REG - Inchcape PLC - Final Results
24/02/2022 07:18
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RNS Number : 6874C Inchcape PLC 24 February 2022
Inchcape plc, the leading global automotive distributor, announces its
preliminary results for the year to 31 December 2021
Strong FY21 results; focused on significant growth opportunities ahead
Duncan Tait, Group CEO, commented:
"Inchcape delivered a strong set of FY21 results, with improved performance
across all regions. The combination of robust consumer demand and excellent
operational execution, against the backdrop of supply shortages, drove our
topline recovery and higher margins, enabling profits to rebound to
pre-pandemic levels. We are pleased to declare a higher full-year dividend,
and reflecting the Group's highly cash generative business model we have
announced another £100m share buyback programme.
During the year we launched our new strategy, Accelerate, which is focused on
two exciting growth opportunities. Our ambition is to extend our global
leadership in automotive distribution, and to capture more of a vehicle's
lifecycle value. We've made great progress with our strategic priorities,
adding new markets and OEMs through acquisitions and contract-wins, and
further developing our digital and analytics capabilities. Inchcape has a
really exciting future, and is well-positioned to deliver sustainable
long-term value for all of our stakeholders through organic growth, market
consolidation and cash generation."
Financial highlights:
§ Group revenue of £7.6bn: up 21% on an organic basis and 12% reported;
underlying 3% below 2019 levels
§ PBT (pre-exceptionals) of £296m (2020: £128m), driven by strong execution
and high vehicle gross margins
§ Statutory profit before tax of £195m, impacted by the loss on disposal of
part of our Retail operations in Russia
§ Highly cash generative and strong returns: 2021 free cash flow of £289m
(88% cash conversion) and 30% ROCE
§ Strengthened financial position: finished 2021 with net cash of £379m
(Dec-20: £266m) following c.£80m share buybacks
§ Proposed final dividend of 16.1p (2021 full year: 22.5p, 2020: 6.9p);
announced new £100m share buyback programme
Strategic highlights:
§ Launched new strategy, Accelerate: focussed on two exciting global growth
opportunities, leveraging our distribution core
§ Distribution footprint expanded: signed five new contracts adding an
aggregate of c.£200m annualised revenue
§ First-time distribution relationships with Geely (Chile) and Chrysler
(Caribbean)
§ Broadened geographic footprint: Caribbean (Suzuki, Mercedes-Benz),
Indonesia (JLR) and Guatemala (Mercedes-Benz)
§ Accelerated our digital adoption: rolled-out omnichannel capability (DXP),
now live in 27 OEM markets (Dec-20: one)
§ Established bravoauto, a multi-brand, digital-first, used car platform -
global roll-out to begin in 2022
Outlook:
The Group's strong performance in 2021 was supported by robust consumer demand
and high vehicle gross margins (particularly in Retail), largely due to
vehicle supply shortages. Looking ahead, our 2022 performance to date has seen
a continuation of the trends experienced last year, although there is ongoing
uncertainty relating to vehicle supply and the impact of the pandemic. We
expect the Group to continue to make good progress with its strategic
priorities in 2022. The strength of our business model and financial position
means Inchcape is well placed to continue to grow profits and generate cash,
and we are confident in the medium-term outlook set out at the Capital Markets
Day in November.
2021 2020(1) % change % change % change
reported
constant FX(2)
organic(3)
Key financials
Revenue £7,640m £6,838m +12% +15% +21%
Operating profit (pre-exceptionals)(1) £328m £164m +100% +120%
Operating margin(1) 4.3% 2.4% +190bps +200bps
Profit before tax (pre-exceptionals)(1) £296m £128m +131%
Basic EPS (pre-exceptionals)(1) 56.2p 23.1p +143%
Dividend per share 22.5p 6.9p +226%
Free cash flow(1) £289m £177m +63%
Statutory financials
Operating profit / (loss) £227m £(93)m
Profit / (loss) before tax £195m £(130)m
Basic EPS 30.0p (36.0)p
1. Restated, see note 1
2. These measures are Alternative Performance Measures, see note 13
3. Organic growth is defined as revenue growth in operations that have been
open for at least a year at constant foreign exchange rates
Market abuse regulation statement
This announcement contains inside information.
Results presentation today
A virtual presentation for analysts and investors will be held today, Thursday
24th February, at 08:30 (UK time). To register please contact Instinctif
Partners at inchcape@instinctif.com
(file:///C:/Users/finn.lawrence/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/QNPKNXC8/inchcape@instinctif.com)
. A replay of the presentation will be available via the Company's website,
www.inchcape.com (http://www.inchcape.com) later today.
Financial calendar
Q1 trading update 28(th) April 2022
Ex-dividend date for 2021 final dividend 12(th) May 2022
Annual general meeting 19(th) May 2022
Half year results 28(th) July 2022
Q3 trading update 27(th) October 2022
Contacts
Inchcape plc:
Raghav Gupta-Chaudhary Investor queries +44 (0)7933 395 158 Investors@inchcape.com (mailto:investors@inchcape.com)
Finn Lawrence Media queries +44 (0)20 7546 0022
Media enquiries:
Tim McCall (Instinctif Partners) +44 (0)20 7457 2020 Inchcape@instinctif.com (mailto:inchcape@instinctif.com)
About Inchcape
Inchcape is the leading independent multi-brand global automotive distributor,
operating in over 40 markets and territories 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, and is classified within the 'Business Support Services' sector.
The Group is headquartered in London and employs around 14,500 people
globally. www.inchcape.com (http://www.inchcape.com) .
Our results are stated at actual exchange rates. However, to enhance
comparability we also present year-on-year changes in sales and 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.
Operational review
Key performance indicators
2021 2020(1) % change % change % change
reported constant FX(2) organic(2)
Revenue £7.6bn £6.8bn +12% +15% +21%
Operating profit pre-exceptional items(1) £328m £164m +100% +120%
Operating margin(1) 4.3% 2.4% +190bps +200bps
Profit before tax and exceptional items(1) £296m £128m +131%
Free cash flow(1) £289m £177m +63%
Return on capital employed(1) 30% 12%
1. Restated
2. See note 13 for definition of Key Performance Indicators and other
Alternative Performance Measures.
Performance review: full year 2021
Our performance in the year was strong, with Group revenue almost back to
pre-pandemic levels on a comparable basis. While the pandemic continued to
cause disruption across the globe, the impact on the Group was less pronounced
than in 2020, as we had adapted our business operations to better manage in
this environment. The widely reported global supply-chain issues had a more
pronounced impact in the second half. The demand for vehicles and aftersales
remained strong throughout the period, which created a supply-demand
imbalance, and led to higher gross margins and profitability.
Over the course of the year, the Group generated revenue of £7.6bn, operating
profit pre-exceptionals of £328m and free cash flow of £289m.
Group revenue of £7.6bn rose 12% year-on-year reported and 15% in constant
currency. The growth rate is dampened by the disposal of several retail
businesses (including sites in St. Petersburg, Russia), which has further
reduced our standalone Retail revenue exposure by c.£0.3bn. In terms of
M&A, over the past 12 months we have secured five new distribution
agreements across both the Americas and Asia, gaining entry into three new
markets. As well as broadening our geographic footprint, we secured our first
distribution relationships with Geely (Chile) and Chrysler (Caribbean).
On an organic basis, excluding currency effects and net M&A, revenue
increased by 21%. The growth was broad based across all regions, driven by a
combination of volume recovery and strong pricing. In 2020, pandemic related
restrictions were most pronounced during the second quarter, and weighed
significantly on our performance. On a comparable basis (adjusting for
currency and portfolio changes), the Group's revenue in 2021 was 3% below
2019.
The Group delivered an operating profit pre-exceptional items of £328m, up
100% year-on-year reported and 120% in constant currency. The strong rebound
reflects the topline increase and the year-on-year margin improvement. The
2021 outturn includes c.£10m of profit from our St. Petersburg, Russia
operations sold towards the end of the first-half.
Profit before tax and exceptional items (PBT) of £296m (2020: £128m)
reflects the strong improvement in revenue and operating profit. The net
interest expense of £32m is £5m lower than prior year primarily as a result
of lower inventory levels, which reduced the related interest expense.
Adjusting for the impact of currency and changes to our portfolio, profit
before tax and exceptional items is back to 2019 pre-pandemic levels (£296m).
During the reporting period, we incurred exceptional charges of £101m. The
majority of the charge relates to the £72m loss on the disposal of a part of
our Retail operations in Russia, where we realised £108m of accumulated
foreign exchange losses upon disposal. In addition, we booked £13m of
restructuring costs, largely related to the conclusion of our Covid-19 cost
restructuring programme, and £20m of accelerated amortisation of software
assets (following a change in accounting policy).
The highly cash-generative nature of our business model was evident with free
cash flow generation of £289m (2020: £177m) - this represents a conversion
of operating profit pre-exceptionals of 88% (2020: 108%), exceeding the
long-term average of 60-70%. During the period we benefitted from a net
working capital inflow of £44m and lower net capital expenditure (£40m) -
owing to proceeds from the disposal of surplus capital assets and the
reallocation of expenditure on intangible assets to operating costs (due to a
change in accounting policy).
Other notable elements of the cash flow bridge include: net acquisitions and
disposals, which amounted to an inflow of £56m (proceeds from Retail
disposals offset by the acquisition of Daimler Guatemala and a commercial
vehicle business in Guam) and dividend payments of £52m. We launched a £100m
share buyback programme in July, of which c.£80m was complete by the end of
the year.
The Group closed the reporting period in a net cash position of £379m
(excluding lease liabilities), which compares to £266m at the end of December
2020, and £435m as at 30 June 2021. On an IFRS 16 basis (including lease
liabilities), we ended the period with net funds of £55m (December 2020: net
debt of £67m).
Return on capital employed over the period was 30%, compared to 12% for the
equivalent period last year, and 22% in 2019. The increase was primarily
driven by the recovery in Group profits, and supported by our portfolio shift
towards Distribution and asset impairments in 2020 triggered by the pandemic.
Fourth quarter 2021
Group revenue for the fourth quarter was £1.8bn, down 4% reported. On an
organic basis revenue increased 5%, compared to a 10% increase in Q3 - with
the lower growth rate primarily owing to the shortage of vehicles globally,
amid low vehicle production levels.
In Distribution, revenue increased 8% organically, following a 20% increase in
Q3. In addition to lapping a tough comparator, during Q4 most regions were
impacted by vehicle supply constraints. Aftersales performance proved
resilient.
In Retail, while revenue was flat year-on-year on an organic basis (Q3: fell
2%), the comparable period was impacted by pandemic related restrictions. The
shortage of vehicle availability (both new and used) had a meaningful impact
on topline performance.
Strategic priorities
In 2021 we launched our new strategy, Accelerate, focussing on two growth
opportunities: Distribution Excellence and Vehicle Lifecycle Services.
Distribution Excellence: extending our leadership in automotive distribution
(vehicles and parts)
In the Group's core operations, we create the vital link between the OEM and
the end-customer, with our full-spectrum distribution capability. This
includes deciding which vehicle models and parts to order, the pricing
structure in a market, arranging the importation of vehicles and parts, the
building of the brand including marketing and the provision of financing
solutions (F&I), the creation and management of the digital and physical
network, in-market distribution of vehicles and parts for the aftermarket, and
finally, when we choose to operate dealerships ourselves, we perform retail
and aftersales services.
Over the past 12 months we have made excellent progress:
§ In 2020 we made significant investment in the Group's digital capability
and formulated a revised strategy, and we have seen this translate into
tangible positive results during 2021.
o We accelerated the roll-out of our omnichannel (DXP) capability, which is
now live in 27 OEM markets (Dec-20: one), across 11 brand partners (Dec-20:
one). We are already seeing the platform drive better sales conversion rates.
o During 2021 we have built significant internal analytical capability
(DAP), to leverage our data and drive smarter, faster and better business
decisions, resulting in improved performance across lead management, customer
retention and pricing.
o During 2021 we established two digital delivery centres (DDCs) as we
embarked on our technological transformation. The DDCs in Colombia and the
Philippines provide us with 24x7 solutions and services, covering the Group's
global operations. There are already over 500 'Inchcapers' working in the
DDCs, which has significantly increased our internal digital delivery
capability, for the same cost.
§ In line with our focus on markets with high growth potential, we continued
to further expand our distribution footprint, agreeing deals that will add
aggregate annualised revenue of £200m. In addition to leveraging our existing
geographic and brand footprint, the deals give us access to a number of new
markets and brand partners.
o In December 2021 we announced the acquisition of a distribution business
in the Caribbean, a new territory for the Group, where we will distribute
vehicles for Suzuki, Mercedes-Benz, Subaru and Chrysler, a new OEM brand
partner in our portfolio. Once complete, the business will add c.£120m of
annualised revenue.
o During 2021 we also signed a global strategic partnership with Geely
(initially launching in Chile), bolstered our presence in Guam with the
acquisition of a distributor of commercial vehicles, and entered a number of
new markets: Indonesia with JLR, Guatemala with Mercedes-Benz (becoming their
largest partner in South America).
Inchcape is already the leading global automotive distributor, and we are
extending this leadership with our investment in technological capability
(digital and data analytics). Our 'plug and play' distribution platform will
help drive both organic and inorganic growth within our current geographic
footprint and even faster expansion in new markets, with both existing and new
partners.
Vehicle Lifecycle Services: capturing more lifetime value - of customers and
vehicles
§ We are making progress with the opportunities identified to capture more of
a vehicle's lifecycle value where we believe there is significant untapped
potential, that the business has not fully realised in the past. During 2021
we created our new multi-brand, digital-first, used car platform bravoauto,
which we initially launched in the UK and will begin to scale to other regions
during 2022.
In 2021 we made substantial progress with our ESG strategy (Responsible
Business): establishing global workstreams for each of our pillars (Plant,
People, Places and Practices) and fully integrating climate-related issues
into our strategy.
Capital allocation
Our capital allocation policy remains unchanged: 1) to invest in the business
to strongly position it for the future; 2) to make dividend payments; 3) to
conduct value-accretive M&A; and, in the absence of any immediate
inorganic opportunities, 4) consider share buybacks.
Our dividend policy targets a 40% annual payout ratio of basic adjusted EPS,
and as such our full-year dividend amounts to 22.5p, compared to 6.9p in 2020.
During 2021 we secured a number of new distribution agreements, and we have a
healthy M&A pipeline with several opportunities being actively pursued. In
line with our capital allocation policy, we launched a £100m share buyback
programme in July 2021, which recently completed, and are today announcing a
new £100m share buyback to be completed over the next 12 months.
Investment proposition
Inchcape is the leading global automotive distributor. Combining our exposure
to higher growth markets and diversified revenue streams, with our history of
market outperformance, we expect to deliver strong organic growth. By
leveraging our scale, operational improvements and focus on higher margin
activities, we can drive margin expansion. The highly fragmented nature of
distribution, and our strong financial position, also provides significant
consolidation opportunities.
In addition to the attractive growth prospects, the business is asset-light
with excellent financial characteristics: high returns and cash conversion.
Combined with a disciplined approach to capital allocation we believe these
should enable the Group to maintain its long track record of delivering
significant value through organic growth, consolidation and attractive
shareholder returns.
Looking ahead
The Group's strong performance in 2021 was supported by robust consumer demand
and high vehicle gross margins (particularly in Retail), largely due to
vehicle supply shortages. Looking ahead, our 2022 performance to date has seen
a continuation of the trends experienced last year, although there is ongoing
uncertainty relating to vehicle supply and the impact of the pandemic. We
expect the Group to continue to make good progress with its strategic
priorities in 2022. The strength of our business model and financial position
means Inchcape is well placed to continue to grow profits and generate cash,
and we are confident in the medium-term outlook set out at the Capital Markets
Day in November:
§ Distribution Excellence: mid-to-high single digit profit CAGR plus M&A
§ Vehicle Lifecycle Services: >£50m of incremental profit
Operating and financial review
Distribution
The Distribution segment saw revenue rise 27% year-on-year, with all regions
growing versus the prior year. The combination of an encouraging topline and
margin improvement resulted in an operating profit(1) of £246m (2020:
£140m). The operating margin(1) rose 160bps to 5.3%.
2021 2020 % change reported % change constant FX % change
organic
£m £m
Revenue
Asia 1,082.7 1,026.6 +5% +11% +11%
Australasia 1,064.2 876.0 +21% +19% +19%
APAC 2,146.9 1,902.6 +13% +15% +15%
Europe 1,476.4 1,120.2 +32% +36% +25%
Americas & Africa 1,048.4 797.1 +32% +44% +39%
Total Distribution 4,671.7 3,819.9 +22% +27% +22%
Operating profit(1)
Asia 93.1 78.6 +18% +25%
Australasia 34.7 1.7 +1,941% +2,033%
APAC 127.8 80.3 +59% +68%
Europe 41.4 25.0 +66% +72%
Americas & Africa 76.8 34.2 +125% +184%
Total Distribution 246.0 139.5 +76% +94%
Operating margin(1)
Asia 8.6% 7.7% +90bps +100bps
Australasia 3.3% 0.2% +310bps +310bps
APAC 6.0% 4.2% +180bps +190bps
Europe 2.8% 2.2% +60bps +60bps
Americas & Africa 7.3% 4.3% +300bps +360bps
Total Distribution 5.3% 3.7% +160bps +180bps
§ Asia revenue grew 11% year-on-year, and operating profit(1) rose 25%. While
countries continued to be impacted by pandemic-related uncertainty, all our
markets delivered both topline and profit growth in 2021. However, the region
remains significantly below 2019 levels owing to the vehicle licence cycle in
Singapore and general softness in Hong Kong. During the first half, Singapore
benefitted from greater availability of vehicle licences (the government's
phasing of missed licences over 12 months concluded in June 2021), which did
not repeat in the second half. In 2022 we expect vehicle volumes in Singapore
to be broadly in line with the run-rate observed in the second half of 2021.
In Hong Kong, the business grew in 2021, although volumes remain relatively
subdued. Performance across the rest of Asia was solid, with an encouraging
revenue and profit outturn. Having won the distribution rights for JLR in
Indonesia during Q2, towards the end of the year, we acquired a business which
dis-tributes commercial vehicles in Guam, further bolstering our presence in
the region.
§ Australasia revenue grew 19% year-on-year, and operating profit(1)
recovered considerably. The revenue performance was supported by the launch of
the new Subaru Outback and Forester models. This helped the brand gain market
share in the first six months of the year, although this momentum was
disrupted by supply shortages in the second half. The combination of
supply-chain bottlenecks and various pandemic related restrictions held back
margin recovery. Nevertheless, following a number of actions, including an
adapted pricing strategy, the introduction of innovative financing products
and a material reduction of overheads, the business is structurally stronger.
We expect these improvements will support margins in the period ahead.
§ Europe revenue was up 36% year-on-year with operating profit(1) rising 72%.
While the pandemic continued to cause uncertainty across markets, demand
remained robust. The encouraging demand backdrop supported performance, with
revenue and profits recovering towards 2019 levels, in spite of vehicle supply
constraints. The topline recovery was in part driven by market share gains in
a number of markets, with a solid contribution from new models e.g. Toyota
Yaris. Our newly acquired JLR Poland business was adversely impacted by supply
constraints, although the launch of the new Range Rover is expected to support
performance in 2022.
§ Americas & Africa revenue grew 44% year-on-year, and operating
profit(1) recovered to pre-pandemic levels as margins re-bounded. In the
Americas, robust consumer demand enabled us to deliver positive growth across
all key markets, despite some pandemic related disruptions. A combination of
the strong demand and pricing environment, and our cost-restructuring efforts
have supported the region's performance such that both 2021 revenue and
profits are above 2019 levels. Over the past 12 months the region has secured
a number of new distribution businesses, which in aggregate will add c.£200m
of annualised revenue. In Africa, our performance continues to be solid, not
least given the backdrop of a challenging environment. Looking further ahead,
given the low penetration of vehicles per capita in the Americas & Africa
region, we are optimistic about the growth prospects over the medium and long
term.
Retail
The Retail segment saw revenue rise 1% year-on-year, or 19% on an organic
basis when adjusting for the Retail disposals over the period. Supported by
strong gross margins and our cost mitigation measures, we delivered operating
profit(1) of £82m (2020: £25m). The operating margin(1) was particularly
strong at 2.8%.
2021 2020 % change reported % change constant FX % change
organic
£m £m
Revenue
Australasia - 9.4 - - -
APAC - 9.4 - - -
UK & Europe 2,968.4 3,008.5 (1)% +1% +19%
Total Retail 2,968.4 3,017.9 (2)% +1% +19%
Operating profit(1)
Australasia - 0.4 - -
APAC - 0.4 - -
UK & Europe 82.1 24.2 +239% +280%
Total Retail 82.1 24.6 +234% +272%
Operating margin(1)
Australasia - 4.3% n/a n/a
APAC - 4.3% n/a n/a
UK & Europe 2.8% 0.8% +200bps +200bps
Total Retail 2.8% 0.8% +200bps +200bps
§ UK and Europe delivered organic revenue growth of 19% and operating
profit(1) rose significantly, resulting in an operating margin of 2.8%. We
experienced solid demand for New and Used Vehicles against a backdrop of
supply constraints. This drove gross margins to unprecedented levels across
all three of our Retail-only markets in the UK, Russia and Poland. The profit
outturn also benefitted from a lower overhead base, following the
implementation of our cost-restructuring programme. In the first half of 2021,
we disposed of our operations in St. Petersburg which contributed c.£110m of
revenue and c.£10m of profit to the year's result. As indicated at our
Capital Markets Day, as and when the supply situation normalises we expect
margins will trend towards c.1.5%.
§ Australasia: following a significant disposal programme, which concluded in
2020, we no longer have a Retail segment in Australasia.
1: Operating profit and operating margin stated pre-exceptionals
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.
2021 2020 % change reported % change constant FX
£m £m
Gross Profit (pre-exceptionals)
Vehicles 749.5 516.9 45% 50%
Aftersales 391.4 372.5 5% 10%
Total 1,140.9 889.4 28% 33%
We operate across the automotive value chain, and during the year we generated
34% of gross profit through Aftersales, compared to 42% in 2020. This reflects
the rebound in vehicle sales from the prior year, when sales were
significantly disrupted as a result of the pandemic.
Other financial items
Exceptional items: During the year, we have incurred exceptional charges of
£101m (2020: £257m). The charge arose largely from the recycling of £108m
of foreign exchange losses previously recognised in other comprehensive income
in relation to the disposal of the Russia Retail business, partially offset by
gains on the disposal of other retail businesses in the UK and Europe.
Additionally, there were £13m of restructuring costs and £20m of accelerated
amortisation on software assets. Further details can be found in note 3.
Net financing costs: Net finance costs were £32m (2020: £37m). The decrease
is largely due to a reduction in the cost of financing inventory following our
retail disposals, and the overall reduction in inventory and associated
inventory financing following our S&OP improvements and restrictions in
supply globally. The interest charge is stated on an IFRS 16 basis and,
excluding interest relating to leases, our net finance charge was £21m
compared to £23m in 2020.
Tax: The effective tax rate for the year is 24% before exceptional items
(2020: 26%). Compared to the prior year, the effective tax rate before
exceptional items benefits from improved operational performance reducing the
adverse impact of unrecognised losses. The effective rate for the year, after
exceptional items, is 37% (2020: negative 7%), and is not comparable to the
prior year due to the impact of the pandemic on the Group's performance in the
prior period.
Non-controlling interests: Profits attributable to our non-controlling
interests were £5m (2020: £3m). The Group's non-controlling interests
comprise a 40% holding in PT JLM Auto Indonesia, a 33% share in UAB Vitvela in
Lithuania, a 30% share in NBT Brunei, a 30% share in Inchcape JLR Europe, a
10% share of Subaru Australia and 6% of the Motor Engineering Company of
Ethiopia.
Dividend: The Board has declared a final dividend of 16.1p per ordinary share
which will be paid on 21 June 2022 to shareholders on the register at close of
business on 13 May 2022. This follows an interim dividend of 6.4p, and takes
the total dividend in respect of FY21 to 22.5p (2020: 6.9p). The Dividend
Reinvestment Plan is available to ordinary shareholders and the final date for
receipt of elections to participate is 27 May 2022.
Cash flow and net debt: The Group generated free cash flow of £289m (2020:
£177m) driven primarily by an improvement in profitability, the level of
working capital and continued careful capital allocation. After the proceeds
received from our Retail disposals, as well as the acquisition of the
Distribution business in Guatemala and Morrico in Guam, the Group had net cash
excluding lease liabilities of £379m (2020: £266m). Including lease
liabilities (IFRS 16), the Group had net funds of £55m (2020: net debt of
£67m).
Capital expenditure: During 2021, the Group incurred net capital expenditure
of £40m (2020: £35m), consisting of £65m of capital expenditure and £25m
of proceeds from the sale of property. In 2022, we continue to expect net
capital expenditure of less than 1% of Group sales.
Financing: As at 31 December 2021, the committed funding facilities of the
Group comprised a syndicated revolving credit facility of £700m (2020:
£700m) and sterling Private Placement loan notes totalling £210m (2020:
£210m). As at 31 December 2021, none of the £700m syndicated revolving
credit facility was drawn (£nil as at 31 December 2020).
Acquisitions: In 2021 the Group continued to further expand its distribution
footprint, completing four deals during the year. Towards the end of the
fourth quarter the Group agreed terms to acquire an additional distribution
business: Simpson Motors in the Caribbean. The deal remains subject to
customary conditions, and upon completion (anticipated in the first half of
2022) we expect an aggregate cash outflow of c.£60m.
Pensions: At 31 December 2021, the IAS 19 net post-retirement surplus was
£82m (2020: £20m), with the increase driven largely by a rise in the
discount rate used to determine the value of scheme liabilities. In line with
the funding programme agreed with the Trustees, the Group made additional cash
contributions to the UK pension schemes amounting to £4m (2020: £4m).
Discussions with the Trustees of the Inchcape Motors Pension Scheme in respect
of the actuarial valuation as at 5 April 2019 were finalised during the first
half of the year and the Group has agreed to contribute an additional £3m per
annum to the scheme over the next seven years.
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.
£m Use of Metric
Metric
Gross Profit 1,140.9 Direct profit contribution from Value Drivers (e.g. Vehicles and Aftersales)
Less: Segment operating expenses (812.8)
Operating Profit (before exceptional Items)(1) 328.1 Profit generated by the Group
Less: Exceptional items (101.2)
Operating Profit 226.9 Statutory measure of Operating Profit
Less: Net Finance Costs (32.1)
Profit Before Tax 194.8 Statutory measure of profit after the costs of financing the Group
Add back: Exceptional Items 101.2
Profit Before Tax & Exceptional Items(1) 296.0
1. APM (alternative performance measure), see note 13
Reconciliation of free cash flow(1)
2021 2021 2020 2020
£m
£m
£m
£m
Net cash generated from operating activities 377.0 249.2
Add back: Payments in respect of exceptional items 12.0 24.3
Net cash generated from operating activities, before exceptional items 389.0 273.5
Purchase of property, plant and equipment (48.5) (27.4)
Purchase of intangible assets (16.1) (14.5)
Proceeds from disposal of property, plant and equipment 24.6 6.7
Net capital expenditure (40.0) (35.2)
Net payment in relation to leases (57.0) (56.7)
Dividends paid to non-controlling interests (3.0) (4.3)
Free cash flow 289.0 177.3
1. APM (alternative performance measure), see note 13
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)
2021 2020
£m
£m
Operating profit (before exceptional items) 328.1 164.1
Net assets 1,130.5 1,061.2
Less (net funds) / add net debt (54.7) 66.5
Capital employed 1,075.8 1,127.7
Effect of averaging 26.0 200.0
Average capital employed 1,101.8 1,327.7
Return on capital employed 29.8% 12.4%
1. APM (alternative performance measure), see note 13
Net cash(1)
2021 2020
£m
£m
Net funds / (net debt) 54.7 (66.5)
Add back: lease liabilities 324.1 332.8
Net cash 378.8 266.3
1. APM (alternative performance measure), see note 13
Risks
Principal business risks
The Board has reassessed the principal business risks which could impact the
performance of the Group. These include:
Strategic risks, including:
§ Loss of distribution contract;
§ Threats to the Group's role in the value chain, driven by digital
technologies and new business models;
§ Delivery of business transformation and change programmes;
§ The attraction and development of future skill sets;
§ Optimising the supply of electric vehicles to meet changing demand; and
§ Achieving optimal returns from acquisitions.
Material operational risks, including:
§ Covid-19;
§ Disruptions to the supply of vehicles and parts;
§ A major cyber incident / data breach;
§ Loss of technology systems;
§ Political risks / social unrest;
§ Health, safety and environmental incidents;
§ Legal / regulatory compliance;
§ Foreign exchange volatility; and
§ Risks of fraud or financial mis-statement.
The materialisation of these risks could have an adverse effect on the Group's
results or financial condition. If more than one of these risks occur, the
combined overall effect of such events may be compounded. The Group faces many
other risks which, although important and subject to regular review, have been
assessed as less significant and are not listed here. These include, for
example, natural catastrophe and business interruption risks and certain
financial risks.
The Group has defined and implemented systems of risk management and internal
control designed to address these risks. These systems can offer reasonable,
but not absolute assurance, regarding the management of these risks to an
acceptable level. In particular, the effectiveness of these systems may change
over time, for example with acquisitions or disposals or as the business
implements major change programmes. The effectiveness of these systems are
reviewed annually by the Audit Committee and improvements are made as
required.
Appendix - business models
Distribution
Americas & Africa
Country Brands
Argentina Subaru, Suzuki
Barbados (+) Chrysler, Freightliner, FUSO, Isuzu, JCB, Jeep, John Deere, Mercedes-Benz,
Subaru, Suzuki, Western Star
Chile BMW, BMW Motorrad, DFSK, Geely, Hino, MINI, Rolls Royce, Subaru,
Colombia DFSK, Dieci, Doosan, Hino, Jaguar, Land Rover, Mack, Mercedes-Benz, Subaru
Costa Rica Changan, JAC, Suzuki
Ecuador Freightliner, Mercedes-Benz, Western Star
El Salvador Freightliner, Mercedes-Benz, Western Star
Guatemala Freightliner, Mercedes-Benz, Western Star
Panama Suzuki
Peru BMW, BMW Motorrad, BYD, DFSK, MINI, Subaru
Uruguay Freightliner, Fuso, Mercedes-Benz
Djibouti BMW, Komatsu, Toyota
Ethiopia BMW, Hino, Komatsu, New Holland, Suzuki, Toyota
Kenya BMW, BMW Motorrad, Jaguar, Land Rover
APAC
Country Brands
Brunei Lexus, Toyota
Guam (+) BMW, Chevrolet, Freightliner, Hyundai, Kohler, Lexus, New Holland, Toyota
Hong Kong Daihatsu, Ford, Hino, Jaguar, Land Rover, Lexus, Maxus, Toyota
Indonesia Jaguar, Land Rover
Macau Daihatsu, Ford, Hino, Jaguar, Land Rover, Lexus, Maxus, Toyota
Saipan Toyota
Singapore Hino, Lexus, Suzuki, Toyota
Thailand Jaguar, Land Rover
Australia Citroen, Peugeot, Subaru
New Zealand Subaru
Europe
Country Brands
Belgium Lexus, Toyota
Bulgaria Lexus, Toyota
Estonia BMW, BMW Motorrad, Ford, Jaguar, Land Rover, Mazda, MINI
Finland Jaguar, Land Rover, Mazda
Greece Lexus, Toyota
Latvia BMW, BMW Motorrad, Ford, Jaguar, Land Rover, Mazda, MINI
Lithuania BMW, BMW Motorrad, Ford, Hyundai, Jaguar, Land Rover, Mazda, MINI, Rolls-Royce
Luxembourg Lexus, Toyota
North Macedonia Lexus, Toyota
Poland Jaguar, Land Rover
Romania Lexus, Toyota
Retail
Country Brands
Australia(1) Isuzu Ute, Jeep, Kia, Mitsubishi, VW
Poland BMW, BMW Motorrad, MINI
Russia Audi, BMW, Jaguar, Land Rover, Lexus, MINI, Rolls Royce, Toyota, Volvo
UK Audi, BMW, Jaguar, Land Rover, Lexus, Mercedes-Benz, MINI, Porsche, Smart,
Toyota, Volkswagen
1: Following scale disposal of retail businesses in Australia, Retail is no
longer reported as a separate segment in APAC
(+): indicates the base of the core distribution operations which also serves
other neighbouring islands
Consolidated income statement
for the year ended 31 December 2021
Notes Before exceptional items Exceptional items Total Before exceptional items Exceptional items Total
2021
(note 3)
2021
2020
(note 3)
2020
£m
2021
£m
2020
£m (restated)(1)
(restated)(1)
£m (restated)(1)
£m
£m
Revenue 2 7,640.1 - 7,640.1 6,837.8 - 6,837.8
Cost of sales (6,499.2) - (6,499.2) (5,948.4) (11.6) (5,960.0)
Gross profit 1,140.9 - 1,140.9 889.4 (11.6) 877.8
Net operating expenses (812.8) (101.2) (914.0) (725.3) (245.5) (970.8)
Operating profit / (loss) 2,3 328.1 (101.2) 226.9 164.1 (257.1) (93.0)
Share of profit after tax of joint ventures and associates - - - - - -
Profit / (loss) before finance and tax 328.1 (101.2) 226.9 164.1 (257.1) (93.0)
Finance income 4 12.5 - 12.5 14.4 - 14.4
Finance costs 5 (44.6) - (44.6) (51.0) - (51.0)
Profit / (loss) before tax 296.0 (101.2) 194.8 127.5 (257.1) (129.6)
Tax 6 (71.6) (1.3) (72.9) (33.7) 24.2 (9.5)
Profit / (loss) for the year 224.4 (102.5) 121.9 93.8 (232.9) (139.1)
Profit / (loss) attributable to:
- Owners of the parent 117.0 (142.0)
- Non-controlling interests 4.9 2.9
121.9 (139.1)
Basic earnings / (loss) per share (pence) 7 30.0p (36.0)p
Diluted earnings / (loss) per share (pence) 7 29.6p (36.0)p
1. See note 1.
Consolidated statement of comprehensive income
for the year ended 31 December 2021
Notes 2021 2020
£m
(restated)(1)
£m
Profit / (loss) for the year 121.9 (139.1)
Other comprehensive income / (loss):
Items that will not be reclassified to the consolidated income statement
Changes in the fair value of equity investments at fair value through other 1.6 (2.7)
comprehensive income
Defined benefit pension scheme remeasurements 58.2 14.8
Deferred tax recognised in consolidated statement of comprehensive income (0.4) (2.5)
59.4 9.6
Items that may be or have been reclassified subsequently to the consolidated
income statement
Cash flow hedges
- Fair value movements 18.5 (4.7)
Exchange differences on translation of foreign operations (104.3) (42.8)
Recycling of foreign currency reserve 108.2 (8.4)
Current tax recognised in consolidated statement of comprehensive income (2.3) 0.3
Deferred tax recognised in consolidated statement of comprehensive income (0.5) (0.9)
19.6 (56.5)
Other comprehensive income / (loss) for the year, net of tax 79.0 (46.9)
Total comprehensive income / (loss) for the year 200.9 (186.0)
Total comprehensive income / (loss) attributable to:
- Owners of the parent 196.8 (189.3)
- Non-controlling interests 4.1 3.3
200.9 (186.0)
1. See note 1.
Consolidated statement of financial position
as at 31 December 2021
Notes 2021 2020 1 January 2020
£m
(restated)(1) (restated)(1)
£m
£m
Non-current assets
Intangible assets 394.1 425.8 554.4
Property, plant and equipment 548.0 569.8 695.1
Right-of-use assets 261.4 257.3 313.3
Investments in joint ventures and associates 4.9 2.4 4.3
Financial assets at fair value through other comprehensive income 4.8 3.6 6.9
Derivative financial instruments 3.0 - -
Trade and other receivables 45.4 49.2 38.7
Deferred tax assets 67.4 70.5 60.9
Retirement benefit asset 135.3 101.0 78.7
1,464.3 1,479.6 1,752.3
Current assets
Inventories 1,134.7 1,216.2 1,566.9
Trade and other receivables 324.1 369.6 512.3
Financial assets at fair value through other comprehensive income 0.2 0.2 0.2
Derivative financial instruments 24.6 13.3 16.2
Current tax assets 9.0 20.6 21.6
Cash and cash equivalents 9 596.4 481.2 423.0
2,089.0 2,101.1 2,540.2
Assets held for sale and disposal group 4.8 31.2 149.4
2,093.8 2,132.3 2,689.6
Total assets 3,558.1 3,611.9 4,441.9
Current liabilities
Trade and other payables (1,548.3) (1,610.3) (1,996.4)
Derivative financial instruments (31.9) (42.4) (27.4)
Current tax liabilities (63.0) (65.0) (82.4)
Provisions (34.9) (26.8) (23.0)
Lease liabilities (56.5) (58.5) (56.8)
Borrowings (7.6) (6.1) (50.1)
(1,742.2) (1,809.1) (2,236.1)
Liabilities directly associated with the disposal group - (7.7) (106.1)
(1,742.2) (1,816.8) (2,342.2)
Non-current liabilities
Trade and other payables (63.2) (69.3) (77.2)
Provisions (23.4) (19.8) (12.9)
Deferred tax liabilities (68.1) (79.1) (96.7)
Lease liabilities (267.6) (274.3) (296.0)
Borrowings (210.0) (210.0) (270.0)
Retirement benefit liability (53.1) (81.4) (69.2)
(685.4) (733.9) (822.0)
Total liabilities (2,427.6) (2,550.7) (3,164.2)
Net assets 1,130.5 1,061.2 1,277.7
Equity
Share capital 38.5 39.4 40.0
Share premium 146.7 146.7 146.7
Capital redemption reserve 142.1 141.2 140.6
Other reserves (227.1) (248.2) (190.4)
Retained earnings 1,008.7 962.8 1,120.5
Equity attributable to owners of the parent 1,108.9 1,041.9 1,257.4
Non-controlling interests 21.6 19.3 20.3
Total equity 1,130.5 1,061.2 1,277.7
1. See note 1.
Duncan Tait, GROUP CHIEF EXECUTIVE Gijsbert de Zoeten, CHIEF
FINANCIAL OFFICER
Consolidated statement of changes in equity
for the year ended 31 December 2021
Notes Share capital Share premium £m Capital redemption reserve Other reserves £m Retained earnings £m Total equity attributable to owners of the parent £m Non-controlling interests Total shareholders' equity
£m
£m
£m
£m
At 1 January 2020 40.0 146.7 140.6 (190.4) 1,141.4 1,278.3 20.3 1,298.6
Adjustment for IFRIC ("SaaS") - - - - (20.9) (20.9) - (20.9)
At 1 January 2020 (restated)(1) 40.0 146.7 140.6 (190.4) 1,120.5 1,257.4 20.3 1,277.7
(Loss) / profit for the year (restated)(1) - - - - (142.0) (142.0) 2.9 (139.1)
Other comprehensive loss for the year (restated)(1) - - - (59.3) 12.0 (47.3) 0.4 (46.9)
Total comprehensive loss for the year (restated)(1) - - - (59.3) (130.0) (189.3) 3.3 (186.0)
Hedging gains and losses transferred to inventory - - - 1.5 - 1.5 - 1.5
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 1 January 2021 (restated)(1) 39.4 146.7 141.2 (248.2) 962.8 1,041.9 19.3 1,061.2
Profit for the year - - - - 117.0 117.0 4.9 121.9
Other comprehensive income - - - 22.0 57.8 79.8 (0.8) 79.0
for the year
Total comprehensive income - - - 22.0 174.8 196.8 4.1 200.9
for the year
Hedging gains and losses transferred to inventory - - - (0.9) - (0.9) - (0.9)
Share-based payments, net of tax - - - - 10.0 10.0 - 10.0
Share buyback programme (0.9) - 0.9 - (80.5) (80.5) - (80.5)
Purchase of own shares by the Inchcape Employee Trust - - - - (6.2) (6.2) - (6.2)
Transactions with non-controlling interests - - - - - - 1.2 1.2
Dividends:
- Owners of the parent 8 - - - - (52.2) (52.2) - (52.2)
- Non-controlling interests - - - - - - (3.0) (3.0)
At 31 December 2021 38.5 146.7 142.1 (227.1) 1,008.7 1,108.9 21.6 1,130.5
1. See note 1.
Share-based payments include a net tax credit of £1.6m (current tax charge of
£nil and a deferred tax credit of £1.6m) (2020 - net tax credit of £0.4m
(current tax charge of £nil and a deferred tax credit of £0.4m)).
Consolidated statement of cash flows
for the year ended 31 December 2021
Notes 2021 2020
£m
(restated)(1)
£m
Cash generated from operating activities
Cash generated from operations 9 469.2 333.2
Tax paid (63.8) (51.8)
Interest received 12.2 13.9
Interest paid (40.6) (46.1)
Net cash generated from operating activities 377.0 249.2
Cash flows from investing activities
Acquisition of businesses, net of cash and overdrafts acquired 10 (20.2) (31.5)
Net cash inflow from sale of businesses 10 76.2 71.8
Net cash inflow from disposal of investments in joint ventures and associates - 2.0
Purchase of investment in joint ventures and associates (2.6) -
Purchase of property, plant and equipment (48.5) (27.4)
Purchase of intangible assets (16.1) (14.5)
Proceeds from disposal of property, plant and equipment 24.6 6.7
Proceeds from disposal of intangible assets - 0.2
Payments made before the commencement date of a lease (2.5) -
Receipt from finance sub-lease receivables 2.3 0.7
Net cash generated from investing activities 13.2 8.0
Cash flows from financing activities
Share buyback programme (80.5) (32.1)
Purchase of own shares by the Inchcape Employee Trust (6.2) -
Cash inflow from Covid Corporate Financing Facility - 99.6
Repayment of Covid Corporate Financing Facility - (99.6)
Cash outflow from other borrowings (12.7) (66.1)
Payment of capital element of lease liabilities (59.3) (57.4)
Transactions with non-controlling interests 1.2 -
Equity dividends paid 8 (52.2) -
Dividends paid to non-controlling interests (3.0) (4.3)
Net cash used in financing activities (212.7) (159.9)
Net increase in cash and cash equivalents - 177.5 97.3
Cash and cash equivalents at beginning of the period 476.3 379.2
Effect of foreign exchange rate changes (65.0) (0.2)
Cash and cash equivalents at the end of the year 588.8 476.3
Cash and cash equivalents consist of:
- Cash at bank and cash equivalents 9 501.8 378.5
- Short-term deposits 9 94.6 102.7
- Bank overdrafts (7.6) (6.1)
- Cash at bank and cash equivalents included in disposal groups held for - 1.2
sale
588.8 476.3
1. See note 1.
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 United
Kingdom 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 2020 and 2021 do not constitute statutory accounts within the meaning
of Section 434 of the Companies Act 2006. The financial information for the
year ended 31 December 2020 is derived from the statutory accounts for that
year which have been delivered to the Registrar of Companies. The report of
the auditors on those accounts was unqualified, did not draw attention to any
matters by way of emphasis and did not contain a statement under s498(2) or
(3) of the Companies Act 2006. The financial information presented for the
year ended 31 December 2021 is unaudited as the audit of the statutory
accounts for that year is not yet complete. The audited statutory financial
information will be published in the Inchcape Annual Report and Accounts.
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 2020 with the exception of the following standards, amendments
and interpretations which have been newly adopted from 1 January 2021:
Newly adopted accounting policies
From 1 January 2021, the following standards became effective in the Group's
consolidated financial statements:
• Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Interest rate
benchmark reform - Phase 2; and
• Amendments to IFRS 16 - Covid-19 Related Rent Concessions beyond 30 June
2021.
The impact of adopting the amendments to IFRS 9, IAS39, IFRS7, IFRS4 and
IFRS16 as a result of interest rate benchmark reform is described below. The
adoption of the amendments due to IFRS 16 COVID-19 Related Rent Concessions
beyond 30 June 2021 has not led to any changes to the Group's accounting
policies or had any other material impact on the financial position or
performance of the Group.
Additionally, due to an IFRS Interpretations Committee's agenda decision on
'Software as a Service' ('SaaS') arrangements, the Group's accounting policy
has changed relating to the capitalisation of software costs. The impact on
the Group's accounting policy is further discussed below.
All other accounting policies have been applied consistently throughout the
reporting period. The Group has not early adopted other standards, amendments
to standards or interpretations that have been issued but are not yet
effective.
Interest rate benchmark reform
The Group has adopted the 'interest rate benchmark reform' amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 in the current financial year.
The Group had a number of contracts in the UK with OEM's that make reference
to LIBOR. At the end of the reporting period all contracts in scope for
amendment had been renegotiated to use the Sterling Overnight Index Average
(SONIA) based rate. We will continue to monitor the renegotiation of vehicle
funding arrangements throughout the Group that make reference to other
Interbank Offered Rates (IBOR) based rates which did not expire during the
reporting period.
Our syndicated rolling credit facility incurred interest charged upon a LIBOR
based rate. This was renegotiated during 2021 to SONIA. The Group have a total
of £nil drawdown on the facility as at 31 December 2021.
Software as a service - accounting for configuration and customisation costs
The Group has changed its accounting policy related to the capitalisation of
certain software costs. This change follows the IFRS Interpretations
Committee's agenda decisions published in April 2021 and relates to the
capitalisation of costs of configuring or customising application software
under 'Software as a Service' ('SaaS') arrangements.
The Group's accounting policy has historically been to capitalise costs
directly attributable to the configuration and customisation of such
arrangements as intangible assets on the balance sheet. Following the adoption
of the IFRIC agenda guidance, current SaaS arrangements were identified and
assessed to determine if the Group had control of the software. For those
arrangements where it was determined that the Group did not have control of
the developed software, to the extent that the services were considered
distinct from the access to the software, the Group derecognised the
intangible asset previously capitalised. Amounts paid to the supplier for
implementation and customisation services that cannot be performed by third
parties, are amortised over the underlying contract period.
The change in accounting policy has resulted in a reduction in the value of
the intangible assets recognised as at 1 January 2020 and 31 December 2020 by
£23.5m and £24.4m respectively. The comprehensive income reported for the
year ended 31 December 2020 has reduced by £1.9m on account of a
corresponding increase in operating expenses within administrative expenses. A
third balance sheet as at 1 January 2020 has been presented in accordance with
IAS 1 to disclose the impact of the change.
Going concern
Based on the Group's cash flow forecasts and projections, the Board is
satisfied that the Group will 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 ongoing 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 2022 and 2023 cash flows, together with adjusted
scenarios. The forecasts used reflect the latest view on the economic impact
of Covid-19 on the markets in which the Group operates, with a key emphasis on
the latest Group forecasts for 2022 and 2023.
Committed bank facilities and Private Placement borrowings totalling £910m,
of which £210m was drawn at 31 December 2022, are subject to the same
interest cover covenant based on an adjusted EBITA measure to interest on
consolidated borrowings measured on a trailing 12-month basis at June and
December.
The latest Group forecasts for 2022 and 2023 indicate that the Group is
expected to be compliant with this covenant throughout the forecast period and
have sufficient liquidity to continue operating throughout that period.
A range of sensitivities has been applied to the forecasts to assess the
Group's compliance with its covenant requirements over the forecast period.
These sensitivities included:
§ further periods of Covid-19 restrictions similar in nature and impact to
those seen both in the second half of 2020 and the first half of 2021,
impacting half of the Group's markets simultaneously for a period of time in
2022;
§ a reduction in New and Used vehicle sales due to a short-term shortage of
semi-conductor chips, reducing gross profit in the second half of 2022 and the
first half of 2023;
§ 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 2022 and 2023. 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 June 2022 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.
Additionally, reverse stress test scenario analysis has been conducted to
assess the 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 the Group's markets in the first
half of 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 four 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.
Therefore, the board concluded that the group will be able to operate within the level of its committed facilities for the foreseeable future. The directors consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements for the year ending 31 December 2021.
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 indefinite life intangible assets
In the year, an impairment charge of £12.9m against goodwill has been
recognised in the income statement, offset by a reversal of £12.9m against
indefinite life intangible assets. The most significant judgement that could
materially impact the charge is in relation to the sensitivity of the
assumptions applied to the value in use calculations performed over the
Americas - Suzuki CGU groups.
Goodwill and other indefinite life intangible assets are tested at least
annually for impairment. When an impairment review is carried out, the
recoverable value is determined based on value in use calculations which
require the use of estimates, including projected future cash flows (see note
11).
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, the
level of working capital required to support trading, discount rates,
long-term growth rate and capital expenditure. For CGU groups in the Americas
& 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 10 using these long-term growth rates. For
all other markets, a terminal value calculation is used to estimate the cash
flows after year five.
The 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.
Goodwill and distribution agreements
Goodwill acquired in a business combination has been allocated to the cash
generating units (CGUs) or group of CGUs (hereafter collectively referred to
as 'CGU groups') that are expected to benefit from the synergies associated
with that business combination.
Indefinite-life intangible assets, principally distribution agreements
acquired in a business combination, are also allocated to the CGUs or CGU
groups that are expected to benefit from the cash flows associated with the
relevant agreements.
These CGUs or CGU groups represent the lowest level within the Group at which
the associated goodwill or indefinite-life intangible asset is monitored for
management purposes. The carrying amount of goodwill and indefinite-life
intangible assets has been allocated to CGU groups within the following
reporting segments:
Reporting segment CGU group Goodwill 2021 Distribution agreements 2021 Total Goodwill 2020 Distribution agreements Total
£m
£m
2021
£m
2020
2020
£m
£m
£m
UK & Europe Distribution Baltics - BMW 5.8 27.2 33.0 6.2 28.9 35.1
Americas & Africa Distribution Americas - Daimler 5.8 29.7 35.5 4.4 27.7 32.1
Americas - Hino/Subaru 39.8 116.3 156.1 47.2 137.8 185.0
Americas - Suzuki 24.8 65.8 90.6 37.6 52.2 89.8
Kenya 1.1 - 1.1 1.1 - 1.1
APAC Distribution Singapore 22.3 - 22.3 22.5 - 22.5
Guam 16.7 - 16.7 - - -
116.3 239.0 355.3 119.0 246.6 365.6
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 2021.
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 allocated to the CGU or CGU group.
The value in use calculations mainly use cash flow projections based on
five-year financial projections prepared by management. The key assumptions
for these projections 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 and expectations about continuing
relationships with key brand partners. The calculations also incorporate the
expected impact of climate change. Several climate-related risks have been
identified and assessed as to their relevance and potential impact on the
Group. Transition risks, as outlined by the TCFD, are considered to be of
greater risk in the medium to long-term, particularly in those markets where
the Group acts as a distributor and the potential future actions of an OEM
partner are not aligned with that of the market.
An estimate of the impact of the transition to electric vehicles across our
CGUs has been factored into the testing performed. Using key data inputs
available such as electric vehicle penetration forecasts and market maturity
for such vehicles in the markets in which we operate. These possible impacts
are reflected in the impairment models through adjustments to both market
share and aftersales margin. Considering climate change is not expected to
have a significant impact on short-term forecasts, these adjustments have been
applied to the outer years in the impairment models. 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 & 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 10 using these
long-term growth rates. For all other markets, a terminal value calculation is
used to estimate the cash flows after year five.
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:
2021 UK Retail Baltics Americas - Daimler Americas - Hino/Subaru Americas - Suzuki Kenya Singapore Australia Retail Peugeot Citroën Australia
Pre-tax discount rate (%) - 6.9 12.9 10.6 11.7 14.7 6.8 - -
Long-term growth rate (%) - 2.1 2.3 2.9 2.5 5.1 1.5 - -
2020 UK Retail Baltics Americas - Daimler Americas - Subaru/Hino Americas - Suzuki Kenya Singapore Australia Retail Peugeot Citroën 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
Indefinite-life intangible assets:
2021 Baltics - Americas - Daimler Americas - Hino Americas - Subaru Americas - Suzuki
BMW
Pre-tax discount rate (%) 6.9 12.9 11.9 11.0 11.7
Long-term growth rate (%) 2.1 2.3 3.1 3.1 2.5
2020 Baltics - Americas - Daimler Americas - Hino Americas - Subaru Americas - Suzuki
BMW
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
Impairment
Americas - Suzuki
In 2020, the region was heavily affected by the impact of Covid-19, the
resulting financial forecasts triggering an impairment charge of £6.2m
against goodwill and £31.2m against the Suzuki distribution agreement.
In 2021, trading momentum has been above management expectations with revenue
tracking above 2020 levels and profitability exceeding original projections as
the region recovered from the pandemic. Based on the impairment assessment
carried out, forecast assumptions continue to expect the business to grow and
improve its profitability over the next five years. The forecasts applied in
the model considered the historical performance achieved by the business, the
expected short-term impact of the semi-conductor chip shortage affecting the
global automotive industry and the potential impact of climate change on the
market.
The impairment models for the Americas - Suzuki CGU have two contrasting
outcomes. The assessment performed over the Suzuki distribution agreement
indicates an amount of headroom of £12.9m and therefore a partial reversal of
the charge taken in 2020 is required. Conversely, the goodwill model indicates
a further impairment of goodwill is required of £12.9m. This
re-classification of impairment charges / reversals on the balance sheet is
due to the forecast performance of the Suzuki brand in the market relative to
the other brands represented which form only a small component of the CGU.
The recoverable value of the CGU was determined based on value-in-use
calculations, consistent with the approach used as at 31 December 2020. Cash
flows were discounted back to present value using a pre-tax discount rate of
11.7% (2020 - 12.2%) and resulted in the impairment of the goodwill balance of
£12.9m and a partial reversal of the impairment of the distribution agreement
recognised in 2020 of £12.9m.
As at 31 December 2021, the recoverable amount of the CGU was £117.6m. The
cash flows used within the impairment models 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 indefinite-life intangible asset
impairment model using reasonably possible changes in these key assumptions.
Increase / (decrease) in assumption impairment charge Impairment credit
£m £m
Revenue CAGR (%) (1.0%) / 1.0% (17.5) 20.3
Pre-tax discount rate (%) 1.0% / (1.0%) (14.3) 18.6
Average gross margin (%) (0.5%) / 0.5% (9.1) 9.1
Long-term growth rate (%) (0.5%) / 0.5% (5.3) 7.1
Other CGUs
The Group's value in use calculations are sensitive to a change in the key
assumptions used. However, 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.
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.
In 2020, 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 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 were maintained as a separate
reportable segment. In 2020, this segment solely represents the disposed of
businesses in Australia.
The Group reports the performance of its reporting segments after the
allocation of central costs. These represent costs of Group functions.
The following summary describes the operations of each of the Group's
reportable segments:
Distribution APAC, Exclusive distribution, sales and marketing activities of New Vehicles and
UK & Europe, Parts.
Americas & Africa Sale of New and Used Vehicles together with logistics services where the Group
may also be the exclusive distributor, alongside associated Aftersales
activities of service, bodyshop repairs and parts sales
Retail APAC, Sale of New and Used Vehicles, together with associated Aftersales activities
UK & Europe of service, bodyshop repairs and parts sales
Distribution Retail
2021 APAC UK & Europe Americas & Africa Total Distribution APAC UK & Europe Total Total
£m
£m
£m
£m
£m
£m
Retail
£m
£m
Revenue
Total revenue 2,146.9 1,476.4 1,048.4 4,671.7 - 2,968.4 2,968.4 7,640.1
Results
Operating profit before exceptional items 127.8 41.4 76.8 246.0 - 82.1 82.1 328.1
Operating exceptional items (101.2)
Operating profit after exceptional items 226.9
Share of profit after tax of joint ventures and associates -
Profit before finance and tax 226.9
Finance income 12.5
Finance costs (44.6)
Profit before tax 194.8
Tax (72.9)
Profit for the year 121.9
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:
2021 £m
UK 1,894.3
Australia 1,003.6
Russia 852.8
Rest of the world 3,889.4
Group 7,640.1
Distribution Retail
2021 APAC UK & Europe Americas & Africa Total Distribution APAC UK & Europe Total Total
£m
£m
£m
£m
£m
£m
Retail
£m
£m
Segment assets and liabilities
Segment assets 428.9 256.4 336.1 1,021.4 - 489.9 489.9 1,511.3
Other current assets 629.8
Other non-current assets 1,417.0
Segment liabilities (633.9) (261.1) (318.6) (1,213.6) - (407.6) (407.6) (1,621.2)
Other liabilities (806.4)
Net assets 1,130.5
Segment assets include net inventory, receivables and derivative assets.
Segment liabilities include payables, provisions and derivative liabilities.
Distribution Retail
2021 APAC UK & Europe Americas & Africa Total Distribution APAC UK & Europe Total Total
£m
£m
£m
£m
£m
£m
Retail
£m
£m
Other segment items
Capital expenditure:
- Property, plant and equipment 10.7 5.1 12.4 28.2 - 21.2 21.2 49.4
- Interest in leased vehicles 1.8 2.0 0.1 3.9 - - - 3.9
- Right-of-use assets 29.1 1.6 7.8 38.5 - 6.2 6.2 44.7
- Intangible assets 4.1 4.6 2.8 11.5 - 4.3 4.3 15.8
Depreciation:
- Property, plant and equipment 7.7 3.7 7.2 18.6 - 11.4 11.4 30.0
- Interest in leased vehicles 2.0 0.2 0.3 2.5 - - - 2.5
- Right-of-use assets 25.3 4.7 9.3 39.3 - 10.6 10.6 49.9
Amortisation of intangible assets 11.5 13.2 3.4 28.1 - 4.9 4.9 33.0
Impairment of goodwill - - 12.9 12.9 - - - 12.9
Impairment of distribution agreements - - (12.9) (12.9) - - - (12.9)
Impairment of other intangible assets 0.1 - 0.1 0.2 - - - 0.2
Impairment of property, plant and equipment - 0.4 0.3 0.7 - (2.6) (2.6) (1.9)
Impairment of right-of-use assets 0.3 - 0.6 0.9 - 0.2 0.2 1.1
Impairment of assets held for sale - - 1.5 1.5 - - - 1.5
Net provisions charged / (credited) to the consolidated income statement 10.7 3.0 8.0 21.7 - 5.7 5.7 27.4
Net provisions include inventory, trade receivables impairment and other
liability provisions.
Distribution Retail
2020 (restated)(1) APAC UK & Europe Americas Total Distribution £m APAC UK & Europe Total Total
£m
£m
£m
£m
Retail
£m
& Africa
£m
£m
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 80.3 25.0 34.2 139.5 0.4 24.2 24.6 164.1
Operating exceptional items (257.1)
Operating loss after exceptional items (93.0)
Share of profit after tax of joint ventures and associates -
Loss before finance and tax (93.0)
Finance income 14.4
Finance costs (51.0)
Loss before tax (129.6)
Tax (9.5)
Loss for the year (139.1)
1. See note 1.
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 £m
UK 1,978.9
Australia 838.7
Russia 835.6
Rest of the world 3,184.6
Group 6,837.8
Distribution Retail
2020 (restated)(1) APAC UK & Europe Americas Total Distribution £m APAC UK & Europe Total Total
£m
£m
£m
£m
Retail
£m
& Africa
£m
£m
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 1,432.2
Segment liabilities (602.1) (295.8) (299.3) (1,197.2) - (566.4) (566.4) (1,763.6)
Other liabilities (787.1)
Net assets 1,061.2
1. See note 1.
Segment assets include net inventory, receivables and derivative assets.
Segment liabilities include payables, provisions and derivative liabilities.
Distribution Retail
2020 (restated)(1) APAC UK & Europe Americas Total Distribution £m APAC UK & Europe Total Total
£m
£m
£m
£m
Retail
£m
& Africa
£m
£m
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 6.1 2.6 2.0 10.7 - 4.2 4.2 14.9
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 6.3 3.2 2.1 11.6 - 3.0 3.0 14.6
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
1. See note 1.
Net provisions include inventory, trade receivables impairment and other
liability provisions.
3 Exceptional items
2021 2020
£m
£m
Goodwill and distribution agreement impairments - (128.7)
Other asset write-offs and impairments 2.9 (94.3)
Inventory and other provisions - (11.9)
Disposal of businesses (67.3) 1.9
Restructuring costs (13.3) (28.4)
Acquisition of businesses (3.4) (4.1)
Accelerated amortisation (20.1) -
Other operating exceptional items - 8.4
Total exceptional operating items before tax (101.2) (257.1)
Exceptional tax (see note 6) (1.3) 24.2
Total exceptional items (102.5) (232.9)
Total exceptional items are analysed as follows:
Exceptional cost of sales - (11.6)
Exceptional net operating expenses (101.2) (245.5)
Exceptional tax (see note 6) (1.3) 24.2
Total exceptional items (102.5) (232.9)
During the year, the Group disposed of businesses in the UK, Belgium &
Luxembourg and Russia. The loss on disposal in Russia relates to the sale of
Toyota and Audi retail operations in St. Petersburg. The reported loss
includes a loss of £108.0m relating to the recycling of cumulative exchange
differences previously recognised in other comprehensive income, as required
under IFRS. The disposal of retail sites in the UK and Belgium &
Luxembourg have also been reported as exceptional items as they form part of
the Group-wide disposal of retail operations referred to above.
In 2020, due to the impact of Covid-19 on the Group's operations a review of
the Group's cost base was initiated to identify savings and plan longer-term
changes to the way in which the Group operates. A proposal was approved by the
Board for a planned restructuring activity under which the Group incurred
restructuring costs of £28.4m during 2020. These costs were principally in
relation to redundancy, consultancy and occupancy costs. In 2021, a further
£13.3m of restructuring costs have been recognised, mainly in relation to
Group-wide transformation projects impacting both Finance and IT, encompassing
the potential for sharing back-office services and review of organisational
structures and costs. These costs have been reported as exceptional costs in
line with the Group's policy to report significant Group-wide restructuring
impacting multiple geographies and functions as an exceptional item.
In 2021, the Group started to migrate the Group's existing ERP applications to
a cloud-based solution. This was a strategic decision to consolidate and
upgrade the systems, improve speed and performance and facilitate centralised
support following the transformation of the Information Technology
organisational structure. The new solution has been determined to be Software
as a Service (see note 1) and therefore the existing software assets no longer
fall to be treated as an asset under IAS 38 once the migration to the new
solution has occurred. Consequently, the useful life of the existing assets
has been reassessed and the impact has been accounted for prospectively as a
change in an estimate. This change resulted in a significant increase in the
amortisation recognised for software costs. Accordingly, the incremental
amortisation of £20.1m has been disclosed as an exceptional item in
accordance with the Group's policy.
During the year exceptional operating costs of £3.4m have been incurred in
connection with the acquisition and integration of businesses.
In 2020, due to Covid-19 and the 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 £80.2m and £11.1m in the UK and Australia
respectively. Additionally, further impairment charges were recognised against
the Americas - Suzuki CGU of £6.2m and £31.2m against goodwill and
distribution agreement assets respectively. Exceptional items also include
asset impairments and write-offs of £94.3m following an impairment review of
certain site-based assets across the Group, primarily in the UK, Australia and
Russia.
In 2020, the Group also
• recognised additional inventory and other provisions of £11.9m, which
were determined to be directly attributable to the Covid-19 pandemic and
therefore disclosed as an exceptional charge;
• continued to optimise its retail market portfolio and recognised an
exceptional operating profit of £1.9m related to the disposal of retail sites
in the UK and Australia;
• incurred exceptional operating costs of £4.1m in connection with the
acquisition and integration of businesses. These primarily related to the
Daimler businesses acquired in South America; and
• recognised exceptional other operating items of £8.4m including the
recycling of a cumulative gain previously recorded in OCI which arose due to
the reorganisation of the ownership structure of the Group's operations in the
APAC region.
4 Finance income
2021 2020
£m
£m
Bank and other interest receivable 11.5 11.6
Net interest income on post-retirement plan assets and liabilities 0.3 0.4
Sub-lease finance income 0.6 0.5
Other finance income 0.1 1.9
Total finance income 12.5 14.4
5 Finance costs
2021 2020
£m
£m
Interest payable on bank borrowings 7.8 6.5
Interest payable on Private Placement 6.3 6.6
Finance costs on lease liabilities 10.6 13.9
Stock holding interest 14.1 18.5
Other finance costs 5.8 5.5
Total finance costs 44.6 51.0
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% (2020 - 2.0%).
6 Tax
2021 2020
£m
(restated)(!)
£m
Current tax:
- UK corporation tax 0.1 (0.7)
- Overseas tax 83.0 47.9
83.1 47.2
Adjustments to prior year liabilities:
- UK - (4.8)
- Overseas (4.8) (2.7)
Current tax 78.3 39.7
Deferred tax (5.4) (30.2)
Total tax charge 72.9 9.5
The total tax charge is analysed as follows:
- Tax charge on profit before exceptional items 71.6 33.7
- Tax charge / (credit) on exceptional items 1.3 (24.2)
Total tax charge 72.9 9.5
1. See note 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 charge 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 37.4% (2020 -
-7.3% restated). The effective tax rate before the impact of exceptional items
is 24.2% (2020 - 26.4% restated). The weighted average tax rate is 25.4% (2020
- 25.8% restated). The weighted average tax rate comprises the average
statutory rates across the Group, weighted in proportion to accounting profits
and losses.
During the period, there was a net loss generated by the legal entities within
the UK tax group. Given current forecasts, no net deferred tax asset is
recognised for the losses within the UK and this results in a higher overall
tax expense than expected.
In addition, tax audits in several overseas markets were successfully closed
and so provisions in respect of these audits have been released to offset the
final assessed tax. The net result is a credit to the current tax charge, thus
reducing the tax expense for the period.
The table below explains the differences between the expected tax expense at
the weighted average tax rate and the Group's total tax expense.
2021 2020
£m
(restated)(!)
£m
Profit / (loss) before tax 194.8 (129.6)
Profit / (loss) before tax multiplied by the weighted average tax rate of 49.5 (33.4)
25.4% (2020 - 25.8%)
- Permanent differences 9.0 8.1
- Non-taxable income (3.0) (2.4)
- Prior year items (0.8) (5.1)
- Derecognition / (recognition) of deferred tax assets 7.9 27.6
- Tax audits and settlements (3.3) (4.8)
- Taxes on undistributed earnings 1.6 1.6
- Other items (including tax rate differentials and changes) (0.6) (0.6)
- Goodwill impairment 3.8 20.5
- Acquisition and disposals of businesses 8.9 (1.8)
- Other asset write-offs and impairment (0.1) (0.2)
Total tax charge 72.9 9.5
1. See note 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
2021 2020
£m
(restated)(!)
£m
Profit / (loss) for the year 121.9 (139.1)
Non-controlling interests (4.9) (2.9)
Basic earnings / (loss) 117.0 (142.0)
Exceptional items 102.5 232.9
Adjusted earnings 219.5 90.9
Basic earnings / (loss) per share 30.0p (36.0)p
Diluted earnings / (loss) per share 29.6p (36.0)p
Basic Adjusted earnings per share 56.2p 23.1p
Diluted Adjusted earnings per share 55.6p 22.9p
2021 2020
number
number
Weighted average number of fully paid ordinary shares in issue during the year 391,136,363 394,448,982
Weighted average number of fully paid ordinary shares in issue during the
year:
- Held by the Inchcape Employee Trust (553,006) (535,394)
Weighted average number of fully paid ordinary shares for the purposes of 390,583,357 393,913,588
basic EPS
Dilutive effect of potential ordinary shares 4,506,362 2,616,104
Adjusted weighted average number of fully paid ordinary shares in issue during 395,089,719 396,529,692
the year for
the purposes of diluted EPS
1. See note 1.
Basic earnings / (loss) per share is calculated by dividing the Basic earnings
/ (loss) 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 earnings / (loss) per share is calculated on the same basis as Basic
earnings / (loss) per share with a further adjustment to the weighted average
number of fully paid ordinary shares to reflect the effect of all dilutive
potential ordinary shares. Dilutive potential ordinary shares comprise share
options and other share-based awards.
Basic Adjusted earnings (which excludes 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:
2021 2020
£m
£m
Interim dividend for the six months ended 30 June 2021 of 6.4p per share 25.1 -
(30 June 2020 of nil per share)
Final dividend for the year ended 31 December 2020 of 6.9p per share 27.1 -
(31 December 2019 of nil per share)
52.2 -
A final proposed dividend for the year ended 31 December 2021 of 16.1p per
share is subject to approval by shareholders at the Annual General Meeting and
has not been included as a liability as at 31 December 2021.
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 2021, Inchcape plc's company-only
distributable reserves were £308.4m. 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
2021 2020
£m
£m
Cash flows from operating activities
Operating profit / (loss) 226.9 (93.0)
Exceptional items (see note 3) 101.2 257.1
Amortisation of intangible assets (including non-exceptional impairment 13.1 14.2
charges)
Depreciation of property, plant and equipment (including non-exceptional 30.9 35.3
impairment charges)
Depreciation of right-of-use assets (including non-exceptional impairment 51.0 54.0
charges)
Profit on disposal of property, plant and equipment (4.8) -
Impairment of held for sale assets 1.5 -
Gain on disposal of right-of-use assets (0.9) (1.6)
Share-based payments charge 8.4 3.3
Decrease in inventories 36.3 351.0
Decrease in trade and other receivables 29.7 124.4
Decrease in trade and other payables (22.3) (413.0)
Increase in provisions 10.5 5.1
Pension contributions (more) / less than the pension charge for the year(1) (5.5) 3.3
Decrease in interest in leased vehicles 3.9 15.9
Payments in respect of operating exceptional items (12.0) (24.3)
Other non-cash items 1.3 1.5
Cash generated from operations 469.2 333.2
1. Includes additional payments of £3.7m (2020 - £3.7m).
b. Net debt reconciliation
Liabilities from financing activities Assets
Borrowings Leases Sub-total Cash / bank overdrafts Total
£m
£m
£m
£m
net debt
£m
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 1 January 2021 (210.0) (332.8) (542.8) 476.3 (66.5)
Cash flows 12.7 59.3 72.0 121.5 193.5
Acquisitions (12.7) (1.9) (14.6) (20.2) (34.8)
Disposals - 10.1 10.1 76.2 86.3
New lease liabilities - (68.3) (68.3) - (68.3)
Transferred to liabilities held for sale - (1.3) (1.3) - (1.3)
Foreign exchange adjustments - 10.8 10.8 (65.0) (54.2)
Net funds at 31 December 2021 (210.0) (324.1) (534.1) 588.8 54.7
Net debt is analysed as follows:
2021 2020
£m
£m
Cash and cash equivalents as per the statement of financial position 596.4 481.2
Cash and cash equivalents included in disposal groups held for sale - 1.2
Borrowings - disclosed as current liabilities (7.6) (6.1)
Add back: amounts treated as debt financing (see below) - -
Cash and cash equivalents as per the statement of cash flows 588.8 476.3
Debt financing
Borrowings - disclosed as current liabilities and treated as debt financing - -
(see above)
Borrowings - disclosed as non-current liabilities (210.0) (210.0)
Lease liabilities (324.1) (332.8)
Debt financing (534.1) (542.8)
Net funds / (debt) 54.7 (66.5)
Add back: lease liabilities 324.1 332.8
Net cash 378.8 266.3
Cash and cash equivalents are analysed as follows:
2021 2020
£m
£m
Cash at bank and cash equivalents 501.8 378.5
Short-term deposits 94.6 102.7
596.4 481.2
£71.8m (2020 - £81.2m) 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 1 March 2021, the Group acquired the Mercedes-Benz passenger and commercial
vehicles distribution operations in Guatemala, and the distribution and retail
of Freightliner Trucks in Guatemala and El Salvador, from Grupo Q, for a total
cash consideration of £5.5m. A distribution agreement with a fair value of
£2.8m has been recognised at the date of acquisition. The business was
acquired to strengthen and further expand the Group's partnership with
Daimler-Mercedes-Benz in Central and South America. Goodwill of £1.0m arose
on the acquisition. None of the goodwill is expected to be deductible for tax
purposes.
On 1 December 2021, the Group acquired the full share capital of Morrico
Equipment Holdings Inc, a distributor of new and used heavy equipment
vehicles, including Freightliner, Mercedes-Benz and Hyundai, in Guam and
Micronesia for a total cash consideration of £26.8m, including the settlement
of £12.7m of debt acquired. The business was acquired to expand the Group's
footprint into commercial vehicles in the region. Provisional goodwill of
£16.5m arose on the acquisition. The goodwill is expected to be deductible
for tax purposes.
Revenue and profit contribution
Income statement items Total
£m
Revenue recognised since the acquisition date in the consolidated income 13.5
statement
Profit after tax since the acquisition date in the consolidated income 0.3
statement
Other acquisitions
During the period, the Group acquired inventory assets from Star Motors SA de
CV, a company registered in El Salvador, as well as the Daimler Trucks North
America distribution rights in Ecuador and the distribution rights to Daimler
vans in Colombia. The total cost of these acquisitions was £2.3m.
2021 2020
£m
£m
Cash outflow to acquire businesses, net of cash and overdrafts acquired
Cash consideration 21.9 31.5
Less: Cash acquired (1.7) -
Net cash outflow 20.2 31.5
In December 2021, the Group announced an agreement to acquire Interamericana
Trading Corporation and Simpson Motors, a business based in the Caribbean. The
deal will expand Inchcape's global footprint with entry into the Caribbean,
and will also strengthen the Group's geographic reach with Suzuki,
Mercedes-Benz and Subaru. The transaction remains subject to customary
conditions, including receipt of local regulatory approvals, with completion
anticipated in H1 2022.
Measurement period adjustments
During the year, no adjustments have been made to the fair value of assets and
liabilities acquired in business combinations in 2020 (2020 - £0.7m).
b. Disposals
During the year the Group continued to reduce its retail operations and
disposed of its Toyota and Audi retail business in St Petersburg, Russia,
generating disposal proceeds of £109.6m. In Belgium, the Group disposed of
three retail sites, generating disposal proceeds of £1.9m and two sites in
the UK, generating disposal proceeds of £10.1m. The Group also disposed of
its Retail business in Luxembourg in January 2021 for £4.5m.
Russia Retail UK Retail Belgium & Luxembourg Total
£m
£m
£m
£m
Disposal proceeds, net of disposal costs 107.5 9.4 6.4 123.3
Net assets disposed of (71.3) (8.1) (3.3) (82.7)
Gain on disposal before reclassification of foreign currency translation 36.2 1.3 3.1 40.6
reserve
Recycling of foreign currency translation reserve (108.0) - 0.1 (107.9)
(Loss) / gain on disposal (71.8) 1.3 3.2 (67.3)
Russia Retail UK Retail Belgium & Luxembourg Total
£m
£m
£m
£m
Consideration received, net of disposal costs paid 107.5 9.4 6.4 123.3
Cash & cash equivalents disposed of (46.0) - (1.1) (47.1)
Net cash inflow on disposal of business 61.5 9.4 5.3 76.2
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 major line of business or geographical area of operations.
c. 2020 acquisitions and disposals
On 24 March 2020, the Group acquired the Mercedes-Benz passenger car and
private vans Distribution operations in Colombia from Daimler Colombia S.A.,
for a total cash consideration of £27.1m. A distribution agreement with a
fair value of £14.2m 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.
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 £0.8m.
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 £3.6m. Total goodwill arising
on the transactions was £0.5m.
During 2020, the Group continued to optimise its UK Retail portfolio and
disposed of 13 sites, generating disposal proceeds of £59.5m. In Australia,
two further sites in our Retail business were disposed of in February 2020,
generating disposal proceeds of £6.1m. The Group also received deferred
consideration of £7.9m and incurred £0.4m of costs relating to the disposal
of Retail operations in China in 2019.
11 Foreign currency translation
The main exchange rates used for translation purposes are as follows:
Average rates Year-end rates
2021 2020 2021 2020
Australian dollar 1.84 1.87 1.86 1.78
Chilean peso 1,043.46 1,024.2 1,152.93 973.00
Ethiopian birr 60.21 45.18 66.81 52.91
Euro 1.16 1.13 1.19 1.12
Hong Kong dollar 10.69 10.01 10.55 10.59
Russian rouble 101.55 94.11 101.43 101.21
Singapore dollar 1.85 1.78 1.82 1.81
US dollar 1.38 1.29 1.35 1.37
12 Events after the reporting period
On 15 February 2022, the Group's contract with a broker to purchase its own
shares completed. A further 2,189,677 shares were repurchased, at a cost of
£19.5m, and subsequently cancelled during this period. An amount of £0.2m,
equivalent to the nominal value of the cancelled shares, has been transferred
to the capital redemption reserve.
13 Alternative performance measures
Alternative performance measures (APMs)
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.
Constant currency
Some comparative performance measures are translated at constant exchange
rates, called 'constant currency' measures. This restates the prior period
results at a common exchange rate to the current period and therefore excludes
the impact of changes in exchange rates used for translation.
Performance measure Definition Why we measure it
Gross profit before exceptional items Gross profit before exceptional items. A key metric of the direct profit contribution from the Group's revenue
streams (e.g. Vehicles and Aftersales).
Refer to the consolidated income statement.
Operating profit before exceptional items Operating profit before exceptional items. A key metric of the Group's business performance.
Refer to the consolidated income statement.
Operating margin Operating profit (before exceptional items) divided by revenue. A key metric of operational efficiency, ensuring that we are leveraging global
scale to translate sales growth into profit.
Profit before tax and exceptional items Represents the profit made after operating and interest expense excluding the A key driver of delivering sustainable and growing earnings to shareholders.
impact of exceptional items and before tax is charged. Refer to consolidated
income statement.
Exceptional items Items that are charged or credited in the consolidated income statement which The separate reporting of exceptional items helps provide additional useful
are material and non-recurring in nature. Refer to note 3. information regarding the Group's business performance and is consistent with
the way that financial performance is measured by the Board and the Executive
Committee.
Net capital expenditure Cash outflows from the purchase of property, plant and equipment and A measure of the net amount invested in operational facilities in the period.
intangible assets less the proceeds from the disposal of property, plant and
equipment and intangible assets.
Free cash flow Net cash flows from operating activities, before exceptional cash flows, less A key driver of the Group's ability to 'Invest to Accelerate Growth' and to
normalised net capital expenditure and dividends paid to non-controlling make distributions to shareholders.
interests.
Return on capital employed (ROCE) Operating profit (before exceptional items) divided by the average of opening ROCE is a measure of the Group's ability to drive better returns for investors
and closing capital employed, where capital employed is defined as net assets on the capital we invest.
add net debt / less net funds.
Net funds / (debt) Cash and cash equivalents less borrowings and lease liabilities adjusted for A measure of the Group's net indebtedness that provides an indicator of the
the fair value of derivatives that hedge interest rate or currency risk on overall balance sheet strength.
borrowings. Refer to note 9.
Net cash Cash and cash equivalents less borrowings adjusted for the fair value of A measure of the Group's net indebtedness that provides an indicator of the
derivatives that hedge interest rate or currency risk on borrowings and before overall balance sheet strength and is widely used by external parties.
the incremental impact of IFRS 16 lease liabilities. Refer to note 9.
Constant currency % change Presentation of reported results compared to prior period translated using A measure of business performance which excludes the impact of changes in
constant rates of exchange. exchange rates used for translation.
Organic growth Organic growth is defined as sales growth in operations that have been open A measure of underlying business performance which excludes the impact of
for at least a year at constant foreign exchange rate. acquisition and disposals in the period.
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 Group financial statements have been
properly prepared in accordance with United Kingdom adopted international
accounting standards and International Financial Reporting Standards (IFRSs)
as issued by the International Accounting Standards Board (IASB)' and parent
company financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting Standards, comprising
FRS 101 "Reduced Disclosure Framework", and applicable law).
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 United Kingdom Accounting Standards 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 issued by the International Accounting Standards Board (IASB),
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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