REG - Inchcape PLC - 2016 Annual Results Announcement <Origin Href="QuoteRef">INCH.L</Origin> - Part 3
01/03/2017 07:06
- Part 3: For the preceding part double click ID:nRSA1326Yb
UK corporation tax 6.0 6.2
- Overseas tax 79.2 73.1
85.2 79.3
Adjustments to prior year liabilities:
- UK (1.5) -
- Overseas (1.2) (0.6)
Current tax 82.5 78.7
Deferred tax (6.0) 1.0
Total tax charge 76.5 79.7
The total tax charge is analysed as follows:
- Tax charge on profit before exceptional items 88.0 74.9
- Tax credit on exceptional items (11.5) -
- Exceptional deferred tax charge - 4.8
Total tax charge 76.5 79.7
Details of the exceptional items for the year can be found in note 3. Not all
of the exceptional items will be 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 allowable. The exceptional
deferred tax charge in the prior year related to the decision not to recognise
the deferred tax asset on tax losses in Russia.
Factors affecting the tax expense for the year
The effective tax rate for the year after exceptional items is 28.6% (2015 -
30.4%). The underlying effective tax rate before the impact of exceptional
items is 25.2% (2015 - 24.0%). The weighted average tax rate is 24.1% (2015 -
24.3%). The weighted average tax rate comprises the average statutory rates
across the Group, weighted in proportion to accounting profits and losses.
The table below explains the differences between the expected tax expense at
the weighted average tax rate and the Group's total tax expense.
2016 2015
£m £m
Profit before tax 267.8 262.6
Profit before tax multiplied by the weighted average tax rate of 24.1% (2015 - 24.3%) 64.6 63.8
Non-exceptional items
- Permanent differences 9.9 6.9
- Non-taxable income (4.9) (2.4)
- Prior year items (2.2) (1.7)
- Unrecognised deferred tax movement (2.2) (1.3)
- Overseas tax audits and settlements 1.5 -
- Taxes on undistributed earnings 3.2 2.5
- Impact of the FID Claim receipt taxed at 45% 1.6 -
- Other items (including tax rate differentials) (1.7) (2.8)
Exceptional items
- Goodwill impairment 3.9 9.9
- Restructuring costs 1.0 -
- Acquisition of businesses 1.8 -
- Impact of derecognition of deferred tax assets (Russia) - 4.8
Total tax charge 76.5 79.7
Factors affecting the tax expense of future year
Factors that could affect the Group's future tax expense include 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 and this could happen
as a result of acquisitions, for example the acquisition of certain businesses
from Empresas Indumotora S.A.
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.
During the period, the Finance Act 2016 was passed reducing the UK Corporation
tax rate to 17% from 1 April 2020. This rate was enacted at the balance sheet
date and hence this rate is now relevant for measuring deferred tax balances
in the UK.
7 Earnings per share
2016 2015
£m £m
Profit for the year 191.3 182.9
Non-controlling interests (6.9) (7.1)
Basic earnings 184.4 175.8
Exceptional items 70.1 54.3
Adjusted earnings 254.5 230.1
Basic earnings per share 43.2p 39.8p
Diluted earnings per share 42.6p 39.4p
Basic Adjusted earnings per share 59.6p 52.1p
Diluted Adjusted earnings per share 58.9p 51.6p
2016 2015
number number
Weighted average number of fully paid ordinary shares in issue during the year 428,090,784 442,230,291
Weighted average number of fully paid ordinary shares in issue during the year:
- Held by the Inchcape Employee Trust (1,182,428) (753,647)
Weighted average number of fully paid ordinary shares for the purposes of basic EPS 426,908,356 441,476,644
Dilutive effect of potential ordinary shares 5,534,805 4,468,252
Adjusted weighted average number of fully paid ordinary shares in issue during the 432,443,161 445,944,896
year for the purposes of diluted EPS
Basic earnings per share is calculated by dividing the Basic earnings for the
year by the weighted average number of fully paid ordinary shares in issue
during the year, less those shares held by the Inchcape Employee Trust and
repurchased as part of the share buy back programme.
Diluted earnings per share is calculated on the same basis as the Basic
earnings per share with a further adjustment to the weighted average number of
fully paid ordinary shares to reflect the effect of all dilutive potential
ordinary shares. Dilutive potential ordinary shares comprise share options and
other share-based awards.
Basic Adjusted earnings (which excludes exceptional items) is adopted to
assist the reader in understanding the underlying performance of the Group.
Adjusted earnings per share is calculated by dividing the Adjusted earnings
for the 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 buy back 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.
8 Dividends
The following dividends were paid by the Group:
2016 2015
£m £m
Interim dividend for the six months ended 30 June 2016 of 7.0p per share 29.9 30.0
(30 June 2015 - 6.8p per share)
Final dividend for the year ended 31 December 2015 of 14.1p per share 60.3 61.1
(31 December 2014 - 13.8p per share)
90.2 91.1
A final proposed dividend for the year ended 31 December 2016 of 16.8p per
share amounting to £70.6m is subject to approval by shareholders at the Annual
General Meeting and has not been included as a liability as at 31 December
2016.
9 Notes to the consolidated statement of cash flows
a. Reconciliation of cash generated from operations
2016 2015
£m £m
Cash flows from operating activities
Operating profit 277.5 275.2
Exceptional items (see note 3) 81.6 49.5
Amortisation including non-exceptional impairment of intangible assets 14.9 14.0
Depreciation of property, plant and equipment 38.0 34.5
Profit on disposal of property, plant and equipment (12.7) (2.1)
Share-based payments charge 12.1 9.6
Increase in inventories (110.7) (246.5)
Increase in trade and other receivables (10.2) (68.5)
Increase in trade and other payables 99.0 282.2
Decrease in provisions (9.4) (4.2)
Pension contributions less than the pension charge for the year* 1.9 2.7
Decrease / (increase) in interest in leased vehicles 2.9 (12.3)
Payments in respect of operating exceptional items (3.2) -
Other non-cash items 1.1 (5.7)
Cash generated from operations 382.8 328.4
* Includes additional payments of £2.1m (2015 - £1.7m).
b. Reconciliation of net cash flow to movement in net funds
2016 2015
£m £m
Net decrease in cash and cash equivalents (89.8) (20.3)
Net cash inflow from borrowings and finance leases (132.1) (3.2)
Change in net cash and debt resulting from cash flows (221.9) (23.5)
Effect of foreign exchange rate changes on net cash and debt 129.7 (21.2)
Net movement in fair value 1.0 0.9
Net loans and finance leases relating to acquisitions and disposals (48.7) -
Movement in net funds (139.9) (43.8)
Opening net funds 166.4 210.2
Closing net funds 26.5 166.4
Net funds is analysed as follows:
2016 2015
£m £m
Cash at bank and cash equivalents 473.7 335.3
Short-term deposits 171.5 138.5
Bank overdrafts (229.2) (98.5)
Cash and cash equivalents 416.0 375.3
Bank loans (539.8) (312.6)
Finance leases (4.7) (3.7)
(128.5) 59.0
Fair value of cross currency interest rate swap 155.0 107.4
Net funds 26.5 166.4
10 Acquisitions and disposals
a. Acquisitions
On 22 December 2016, the Group acquired a multi-country scale Distribution
business in South America, focused on Subaru and Hino and operating in the
growth markets of Chile, Colombia, Peru and Argentina. The business was
acquired from Empresas Indumotora S.A.
Details of the provisional fair values of the identifiable assets and
liabilities as at the date of acquisition are set out below:
2016
£m
Assets and liabilities acquired, at provisional values1
Intangible assets 3.6
Property, plant and equipment 29.6
Tax assets 9.7
Inventory 73.0
Trade and other receivables 67.4
Other assets 2.2
Cash and cash equivalents 29.9
Trade and other payables (91.5)
Provisions (4.4)
Borrowings (48.7)
Tax liabilities (7.2)
Other liabilities (0.3)
Net assets acquired 63.3
Distribution agreements recognised on acquisition (net of deferred tax) 112.2
Goodwill 51.2
Purchase consideration 226.7
1 Given the proximity of the acquisition prior to the year end, work is
underway to identify the fair value of assets and liabilities acquired. The
value at which assets and liabilities stated are stated above are therefore
provisional values largely based on book values at the acquisition date.
Net cash in business acquired 29.9
Borrowings in business acquired (48.7)
(18.8)
The goodwill arising on acquisition is attributable to the anticipated future
cash flows of the acquired business and synergies expected to arise following
integration with the Group's existing business in South America. Specifically,
the goodwill represents the premium paid to expand the Group's presence in
this important market and to create a scale Distribution platform across South
America with attractive growth prospects. This provides a platform to deliver
growth and improved returns far quicker than would have been achievable
through organic expansion.
During the year, the Group also acquired a number of sites in the UK in
relation to the optimisation of our Jaguar Land Rover footprint ahead of the
new combined site format being launched in the UK and a site in Australia.
Consideration for the acquisitions was £4.3m with goodwill arising on the
transaction of £0.2m.
b. Proforma full year information
If the acquisition of South American Distribution business had occurred on 1
January 2016, the approximate revenue and operating profit before exceptional
items for the period ended 31 December 2016 of the Group would have been
£8,203.1m and £384.3m respectively. This information has been estimated based
on the management information of the acquired business prior to acquisition.
c. Disposals
During the year, the Group disposed of certain Jaguar Land Rover sites in the
UK as part of the footprint optimisation referred to above, a site in
Australia and finalised the liquidation of a joint venture in Greece. Disposal
proceeds were £2.8m.
In 2015, the Group disposed of a small number of dealerships in Australia and
its interest in Excelease SA, a financial services business in Belgium,
generating disposal proceeds of £5.4m and a profit on disposal of £0.6m.
11 Foreign currency translation
The main exchange rates used for translation purposes are as follows:
Average rates Year end rates
2016 2015 2016 2015
Australian Dollar 1.82 2.04 1.71 2.02
Euro 1.23 1.38 1.17 1.36
Hong Kong Dollar 10.51 11.85 9.57 11.42
Singapore Dollar 1.87 2.10 1.78 2.09
Russian Rouble 90.72 93.72 75.97 107.30
12 Events after the reporting period
There have been no events subsequent to the year-end that require additional
disclosure.
Risk management
Knowing that we have in place the right procedures, processes and frameworks
to prevent risks from impacting our business, or to enable us to respond
promptly and decisively when they do, gives us confidence in our ability to
achieve our strategic objectives and support the long-term sustainable growth
of our business.
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:
1 Loss of distribution contract with major brand partner
2 Significant retrenchment of credit available to customers, dealer network or Inchcape plc
3 Brand failure or major interruption to OEM operations or product
4 Major loss of confidential or sensitive data
5 Failure to extract value from acquisitions
6 Impact of disruptive technologies and/or methods of engaging the next generation of customers
7 Fluctuations in exchange rates with negative impact on financial performance
8 Interruption to iPower, or major systems failure
9 Failure to safeguard our customers and employees by not consistently applying EH&S standards across the Group
10 Internal controls failure sufficient to affect reputation
11 Individual governments increasing restrictions on cross-border currency movements leading to higher incidents of trapped cash across the Group
12 Dynamic changes in local or international tax rules (e.g. changes to transfer pricing rules as a result of the OECD's Base Erosion and Profit Shifting Initiative)
13 Social, political and regulatory instability in Emerging Markets
14 Changes in legislation directly affecting customer demand
15 Non-compliance with dynamic changes in laws and regulations
16 Failure to attract, retain and develop our people
Directors' responsibilities
The Directors are responsible for preparing the Annual Report, the Directors'
Report on Remuneration and the financial statements in accordance with
applicable law and regulations.
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
(IFRS) as adopted by the European Union, and the parent Company financial
statements in accordance with applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting Practice).
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and the Company and of the profit or loss of the Group
for that period. In preparing these financial statements, the Directors are
required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether IFRS, as adopted by the European Union and applicable United
Kingdom Accounting Standards, have been followed, subject to any material
departures disclosed and explained in the Group and parent Company financial
statements respectively; and
· prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and the
Group and enable them to ensure that the financial statements 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.
They are also responsible for safeguarding the assets of the Company and the
Group and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities. The Directors are responsible for the
maintenance and integrity of the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
· the Group financial statements, which have been prepared in accordance with
IFRS as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit of the Group; and
· the Operating Review contained 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.
This information is provided by RNS
The company news service from the London Stock ExchangeRecent news on Inchcape
See all newsREG - Inchcape PLC - Transaction in Own Shares
AnnouncementREG - Inchcape PLC - Transaction in Own Shares
AnnouncementREG - Inchcape PLC - Transaction in Own Shares
AnnouncementREG - Inchcape PLC - Transaction in Own Shares
AnnouncementREG - Inchcape PLC - Transaction in Own Shares
Announcement