REG - Inchcape PLC - FY 2023 Preliminary Results
05/03/2024 07:15
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RNS Number : 5519F Inchcape PLC 05 March 2024
Inchcape plc, the leading global automotive distributor, announces its
preliminary results for the twelve months to 31 December 2023
A strong performance, with substantial strategic progress - Inchcape well
positioned for future growth
· Another year of strong financial performance - double digit
organic revenue and profit growth:
o Group Revenue up 41% on a reported basis to £11.4bn, boosted by
acquisition of Derco
§ Group organic revenue growth(1) of 12%, Distribution organic growth(1) of
16%
o Adjusted PBT(2) up 35% to £502m and Statutory PBT up 24% to £413m
§ Operating profit growth and higher operating margins of 5.8% (FY 2022:
5.1%) more than offsetting higher interest
§ Adjusted basic eps up 18% to 84.8p
o Capital allocation policy remains unchanged, with near term focus on
deleveraging
§ Total dividend per share up 18% to 33.9p
o ROCE of 26%, free cash flow(2) conversion ahead of guidance range of
60%-70% at 74%, with leverage at 0.8x
· Growth across each Distribution region:
o Continued growth, market share gains and strong margins across the
Americas; but several markets remain weak, with further slowdown in a number
of markets in Q4 2023
o On-going positive momentum in APAC, supported by acquisitions and market
share gains
o Strong performance in Europe, boosted by order bank unwind, against a
muted consumer environment
· Substantial strategic progress - a record 15 distribution
contracts won, and 3 acquisitions completed, in FY 2023:
o Driven by our ability to deliver for our mobility company partners ("OEMs"
(3)), particularly through our market-leading capabilities in digital
experience and data analytics
o On Vehicle Lifecycle Services, good progress on our parts capabilities and
used car programme, which is being re-focused on supporting Distribution model
· Derco - integration progressing well, despite challenging
markets:
o Foundation for revenue synergies in place in the Americas and other
regions
o Accelerated cost synergies of £21m delivered in FY 2023
§ Now expecting to deliver £10m more costs synergies, of at least £50m, by
the end of FY 2024, with integration cash costs of £70m over 3 years
o Operating margins towards the top end of 5% - 7% range delivered,
pre-synergies, in FY 2023
o Successful completion of c.£200m excess inventory reduction
· Outlook - moderated growth in the short term, accelerating in the
medium to long term:
o Future growth and margins to be driven by our market leadership, cash
generative business model, diversified geographic footprint and digital-led
approach, supported by acquisitions and contract wins
o Outlook for FY 2024 - another year of growth, albeit moderated:
§ Prudent expectations for recovery in certain markets, which are weaker than
previous years
§ Even stronger focus on cost management to deliver a moderated short-term
growth profile
o Medium to long term outlook - expecting to return to higher levels of
growth:
§ Many markets, particularly in the Americas, expected to recover from what
are anticipated to be towards historical lows in FY 2024, supported by even
stronger focus on cost management
Duncan Tait, Group CEO, commented:
"Inchcape produced a strong set of results in FY 2023, with an excellent
performance across all our regions. The business continues to deliver, with
double-digit organic revenue growth, margin progression, EPS growth and high
levels of cash generation. We maintained positive momentum across APAC,
supported by acquisitions, while Europe & Africa performed strongly,
despite muted demand. The Americas produced growth in many markets, supported
by Derco's performance, and while some markets became increasingly
challenging, we continued to take market share across the region.
"We made substantial strategic progress last year, with a record number of
distribution contracts won. These contracts, along with our investment in
acquisitions, will continue to support the business as we grow in existing
markets by building market share, expand into new markets, and develop our
mobility company partner portfolio to drive growth. With our global market
leadership position, disciplined approach to capital allocation, digital and
data capabilities to support our mobility company partners and our highly
cash-generative characteristics, Inchcape is well positioned for the future,
and we remain confident about the medium to long-term outlook for the Group."
2023 2022 % change % change % change
reported
constant FX(2)
organic(1)
Key financials (continuing operations)
Revenue £11,447m £8,133m +41% +41% +12%
Adjusted Operating Profit(2) £669m £411m +63% +64%
Adjusted Operating Margin(2) 5.8% 5.1% +70bps +80bps
Adjusted Profit Before Tax(2) £502m £373m +35% +36%
Adjusted Basic EPS(2) 84.8p 72.0p +18%
Dividend Per Share 33.9p 28.8p +18%
Free Cash Flow(2) £498m £380m +31%
Statutory financials
Operating Profit (continuing operations) £619m £400m +55%
Profit Before Tax (continuing operations) £413m £333m +24%
Total profit / (loss) for the year £283m £(6)m
Basic EPS (continuing operations) 65.6p 61.1p +7%
Net cash generated from operating activities 593m 494m +20%
1. Organic growth is defined as revenue growth in operations that have been
open for at least a year at constant foreign exchange rates. This metric
includes contract wins and excludes acquisitions including Derco
2. These measures are Alternative Performance Measures, see Note 12
3. Original Equipment Manufacturers
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This announcement contains inside information.
Results presentation today
A presentation for analysts and investors will be held today, Tuesday 5(th)
March 2024, at 08:30 (UK time). The presentation will be held at the London
Stock Exchange, 10 Paternoster Square, London EC4M 7LS.
To register for the webcast of the event please follow this link
(https://www.lsegissuerservices.com/spark/Inchcape/events/73333686-fc1d-499b-9c5f-e6392e587fb1)
, or to register for conference call access please follow this link
(https://registrations.events/direct/LON526480) .
A replay of the presentation will be available via the Company's website,
www.inchcape.com
(file:///C:/Users/finn.lawrence/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/QNPKNXC8/www.inchcape.com)
later today.
Financial calendar
Q1 trading update 25(th) April 2024
Ex-dividend date for 2023 full year dividend 2(nd) May 2024
Record date 3(rd) May 2024
Annual general meeting 9(th) May 2024
Last election date 24(th) May 2024
Payment date 17(th) June 2024
H1 24 Interims Announcement 30(th) July 2024
Q3 trading update 24(th) October 2024
Contacts
Inchcape plc (investor enquiries):
Rob Gurner +44 (0)7825 189 088 investors@inchcape.com (mailto:investors@inchcape.com)
Krishma Arora
Dentons Global Advisors (media enquiries):
James Melville Ross +44 (0) 20 7038 7419 inchcape@dentonsglobaladvisors.com (mailto:inchcape@dentonsglobaladvisors.com)
James Styles
Leah Dudley
About Inchcape
Inchcape is the leading global automotive distributor, with operations across
six continents.
By combining our in-market expertise with our unique technology and advanced
data analytics, we create innovative customer experiences that deliver
outstanding performance for our partners - building stronger automotive brands
and creating sustainable growth.
Our distribution platform connects the products of mobility company partners
with customers, and our responsibilities span product planning and pricing,
import and logistics, brand and marketing to operating digital sales, managing
physical sales and aftermarket service channels.
Delivering for our partners, our customers and our people - so they can
realise their ambitions in the new world of mobility.
The Group is headquartered in London and employs over 22,000 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 revenue and adjusted
operating profit in constant currency, thereby isolating the impact of
translational exchange rate effects. Following the disposal of our remaining
Retail-only business in Russia (Moscow) in 2022, all figures quoted in the
'Operational' and 'Operating and financial' reviews are on a 'continuing
operations' basis and therefore exclude any contribution from Russia in 2022.
Operational review
Key performance indicators
2023 2022 % change % change % change
reported constant FX(2) organic(1)
Revenue £11.4bn £8.1bn +41% +41% +12%
Adjusted Operating Profit(2) £669m £411m +63% +64%
Adjusted Operating Margin(2) 5.8% 5.1% +70bps +80bps
Adjusted Profit Before Tax(2) £502m £373m +35%
Free Cash Flow(2) £498m £380m +31%
Return on Capital Employed 26% 41%(3) (1500)bps
1. Organic growth is defined as revenue growth in operations that have been
open for at least a year at constant foreign exchange rates
2. See note 12 for definition of Key Performance Indicators and other
Alternative Performance Measures
3. Adjusted to remove capital employed of Derco, which was acquired on the
last day of 2022 and therefore did not contribute to operating profit during
that year
FY 2023 results - performance review
The Group delivered a strong operational and financial performance in 2023,
driven by top line growth and margins well ahead of historic levels, supported
by a continued shift towards our higher-margin and faster-growth Distribution
business.
Group revenue of £11.4bn (2022: £8.1bn) rose 41% year-on-year reported,
supported by organic growth and acquisitions. On an organic basis, excluding
currency effects and net acquisitions, revenue increased by 12%. This was
predominantly driven by volume growth, as supply continued to normalise, with
some positive pricing impact on new and used vehicles across our Distribution
businesses. We maintained positive momentum in APAC, while our performance in
Europe and Africa was supported by an order bank unwind during the year.
Volume growth across the Americas was flat, although we continued to increase
share in many markets. Retail remained resilient.
The Group delivered an adjusted operating profit of £669m (2022: £411m), up
63% year-on-year reported, reflecting our continued shift towards
Distribution, with organic revenue growth, the contribution of acquisitions,
Derco synergies and some operating leverage. Adjusted operating margins
increased by 70bps to 5.8%. Included within adjusted operating profit is a net
property profit of £14m (2022: £2m), primarily related to the sale of a
property in Australia, which more than offset impairment charges for certain
retail sites. The Group also saw translational currency headwinds of (£4m)
during the year.
Adjusted profit before tax (PBT) of £502m (2022: £373m) increased as a
result of the improvement in revenue and operating profit.
This profit performance more than offset the increase in adjusted net interest
expense to £168m (2022: £38m). This increase is primarily due to the shift
in the Group's capital structure from Net Cash to a Net Debt profile over the
last 12 months, following the acquisition of Derco, and a higher interest rate
environment.
During the year pre-tax adjusting items amounted to an expense of £89m (2022:
£40m). This was primarily driven by acquisition and integration costs
(£50m), of which (£35m) related to Derco, the finance component of the
deferred Derco dividend payment (£10m) and non-cash, non-operational losses
arising from the adoption of hyperinflation accounting relating to Ethiopia
(£29m).
The highly cash-generative nature of our business model drove strong free cash
flow generation of £498m (2022: £380m), representing a conversion of
adjusted operating profit of 74% (2022: 92%), above our guidance range of 60%
- 70%, reflecting a stronger working capital performance. The net working
capital inflow of £155m (2022: inflow £75m) was driven by a £215m reduction
in excess inventory at Derco and an alignment of supplier trading terms,
offset by a normalisation of working capital elsewhere across the Group. Net
interest payments in the year increased to £130m (2022: £20m), excluding
payment for leases, for the reasons outlined above.
As at 31 December 2023, Group adjusted net debt amounted to £601m (2022:
£378m) (excluding lease liabilities), following ordinary dividend payments of
£128m, payments relating to Derco of £267m and acquisition outflows
primarily for the three acquisitions in APAC of £137m. On an IFRS 16 basis
(including lease liabilities), the Group ended the period with net debt of
£1,041m (December 2022: net debt of £877m). Group leverage on a proforma
basis was approximately 0.8x at 31 December 2023, within the Group's
internally-mandated leverage limit of 1x (pre IFRS16).
In June 2023, the Group successfully issued a £350m public bond, with 6.5%
coupon and a five-year maturity. The proceeds from the bond were used to
re-finance the bridge facility put in place to fund the acquisition of Derco,
the initial term for which was due to expire at the end of FY 2023.
Additionally, in December 2023, the Group's syndicated revolving credit
facility was renewed and increased to £900m, extending the maturity to
December 2028.
Return on capital employed over the period was 26%, compared to 41% for the
equivalent period last year, driven by the dilutive effect of acquisitions,
and in line with our guidance of approximately 25%.
Q4 2023
Group revenue for the fourth quarter was £3.0bn, up 40% reported, reflecting
the benefit of acquisitions, and organic growth of 13%, compared to +10% in
Q3. In Distribution, revenue increased 16% organically, compared to 13% in Q3.
The sequential step-up in organic growth was driven by on-going positive
momentum across the APAC region, and the continued order bank unwind in
Europe, partially offset by a weaker performance in the Americas. In Retail,
revenue increased 4% organically, compared to 1% in Q3, partly supported by
fleet.
Update on Derco - delivering against key metrics
We made further progress on the integration of Derco during the year, with all
mobility company partner relationships maintained or extended, key personnel
retained and the technology integration on track.
As a result of the acquisition, the Group consolidated its market leadership
position in the Americas, with foundations in place for revenue synergies, to
help grow market share and further extend our mobility company partnerships in
the region. Furthermore, there were strategic benefits achieved globally,
including distribution contracts with Great Wall Motors in Indonesia and with
Changan in the Philippines and East Africa, both of whom were historical Derco
relationships.
Derco delivered a resilent financial performance in FY 2023, with operating
margin towards the top end of the 5% -7% range of a typical distribution
business, pre-synergies. Furthermore, as a result of proactive management
action, excess inventory of c.£200m was successfully reduced during the year,
resulting in a strong working capital inflow. This inflow was further
supported by an alignment of trading terms.
We achieved accelerated cost-related annualised synergies in FY 2023 of £21m
and we now expect to deliver an additional £10m of annualised cost synergies,
of at least £50m, by the end of FY 2024. One-time integration cash costs of
£70m will be invested in driving these synergies, of which £35m was invested
in FY 2023, with these costs now expected to be incurred over three years, to
help support the future delivery of cost-related synergies.
Looking ahead, we remain confident that the high quality of the combined
Inchcape and Derco business, with its leading market positions in the
Americas, will deliver strong revenue and profit growth in the future.
Strategic priorities
Our Accelerate strategy is focused on two growth opportunities: Distribution
Excellence and Vehicle Lifecycle Services, supported by our Responsible
Business plan: 'Driving What Matters'.
Developing our approach to Responsible Business is central to our future
plans. It will bring us closer to our mobility company partners and help us to
recruit, engage and retain the best talent. All of these elements are
fundamental to the successful delivery of our Accelerate strategy and to
ensuring Inchcape's sustainability for the long-term. Driving What Matters has
four key focus areas: Planet, People, Places and Practices. We made good
progress in each of these areas in FY 2023:
· Planet: We made steady progress in reducing our Scope 1 and 2 CO2
emissions by 31%, and we remain on track to meet our reduction target of 46%
by 2030. In addition, the Group's volume exposure to Electric Vehicles during
the year was stable at 2.4%;
· People: We made significant progress with our People pillar. Key
highlights include our Inclusive Leadership Programme, which has successfully
engaged over 650 leaders globally since 2021. Since that time, over 100 female
colleagues have graduated from our Women into Leadership Programme;
· Places: We delivered over 30 programmes across our regions to
improve road and driver safety, improve mobility for people with disabilities,
and provide humanitarian and educational programmes; and
· Practices: During 2023 and early 2024 we rolled out our enhanced
Code of Conduct across our global business. This includes over 4,000 new
colleagues who have joined the Group via acquisitions made over the last 18
months.
Distribution Excellence: extending our leadership in automotive distribution
(new vehicles and original parts)
In the Group's core operations, we work with our mobility company partners in
smaller, more complex and harder-to-reach markets, which tend to be higher
growth with low motorisation rates. Our Distribution Excellence approach
connects the products of our mobility company partners with consumers,
supported by insights from our data analytics platform.
This includes deciding which vehicle models and parts to order, developing the
pricing structure in a market, arranging the importation of new vehicles and
parts, building the brand including marketing and the provision of finance and
insurance products, the creation and management of the digital and physical
network, in-market distribution of new vehicles and parts for the aftermarket
and, when we choose to operate dealerships ourselves, we perform retail and
aftersales services. During FY 2023, we made further progress in this area
through these following areas of investment:
· Digital, Data & Analytics: We continued to invest in our
digital capabilities to drive performance and efficiency in our markets. On
DXP, our customer experience platform, we have continued to develop and roll
out an enhanced version of the platform across our regions, with improved
functionality. DAP, which provides advanced analytics and machine learning,
leverages our data and drives smarter, faster and better business decisions.
By the end of FY 2023, we were running over 250 machine-learning algorithms
and over 100 non-AI statistical forecast models across a range of markets.
· Acquisitions: In line with our focus on markets with high growth
potential, we further expanded our distribution footprint by acquiring several
independent distribution businesses, across APAC in particular:
o CATS, expanding our APAC footprint with entry into the Philippines with a
range of brands
o Mercedes-Benz distribution business in Indonesia, further building our
presence in that market
o Great Lake Motor Distributors, which distributes SAIC's Maxus brand in New
Zealand
· Distribution contract wins: We won 15 distribution contracts with
mobility company partners during the year, including a global strategic
partnership with Great Wall Motors. Building on the Chinese mobility company
partnerships through the acquisition of Derco, Inchcape is now the leading
independent distributor of Chinese vehicles.
o Distribution contract wins with existing mobility company partners in FY
2023 include BYD Commercial Vehicles in Singapore and Belux; Geely in
Guatemala, and El Salvador; Subaru in Bolivia and Ecuador; Mercedes-Benz in
Honduras; Great Wall in Indonesia; and Changan in the Philippines and across a
number of markets in East Africa. Distribution contract wins in FY 2023 with
new mobility company partners for Inchcape included Tata in Thailand and XCMG
in Colombia and Peru.
To provide investors and analysts with further understanding of the dynamics
of the Distribution commercial model, management will be hosting an "In The
Driving Seat" webinar on Thursday 23 May 2024, at 2pm UK time. Access details
for this event will be published nearer the time.
Vehicle Lifecycle Services (VLS): capturing more lifetime value of vehicles
We continue to see the strategic importance of VLS, with an opportunity for
the Group to unlock value in the subsequent phases of the vehicle's lifecycle,
through value-added services. VLS will drive enhancements to our core
Distribution business and initiatives, through capabilities which include our
Digital Parts Platform, a used car channel for our independent dealers,
further finance and insurance programmes and warranty management.
· Digital Parts Platform: The platform in Australia continues to
gain traction, with an ambition to modernise the aftermarket parts industry.
We are further scaling this platform in Australia, with 12 distributors and
410 aftersales workshops now using the platform, and several new mobility
company partners signing up to the platform. The platform is now live in Hong
Kong and we are planning further launches across other markets in APAC in FY
2024.
· Used car excellence: We intend to further reduce the scale of
bravoauto to its profitable core, particularly given our continued strategic
focus on reducing our retail-only footprint. This will ensure a more focused
and tailored approach for bravoauto, as a value-added service for our
Distribution business, with a moderated operational and geographic profile,
supported by a continued disciplined approach to investment. In light of our
review of strategic options for the UK retail business, we are re-evaluating
our ambitions for bravoauto as part of VLS.
VLS remains a strategic opportunity for the Group but, particularly in light
of reducing the scale of bravoauto to its profitable core, we are
re-evaluating the phasing of our financial objectives for VLS.
Capital allocation
Supported by a strong balance sheet, our capital allocation policy remains
unchanged: 1) to invest in the business for future growth; 2) to make dividend
payments; 3) to conduct value-accretive acquisitions; and 4) in the absence of
inorganic opportunities, to consider share buybacks, as appropriate, subject
to the Group's leverage limit. In the short term, the Group continues to focus
on deleveraging.
Our dividend policy targets a 40% annual payout ratio of basic adjusted EPS,
and as such our total dividend amounts to 33.9p compared to 28.8p in 2022.
Investment proposition
Inchcape is the global leader in automotive distribution, with a highly
compelling offering for mobility company partners, based on a differentiated,
scaled and diversified business model, which is asset-light and
digitally-enabled. With the Group's on-going investment in growth
opportunities, in particular through organic investment and acquisitions,
Inchcape will continue to build on its long track record of delivering revenue
and profit growth, high levels of returns and strong free cash flow generation
through the cycle.
As evidence of this track record of delivery, the Group has relationships with
60 mobility company partners and, during FY 2023, delivered 74% free cash flow
conversion and ROCE of 26%.
Our investment case is underpinned by consistent execution against clear
strategic objectives, combined with a disciplined approach to capital
allocation. These factors enable the Group to continue delivering attractive
returns for shareholders.
Outlook
Future growth and operating margin delivery at Inchcape will be driven by our
market leadership, resilient and cash generative business model, diversified
geographic footprint and digital-led approach and supported by acquisitions
and contract wins. The Group will also continue to invest in digital
capabilities to enhance customer loyalty and drive margins.
FY 2024 is expected to be another year of growth, albeit moderated, with the
Group maintaining prudent expectations for recovery in FY 2024 in certain
markets, which are weaker than previous years. To that end, the Group is
driving an even stronger focus on cost management to deliver a moderated short
term growth profile, in the context of broader market dynamics.
Over the medium to long term, the Group is expecting to return to higher
levels of growth, compared to FY 2024, with many markets, particularly in the
Americas, expected to recover from what are anticipated to be towards
historical lows in FY 2024. Medium to long term growth will be supported by
the Group's even stronger focus on cost management.
Operating and financial review
Distribution
Distribution reported revenue of £9.1bn, increasing 55% year-on-year on a
reported basis, reflecting the contribution of acquisition as well as organic
growth, which was up 16%. The combination of an excellent revenue performance
and margin expansion of 70bps drove adjusted operating profit(1) of £629m
(2022: £363m). Adjusted operating margin(1) rose 70bps to 6.9%.
2023 2022 % change reported % change constant FX % change
organic(2)
£m £m
Revenue
APAC 2,826 2,341 +21% +23% +16%
Europe & Africa 2,521 2,048 +23% +21% +21%
Americas 3,746 1,480 +153% +152% +7%
Total Distribution 9,093 5,869 +55% +55% +16%
Adjusted operating profit(1)
APAC 235 163 +44% +47%
Europe & Africa 132 90 +47% +47%
Americas 262 110 +138% +137%
Total Distribution 629 363 +73% +75%
Adjusted operating margin(1)
APAC 8.3% 7.0% +130bps +130bps
Europe & Africa 5.2% 4.4% +80bps +90bps
Americas 7.0% 7.4% (40)bps (50)bps
Total Distribution 6.9% 6.2% +70bps +80bps
APAC revenue was up 21% year-on-year, reflecting organic growth of 16% and
contribution of acquisitions. Adjusted operating profit(1) rose 44%, with an
elevated adjusted operating margin of 8.3%. Excluding the impact of property
profits, operating margin was higher year-on-year at 7.7%. Our Asia markets
performed well, particularly Guam and Brunei. In Hong Kong, where the market
continued to show some signs of recovery, we delivered market share gains and
gained traction in certain segments where our brands perform relatively well.
This was supported by a healthy order bank and further progress in
diversifying our mobility company partner portfolio, particularly in Electric
Vehicles. In Singapore, vehicle licence availability remained well below peak
levels, but there were some encouraging signs of licence availability towards
the end of the year. In Australasia, our strong performance was driven by
momentum in new vehicle volumes, with market share gains achieved. This was
partly due to improved supply against a strong opening order bank. During Q3
2024, we made three bolt-on distribution acquisitions in APAC (CATS in the
Philippines, Mercedes-Benz in Indonesia and Great Lake Motor Distributors in
New Zealand), which added an aggregate c.£400m in annualised revenue, with
these businesses starting to contribute in FY 2023.
Europe & Africa revenue was up 23% year-on-year with adjusted operating
profit(1) rising 47%, with elevated levels of adjusted operating margin at
5.2%. In Europe, accelerated supply and an order bank unwind helped to drive
top-line growth and margin performance. During the year, there were
particularly strong performances from Belux, Greece and Romania. The region's
elevated order bank reduced during the course of 2023, and new consumer demand
remains muted in a number of markets. Africa continues to be an exciting
long-term growth prospect for the Group and has performed well, supported by a
resilient aftermarket capability.
Americas revenue grew 153% year-on-year, driven by the contribution from Derco
and organic growth of 7%. Adjusted operating profit(1) grew 138%, with
adjusted operating margin of 7.0%. Despite challenges across the year in
certain markets, and further slowdown in a number of markets in Q4 2023, we
continued to gain market share and drive growth in many markets across the
region, supported by the benefit of diversification. Our businesses in Peru,
Bolivia, Uruguay, Ecuador, across Central America and in the Caribbean
performed well during the year, with market share gains in a number of these
markets. Industry volumes in Chile and Colombia were significantly reduced
from the prior year but our businesses in those markets remain resilient, with
strong market share. We remain confident about our prospects in the Americas
over the medium to long term, with our highly diversified geographic footprint
and product portfolio, and supported by the region's high GDP growth, low
motorisation rates.
Retail
Our Retail segment includes the results of our UK and Poland franchise
dealerships and our bravoauto business in these markets.
2023 2022 % change reported % change constant FX % change
organic(2)
£m £m
Revenue
Total Retail 2,354 2,264 +4% +3% +3%
Adjusted operating profit(1)
Total Retail 40 48 (17)% (17)%
Adjusted operating margin(1)
Total Retail 1.7% 2.1% (40)bps (40)bps
Retail delivered organic revenue growth of 3% and adjusted operating profit(1)
declined (17)%, resulting in an adjusted operating margin of 1.7%. Retail
remained resilient, despite weaker consumer demand, supported by new vehicle
growth from a stronger fleet market and a robust aftersales business. The
reduction in operating profit largely reflects a more normalised margin in
used cars.
As previously announced, following approaches from a number of interested
parties, the Group is reviewing strategic options for the UK Retail business,
which potentially could include a sale. This review remains at an early stage
and there can be no certainty that it will result in a transaction. A further
update on this review will be provided as and when appropriate.
We note that the FCA has announced a review into historical finance commission
arrangements. We look forward to the outcome of the FCA review and the clarity
that this will bring for customers, lenders and dealers.
1. Operating profit and operating margin stated before adjusting items
2. Organic growth is defined as revenue growth in operations that have been
open for at least a year at constant foreign exchange rates
Value drivers
We provide disclosure on the value drivers behind our gross profit. This
includes:
§ Gross profit attributable to Vehicles: New Vehicles, Used Vehicles and the
associated income from finance and insurance products; and
§ Gross profit attributable to Aftersales: Service and Parts
2023 2022 % change reported % change constant FX
£m £m
Gross Profit
Vehicles 1,391 883 +58% +50%
Aftersales 548 442 +24% +28%
Total 1,939 1,325 +46% +43%
We operate across the automotive value chain, and during the year we generated
28% of gross profit through Aftersales (2022: 33%). This reflects greater
gross profit contribution from vehicles as volumes improved, the contribution
of acquisitions and higher vehicle gross margins.
Other financial items
Adjusting items: In the year, we have reported a pre-tax charge of £89m
(2022: £40m) in respect of adjusting items. This was primarily driven by
acquisition and integration costs (£50m), the finance component of the
deferred dividend payment (£10m) and non-cash, non-operational losses arising
from the adoption of hyperinflation accounting relating to Ethiopia (£29m).
Further details can be found in note 3 of the condensed financial statements.
Net financing costs: Adjusted net finance costs increased to £168m (2022:
£38m), primarily due to the shift in the Group's capital structure from Net
Cash to a Net Debt profile over the last 12 months, following the acquisition
of Derco, and a higher interest rate environment. Reported net finance costs
were £207m (2022: £67m), as they included the finance component of the
deferred dividend payment (£10m) and non-cash, non-operational losses arising
from the adoption of hyperinflation accounting relating to Ethiopia (£29m).
Tax: The effective tax rate on adjusted profit is 27.9% (2022: 26.0%), within
the Group's guidance range of between 27% and 28%, and on a statutory basis is
31.5% (2022: 29.4%). The effective tax rate on adjusted profit continues to be
higher than the weighted average tax rate (22.4%) due primarily to the impact
of unrecognised deferred tax assets across the group, principally in the UK
and Americas.
Non-controlling interests: Profits attributable to our non-controlling
interests increased to £13m (2022: £5m). Non-controlling interests now
include a 40% holding in the CATS Group of Companies in the Philippines and a
30% holding in the Mercedes-Benz distribution business in Indonesia following
their acquisition by the Group during the year. Other significant
non-controlling interests include a 30% share in NBT Brunei and a 10% share of
Subaru Australia.
Dividend: The Board has proposed a final ordinary dividend of 24.3p, which is
subject to the approval of shareholders at the 2024 Annual General meeting,
and if approved will be paid in June 2024. This follows an interim dividend of
9.6p, and takes the total dividend in respect of FY 2023 to 33.9p. The
Dividend Reinvestment Plan is available to ordinary shareholders and the final
date for receipt of elections to participate is 24 May 2024.
Capital expenditure: During 2023, the Group incurred net capital expenditure
of £62m (2022: £58m), consisting of £93m of capital expenditure (2022:
£68m) and £31m of proceeds from the disposal of property, plant and
equipment (2022: £10m).
Financing: As at 31 December 2023, the funding structure of the Group is
comprised of a committed syndicated revolving credit facility of £900m (2022:
£700m), sterling Private Placement Loan Notes totalling £210m (2022:
£210m), a 5-year bond of £350m, at a fixed coupon of 6.5%, a term facility
of £250m (2022: £250m) and debt remaining outstanding from acquisitions
(including prior year acquisitions) of £80m (2022: £617m). As at 31 December
2023, £150m of the syndicated revolving credit facility was drawn (2022:
undrawn). For our corporate debt, excluding our Revolving Credit Facility,
around 70% is at fixed rates and over 50% has a maturity of at least 3 years.
The Group remains well within its debt covenants.
Pensions: As at 31 December 2023, the IAS 19 net post-retirement surplus was
£67m (2022: £93m), with the decrease driven largely by lower than expected
returns on scheme assets and movements in corporate bond yields affecting the
discount rate assumption used to determine the value of scheme liabilities. In
line with the funding programme agreed with the Trustees, the Group made
additional cash contributions to the UK pension schemes of £2m (2022: £3m).
In addition, the Group acquired post-retirement liabilities of £11m as a
result of the acquisitions in the year.
Acquisitions: During the year the Group continued to further expand its
distribution footprint, completing three acquisitions during the year,
amounting to net acquisition outflows of £146m, with £23m of additional debt
acquired (excluding lease liabilities).
RISKS
PRINCIPAL BUSINESS RISKS
The Board has reassessed the principal business risks which could impact the
performance of the Group. These include:
Tier 1:
§ Cybersecurity incident;
§ EV transition risks;
§ Margin pressure (changing route to market, incentives);
§ Macro-economic conditions (cost inflation, economic slowdown);
§ HSE: Health, safety or environmental incident; and
§ Political risks/social unrest;
Tier 2:
§ Acquisition ROI;
§ Business interruption (pandemic, natural hazards);
§ Derco integration;
§ Financial reporting, fraud;
§ Foreign exchange volatility; HSE: Health, safety or environmental incident;
§ Legal/regulatory compliance;
§ Loss of Distribution contract
§ Loss of technology systems (non-cyber);
§ New market entrants: business models or technology;
§ People engagement and rentention;
§ People future skills;
§ Supply chain disruption; and
§ Strategy delivery and transformation.
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 - REGIONAL BUSINESS MODELS
DISTRIBUTION
Americas
Country Brands
Argentina Subaru, Suzuki
Barbados(1) Chrysler, Daimler Trucks, Dodge, Freightliner, Fuso, Isuzu, JCB, Jeep, John
Deere, Mercedes-Benz, Mitsubishi, Subaru, Suzuki, Western Star
Bolivia Changan, Chevrolet, JAC Motors, Komatsu, Mazda, Renault, Still, Subaru, Suzuki
Chile BMW, BMW Motorrad, DFSK, Changan, Geely, Great Wall, Hangcha, Haval, Hino, JAC
Motors, Jaguar, JCB, Komatsu, Land Rover, Landini, Massey Ferguson, Mazda,
MINI, Porsche, Renault, Rolls Royce, Still, Subaru, Suzuki, Volvo
Colombia Citroen, Develon, DFSK, Dieci, Doosan, DS Automobiles, Hangcha, Hino, Jaguar,
Komatsu, Land Rover, Liebher, Linde, Mack, Mercedes-Benz, Still, Subaru,
Suzuki, XCMG
Costa Rica Changan, JAC, Suzuki
Ecuador Freightliner, Geely, Mercedes-Benz, Subaru, Western Star
El Salvador Freightliner, Geely, Mercedes-Benz, Western Star
Guatemala Freightliner, Geely, Mercedes-Benz, Western Star
Honduras Freightliner, Geely, Mercedes-Benz, Western Star
Panama Suzuki
Peru BMW, BMW Motorrad, Changan, Citroen, DFSK, Great Wall, Haval, Hino, JAC
Motors, Komatsu, Mazda, MINI, Renault, Still, Subaru, Suzuki, XCMG
Uruguay Freightliner, Fuso, Mercedes-Benz
1. Distribution agreements for these brands across a range of Caribbean
islands, centred on Barbados
APAC
Country Brands
Brunei Lexus, Toyota
Guam(2) BMW, Chevrolet, Lexus, Toyota, Morrico heavy equipment(3)
Hong Kong Hino, Jaguar, Land Rover, Lexus, Maxus, ORA, Toyota
Indonesia Great Wall, Harley Davidson, Jaguar, Land Rover, Mercedes-Benz
Macau Hino, Jaguar, Land Rover, Lexus, ORA, Toyota
Saipan Toyota, Lexus
Singapore BYD Commercial Vehicles, Hino, Lexus, Suzuki, Toyota
Philippines Changan, Harley Davidson, Jaguar, Land Rover, Mazda, Mercedes-Benz, Ram
Thailand Jaguar, Land Rover, Tata Motors
Australia Citroen, Peugeot, Subaru
New Zealand Maxus, Subaru
Europe & Africa
Country Brands
Belgium BYD, BYD Commercial Vehicles, Lexus, Toyota
Bulgaria Lexus, Toyota
Estonia BMW, BMW Motorrad, 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, Jaguar, Land Rover, Mazda, MINI
Luxembourg BYD, Lexus, Toyota
North Macedonia Lexus, Toyota
Poland Jaguar, Land Rover
Romania Lexus, Toyota
Djibouti BMW, Changan, Komatsu, Toyota
Ethiopia Hino, Komatsu, New Holland, Suzuki, Toyota
Kenya BMW, BMW Motorrad, Changan, Jaguar, Land Rover
Tanzania Changan
2. Distribution agreements for these brands across a range of Pacific
islands, centred on Guam
3. Morrico heavy equipment - Bomag, CNHI International SA, Cummins, Daimler,
Detroit Diesel International Direct, Dieci, DTNA , EL Industries, Fuso,
Haulotte, Hyundai, Kohler, Load King, New Holland, Rosenbauer, Schwarze,
Sullivan Palatek, Vac Con, WanCo
RETAIL
Country Brands
Australia(4) Isuzu Ute, Jeep, Kia, Mitsubishi, Volkswagen
Poland BMW, BMW Motorrad, MINI
UK Audi, BMW, Jaguar, Land Rover, Lexus, Mercedes-Benz, MINI, Porsche, Smart,
Toyota, Volkswagen
4. Following scale disposal of retail businesses in Australia, no longer
disclosed within Retail
Consolidated income statement
For the year ended 31 December 2023
Continuing operations Notes 2023 2022
£m
£m
Revenue 2 11,447 8,133
Cost of sales (9,508) (6,808)
Gross profit 1,939 1,325
Net operating expenses (1,320) (925)
Operating profit 2 619 400
Share of profit after tax of joint ventures and associates 1 -
Profit before finance and tax 620 400
Finance income 4 52 21
Finance costs 4 (259) (88)
Profit before tax from continuing operations 413 333
Tax 5 (130) (98)
Profit for the year from continuing operations 283 235
Loss from discontinued operations 9(c) - (241)
Total profit/(loss) for the year 283 (6)
Profit/(loss) attributable to:
Owners of the parent 270 (11)
Non-controlling interests 13 5
283 (6)
Earnings per share from continuing operations attributable to the owners 6
of the parent
Basic earnings per share (pence) 65.6p 61.1p
Diluted earnings per share (pence) 64.8p 54.6p
Earnings/(loss) per share attributable to the owners of the parent 6
Basic earnings/(loss) per share (pence) 65.6p (2.9)p
Diluted earnings/(loss) per share (pence) 64.8p (2.5)p
Alternative performance measures:
Operating profit from continuing operations 619 400
Adjusting items within net operating expenses: 3 50 11
Acquisition and integration costs 50 42
Disposal of businesses - (14)
Accelerated amortisation and net impairment reversals - 3
Gain on pension indexation - (20)
Adjusted operating profit from continuing operations 669 411
Share of profit after tax of joint ventures and associates 1 -
Adjusted profit before finance costs and tax from continuing operations 670 411
Net finance costs (207) (67)
Adjusting items within net finance costs: 3 39 29
Net monetary loss on hyperinflation 29 29
Interest on dividend payments to former shareholders of Derco 10 -
Adjusted profit before tax from continuing operations 502 373
Tax on adjusted profit (140) (97)
Adjusted profit after tax from continuing operations 362 276
Adjusted earnings per share from continuing operations 6
Basic adjusted earnings per share 84.8p 72.0p
Diluted adjusted earnings per share 83.7p 64.4p
Consolidated statement of comprehensive income
For the year ended 31 December 2023
Notes 2023 2022
£m £m
Profit/(loss) for the year 283 (6)
Other comprehensive income/(loss):
Items that will not be reclassified to the consolidated income statement
Retirement benefit schemes
- net actuarial losses (20) (12)
- deferred tax on actuarial losses - -
(20) (12)
Items that may be or have been reclassified subsequently to the consolidated
income statement
Cash flow hedges
- net fair value (losses)/gains (48) 9
- tax on cash flow hedges(1) 17 (7)
Investments held at fair value
- net fair value losses (3) (2)
Deferred tax on taxation losses (1) -
Foreign currency translation
- exchange differences on translation of foreign operations (133) 133
- exchange differences on translation of discontinued operations 9(b) - 19
- recycling of foreign currency reserve (1) 99
Adjustments for hyperinflation 36 49
(133) 300
Other comprehensive (loss)/income for the year (153) 288
Total comprehensive income for the year 130 282
Total comprehensive income attributable to:
- Owners of the parent 120 271
- Non-controlling interests 10 11
130 282
Total comprehensive income/(loss) arising from:
- Continuing operations 130 405
- Discontinued operations - (123)
1. Taxation in other comprehensive income in respect of cashflow hedges is
comprised of a deferred tax credit of £18m (2022: charge of £9m) offset by
a current tax charge of £1m (2022: credit of £2m).
Consolidated statement of financial position
As at 31 December 2023
Notes 2023 2022
£m £m
Non-current assets
Intangible assets 1,271 1,174
Property, plant and equipment 893 737
Right-of-use assets 364 419
Investments in joint ventures and associates 21 22
Financial assets at fair value through other comprehensive income 1 3
Derivative financial instruments 1 17
Trade and other receivables 49 54
Deferred tax assets 105 80
Retirement benefit asset 84 104
2,789 2,610
Current assets
Inventories 2,718 2,376
Trade and other receivables 835 817
Derivative financial instruments 38 37
Current tax assets 56 41
Cash and cash equivalents 8(b) 689 1,064
Assets held for sale 14 19
4,350 4,354
Total assets 7,139 6,964
Current liabilities
Trade and other payables (3,150) (2,898)
Derivative financial instruments (88) (39)
Current tax liabilities (81) (88)
Provisions (69) (57)
Lease liabilities (81) (83)
Borrowings (652) (546)
(4,121) (3,711)
Non-current liabilities
Trade and other payables (69) (60)
Provisions (39) (47)
Derivative financial instruments (9) (1)
Deferred tax liabilities (267) (255)
Lease liabilities (359) (416)
Borrowings (638) (896)
Retirement benefit liability (17) (11)
(1,398) (1,686)
Total liabilities (5,519) (5,397)
Net assets 1,620 1,567
Equity
Share capital 42 38
Share premium 147 147
Capital redemption reserve 143 143
Merger reserve 312 316
Other reserves (63) 69
Retained earnings 940 820
Equity attributable to owners of the parent 1,521 1,533
Non-controlling interests 99 34
Total equity 1,620 1,567
DUNCAN TAIT
ADRIAN LEWIS
GROUP CHIEF EXECUTIVE GROUP CHIEF FINANCIAL
OFFICER
Consolidated statement of changes in equity
For the year ended 31 December 2023
Notes Share Share Capital redemption reserve Merger Other Retained earnings Total Non-controlling interests Total shareholders' equity
capital
Premium
£m
reserve
reserves
£m
equity attributable to owners of the parent
£m
£m
£m
£m
£m
£m
£m
At 1 January 2022 39 147 142 - (228) 1,009 1,109 22 1,131
(Loss)/profit for the year - - - - - (11) (11) 5 (6)
Other comprehensive income/(loss) for the year - - - - 294 (12) 282 6 288
Total comprehensive income/(loss) for the year - - - - 294 (23) 271 11 282
Hedging gains and losses transferred to inventory - - - - 3 - 3 - 3
Written put option - - - - - (13) (13) - (13)
Shares to be issued - - - 316 - - 316 - 316
Non-controlling interests on acquisition of subsidiaries - - - - - - - 5 5
Share-based payments, net of tax - - - - - 10 10 - 10
Share buyback programme (1) - 1 - - (70) (70) - (70)
Purchase of own shares by the Inchcape Employee Trust - - - - - (4) (4) - (4)
Dividends:
- Owners of the parent 7 - - - - - (89) (89) - (89)
- Non-controlling interests - - - - - - - (4) (4)
At 1 January 2023 38 147 143 316 69 820 1,533 34 1,567
Profit for the year - - - - - 270 270 13 283
Other comprehensive (loss)/income for the year - - - - (130) (20) (150) (3) (153)
Total comprehensive income/(loss) for the year - - - - (130) 250 120 10 130
Hedging gains and losses transferred to inventory - - - - (2) - (2) - (2)
Written put option 9(b) - - - - - (1) (1) - (1)
Shares issued 4 - - (4) - - - - -
Acquisition of non-controlling interests 9(b) - - - - - 3 3 (3) -
Non-controlling interests on acquisition of subsidiaries 9(a) - - - - - - - 64 64
Share-based payments, net of tax - - - - - 15 15 - 15
Purchase of own shares by the Inchcape Employee Trust - - - - - (19) (19) - (19)
Dividends:
- Owners of the parent 7 - - - - - (128) (128) - (128)
- Non-controlling interests - - - - - - - (6) (6)
At 31 December 2023 42 147 143 312 (63) 940 1,521 99 1,620
Share-based payments include a net tax credit of £nil (2022: net tax credit
of £nil).
Consolidated statement of cash flows
For the year ended 31 December 2023
Notes 2023 2022
£m £m
Cash generated from operating activities
Cash generated from operations 8(a) 900 619
Tax paid (156) (95)
Interest received 46 17
Interest paid (197) (47)
Net cash generated from operating activities 593 494
Cash flows from investing activities
Acquisition of businesses, net of cash and overdrafts acquired 9(a) (137) (395)
Net cash inflow/(outflow) from sale of businesses 1 (17)
Proceeds from disposal of investments in joint ventures and associates 2 -
Purchase of investments in joint ventures and associates (3) (6)
Purchase of property, plant and equipment (88) (64)
Purchase of intangible assets (5) (4)
Proceeds from disposal of property, plant and equipment 31 10
Dividends received from joint ventures and associates 1 -
Payments made before the commencement date of a lease - (1)
Receipt from finance sub-lease receivables 3 2
Net cash used in investing activities (195) (475)
Cash flows from financing activities
Share buyback programme - (70)
Purchase of own shares by the Inchcape Employee Trust (19) (4)
Cash (outflow)/inflow from acquisition financing bridge facility (350) 600
Cash inflow from revolving credit facility 150 -
Cash inflow from bond issuance 348 -
Cash outflow from other borrowings (560) (4)
Payment of capital element of lease liabilities (87) (63)
Payments to former shareholders of Derco group (267) -
Equity dividends paid 7 (128) (89)
Acquisition of non-controlling interests (15) -
Dividends paid to non-controlling interests (6) (4)
Net cash (used in)/generated from financing activities (934) 366
Net (decrease)/increase in cash and cash equivalents 8(b) (536) 385
Cash and cash equivalents at beginning of the year 1,050 589
Effect of foreign exchange rate changes (74) 76
Cash and cash equivalents at the end of the year 440 1,050
Cash and cash equivalents consist of:
- Cash at bank and cash equivalents 610 641
- Short-term deposits 79 423
- Bank overdrafts (249) (14)
440 1,050
NOTES TO THE FINANCIAL STATEMENTS
1 Basis of preparation and accounting policies
The Group consolidated financial statements have been prepared in accordance
with UK-adopted International Financial Reporting Standards (IFRS) and the
Companies Act 2006 applicable to companies reporting under IFRS.
The condensed set of financial information presented for the years ended 31
December 2023 and 2022 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 2022 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 for the year ended 31
December 2023 and the comparative information have been extracted from the
audited consolidated financial statements for the year ended 31 December 2023
prepared under IFRS, which have not yet been approved by the shareholders and
have not yet been delivered to the Registrar. The report of the auditors on
the consolidated financial statements for 2023 was unqualified and did not
contain a statement under Section 498 (2) or (3) of the Companies Act 2006.
Accounting policies
The condensed set of consolidated financial information has been prepared
using accounting policies consistent with those in the Group's Annual Report
and Accounts 2022 with the exception of the following standards, amendments
and interpretations which have been newly adopted from 1 January 2023:
Newly adopted accounting standards
From 1 January 2023, the following standards become effective in the Group's
consolidated financial statements:
· IFRS 17 Insurance Contracts;
· Amendments to IFRS 17 Insurance Contracts: Initial Application of IFRS 17
and IFRS 9 Comparative Information;
· Amendments to IAS 12 relating to Deferred tax related to assets and
liabilities arising from a single transaction;
· Amendments to IFRS 4 when applying IFRS 9 Financial Instruments;
· Amendments to IAS 1 Presentation of Financial Instruments, classification
of liabilities as current or non-current; and
· Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors: Definition of Accounting Estimates.
The adoption of the standards and interpretations listed above has not led to
any material impact on the financial position or performance of the Group.
The Group has not early adopted other standards, amendments to standards or
interpretations that have been issued but are not yet effective.
Designation of Ethiopia as a hyperinflationary economy
The Group financial statements include adjustments for hyperinflation,
following the application of IAS 29 Financial Reporting in Hyperinflationary
Economies in relation to the Group's operations with a functional currency
of Ethiopian Birr.
The Group's consolidated financial statements include the results and
financial position of its Ethiopian operations restated to the purchasing
power or inflationary measuring unit current at the end of the year, leading
to a hyperinflationary loss in respect of monetary items being reported in
finance costs, and treated as an adjusting item. The results of the Group's
Ethiopian operations have been translated at the closing exchange rate, as
required by IAS 21 The Effects of Changes in Foreign Exchange Rates
for hyperinflationary foreign operations.
Whilst IAS 29 Financial Reporting in Hyperinflationary Economies is applied in
individual financial statements as though the relevant economy was always
hyperinflationary, comparative amounts are not restated in consolidated
amounts already presented in a stable currency. The resulting difference in
the opening Ethiopian net assets has been presented as a translation
adjustment in other comprehensive income.
The inflationary factors used by the Group are the official price indices
published by the Central Statistical Agency of Ethiopia. Hyperinflationary
adjustments have been calculated using the price index prevailing at 31
December 2023, which was a CPI index of 425.1 (31 December 2022: CPI index
328.9). The adjusted results and financial position of Ethiopia were
translated at the year-end closing rate before being included in the Group's
consolidated financial statements.
1 Basis of preparation and accounting policies continued
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 making this assessment, the Group has considered available liquidity in
relation to net debt and committed facilities, the Group's latest forecasts
for 2024 and 2025 cash flows, together with adjusted scenarios.
Committed bank facilities and Private Placement borrowings amount to £1,360m,
of which £610m was drawn at 31 December 2023. In June 2023, the Group issued
a £350m bond offering with a coupon of 6.5%, due to mature in June 2028 and
in December 2023, the Group's Revolving Credit Facility was amended,
increasing the facility limit to £900m and extending the maturity date to
December 2028.
The Private Placement Loan notes (of which £70m is due to mature in May
2024) and the Term Loan (due to mature in December 2024) 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 2024 and 2025 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:
· a 12-month reduction in New and Used revenue from July 2024, resulting
from decreasing consumer demand in response to fiscal tightening
and resulting economic downturns;
· a reduction in reported GBP earnings from July to December 2024 resulting
from the strengthening of the sterling relative to other currencies;
· a general liquidity reduction impacting working capital from January
2025;
· with no mitigating actions applied in relation to the sensitivities
described above.
In a scenario where all of the above sensitivities occur at the same time,
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
throughout the forecast period. Additionally, under these circumstances,
the Group expects to have sufficient funds to meet cash flow requirements.
A reverse stress test scenario analysis concluded that a set of circumstances
in which the Group would breach its covenant or have insufficient funds to
meet cash flow requirements are considered to be remote, relative to the
sensitivities referred to above.
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 2023.
2 Segmental analysis
The Group has four reportable segments which have been identified based on the
operating segments of the Group that are regularly reviewed by the chief
operating decision-maker, which has been determined to be the Executive
Committee, in order to assess performance and allocate resources. A
reassessment of the Group's operating segments was conducted following the
acquisition of the Derco group in 2022. The Group's operating segments are now
represented by groups of countries which comprise the UK, Asia, Australasia,
Europe, Africa, and the Americas, and the market channels, Distribution and
Retail. Operating segments are then aggregated into reporting segments to
combine those with similar economic characteristics. The reassessment of the
Group's operating segments did not result in a change to the reporting
segments.
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
Europe & Africa Parts.
Americas
Sale of New and Used Vehicles together with logistics services where the Group
may also be the exclusive distributor, alongside associated Aftersales
activities of service, body shop repairs and parts sales.
Retail Sale of New and Used Vehicles, together with associated Aftersales activities
of service, body shop repairs and parts sales in the UK and Europe.
Distribution
2023 APAC Europe & Americas Total Distribution Total
£m
Africa
£m
£m
Retail
£m
£m
£m
Revenue
Total revenue 2,826 2,521 3,746 9,093 2,354 11,447
Results
Adjusted operating profit 235 132 262 629 40 669
Operating adjusting items (50)
Operating profit from continuing operations 619
Share of profit after tax of joint ventures and associates 1
Profit before finance and tax 620
Finance income 52
Finance costs (259)
Profit before tax from continuing operations 413
Tax (130)
Profit for the year from continuing operations 283
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:
2023 £m
UK 2,065
Chile 1,773
Australia 1,310
Rest of the world 6,299
Group 11,447
The Group's non-current assets by location comprise intangible assets,
property, plant and equipment, right-of-use assets, investments in joint
ventures and associates, and are analysed as follows:
2023 £m
UK 297
Rest of the world 2,252
Group 2,549
2 Segmental analysis continued
Distribution
2023 APAC Europe & Americas Total Retail Total
£m
£m
Africa £m Distribution £m
£m £m
Segment assets and liabilities
Segment assets 915 748 1,454 3,117 485 3,602
Other current assets 795
Other non-current assets 2,742
Segment liabilities (1,269) (741) (830) (2,840) (495) (3,335)
Other liabilities (2,184)
Total net assets 1,620
Segment assets include net inventory, receivables, and derivative assets.
Segment liabilities include payables, provisions, and derivative liabilities.
Distribution
2023 from continuing operations APAC Europe & Americas Total Distribution Total
Africa
£m
Retail
£m
£m
£m
£m
£m
Other segment items
Capital expenditure:
- Property, plant and equipment 27 13 27 67 21 88
- Leased vehicles, rental machinery and equipment 20 26 15 61 23 84
- Right-of-use assets 12 7 14 33 3 36
- Intangible assets 1 1 2 4 1 5
Depreciation and impairment:
- Property, plant and equipment 11 7 20 38 23 61
- Leased vehicles, rental machinery and equipment 6 1 13 20 - 20
- Right-of-use assets 30 8 35 73 8 81
Amortisation of intangible assets 2 1 7 10 1 11
Net provisions charged to the consolidated income statement 8 7 31 46 2 48
Net provisions include inventory, trade receivables impairment and other
liability provisions.
Distribution
2022 APAC Europe & Americas Total Distribution Retail Total
Africa
£m
£m
£m
£m £m
£m
Revenue
Total revenue 2,341 2,048 1,480 5,869 2,264 8,133
Results
Adjusted operating profit 163 90 110 363 48 411
Operating adjusting items (11)
Operating profit from continuing operations 400
Share of profit after tax of joint ventures and associates -
Profit before finance and tax 400
Finance income 21
Finance costs (88)
Profit before tax from continuing operations 333
Tax (98)
Profit for the year from continuing operations 235
2 Segmental analysis continued
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:
2022 £m
UK 2,029
Australia 1,136
Rest of the world 4,968
Group 8,133
The Group's non-current assets by location comprise intangible assets,
property, plant and equipment, right-of-use assets, joint ventures and
associates, and are analysed as follows:
2022 £m
UK 299
Rest of the world 2,053
Group 2,352
Distribution
2022 (Represented) APAC Europe & Americas(1) Total Retail Total
£m Africa £m Distribution £m £m
£m £m
Segment assets and liabilities
Segment assets 620 477 1,799 2,896 440 3,336
Other current assets 917
Other non-current assets 2,711
Segment liabilities (921) (483) (1,199) (2,603) (453) (3,056)
Other liabilities (2,341)
Total net assets 1,567
Segment assets include net inventory, receivables, and derivative assets.
Segment liabilities include payables, provisions, and derivative liabilities.
(1) Segment assets and liabilities in the Americas include a reclassification
of derivative assets and liabilities.
Distribution
2022 from continuing operations APAC Europe & Americas Total Total
Retail
£m Africa £m Distribution
£m
£m
£m £m
Other segment items
Capital expenditure:
- Property, plant and equipment 14 13 12 39 22 61
- Leased vehicles, rental machinery and equipment 9 4 - 13 - 13
- Right-of-use assets 10 8 9 27 7 34
- Intangible assets 1 1 1 3 1 4
Depreciation and impairment:
- Property, plant and equipment 7 7 9 23 1 24
- Leased vehicles, rental machinery and equipment 4 4 - 8 - 8
- Right-of-use assets 30 6 13 49 8 57
Amortisation of intangible assets 8 6 7 21 2 23
Net provisions charged to the consolidated income statement 22 21 10 53 6 59
Net provisions include inventory, trade receivables impairment and other
liability provisions.
3 ADJUSTING ITEMS
From continuing operations 2023 2022
£m
£m
Other asset impairment reversals - 10
Disposal of businesses (see note 9) - 1
Acquisition and integration costs (50) (42)
Accelerated amortisation (SaaS) - (13)
Other income - 13
Gain on pension indexation - 20
Total adjusting items in operating profit (50) (11)
Adjusting items in finance costs:
Interest on dividend payments to former shareholders of Derco (10) -
Net monetary loss on hyperinflation (29) (29)
Total adjusting items before tax (89) (40)
Tax on adjusting items (see note 5) 10 (1)
Total adjusting items (79) (41)
During the year, the Group incurred costs of £50m (2022: £42m) in relation
to acquisition and integration of businesses. Acquisition costs relate to the
acquisitions of new businesses and integration costs were incurred primarily
in relation to the integration of the Derco business. For more details
on acquisitions made during the year, please refer to note 9. These costs
have been reported as adjusting items to better reflect the underlying
performance of the business.
At 31 December 2022, a liability was acquired, as part of the Derco
acquisition, for the payment of a pre-completion dividend to former
shareholders. The payment of this dividend was agreed to be made in four
tranches, throughout 2023, with interest accruing on the outstanding amounts.
At 31 December 2023, all of the tranches have been paid and interest expense
of £10m has been recognised within finance costs and reported as an adjusting
item.
During 2022, Ethiopia was designated as a hyperinflationary economy as its
three-year cumulative inflation rate exceeded 100%. As a result, IAS 29
Financial Reporting for Hyperinflationary Economies became effective for the
year ended 31 December 2022. The results and financial position of Ethiopia
are therefore restated to include the effect of indexation and the resulting
£29m net monetary loss on hyperinflation (2022: £29m net monetary loss) has
been recognised within net finance costs and reported as an adjusting item.
In 2022, other asset impairment reversals of £10m primarily related to
property, plant & equipment and right-of-use assets in the UK and
Australia. These were reported as an adjusting item, consistent with the
reporting of the original impairment charge.
In 2021, the Group started to migrate the Group's existing ERP applications to
a cloud-based solution. This was a strategic decision to consolidate and
upgrade the systems, improve speed and performance, and facilitate centralised
support following the transformation of the Information Technology
organisational structure. The new solution was determined to be Software as a
Service (SaaS) and therefore the existing software assets were no longer
treated as an asset under IAS 38 Intangible Assets once the migration to the
new solution had occurred. Consequently, the useful life of the existing
assets was reassessed and the impact accounted for prospectively as a change
in an estimate. This change resulted in a significant increase in the
amortisation recognised for software costs and the incremental amortisation of
£13m in 2022 was disclosed as an adjusting item.
In the first half of 2022, the Group disposed of its remaining operations in
Russia and, at the time, management concluded that the value of the expected
proceeds from disposal was £nil. In the second half of 2022, the Group
received proceeds of £13m which were reported as other income within
continuing operations as the subsequent receipt did not alter the initial (and
reassessed) conclusion that no consideration was expected. Given the magnitude
and nature of the item, the impact on the income statement was reported as an
adjusting item.
With effect from 1 April 2022, the Trustee of the Inchcape Motors Pension
Scheme now uses the Consumer Prices Index (CPI) instead of Retail Prices Index
(RPI) for those elements of pensions from the Group, Motors and Normand
sections that are increased in line with RPI. Management concluded that the
change in indexation represented a plan amendment and the impact of the change
in benefits payable of £20m was recognised in the income statement as a past
service cost. Considering the magnitude and nature of the item, the impact on
the income statement was reported as an adjusting item.
4 net Finance costs
From continuing operations 2023 2022
£m
£m
Interest expense on bank and other borrowings 124 27
Finance costs on lease liabilities 22 10
Stock holding interest 50 19
Net monetary loss on hyperinflation 29 29
Interest on deferred dividend payment 10 -
Other finance costs 24 3
Finance costs 259 88
Bank and other interest income (47) (17)
Net interest income on post-retirement plan assets and liabilities (4) (3)
Other finance income (1) (1)
Finance income (52) (21)
Net finance costs 207 67
Analysed as:
Net finance costs excluding adjusting finance costs 168 38
Finance costs reported as adjusting items 39 29
Net finance costs 207 67
Other finance costs include fees, commissions and foreign exchange gains and
losses.
Since 2022, in accordance with IAS 29 Financial Reporting in Hyperinflationary
Economies, the results and financial position of the Group's operations in
Ethiopia have been restated to the purchasing power or inflationary measuring
unit current at the end of the reporting period. Therefore, finance costs
include the loss on hyperinflation in respect of monetary items, which is
also treated as an adjusting item.
5 Tax
This note only provides information about corporate income taxes under IFRS.
The Group operates in over 40 markets and territories across the world. The
Group pays and collects many different taxes in addition to corporate income
taxes including: payroll taxes, value added and sales taxes, property taxes,
product-specific taxes, and environmental taxes. Such taxes borne by the
Group are included in profit before tax.
From continuing operations 2023 2022
£m
£m
Current tax:
- Overseas tax 146 111
Adjustments to prior year liabilities:
- Overseas tax (6) (6)
Current tax 140 105
Deferred tax:
Origination and reversal of temporary differences (10) (7)
Deferred tax (10) (7)
Total tax charge 130 98
The total tax charge is analysed as follows:
- Tax charge on adjusted profit before tax 140 97
- Tax (credit)/charge on adjusting items (10) 1
Total tax charge 130 98
Details of the adjusting items for the year can be found in note 3. Not all of
the adjusting items will be taxable or deductible for tax purposes. Therefore,
the tax charge on adjusting items represents the total of the current and
deferred tax on only those elements that are assessed as taxable or
deductible.
5 Tax continued
a. Factors affecting the tax expense for the year
The effective tax rate for the year is 31.5% (2022: 29.4%). The effective tax
rate on adjusted profit before tax is 27.9% (2022: 26.0%). The weighted
average tax rate is 22.4% (2022: 22.7%). The weighted average tax rate
comprises the average statutory rates across the Group, weighted in proportion
to accounting profits and losses before tax. The table below explains the
differences between the expected tax charge at the weighted average tax rate
and the Group's total tax charge.
From continuing operations 2023 2022
£m
£m
Profit before tax 413 333
Profit before tax multiplied by the weighted average tax rate of 22.4% (2022: 93 75
22.7%)
- Permanent differences 4 10
- Non-taxable income (4) (4)
- Prior year items (4) (1)
- Derecognition/(recognition) of deferred tax assets 27 (2)
- Overseas tax audits and settlements 1 2
- Taxes on undistributed earnings 2 2
- Acquisition of businesses 2 4
- Adjustments for hyperinflation 9 12
Total tax charge 130 98
The major component of recognition and derecognition of deferred tax assets in
the table above is the non-recognition of deferred tax assets associated with
tax losses and UK corporate interest restrictions arising in the current year.
b. Factors affecting the tax expense of future years
The Group's future tax charge, and effective tax rate, could be affected by
several factors including; the resolution of audits and disputes, changes in
tax laws or tax rates, repatriation of cash from overseas markets to the UK,
the ability to utilise brought forward losses, the impact of UK corporate
interest restrictions and business acquisitions and disposals. In addition, a
change in profit mix between low and high taxed jurisdictions will impact the
Group's future tax charge.
The utilisation of brought forward tax losses or reactivation of previously
disallowed interest deductions under the UK corporate interest restriction
regulations and the recognition of deferred tax assets associated with them
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 is within the scope of the OECD Pillar Two model rules, the relevant
legislation has been enacted in the United Kingdom, the jurisdiction in which
Inchcape plc is incorporated, and is effective from 1 January 2024. Since the
Pillar Two legislation was not effective at the reporting date, the Group has
no related current tax liability. Under the legislation, the Group is liable
to pay a top-up tax for the difference between its Pillar Two effective tax
rate per jurisdiction and the 15% minimum rate. The Group expects to be
subject to the top-up tax in relation to its operations in several countries
and the average effective tax rate (before considering Pillar Two) of those
operations expected to be in scope is:
£m
Accounting profit for the year ending 31 December 2023 43
Tax charge for year ending 31 December 2023 3
2023 Average effective tax rate 6%
The Group is in the process of assessing its exposure to the Pillar Two
legislation and is implementing processes to comply with the regulations.
Although the average effective tax rate disclosed above is below 15%, the
Group might not be exposed to paying Pillar Two income taxes in relation to
these jurisdictions. This is due to the impact of specific adjustments
envisaged in the Pillar Two legislation which give rise to different effective
tax rates compared to those calculated in accordance with IAS 12. Due to the
complexities in applying the legislation, the quantitative impact of the
legislation is not yet reasonably estimable. Therefore, even for those
jurisdictions with an accounting effective tax rate above 15%, there may still
be Pillar Two tax implications.
The Group applies the exception to recognising and disclosing information
about deferred tax assets and liabilities related to Pillar Two income taxes,
as provided in the amendments to IAS 12 issued in May 2023.
The Group has published its approach to tax on www.inchcape.com covering its
tax strategy and governance framework in accordance with Schedule 19 Finance
Act 2016.
6 Earnings per share
2023 2022
£m
£m
Profit/(loss) for the year 283 (6)
Non-controlling interests (13) (5)
Basic earnings 270 (11)
Loss for the year from discontinued operations - 241
Basic earnings from continuing operations attributable to owners of the parent 270 230
Adjusting items 79 41
Adjusted earnings from continuing operations 349 271
Basic earnings/(loss) per share:
Basic earnings per share from continuing operations 65.6p 61.1p
Basic loss per share from discontinued operations - (64.0)p
Total basic earnings/(loss) per share 65.6p (2.9)p
Diluted earnings/(loss) per share:
Diluted earnings per share from continuing operations 64.8p 54.6p
Diluted loss per share from discontinued operations - (57.1)p
Total diluted earnings/(loss) per share 64.8p (2.5)p
Adjusted earnings per share from continuing operations:
Basic Adjusted earnings per share from continuing operations 84.8p 72.0p
Diluted Adjusted earnings per share from continuing operations 83.7p 64.4p
2023 2022
number
number
Weighted average number of fully paid ordinary shares in issue during the year 412,689,716 377,146,960
Weighted average number of fully paid ordinary shares in issue during the
year:
- Held by the Inchcape Employee Trust (1,131,983) (749,751)
Weighted average number of fully paid ordinary shares for the purposes of 411,557,733 376,397,209
basic EPS
Dilutive effect of potential ordinary shares 5,408,280 44,733,701
Adjusted weighted average number of fully paid ordinary shares in issue during 416,966,013 421,130,910
the year for the purposes of diluted EPS
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. In 2022, dilutive potential ordinary
shares also include the shares to be issued in connection with the acquisition
of the Derco group (see note 9).
Basic Adjusted earnings (which excludes adjusting 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. 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.
7 Dividends
The following dividends were paid by the Group:
2023 2022
£m
£m
Interim dividend for the six months ended 30 June 2023 of 9.6p per share (30 40 28
June 2022: 7.5p per share)
Final dividend for the year ended 31 December 2022 of 21.3p per share (31 88 61
December 2021: 16.1p per share)
128 89
A final proposed dividend for the year ended 31 December 2023 of 24.3p 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 2023. 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 2023, Inchcape plc's company-only
distributable reserves were £276m. 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.
8 Notes to the consolidated statement of cash flows
a. Reconciliation of cash generated from operations
2023 2022
£m
£m
Cash flows from operating activities
Operating profit - continuing operations 619 400
Operating profit - discontinued operations - 21
Adjusting items (see note 3) 50 11
Amortisation of intangible assets (including non-adjusting impairment charges) 11 10
Depreciation of property, plant and equipment (including non-adjusting 61 32
impairment charges)
Depreciation of right-of-use assets (including non-adjusting impairment 81 58
charges)
Profit on disposal of property, plant and equipment and intangibles (16) (2)
Gain on disposal of right-of-use assets - (1)
Gain on disposal of businesses - (3)
Share-based payments charge 15 10
Increase in inventories (251) (396)
Increase in trade and other receivables (9) (141)
Increase in trade and other payables 415 618
(Decrease)/increase in provisions (1) 30
Pension contributions more than pension charge for the year(1) (1) (2)
Increase in leased vehicles, rental machinery and equipment (18) -
Payments in respect of operating adjusting items (57) (28)
Other non-cash items 1 2
Cash generated from operations 900 619
8 Notes to the consolidated statement of cash flows continued
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 funds at 1 January 2022 (210) (324) (534) 589 55
Cash flows (596) 64 (532) 797 265
Acquisitions (622) (174) (796) (395) (1,191)
Disposals - 13 13 (17) (4)
New lease liabilities - (58) (58) - (58)
Foreign exchange adjustments - (20) (20) 76 56
Net debt at 1 January 2023 (1,428) (499) (1,927) 1,050 (877)
Cash flows 412 87 499 (400) 99
Acquisitions (see note 9(a)) (23) (11) (34) (146) (180)
Period adjustments (see note 9(b)) (7) (1) (8) 9 1
Disposals - - - 1 1
New lease liabilities - (37) (37) - (37)
Foreign exchange adjustments 11 21 32 (74) (42)
Other non-cash movements (6) - (6) - (6)
Net debt at 31 December 2023 (1,041) (440) (1,481) 440 (1,041)
Net funds/(debt) is analysed as follows:
2023 2022
£m
£m
Cash and cash equivalents as per the statement of financial position 689 1,064
Borrowings - disclosed as current liabilities (652) (546)
Add back: amounts treated as debt financing 403 532
Cash and cash equivalents as per the statement of cash flows 440 1,050
Debt financing
Amounts to be treated as debt financing (403) (532)
Borrowings - disclosed as non-current liabilities (638) (896)
Lease liabilities (440) (499)
Debt financing (1,481) (1,927)
Net debt (1,041) (877)
Add back: lease liabilities 440 499
Adjusted net debt (601) (378)
9 Acquisitions and disposals
a. 2023 Acquisitions
CATS
On 2 August 2023, the Group acquired 60% of the share capital of the CATS
Group of Companies (CATS) for cash consideration of £54m. The deal expands
the Group's global distribution footprint as it enters the Philippines,
further building on its well-established presence in the APAC region. It also
strengthens the Group's geographic reach and partnerships with Mercedes-Benz,
Chrysler, Jeep, Dodge, Jaguar and Land Rover, and broaden its relationships,
adding RAM to its list of mobility partners. Non-controlling interests of
£30m have been recognised, calculated as the proportionate share of acquired
net identifiable assets. Provisional goodwill of £12m arose on the
acquisition and is not expected to be deductible for tax purposes.
A distribution agreement intangible asset of £77m has been recorded, valued
using the multi period excess earnings (MEEM) approach.
Mercedes-Benz Indonesia
On 29 September 2023, the Group acquired 70% of the share capital of
Mercedes-Benz's Indonesian distribution business for cash consideration of
£86m. Deferred consideration represents payments to be made to the Seller on
settlement of certain acquired receivables. The deal expands the Group's
existing footprint in Indonesia and, like the CATS acquisition, continues to
build its presence in the APAC region. It also strengthens the Group's
relationship with Mercedes-Benz. Land and buildings of £78m were acquired as
part of the business combination, for which value was included in the agreed
purchase price. Non-controlling interests of £34m have been recognised,
calculated as the proportionate share of acquired net identifiable assets.
Provisional goodwill of £17m arose on the acquisition and is not expected to
be deductible for tax purposes.
A distribution agreement intangible asset of £29m has been recognised, valued
using the multi period excess earnings (MEEM) approach.
9 acquisitions and disposals continued
Other acquisitions
On 2 August 2023 the Group acquired the SAIC Maxus distribution business in
New Zealand for cash consideration of £29m. Provisional goodwill of £6m
arose on the acquisition. The Group also acquired certain assets and
liabilities and the ongoing operations of Auto Insure Ptd. Ltd. in the period
for cash consideration of £4m to expand its aftersales capacity in Singapore.
CATS Mercedes-Benz Indonesia Other Total
£m
£m £m £m
Assets and liabilities acquired, at provisional values(1)
Non-current assets
Intangible assets 77 29 7 113
Property, plant and equipment 2 91 5 98
Right-of-use assets 7 - 4 11
Deferred tax assets - 7 - 7
Current assets
Inventories 42 97 17 156
Trade and other receivables 8 27 1 36
Current tax assets - 7 - 7
Cash and cash equivalents 15 12 - 27
Current liabilities
Trade and other payables (52) (105) (5) (162)
Provisions - (4) (1) (5)
Borrowings - (23) - (23)
Non-current liabilities
Deferred tax liabilities (19) (16) (1) (36)
Lease liabilities (7) - (4) (11)
Retirement benefit liability (1) (10) - (11)
Net identifiable assets acquired 72 112 23 207
Less: Non-controlling interests (30) (34) - (64)
Goodwill 12 17 10 39
Net assets acquired 54 95 33 182
Consideration comprises
Deferred consideration - 9 - 9
Cash consideration 54 86 33 173
Total consideration 54 95 33 182
1. The fair values of assets and liabilities acquired, as stated above, are
provisional values.
The gross contractual amount receivable for trade receivables was £26m and
the best estimate at the acquisition date of the contractual cash flows not
expected to be collected was £2m.
Acquisition and integration costs of £50m were recognised in net operating
expenses in the period, relating to current and prior year acquisitions (see
note 3).
Cash outflow to acquire businesses, net of cash and overdrafts acquired 2023 2022
£m
£m
Current year acquisitions
CATS 39 -
Mercedes-Benz Indonesia 74 -
Other 33 -
Prior year acquisitions including deferred and contingent payments
Derco (9) 312
Ditec - 8
ITC Group - 57
Other - 18
Net cash outflow 137 395
9 acquisitions and disposals continued
b. 2022 Acquisitions
Acquisition of the Derco Group
On 31 December 2022, the Group acquired 100% of the share capital of Dercorp
CL and merged a subsidiary company with Dercorp Ex (together with Dercorp CL,
"Derco"). Derco is a multi-brand automotive distributor, and was the largest
independent distributor by volume in Latin America, with a strong track record
of profitable growth. Derco has significant presence across four attractive
markets of Bolivia, Chile, Colombia, and Peru, and with long-standing
partnerships with global mobility partners such as Suzuki, Mazda, Chevrolet,
Changan, JAC, Renault, Great Wall, and Haval. The transaction was accounted
for as a business combination and significantly expanded the Group's position
in highly attractive and fast growth markets within Latin America and is
expected to deliver significant value creation through enhanced growth
prospects and the delivery of meaningful recurring synergies.
Goodwill of £136m arose on the acquisition and is attributable to the
anticipated future cash flows of the acquired business and synergies expected
to arise following integration with the Group's existing businesses in South
America. Specifically, the goodwill represents the premium paid to expand the
Group's presence in this important market and to create a scale Distribution
platform across South America with attractive growth prospects. This provides
a platform to deliver growth and improved returns far quicker than would have
been achievable through organic expansion. None of the goodwill is expected to
be deductible for tax purposes.
Intangible assets (not including goodwill) with fair values of £559m were
recognised at the date of acquisition, including distribution agreements
(£517m), brands (£19m) and customer relationships (£13m). The distribution
agreement and customer relationship intangible assets were valued using the
multi period excess earnings (MEEM) approach, while the brands were valued
using the relief from royalty approach.
The consideration to acquire the share capital, initially valued at £723m,
was satisfied by the issue of 38.5m new shares in the Inchcape group and by
£407m in cash. Final consideration was reduced by £9m after the conclusion
of the completion accounts process. The fair value of the shares issued was
based on the Inchcape plc closing share price at 30 December 2022 of 820p per
share. Given completion occurred on a non-business day, the shares were not
registered until 4 January 2023 and so the amounts relating to shares to be
issued were classified within other reserves in the consolidated statement of
financial position at 31 December 2022. The issuing of shares qualified
for merger relief.
The cash consideration for the acquisition was partly financed through the
draw down, in December 2022, of a £350m bridge facility and a £250m term
loan facility.
Acquisition-related costs of £34m incurred in connection with the acquisition
of Derco were recorded within net operating expenses, and recognised as
adjusting items in the consolidated income statement in the year ended 31
December 2022.
9 acquisitions and disposals continued
The accounting standards allow a period of up to a year to finalise the
accounting for an acquisition. Details of the fair values of the identifiable
assets and liabilities, after adjustments made within the period, are set out
below:
2022 Period 2023
£m
Adjustments(1)
£m
£m
Assets and liabilities acquired, at provisional values
Non-current assets
Intangible assets 559 - 559
Property, plant and equipment 161 - 161
Right-of-use assets 124 (7) 117
Investments in joint ventures and associates 11 - 11
Trade and other receivables 3 - 3
Deferred tax assets 10 1 11
Current assets
Inventories 796 4 800
Trade and other receivables 316 - 316
Derivative financial instruments 5 - 5
Current tax assets 34 (9) 25
Cash and cash equivalents 95 - 95
Current liabilities
Trade and other payables (563) - (563)
Current tax liabilities (21) 7 (14)
Provisions (6) - (6)
Lease liabilities (19) - (19)
Borrowings (532) - (532)
Non-current liabilities
Provisions (4) (4) (8)
Deferred tax liabilities (174) 2 (172)
Lease liabilities (118) (1) (119)
Borrowings (85) (7) (92)
Net identifiable assets 592 (14) 578
Goodwill 131 5 136
Net assets acquired 723 (9) 714
Consideration comprises
Shares issued 316 - 316
Cash consideration 407 (9) 398
Total consideration 723 (9) 714
1. Due to the period adjustments not being material, the prior year
statement of financial position has not been restated.
Cash outflow to acquire businesses, net of cash and overdrafts acquired 2023 2022
£m
£m
Cash consideration (9) 407
Less: Cash acquired - (95)
Net cash (inflow)/outflow (9) 312
9 acquisitions and disposals continued
Other acquisitions
On 28 March 2022, to expand its distribution footprint in the Americas, the
Group acquired 70% of Comercializadora Ditec Automoviles S.A., acquiring the
distribution rights to Porsche, Volvo, and Jaguar Land Rover in Chile, for
total consideration of £15m. Distribution agreements with a fair value of
£28m were recognised. Goodwill of £3m arose on the acquisition. None of the
goodwill is expected to be deductible for tax purposes. In September 2023 the
Group finalised the purchase of the remaining 30% stake in Ditec. This stake
was previously subject to a written put option, resulting in a liability on
the Group's statement of financial position, which has now been extinguished.
On 29 April 2022, the Group acquired the entire share capital of ITC Group, a
distributor of Suzuki, Mercedes-Benz, Subaru, and Chrysler brands in the
Caribbean, from the Simpson Group. The total cash consideration paid was
£61m. Distribution agreements with a fair value of £29m were recognised.
Goodwill of £nil arose on the acquisition. These businesses were acquired to
further expand the Group's footprint with both existing and new mobility
company partners and using our distribution business as a platform to capture
more of a vehicle's lifecycle value.
During 2022, the Group also acquired businesses in Guam and the UK. The total
cost of these acquisitions was £18m and goodwill of £7m was recognised.
c. 2022 Disposals and discontinued operations
In the first half of 2022, the Group agreed the sale of its remaining retail
operations in Russia to management. The business represented the Group's
remaining operation in Russia following the disposal of its St Petersburg
business during 2021. The Russian operation was reported in the prior period
as a discontinued operation. Financial information relating to the
discontinued operation for the period to the date of disposal is set out
below.
The price agreed for the sale of the Russian business was €76m (c£63m), to
be satisfied over a period of five years in annual instalments. Significant
uncertainty exists with regards to the amount that will ultimately be
recoverable given the precarious outlook for the Russian economy and the
uncertainty regarding the continued supply of vehicles and parts by the
mobility partners. In estimating the amount to be recognised at the time of
the disposal, management developed a number of scenarios for the possible
performance of the business. Probabilities were applied to these scenarios
which indicated that some of the receivable would be received over time.
However, given the difficulties in remitting the proceeds and uncertainty over
whether this would change in the future, management concluded that the
disposal proceeds should be recognised at £nil.
In the second half of 2022, the Group received the first annual instalment
from the sale of the Russian business of €15m (£12.8m). This was recorded
as other income within the operating profit from continuing operations and was
reported as an adjusting item. Management have subsequently reassessed the
amount at which the remaining receivable should be recorded as at 31 December
2023. The outlook for the Russian economy remains precarious and there is
continued uncertainty with regards to the supply of vehicle and parts and the
ability of the purchaser to remit the instalments. Management therefore
concluded that the value of the remaining instalments should be recognised at
£nil at 31 December 2023.
Financial performance and cash flow information
The financial performance and cash flow information presented below is for the
five months ended 31 May 2022.
2022
£m
Revenue 237
Expenses (216)
Operating profit 21
Finance (costs)/income (1)
Profit before tax 20
Tax (5)
Profit after tax of discontinued operation 15
Loss on disposal (256)
(Loss)/profit from discontinued operation (241)
Exchange differences on translation of discontinued operation 118
Other comprehensive (loss)/income from discontinued operation (123)
2022
£m
Net cash inflow from operating activities 21
Net cash outflow from investing activities (2)
Net cash outflow from financing activities (2)
Net increase in cash generated from discontinued operation 17
9 acquisitions and disposals continued
Russia UK Retail Total
£m
£m
£m
Disposal proceeds, net of disposal costs (3) 6 3
Net assets disposed of (155) (3) (158)
(Loss)/gain on disposal before reclassification of foreign currency (158) 3 (155)
translation reserve
Recycling of foreign currency translation reserve (99) - (99)
(Loss)/gain on disposal (257) 3 (254)
Russia UK Retail Total
£m
£m
£m
Consideration received, net of disposal costs paid 10 6 16
Cash & cash equivalents disposed of (33) - (33)
Net cash (outflow)/inflow on disposal of business (23) 6 (17)
During 2022, the Group also disposed of a retail site in the UK for £6m and
received £0.2m of deferred proceeds from sites disposed of in 2021. None of
these disposals were material enough to be shown as discontinued operations on
the face of the consolidated income statement as they did not represent a
major line of business or geographical area of operations.
10 Foreign currency translation
The main exchange rates used for translation purposes are as follows:
Average rates Closing rates*
2023 2022 2023 2022
Australian dollar 1.88 1.78 1.87 1.77
Chilean peso 1,044.74 1,073.09 1,130.41 1,028.42
Ethiopian birr(1) 71.84 64.72 71.84 64.72
Euro 1.15 1.17 1.15 1.13
Hong Kong dollar 9.75 9.70 9.98 9.44
Russian rouble(2) n/a 106.85 n/a 78.92
Singapore dollar 1.67 1.71 1.68 1.62
US dollar 1.25 1.24 1.28 1.21
* At 31 December.
1. In 2023, the results for Ethiopia are translated at the closing rate as
required by IAS 21 The Effects of Changes in Foreign Exchange Rates for
hyperinflationary foreign operations.
2. Average rates for the Russian rouble represent the average rates for the
5-month period ending 31 May 2022, and the closing rates for the Russian
rouble are as at the date of disposal of Russian operations.
11 Events after the reporting period
On 29 January 2024, following approaches from a number of interested parties,
the Group announced that it was reviewing strategic options for the UK Retail
business, which could potentially include a sale. At the reporting date, the
strategic review was in initial stages and as there is no certainty that a
transaction would result, the Group has concluded that the UK Retail business
did not meet the criteria to be classified as an asset held for sale as at 31
December 2023.
12 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 adjusting items. These adjusted measures reflect
adjustments to IFRS measures. The Directors consider these adjusted measures
to be an informative additional measure of the ongoing trading performance of
the Group. Adjusted results are stated before adjusting items and on a
continuing operations basis.
Adjusting items can include gains or losses on the disposal of businesses,
restructuring of businesses, acquisition costs, asset impairments and the tax
effects of these items. Adjusting items excluded from adjusted results can
evolve from one financial period to the next depending on the nature of
adjusting items or one-off activities.
12 Alternative performance measures (APMs) continued
Constant currency
Some comparative performance measures are translated at constant exchange
rates, called 'constant currency' measures. This restates the prior period
results at a common exchange rate to the current period and therefore excludes
the impact of changes in exchange rates used for translation.
Performance measure Definition Why we measure it
Adjusted gross profit Gross profit before adjusting items. A key metric of the direct profit contribution from the Group's revenue
Refer to the consolidated income statement. streams (e.g. Vehicles and Aftersales).
Adjusted operating profit Operating profit before adjusting items. A key metric of the Group's business performance.
Refer to the consolidated income statement.
Operating margin Adjusted operating profit divided by revenue. A key metric of operational efficiency, ensuring that we are leveraging global
scale to translate sales growth into profit.
Adjusted profit before tax Represents the profit made after operating and interest expense excluding the A key driver of delivering sustainable and growing earnings to shareholders.
impact of adjusting items and before tax is charged.
Refer to consolidated income statement.
Adjusted earnings before interest, tax, depreciation and amortisation Represents the earnings before interest expense, taxation, depreciation and One of the key measures used in monitoring the Group's leverage and capital
amortisation expenses, and excluding the impact of adjusting items. allocation.
Adjusting items Items that are charged or credited in the consolidated income statement which The separate reporting of adjusting items helps provide additional useful
are material and non-recurring in nature. information regarding the Group's business performance and is consistent with
Refer to note 3. the way that financial performance is measured by the Board and the Executive
Committee.
Adjusted earnings per share Represents earnings per share excluding the impact of adjusting items. A measure useful to shareholders and investors to understand the earnings
Refer to note 6. attributable to shareholders without the impact of adjusting items.
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 adjusting 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 adjusting 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.
Adjusted return on capital employed (ROCE)* Operating profit (before adjusting items) divided by the average of opening Adjusted ROCE is a measure of the Group's underlying ability to drive better
and closing capital employed, where capital employed is defined as net assets returns for investors on the capital we invest.
add net debt/less net funds, less the capital employed of Derco, which was
acquired on the last day of 2022 and therefore did not contribute to operating
profit during the year.
Net (debt)/funds 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 8.
Adjusted (net debt)/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 8.
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.
* Adjusted ROCE is only relevant for 2022.
12 Alternative performance measures (APMs) continued
APM - Adjusted profit before tax (from continuing operations) 2023 2022
£m
£m
Gross Profit 1,939 1,325
Less: Segment operating expenses (1,270) (914)
Adjusted Operating Profit 669 411
Less: Adjusting items in net operating expenses (50) (11)
Operating Profit 619 400
Less: Net finance costs and JV profits (206) (67)
Profit Before Tax 413 333
Add back: Adjusting Items in net operating expenses 50 11
Add back: Adjusting items in net finance costs 39 29
Adjusted profit before tax 502 373
APM - Free cash flow (from continuing operations) 2023 2023 2022 2022
£m
£m
£m £m
Net cash generated from operating activities 593 494
Add back: Payments in respect of adjusting items 57 28
Net cash generated from operating activities, before adjusting items 650 522
Purchase of property, plant and equipment (88) (64)
Purchase of intangible assets (5) (4)
Proceeds from disposal of property, plant and equipment 31 10
Net capital expenditure (62) (58)
Net payment in relation to leases (84) (63)
Dividends paid to non-controlling interests (6) (4)
Free cash flow 498 397
Less: Free cash flow from discontinued operations - (17)
Free cash flow from continuing operations 498 380
APM - Return on capital employed (from continuing operations) 2023 2022
£m
£m
Operating profit 619 400
Adjusting items in net operating expenses 50 11
Adjusted operating profit 669 411
Net assets 1,620 1,567
Add net debt 1,041 877
Capital employed 2,661 2,444
Effect of averaging (108) (741)
Average capital employed 2,553 1,703
Return on capital employed 26.2% 24.1%
APM - Adjusted return on capital employed (from continuing operations)
Capital employed - continuing operations 2,661 2,444
Less: Derco capital employed n/a* (1,383)
Adjusted capital employed - continuing operations 2,661 1,061
Effect of averaging (108) (49)
Average adjusted capital employed 2,553 1,012
Adjusted return on capital employed 26.2% 40.6%
* Capital employed for Derco was removed from prior year as the
acquisition completed end of 2022, hence the ratio was adjusted for this.
APM - Adjusted net debt 2023 2022
£m
£m
Net debt (1,041) (877)
Add back: lease liabilities 440 499
Adjusted net debt (601) (378)
12 Alternative performance measures (APMs) continued
APM - Adjusted earnings per share (from continuing operations) 2023 2022
£m
£m
Operating profit 619 400
Add: adjusting items in net operating expenses 50 11
Adjusted operating profit 669 411
Share of profit after tax of joint ventures and associates 1 -
Adjusted profit before finance and tax 670 411
Net finance costs (207) (67)
Add: adjusting items in net finance costs 39 29
Adjusted profit before tax 502 373
Tax on adjusted profit (140) (97)
Adjusted profit after tax 362 276
Less: non-controlling interests (13) (5)
Adjusted earnings 349 271
Weighted average number of shares (m) 412 376
Dilutive effect (m) 5 45
Basic adjusted earnings per share 84.8p 72.0p
Diluted adjusted earnings per share 83.7p 64.4p
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