board is actively monitoring
developments and will take further action as required.
Directors' responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. Under company law the Directors must not
approve the Group financial statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
Group and of the profit or loss of the Group for that period. In
preparing the financial statements, the Directors are required
to:
-- select suitable accounting policies and then apply them
consistently;
-- state whether applicable IFRSs as adopted by the European
Union have been followed, subject to any material departures
disclosed and explained in the financial statements;
-- make judgements and accounting estimates that are reasonable
and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that the
financial statements and the Directors' Report on Remuneration
comply with the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets
of the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the parent company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
The Directors consider that the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group's
performance, business model and strategy.
Each of the Directors, whose names and functions are listed in
the Inchcape plc Annual Report and Accounts confirm that, to the
best of their knowledge:
-- the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit of the Group; and
-- the Operating and Financial Review in this announcement
includes a fair review of the development and performance of the
business and the position of the Group, together with a description
of the principal risks and uncertainties that it faces.
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END
FR XZLLLFLLLBBE
(END) Dow Jones Newswires
February 25, 2021 02:00 ET (07:00 GMT)
Inchcape (LSE:INCH)
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