REG - Inchcape PLC - Half-year Report
27/07/2023 07:15
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RNS Number : 3331H Inchcape PLC 27 July 2023
Inchcape plc, the leading global automotive distributor, announces its interim
results for the six months to 30 June 2023
A strong performance, driving further positive momentum
· A robust set of results in H1 2023, with excellent revenue and profit growth:
o Revenue up 45% to £5.6bn, supported by contribution from Derco and 13%
organic revenue growth(1)
o Adjusted PBT(2) up 35% to £249m, with a strong operating profit performance
more than offsetting higher interest costs during the period. Statutory PBT of
£204m, reflecting adjusting items
o Excellent performance in Distribution, with organic revenue growth(1) of 17%
· Continued strategic progress, driving further scale and diversification:
o 11 distribution deals & acquisitions signed during H1 2023, including
global strategic agreement with Great Wall Motors
o Significant traction in APAC, with acquisitions and contract wins in the
Philippines, Indonesia, New Zealand, and Thailand
o Outstanding commercial momentum in the Americas, with several new distribution
deals signed, including Subaru in Bolivia and Ecuador, Mercedes-Benz in
Honduras, Geely in Guatemala and El Salvador and XCMG(4) in Colombia
· Derco being successfully integrated:
o Operating margins on track
o On track to deliver majority of annualised cost synergies of at least £40m by
the end of FY 2024, with 30% in FY 2023
o Substantial progress achieved in normalising Derco's working capital position
· Inchcape remains extremely well positioned for growth:
o Supported by our market leadership, resilient business model, diversified
geographic footprint and digital-led approach
o Based on prevailing market conditions, full year results expected to be
towards the top end of the range of published market consensus(5)
Duncan Tait, Group CEO, commented:
"Inchcape has produced another excellent performance during the first half of
2023, driven by growth from acquisitions and by consistently strong organic
growth. In particular, the acqusition of Derco has transformed our market
position in the Americas and is already having a positive impact on the Group.
This first half performance highlights Inchcape's continued commercial
momentum, supported by our global scale and long-standing OEM relationships,
underpinned by a highly differentiated technology platform. Our business in
the Americas is performing well, while we are producing strong momentum across
the APAC region. In Europe, our business also performed well, despite
challenges in certain markets.
Inchcape continues to build its position as the global leader in automotive
distribution thanks to the combination of our people, who bring
industry-leading expertise, our diversified geographic footprint and our
digital and data capabilities. We are uniquely placed to deliver outstanding
performance for our OEM partners and drive consolidation in a highly
fragmented market, supporting sustainable growth and value for our
stakeholders. As a result, we remain confident in our medium-term outlook."
H1 2023 H1 2022 % change % change % change
reported
constant FX(2)
organic(1)
Key financials (continuing operations)
Revenue £5,628m £3,890m +45% +42% +13%
Adjusted Operating Profit(2) £327m £204m +61% +56%
Adjusted Operating Margin(2) 5.8% 5.2% +60bps +50bps
Adjusted Profit Before Tax(2) £249m £184m +35% +32%
Adjusted Basic EPS(2) 42.2p 35.0p +21%
Dividend Per Share 9.6p 7.5p +28%
Free Cash Flow £202m £224m (10)%
Statutory financials
Operating Profit (continuing operations) £306m £207m +48%
Profit Before Tax (continuing operations) £204m £188m +9%
Total profit / (loss) for the period(3) £139m £(100)m
Basic EPS (continuing operations) 32.1p 36.2p (11)%
1. Organic growth is defined as revenue growth in operations that have been
open for at least a year at constant foreign exchange rates
2. These measures are Alternative Performance Measures, see 'Our financial
metrics'
3. Including discontinued operations
4. XCMG: Xuzhou Construction Machinery Co. - one of China's largest heavy
machinery manufacturing companies and the third largest in the world
5. The current range of 2023 Adjusted PBT analysts' consensus estimates is
between £470m and £506m, as at 12 May 2023
Market abuse regulation statement
This announcement contains inside information.
Results presentation today
A presentation for analysts and investors will be held today, Thursday 27(th)
July 2023, at 08:30 (UK time). The presentation will be held at the London
Stock Exchange, 10 Paternoster Square, London EC4M 7LS.
To register for the webcast of the event please follow this link
(https://www.lsegissuerservices.com/spark/Inchcape/events/b24b29f6-3a98-4b59-9be4-6d112ee7f10e)
, or to register for conference call access please follow this link
(https://services.choruscall.za.com/DiamondPassRegistration/register?confirmationNumber=9522074&linkSecurityString=18669046cc)
.
A replay of the presentation will be available via the Company's website,
www.inchcape.com
(file:///C%3A/Users/finn.lawrence/AppData/Local/Microsoft/Windows/INetCache/Content.Outlook/QNPKNXC8/www.inchcape.com)
later today.
Financial calendar
Ex-dividend date for 2023 interim dividend 3(rd) August 2023
Record date 4(th) August 2023
Last date election 10(th) August 2023
Payment date 1(st) September 2023
Q3 trading update 26(th) October 2023
Contacts
Inchcape plc (investor enquiries):
Rob Gurner +44 (0)7825 189 088 investors@inchcape.com (mailto:investors@inchcape.com)
Krishma Arora
Brunswick Group (media enquiries):
Kate Holgate / Helen Smith +44 (0)20 7404 5959 inchcape@brunswickgroup.com (mailto:inchcape@brunswickgroup.com)
About Inchcape
Inchcape is the leading global automotive distributor, with operations across
six continents.
By combining our in-market expertise with our unique technology and advanced
data analytics, we create innovative customer experiences that deliver
outstanding performance for our partners - building stronger automotive brands
and creating sustainable growth.
Our distribution platform connects the products of mobility companies with
customers, and our responsibilities span product planning and pricing, import
and logistics, brand and marketing to operating digital sales, managing
physical sales and aftermarket service channels.
Delivering for our partners, our customers and our people - so they can
realise their ambitions in the new world of mobility.
The Group is headquartered in London and employs over 20,000 people globally.
www.inchcape.com (http://www.inchcape.com)
Our results are stated at actual exchange rates. However, to enhance
comparability we also present year-on-year changes in sales and adjusted
operating profit in constant currency, thereby isolating the impact of
translational exchange rate effects. Unless otherwise stated, changes are
expressed in constant currency and figures are stated before adjusting items.
Following the disposal of our remaining Retail-only business in Russia
(Moscow), all figures quoted in the 'Operational' and 'Operating and
financial' reviews are on a 'continuing operations' basis and therefore
exclude any contribution from Russia in 2022.
Operational review
Key performance indicators
H1 2023 H1 2022 % change % change % change
reported constant FX(1) organic(2)
Revenue £5.6bn £3.9bn +45% +42% +13%
Adjusted Operating Profit(1) £327m £204m +61% +56%
Adjusted Operating Margin(1) 5.8% 5.2% +60bps +50bps
Adjusted Profit Before Tax(1) £249m £184m +35%
Free Cash Flow(1) £202m £224m (10)%
Return on Capital Employed(1) 30% 35% (480)bps
1. See note 16 for definition of Key Performance Indicators and other
Alternative Performance Measures.
2. Organic growth is defined as revenue growth in operations that have been
open for at least a year at constant foreign exchange rates
H1 2023 results - performance review
The Group delivered an excellent operational performance in H1 2023, driven by
organic revenue growth, and growth from acquisitions, with strong margins well
ahead of historic levels, as the profile of the business continues to shift
towards Distribution. This performance was supported by volume growth, as well
as pricing, in new and used vehicles in each region of our Distribution
business, and a robust performance from our Retail business. Our performance
was supported by an easing supply environment.
Group revenue of £5.6bn rose 45% year-on-year reported and 42% in constant
currency, supported by organic growth and the acquisition of Derco. On an
organic basis, excluding currency effects and net M&A, revenue increased
by 13%, with strong performances across our diversified geographic footprint.
The Group delivered an adjusted operating profit of £327m, up 61%
year-on-year reported and 56% in constant currency, reflecting organic topline
growth, the contribution of Derco and enhanced margins.
Adjusted profit before tax (PBT) of £249m (1H22: £184m) as a result of the
improvement in revenue and operating profit.
This profit performance more than offsets an increase in adjusted net interest
expense to £79m (1H22: £20m). This increase is due to the shift in the
Group's capital structure from Net Cash to a Net Debt profile over the last 12
months, following the transformational acquisition of Derco. The increase in
adjusted net interest expense was driven by this change in Net Debt profile,
increasing interest rate environment and inflated further in H1 2023 from
transitional costs and acquired debt in Derco. As the Group's capital
structure continues to transition, with reduced exposure to floating interest
rates following the successful issue of a 5 year £350m bond, at a 6.5% fixed
interest rate coupon during the period, we expect adjusted net interest
expense to moderate in H2 2023.
During the period pre-tax adjusting items amounted to an expense of £45m
(1H22: £3m credit). As expected, this was primarily driven by acquisition and
integration costs (£21m), 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 (£14m).
The highly cash-generative nature of our business model drove strong free cash
flow generation of £202m (1H22: £224m), representing a conversion of
adjusted operating profit of 62% (1H22: 110%). Net interest payments in the
period increased to £62m (1H22: £12m), excluding payment for leases and
currency in both periods, for the reasons outlined above. There was a net
working capital inflow of £35m (1H22: inflow £80m) driven by an alignment of
supplier trading terms (in particular around inventory financing) and a c.20%
reduction in excess inventory at Derco, offset by a normalising of working
capital elsewhere across the Group, as previously highlighted. Outside of free
cash flow, there was a payment of a pre-completion dividend to the Del Rio
family and the settlement of a liability to acquire the interests of minority
shareholders of £212m. Ordinary dividend payments were £88m.
The Group closed the period with adjusted net debt of £564m (excluding lease
liabilities), compared to adjusted net debt of £378m at the end of December
2022. On an IFRS 16 basis (including lease liabilities), the Group ended the
period with net debt of £1,044m (December 2022: net debt of £877m). Group
leverage on a proforma basis was approximately 0.8x at 30 June 2023. By the
end of FY 2023, Group leverage is expected to reduce, benefiting from a strong
profit and cash flow performance during H2 2023, partially offset by
acquisitions and dividend cash outflows.
In June 2023, the Group successfully issued a £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.
Return on capital employed over the period was 30%, compared to 35% for the
equivalent period last year.
Q2 2023
Group revenue for the second quarter was £2.9bn, up 40% reported, reflecting
the contribution of Derco and organic growth of 13%, in line with Q1 2023.
In Distribution, revenue increased 18% organically, compared to +15% in Q1.
The sequential step-up in organic growth was driven strong performances in
each region. In Retail, revenue increased 1% organically, compared to +8% in
Q1 2023, as a result of the growing impact of the agency model.
Update on Derco - strong progress made during H1 2023
Our business in the Americas region remains resilient and we are confident
about the medium to long-term outlook for our business in the region, despite
a challenging environment in certain markets. Our confidence is supported by
the high quality of the Derco business, with its leading market positions and
exciting growth prospects in a region with high GDP growth and low
motorisation rates.
Derco is a transformational acquisition for Inchcape - it has significantly
increased our market leadership position in the Americas and is already
helping to develop our OEM relationships in the region, as well as driving
major strategic benefits globally, for example helping to deliver the global
strategic agreement with Great Wall Motors. With this in mind, we expect Derco
to accelerate the Group's growth profile and to drive margin accretion over
the medium and long term.
During H1 2023, Derco's revenue and profit contribution was in line with our
expectations, with successful delivery of operating margin at the top end of
the 5% -7% range of a typical distribution business, pre-synergies, as
anticipated. We made excellent progress in integrating the business,
maintaining all OEM relationships, retaining key personnel,and successfully
initiating the integration of Inchcape's tools and systems across the Derco
business.
Our integration progress included the initial alignment of Derco's inventory
management practices and supplier terms with those employed across the Group.
We achieved substantial traction in normalising Derco's working capital
position during the period, driven by the alignment of trading terms with
certain OEM's. We also made good headway in reducing Derco's excess inventory,
by around 20%, during the period. In addition, adjustments to the quantity of
inventory in the supply chain were made to ensure we achieve a normalised
level of inventory by the end of FY 2023, with most of the benefit expected to
impact H2 2023.
As a result of the progress made in each of these areas, we continue to expect
to deliver a £200m working capital inflow in Derco by the end of 2023, which
will be partially offset by a working capital outflow across the rest of the
Group, as previously outlined.
We remain on track to deliver the majority of the annualised cost synergies of
at least £40m by the end of FY 2024, with around 30% of these cost synergies
to be delivered during FY 2023. As previously stated, one-time costs of £60m
will be invested in driving these synergies. We also expect to deliver
substantial revenue synergies from the integration of Derco, through mutually
developing our OEM relationships, driving improvements in aftersales processes
at Derco and through implementing a market-leading approach to finance and
insurance products for customers.
In line with our previous guidance, we expect Derco to be 15+% accretive to
Inchcape's earnings per share (excluding implementation costs) in FY 2023 and
20+% accretive in FY 2024.
From the announcement of our FY 2023 results, Derco's performance will be
reported within our disclosure for the Americas region.
Strategic priorities
Our Accelerate strategy is focused on two growth opportunities: Distribution
Excellence and Vehicle Lifecycle Services, supported by our Responsible
Business plan: 'Driving What Matters'.
Developing our approach to Responsible Business is central to our future
plans. It will bring Inchcape closer to our customers, ensure we further
strengthen our position as a trusted partner to OEMs and help us recruit,
engage and retain the best talent. All of these elements are fundamental to
the successful delivery of our Accelerate strategy and to ensuring Inchcape's
sustainability for the long-term. Driving What Matters has four key focus
areas: Planet, People, Places and Practices. We made good progress in each of
these areas in H1 2023:
· Planet: following our progress in reducing our Scope 1 and Scope 2 emissions
in FY 2022, we have continued to identify ways to reduce our controllable
emissions in H1 2023, with an increasing number of our markets moving onto
renewable energy tariffs and further on-site renewable energy projects being
executed and commissioned;
· People: the first phase of our Inclusive Leadership Programme was rolled out
to 600 leaders across the business. In addition, a further 45 women completed
the Women into Leadership Programme. We also developed a Global Health &
Wellbeing approach and framework during the period;
· Places: we delivered 11 programmes across each of our regions to improve road
and driver safety, including seven "Mobility for Everyone, Everywhere"
programmes to improve mobility for people with disabilities; and
· Practices: Inchcape's Code of Conduct and Whistleblowing SpeakUp service was
launched to more than 4,000 new Derco colleagues. In addition, our new
Business Continuity Planning policy was approved, with an extensive roll-out
planned for H2 2023.
(1) Distribution Excellence: extending our leadership in automotive
distribution (new vehicles and original parts)
In the Group's core operations, we create the vital link between the OEM and
the end-customer, with our full-spectrum distribution capability. This
includes deciding which vehicle models and parts to order, developing the
pricing structure in a market, arranging the importation of new vehicles and
parts, building the brand including marketing and the provision of finance and
insurance products, the creation and management of the digital and physical
network, in-market distribution of new vehicles and parts for the aftermarket,
and finally, when we choose to operate dealerships ourselves, we perform
retail and aftersales services.
During H1 2023, we have made further progress in this area:
§ Digital, Data & Analytics: we have continued to invest in our digital
capabilities, to further differentiate Inchcape from our peers and to drive a
cutting edge capability for our OEM partners. We have developed and enhanced
DXP, our customer experience platform, with improved functionality, launching
it in a number of key markets in APAC, where we are already seeing enhanced
customer engagement results. DAP, our data analytics platform, now operates
150 machine-learning models, from a standing start in FY 2021.
§ Consolidating a fragmented global market: in line with our focus on markets
with high growth potential, we further expanded our distribution footprint by
acquiring several independent distribution businesses, across APAC in
particular:
§ CATS, expanding our APAC footprint with entry into the Philippines with seven
brands
§ Mercedes-Benz distribution business in Indonesia, further building our
presence in that market
§ Great Lake Motor Distributors, which distributes SAIC's Maxus brand in New
Zealand
§ New contract wins: another growth lever for us is being awarded a contract by
an OEM, giving us exclusive responsibility for its brand (driving new vehicle
market share and parts revenue) in a market. We won several such contracts
during H1 2023, including a global strategic contract with Great Wall Motors,
which included a new market for our partnership in Indonesia, and XCMG, one of
China's largest heavy machinery manufacturing companies, in Colombia.
§ Expanding OEM relationships: one of the key barriers to entry in automotive
distribution is relationships with OEMs - Inchcape takes pride in its long
track-record of distribution contract retention. In H1 2023, we signed
distribution agreements with a number of existing partners, including
Mercedes-Benz in Honduras, a new market for Inchcape, Geely in Guatemala and
El Salvador and Subaru in Bolivia and Ecuador. Our increased scale and market
leadership, supported by the acquisition of Derco, is set to drive further
deal flow in the future.
(2) Vehicle Lifecycle Services: capturing more lifetime value - of customers
and vehicles
We see significant opportunity for the Group to unlock value in the subsequent
phases of the vehicle's lifecycle, through new and complementary products and
services. Over the past 18 months we have made solid progress in Vehicle
Lifecycle Services:
§ bravoauto: our digital-first, multi-brand, B2C used car platform, has been
further rolled out across our business and is now live in 12 markets across
Europe, APAC and the Americas. While the business is still developing, the
initial results are encouraging. We remain on track with our ambition to
double our used vehicle volumes by 2026.
§ Digital Parts Platform: the pilot of our digital parts platform in
Australia, aimed at modernising the aftermarket-parts industry, has seen some
initial success and we plan to roll it out in other markets in APAC over the
next 18 months.
Capital allocation
Supported by a strong balance sheet, our capital allocation policy remains
unchanged: 1) to invest in the business to strongly position it for the
future; 2) to make dividend payments; 3) to conduct value-accretive M&A;
and, in the absence of inorganic opportunities, 4) consider share buybacks.
Our dividend policy targets a 40% annual payout ratio of basic adjusted EPS,
and as such based on the 2022 dividend of 28.8p, the Board has declared an
interim dividend of 9.6p (1H22: 7.5p).
Investment proposition
Inchcape is the leading global automotive distributor. Combining our exposure
to higher growth markets and diversified revenue streams, with our market
leadership positions and our history of market outperformance, we expect to
deliver strong organic growth. By leveraging our scale, operational
improvements and focus on higher margin activities, we can drive margin
expansion. The highly fragmented nature of distribution, and our strong
financial position, also provides significant consolidation opportunities.
In addition to the attractive growth prospects, the business is asset-light
with excellent financial characteristics: high returns and cash conversion.
Combined with a disciplined approach to capital allocation we believe these
should enable the Group to maintain its long track record of delivering
significant value through organic growth, consolidation and attractive
shareholder returns.
Outlook
Inchcape remains extremely well positioned for growth, supported by the
Group's global scale and market leadership, resilient business model, our
digital-led approach and the excellent progress already made on the
integration of Derco.
Across our diversified geographic footprint, our business in the Americas is
performing well, remains resilient and has been further strengthened by the
acquisition of Derco, while we are producing strong commercial and operational
momentum across the APAC region. Our business in Europe also performed well in
H1 2023, but consumer demand remains weak in a number of markets across the
region.
Against this backdrop, and based on prevailing market conditions, we expect
full year results for FY 2023 to be towards the top end of the range of
published market consensus(1).
1. The current range of 2023 Adjusted PBT analysts' consensus estimates is
between £470m and £506m, as at 12 May 2023
Operating and financial review
Distribution
The Distribution segment reported revenue of £4.4bn, increasing 62%
year-on-year on a reported basis, reflecting the contribution of Derco as well
as organic growth, which was up 17%. The combination of an excellent topline
performance and higher margins drove adjusted operating profit(1) of £302m
(1H22: £174m). Adjusted operating margin(1) rose 50bps to 6.8%.
H1 2023 H1 2022 % change reported % change constant FX % change
organic(2)
£m £m
Revenue
APAC 1,255.2 1,074.1 +17% +14% +15%
Europe & Africa 1,258.8 1,011.6 +24% +20% +20%
Americas 1,910.5 653.5 +192% +186% +16%
Total Distribution 4,424.5 2,739.2 +62% +57% +17%
Adjusted operating profit(1)
APAC 89.6 71.6 +25% +22%
Europe & Africa 69.8 47.2 +48% +54%
Americas 143.0 54.9 +160% +138%
Total Distribution 302.4 173.7 +74% +69%
Adjusted operating margin(1)
APAC 7.1% 6.7% +40bps +40bps
Europe & Africa 5.5% 4.7% +80bps +120bps
Americas 7.5% 8.4% (90)bps (150)bps
Total Distribution 6.8% 6.3% +50bps +50bps
APAC revenue was up 17% year-on-year with adjusted operating profit(1) rising
25%. Adjusted operating margin was stable at 7.1%, with market mix tailwinds
expected to be partially offset by strategic investments in the short term.
During the period, there were particularly strong performances from Brunei,
Thailand and Indonesia. Hong Kong is showing some early signs of market
recovery, highlighted by a growing order bank and improving demand for premium
passenger vehicles. In Singapore, the market remains impacted by a low level
of vehicle licence availability, down significantly from peak levels, with
licence availability expected to improve in 2024. In Australasia, performance
has been strong for new vehicles, with market share gains achieved, supported
by an improving supply situation and resilient demand. We signed deals to
acquire three businesses across APAC, all of which are expected to complete
during H2 2023. These acquisitions, which are expected to contribute a
combined annualised revenue of around £400m, are Mercedes-Benz's distribution
operations in Indonesia, CATS, a leading distributor of luxury vehicles in the
Philippines and Great Lake Motor Distributors, which distributes SAIC's Maxus
brand in New Zealand.
Europe & Africa revenue was up 24% year-on-year with adjusted operating
profit(1) rising 48%, with elevated levels of adjusted operating margin at
5.5%. In Europe, accelerated supply helped to drive this top line growth and
margin performance, while new consumer demand was weak in a number of markets.
Our relatively high order bank is expected to moderate, with margins expected
to normalise. Africa continues to be an exciting long term growth prospect for
the Group and has performed in line with the market, particularly in the
aftermarket.
Americas revenue grew 192% year-on-year, as a result of the contribution from
Derco and a strong organic growth performance of 16%. Adjusted operating
profit(1) grew 160%, with adjusted operating margin of 7.5%, ahead of the more
normal levels of 6.7% delivered in H2 2022. The region's future margin
performance will be underpinned by the delivery of cost synergies at Derco and
from a highly diversified geographic footprint across the region, we benefited
from growth in 10 of the 12 markets where we have a presence. Our businesses
in Peru, Bolivia, Uruguay, Ecuador, across Central America and in the
Caribbean performed particularly well, with market share gains in a number of
these markets. Industry volumes in Chile and Colombia were down on the prior
year but our businesses in those markets remain resilient, with our market
share growing in Chile and remaining stable in Colombia. We remain confident
about our position in the Americas over the medium to long term, given the
relatively high GDP growth and low motorisation rates being exhibited in the
region.
Retail
Our Retail segment includes the results of our UK and Poland franchise
dealerships and our bravoauto business in these markets.
From the start of 2023, in the UK, certain manufacturers changed the way they
sell new vehicles (choosing to sell directly to consumers via dealer groups),
and as such the Group recognises a handling-fee (not the selling price of the
vehicle). This transition to an "agency model" has adversely impacted reported
revenue growth but supported margins.
H1 2023 H1 2022 % change reported % change constant FX % change
organic
£m £m
Revenue
Total Retail 1,203.0 1,151.2 +5% +4% +4%
Adjusted operating profit(1)
Total Retail 24.3 30.3 (20)% (20)%
Adjusted operating margin(1)
Total Retail 2.0% 2.6% (60)bps (60)bps
Retail delivered organic revenue growth of 4% and adjusted operating profit(1)
declined (20)%, resulting in an adjusted operating margin of 2.0%. Excluding
the impact of the "agency model", organic revenue growth is estimated to have
been 17% and adjusted operating margin is estimated to have been 0.2% lower.
The reduction in operating profit reflects margin normalisation as we lap the
peak of vehicle pricing in the prior year driven by supply shortages, as well
as on-going investment in the development of bravoauto, which continued to
support growth in our used car business. Volume growth in new vehicles was
supported by improving vehicle supply.
1: Operating profit and operating margin stated before adjusting items
2. Organic growth is defined as revenue growth in operations that have been
open for at least a year at constant foreign exchange rates
Value drivers
We provide disclosure on the value drivers behind our gross profit. This
includes:
§ Gross profit attributable to Vehicles: New Vehicles, Used Vehicles and the
associated income from finance and insurance products; and
§ Gross profit attributable to Aftersales: Service and Parts
H1 2023 H1 2022 % change reported % change constant FX
£m £m
Gross Profit
Vehicles 662.3 412.5 61% 56%
Aftersales 303.0 202.8 49% 44%
Total 965.3 615.3 57% 52%
We operate across the automotive value chain, and during the year we generated
31% of gross profit through Aftersales (1H22: 33%). This reflects greater
gross profit contribution from vehicles as volumes improved and higher vehicle
gross margins.
Other financial items
Adjusting items: In the first half of the year, we have reported a pre-tax
charge of £45m (1H22: £3m credit) in respect of adjusting items. This was
primarily driven by one-off costs related to acquisition and integration costs
(£21m), non-cash, non-operational losses arising from the adoption of
hyperinflation accounting relating to Ethiopia (£14m), and a component of the
deferred dividend payment for the Derco acquisition recognised as a financing
cost (£10m). Further details can be found in note 3 of the interim financial
statements.
Net financing costs: Reported net finance costs were £103m (1H22: £20m).
This includes approximately £24m of adjusting items relating to
hyperinflationary accounting in Ethiopia and interest on a component of the
deferred dividend payment for the Derco acquisition recognised as a financing
cost. Adjusted net finance costs increased to £79m (1H22: £20m) which was
driven by higher interest rates, a phased reduction in acquired local debt and
transitional costs relating to the Derco acquisition.
Tax: The effective tax rate on adjusted profit is 27.2% (1H22: 26.1%), within
the Group's guidance range of between 27% and 28%, and on a statutory basis is
31.7% (1H22: 25.0%). The increase in the effective tax rate on adjusted profit
includes the impact of unrecognised deferred tax on losses across the group,
principally in the UK and Americas. The effective tax rate on a statutory
basis for the period is not comparable to the same period in FY22 since the
current period includes the impact of IAS 29 Financial Reporting for
Hyperinflationary Economies in relation to the financial position of Ethiopia.
Non-controlling interests: Profits attributable to our non-controlling
interests increased to £7m (1H22: £4m). The Group's non-controlling
interests comprise a 40% holding in PT JLM Auto Indonesia, a 33% share in UAB
Vitvela in Lithuania, a 30% share in NBT Brunei, a 30% share in Inchcape JLR
Europe, a 30% share in Ditec in Chile, a 10% share of Subaru Australia and 6%
of the Motor Engineering Company of Ethiopia.
Dividend: The Board has declared an interim dividend of 9.6p per ordinary
share which will be paid on 1 September 2023 to shareholders on the register
at close of business on 4 August 2023. The Dividend Reinvestment Plan is
available to ordinary shareholders and the final date for receipt of elections
to participate is 10 August 2023.
Capital expenditure: During the first half of 2023, the Group incurred net
capital expenditure of £35m (1H22: £18m), consisting of £36m of capital
expenditure (1H22: £26m) and £1m of proceeds from the sale of property
(1H22: £8m). In 2023, we continue to expect net capital expenditure of less
than 1% of Group sales.
Financing: As at 30 June 2023, the funding structure of the Group is comprised
of a committed syndicated revolving credit facility of £700m (1H22: £700m),
sterling Private Placement Loan Notes totalling £210m (2022: £210m), a 5
year bond of £350m, at a fixed coupon of 6.5%, replacing the bridge facility
of £350m (2022: £350m), a term facility of £250m (2022: £250m) and Derco
debt on acquisition £52m (2022: £617m). As at 30 June 2023 the syndicated
revolving credit facility was drawn £120m (2022: undrawn). For our corporate
debt, excluding our Revolving Credit Facility, around 70% is at fixed rates
and over 50% has a maturity of at least 3 years. The Group remains well within
its debt covenants.
Pensions: As at 30 June 2023, the IAS 19 net post-retirement surplus was £77m
(2022: £93m), with the decrease driven largely by lower than expected returns
on scheme assets partially offset by movements in corporate bond yields
affecting the discount rate assumption used to determine the value of scheme
liabilities. In line with the funding programme agreed with the Trustees, the
Group did not make any additional cash contributions to the UK pension schemes
(2022: £2m).
Acquisitions: In H1 2023 the Group continued to further expand its
distribution footprint, signing 3 acquisitions during the period. These deals
are expected to complete during H2 2023.
APM - Adjusted profit before tax (from continuing operations) Six months to 30 Jun 2023 Six months to 30 Jun 2022
£m
£m
Gross Profit 965.3 615.3
Less: Segment operating expenses (638.6) (411.3)
Adjusted Operating Profit 326.7 204.0
(Less)/add: Adjusting items in operating expenses (21.2) 3.3
Operating Profit 305.5 207.3
Less: Net Finance Costs and JV losses (101.6) (19.8)
Profit Before Tax 203.9 187.5
Add/(less): Total adjusting items 45.0 (3.3)
Adjusted profit before tax 248.9 184.2
APM - Free cash flow (from continuing operations) Six months to 30 Jun 2023 Six months to 30 Jun 2023 Six months to 30 Jun 2022 Six months to 30 Jun 2022
£m
£m
£m
£m
Net cash generated from operating activities 265.2 287.1
Add back: Payments in respect of adjusting items 20.6 4.7
Net cash generated from operating activities, 285.8 291.8
before adjusting items
Purchase of property, plant and equipment (32.5) (24.3)
Purchase of intangible assets (3.2) (1.2)
Proceeds from disposal of property, plant and equipment 1.2 7.5
Net capital expenditure (34.5) (18.0)
Net payment in relation to leases (45.3) (29.8)
Dividends paid to non-controlling interests (4.4) (2.9)
Free cash flow 201.6 241.1
Less: Free cash flow from discontinued operations - (17.4)
Free cash flow from continuing operations 201.6 223.7
APM - Return on capital employed (from continuing operations) As at As at
30 Jun 2023
30 Jun 2022
£m
£m
Adjusted operating profit 326.7 204.0
Adjusted operating profit for the previous 6 month period 206.8 144.8
Adjusted operating profit on a 12 month basis 533.5 348.8
Net assets 1,512.7 1,137.4
Add net debt/ less (net funds) 1,044.0 (97.6)
Capital employed 2,556.7 1,039.8
Effect of averaging (758.4) (28.7)
Average capital employed 1,798.3 1,011.1
Return on capital employed 29.7% 34.5%
APM - Adjusted (net debt) As at As at
30 Jun 2023
31 Dec 2022
£m
£m
Net debt from continuing operations (1,044.0) (877.1)
Add back: lease liabilities 480.0 499.4
Adjusted net debt from continuing operations (564.0) (377.7)
APM - Adjusted earnings per share (from continuing operations) Six months to 30 Jun 2023 Six months to 30 Jun 2022
£m £m
Operating profit 305.5 207.3
Adjusting items within net operating expenses 21.2 (3.3)
Adjusted operating profit 326.7 204.0
Share of profit/(loss) after tax of joint ventures and associates 1.0 (0.3)
Adjusted profit before finance and tax 327.7 203.7
Net finance costs (102.6) (19.5)
Adjusting items within net finance costs 23.8 -
Adjusted profit before tax 248.9 184.2
Tax on adjusted profit (67.8) (48.0)
Adjusted profit after tax 181.1 136.2
Less: minority interest (7.2) (3.5)
Adjusted earnings 173.9 132.7
Weighted average number of shares (m) 411.9 379.0
Dilutive effect 6.2 5.6
Basic adjusted earnings per share 42.2p 35.0p
Diluted adjusted earnings per share 41.6p 34.5p
PRINCIPAL BUSINESS RISKS
The Board has reassessed the principal business risks which could impact the
performance of the Group. These include:
Strategic risks, including:
§ People: engagement, retention;
§ Margin pressure (changing route to market, incentives);
§ OEM: loss of distribution contract;
§ Change delivery (benefits on time, to budget);
§ People: future skills;
§ New entrants: new business models or tech;
§ EV transition risks; and
§ Acquisition ROI.
Material operational risks, including:
§ Cyber security incident;
§ Supply chain disruption;
§ Covid-19;
§ Political risks/social unrest;
§ HSE: Health, safety or environmental incident;
§ Financial reporting, fraud;
§ IT systems outage (non-cyber);
§ Legal/regulatory compliance;
§ Foreign exchange volatility; and
§ Macro-economic conditions (cost inflation, economic slowdown).
The materialisation of these risks could have an adverse effect on the Group's
results or financial condition. If more than one of these risks occur, the
combined overall effect of such events may be compounded. The Group faces many
other risks which, although important and subject to regular review, have been
assessed as less significant and are not listed here. These include, for
example, natural catastrophe and business interruption risks and certain
financial risks.
The Group has defined and implemented systems of risk management and internal
control designed to address these risks. These systems can offer reasonable,
but not absolute assurance, regarding the management of these risks to an
acceptable level. In particular, the effectiveness of these systems may change
over time, for example with acquisitions or disposals or as the business
implements major change programmes. The effectiveness of these systems are
reviewed annually by the Audit Committee and improvements are made as
required.
DISTRIBUTION
Americas
Country Brands
Argentina Subaru, Suzuki
Barbados(1) Chrysler, Daimler Trucks, Dodge, Freightliner, FUSO, Isuzu, JCB, Jeep, John
Deere, Mercedes-Benz, Mitsubishi, Subaru, Suzuki, Western Star
Bolivia Changan, Chevrolet, JAC Motors, Joylong, Renault Mazda, Subaru, Suzuki
Chile BMW, BMW Motorrad, DFSK, Changan, Geely, Great Wall, Haval, Hino, JAC Motors,
Jaguar, Land Rover, Mazda, MINI, Porsche, Renault, Rolls Royce, Subaru,
Suzuki, Volvo
Colombia Citroen, DFSK, Dieci, Doosan, DS Automobiles, Hino, Jaguar, Land Rover, Mack,
Mercedes-Benz, Subaru, Suzuki, XCMG
Costa Rica Changan, JAC, Suzuki
Ecuador Freightliner, Geely, Mercedes-Benz, Subaru, Western Star
El Salvador Freightliner, Geely, Mercedes-Benz, Western Star
Guatemala Freightliner, Geely, Mercedes-Benz, Western Star
Honduras Mercedes-Benz
Panama Suzuki
Peru BMW, BMW Motorrad, Changan, Citroen, DFSK, Great Wall, Haval, Hino, Mazda,
MINI, Renault, Subaru, Suzuki
Uruguay Freightliner, Fuso, Mercedes-Benz
1. Distribution agreements for these brands across a range of Caribbean
islands, centred on Barbados
APAC
Country Brands
Brunei Lexus, Toyota
Guam(2) BMW, Chevrolet, Freightliner, Hyundai Construction, Kohler, Lexus, New
Holland, Toyota, Western Star
Hong Kong Daihatsu, Ford, Hino, Jaguar, Land Rover, Lexus, Maxus, ORA, Toyota
Indonesia Great Wall, Jaguar, Land Rover
Macau Daihatsu, Ford, Hino, Jaguar, Land Rover, Lexus, ORA, Toyota
Saipan Toyota
Singapore Hino, Lexus, Suzuki, Toyota
Thailand Jaguar, Land Rover, Tata Motors
Australia Citroen, Peugeot, Subaru
New Zealand Subaru
2. Distribution agreements for these brands across a range of Pacific
islands, centred on Guam
Europe & Africa
Country Brands
Belgium BYD, Lexus, Toyota
Bulgaria Lexus, Toyota
Estonia BMW, BMW Motorrad, Ford, Jaguar, Land Rover, Mazda, MINI
Finland Jaguar, Land Rover, Mazda
Greece Lexus, Toyota
Latvia BMW, BMW Motorrad, Ford, Jaguar, Land Rover, Mazda, MINI
Lithuania BMW, BMW Motorrad, Ford, Jaguar, Land Rover, Mazda, MINI, Rolls Royce
Luxembourg BYD, Lexus, Toyota
North Macedonia Lexus, Toyota
Poland Jaguar, Land Rover
Romania Lexus, Toyota
Djibouti BMW, Komatsu, Toyota
Ethiopia BMW, Hino, Komatsu, New Holland, Suzuki, Toyota
Kenya BMW, BMW Motorrad, Jaguar, Land Rover
RETAIL
Country Brands
Australia(3) Isuzu Ute, Jeep, Kia, Mitsubishi, Volkswagen
Poland BMW, BMW Motorrad, MINI
UK Audi, BMW, Jaguar, Land Rover, Lexus, Mercedes-Benz, MINI, Porsche, Smart,
Toyota, Volkswagen
3. Following scale disposal of retail businesses in Australia, retail is no
longer reported as a separate segment in APAC.
Continuing operations Notes Six months to 30 Jun 2023 Six months to 30 Jun 2022
£m £m
Revenue 2 5,627.5 3,890.4
Cost of sales (4,662.2) (3,275.1)
Gross profit 965.3 615.3
Net operating expenses (659.8) (408.0)
Operating profit 2 305.5 207.3
Share of profit/(losses) after tax of joint ventures and associates 1.0 (0.3)
Profit before finance and tax 306.5 207.0
Finance income 4 24.8 7.9
Finance costs 5 (127.4) (27.4)
Profit before tax from continuing operations 203.9 187.5
Tax 6 (64.6) (46.8)
Profit for the period from continuing operations 139.3 140.7
Loss from discontinued operations - (240.2)
Total profit/(loss) for the period 139.3 (99.5)
Profit/(loss) attributable to:
- Owners of the parent 132.1 (103.0)
- Non-controlling interests 7.2 3.5
139.3 (99.5)
Earnings per share from continuing operations attributable to the owners of
the parent
Basic earnings per share (pence) 7 32.1p 36.2p
Diluted earnings per share (pence) 7 31.6p 35.7p
Earnings/(loss) per share attributable to the owners of the parent
Basic earnings/(loss) per share (pence) 7 32.1p (27.2)p
Diluted earnings/(loss) per share (pence) 7 31.6p (27.2)p
Alternative performance measures
Operating profit from continuing operations 305.5 207.3
Adjusting items within net operating expenses: 3 21.2 (3.3)
Acquisition and integration costs 21.2 6.8
Accelerated amortisation and other asset write-offs and impairments - 9.6
Gain on pension indexation - (19.7)
Adjusted operating profit from continuing operations 326.7 204.0
Share of profit/(loss) after tax of joint ventures and associates 1.0 (0.3)
Adjusted profit before finance and tax from continuing operations 327.7 203.7
Net finance costs (102.6) (19.5)
Adjusting items within net finance costs: 3 23.8 -
Net monetary loss on hyperinflation 14.2 -
Interest on deferred dividend payment 9.6 -
Adjusted profit before tax from continuing operations 248.9 184.2
Tax on adjusted profit (67.8) (48.0)
Adjusted profit after tax from continuing operations 181.1 136.2
Adjusted earnings per share from continuing operations
Basic adjusted earnings per share 7 42.2p 35.0p
Diluted adjusted earnings per share 7 41.6p 34.5p
See note 16 on page 37 for further details of alternative performance
measures.
The notes on pages 20 to 39 are an integral part of these condensed
consolidated interim financial statements.
Six months to 30 Jun 2023 Six months to
£m
30 Jun 2022
£m
Profit/(loss) for the period 139.3 (99.5)
Other comprehensive income/(expense):
Items that will not be reclassified to the consolidated income statement
Retirement benefit schemes
- net actuarial (losses)/gains (18.1) 48.3
(18.1) 48.3
Items that may be or have been reclassified subsequently to the consolidated
income statement
Cash flow hedges
- net fair value losses (62.0) (45.2)
- tax on cash flow hedges 15.9 16.4
Investments held at fair value
- net fair value gains 0.2 -
Deferred tax on taxation losses 0.5 -
Foreign currency translation
Exchange differences on translation of foreign operations (48.0) 105.0
Exchange differences on translation of discontinued operations - 18.7
Recycling of foreign currency reserve (0.4) 99.0
Adjustments for hyperinflation 20.8 -
Taxation on hyperinflation adjustments (1.8) -
(74.8) 193.9
Other comprehensive (expense)/income for the period (92.9) 242.2
Total comprehensive income for the period 46.4 142.7
Total comprehensive income attributable to:
- Owners of the parent 42.2 142.0
- Non-controlling interests 4.2 0.7
46.4 142.7
Total comprehensive income/(expense) attributable to owners of Inchcape plc
arising from
- Continuing operations 46.4 264.5
- Discontinued operations - (122.5)
The notes on pages 20 to 39 are an integral part of these condensed
consolidated interim financial statements.
Notes As at As at
30 Jun 2023
£m 31 Dec 2022
£m
Non-current assets
Intangible assets 1,185.8 1,174.0
Property, plant and equipment 774.3 736.8
Right-of-use assets 406.2 419.2
Investments in joint ventures and associates 20.6 22.2
Financial assets at fair value through other comprehensive income 11g 3.7 3.3
Derivative financial instruments 11g - 17.3
Trade and other receivables 56.3 53.4
Deferred tax assets 95.0 80.0
Retirement benefit asset 88.0 103.8
2,629.9 2,610.0
Current assets
Inventories 2,537.1 2,375.8
Trade and other receivables 837.9 816.8
Financial assets at fair value through other comprehensive income 11g 0.2 0.2
Derivative financial instruments 11g 23.6 36.9
Current tax assets 33.8 40.8
Cash and cash equivalents 9b 571.4 1,064.2
Assets held for sale and disposal group 12 18.0 19.0
4,022.0 4,353.7
Total assets 6,651.9 6,963.7
Current liabilities
Trade and other payables (2,898.5) (2,898.0)
Derivative financial instruments 11g (111.6) (38.1)
Current tax liabilities (71.0) (88.2)
Provisions (55.4) (56.6)
Lease liabilities 9b (85.8) (83.4)
Borrowings 9b (251.1) (546.3)
(3,473.4) (3,710.6)
Non-current liabilities
Trade and other payables (70.7) (60.4)
Provisions (53.9) (46.7)
Derivative financial instruments 11g (10.8) (1.4)
Deferred tax liabilities (241.0) (255.3)
Lease liabilities 9b (394.2) (416.0)
Borrowings 9b (884.3) (895.6)
Retirement benefit liability (10.9) (10.7)
(1,665.8) (1,686.1)
Total liabilities (5,139.2) (5,396.7)
Net assets 1,512.7 1,567.0
Equity
Share capital 8 41.5 37.6
Share premium 146.7 146.7
Capital redemption reserve 8 143.0 143.0
Merger reserve 8 311.9 315.8
Other reserves (5.2) 69.3
Retained earnings 840.8 820.4
Equity attributable to owners of the parent 1,478.7 1,532.8
Non-controlling interests 34.0 34.2
Total equity 1,512.7 1,567.0
The notes on pages 20 to 39 are an integral part of these condensed
consolidated interim financial statements.
Notes Share Share Capital redemption reserve Merger Other reserves Retained earnings Equity attributable to owners of the parent Non-controlling interests Total shareholders' equity
£m
£m
£m
capital Premium reserve £m £m £m
£m
£m £m
At 1 January 2022 38.5 146.7 142.1 - (227.1) 1,008.7 1,108.9 21.6 1,130.5
(Loss)/profit for the period - - - - - (103.0) (103.0) 3.5 (99.5)
Other comprehensive income/(expense) for - - - - 196.7 48.3 245.0 (2.8) 242.2
the period
Total comprehensive income/(expense) for - - - - 196.7 (54.7) 142.0 0.7 142.7
the period
Hedging gains and losses transferred to inventory - - - - 2.9 - 2.9 - 2.9
Written put option - - - - - (10.2) (10.2) - (10.2)
Non-controlling interests on acquisition of subsidiaries - - - - - - - 4.9 4.9
Share-based payments, net of tax - - - - - 3.5 3.5 - 3.5
Share buyback programme 8b (0.8) - 0.8 - - (69.5) (69.5) - (69. 5)
Purchase of own shares by the Inchcape Employee Trust - - - - - (3.8) (3.8) - (3.8)
Dividends:
- Owners of the parent 8b - - - - - (60.7) (60.7) - (60.7)
- Non-controlling interests - - - - - - - (2.9) (2.9)
At 30 June 2022 37.7 146.7 142.9 - (27.5) 813.3 1,113.1 24.3 1,137.4
Profit for the period - - - - - 91.8 91.8 1.5 93.3
Other comprehensive income/(expense) for - - - - 96.9 (60.0) 36.9 8.9 45.8
the period
Total comprehensive income for the period - - - - 96.9 31.8 128.7 10.4 139.1
Hedging gains and losses transferred to inventory - - - - (0.1) - (0.1) - (0.1)
Written put option - - - - - (3.4) (3.4) - (3.4)
Shares to be issued 8a - - - 315.8 - - 315.8 - 315.8
Non-controlling interests on acquisition of subsidiaries - - - - - - - 0.4 0.4
Share-based payments, net of tax - - - - - 6.7 6.7 - 6.7
Share buyback programme (0.1) - 0.1 - - - - - -
Dividends:
- Owners of the parent 8b - - - - - (28.0) (28.0) - (28.0)
- Non-controlling interests - - - - - - - (0.9) (0.9)
At 31 December 2022 37.6 146.7 143.0 315.8 69.3 820.4 1,532.8 34.2 1,567.0
Notes Share Share Capital redemption reserve Merger Other reserves Retained earnings Equity attributable to owners of the parent Non-controlling interests Total shareholders' equity
£m
£m
£m
capital Premium reserve £m £m £m
£m
£m £m
At 1 January 2023 37.6 146.7 143.0 315.8 69.3 820.4 1,532.8 34.2 1,567.0
Profit for the period - - - - - 132.1 132.1 7.2 139.3
Other comprehensive (expense)/income for the period - - - - (71.8) (18.1) (89.9) (3.0) (92.9)
Total comprehensive income/(expense) for the period - - - - (71.8) 114.0 42.2 4.2 46.4
Hedging gains and losses transferred to inventory - - - - (2.7) - (2.7) - (2.7)
Written put option - - - - - (0.7) (0.7) - (0.7)
Shares issued 8a 3.9 - - (3.9) - - - - -
Share-based payments, - - - - - 6.8 6.8 - 6.8
net of tax
Purchase of own shares by the Inchcape Employee Trust - - - - - (11.8) (11.8) - (11.8)
Dividends:
- Owners of the parent 8b - - - - - (87.9) (87.9) - (87.9)
- Non-controlling interests - - - - - - - (4.4) (4.4)
At 30 June 2023 41.5 146.7 143.0 311.9 (5.2) 840.8 1,478.7 34.0 1,512.7
The notes on pages 20 to 39 are an integral part of these condensed
consolidated interim financial statements.
Share-based payments include a deferred tax charge of £nil (30 June 2022:
deferred tax charge of £1.8m; 31 December 2022: net tax credit of £nil).
Notes Six months to 30 Jun 2023 Six months to
£m
30 Jun 2022
£m
Cash generated from operating activities
Cash generated from operations 9a 423.6 355.0
Tax paid (88.8) (51.7)
Interest received 22.3 6.1
Interest paid (91.9) (22.3)
Net cash generated from operating activities 265.2 287.1
Cash flows from investing activities
Acquisition of businesses, net of cash and overdrafts acquired 10a (4.3) (77.7)
Net cash inflow/(outflow) from sale of businesses 2.3 (32.3)
Purchase of investments in joint ventures and associates (1.1) (2.8)
Purchase of property, plant and equipment (32.5) (24.3)
Purchase of intangible assets (3.2) (1.2)
Proceeds from disposal of property, plant and equipment 1.2 7.5
Proceeds from disposal of intangible assets - 0.1
Receipt from finance sub-lease receivables 0.8 0.9
Other lease payments (0.1) -
Net cash used in investing activities (36.9) (129.8)
Cash flows from financing activities
Share buyback programme 8a - (58.5)
Purchase of own shares by the Inchcape Employee Trust (11.8) (3.8)
Cash outflow from other borrowings 9b (550.3) (2.0)
Cash inflow from bond issuance 9b 348.3 -
Cash inflow from revolving credit facility 9b 120.0 -
Repayment of acquisition financing bridge facility 9b (350.0) -
Payments to former shareholders of Derco group (211.5) -
Payment of capital element of lease liabilities 9b (46.0) (30.7)
Equity dividends paid 8b (87.9) (60.7)
Dividends paid to non-controlling interests (4.4) (2.9)
Net cash used in financing activities (793.6) (158.6)
Net decrease in cash and cash equivalents 9b (565.3) (1.3)
Cash and cash equivalents at beginning of the period 1,050.1 588.8
Effect of foreign exchange rate changes (34.6) 63.3
Cash and cash equivalents at end of the period 450.2 650.8
Cash and cash equivalents consist of:
Cash at bank and cash equivalents 496.1 555.3
Short-term deposits 75.3 99.3
Bank overdrafts (121.2) (3.8)
450.2 650.8
The notes on pages 20 to 39 are an integral part of these condensed
consolidated interim financial statements.
1 BASIS OF PREPARATION AND ACCOUNTING POLICIES
Basis of preparation
The condensed consolidated interim financial statements for the period ended
30 June 2023 have been prepared on a going concern basis in accordance with
UK-adopted International Accounting Standard 34 'Interim Financial Reporting'
and the Disclosure and Transparency Rules of the Financial Conduct Authority.
These condensed consolidated interim financial statements should be read in
conjunction with the Annual Report and Accounts 2022, which have been prepared
in accordance with UK-adopted International Financial Reporting Standards
(IFRS) and the Companies Act 2006 applicable to companies reporting under
IFRS.
These condensed consolidated interim financial statements are unaudited but
have been reviewed by the external auditors. The condensed consolidated
interim financial statements in the Interim Report do not constitute statutory
accounts within the meaning of Section 434 of the Companies Act 2006. The
Group's published consolidated financial statements for the year ended 31
December 2022 were approved by the Board of Directors on 22 March 2023 and
delivered to the Registrar of Companies.
The report of the auditors on those accounts was unqualified and did not
contain an emphasis of matter paragraph or a statement under section 498 of
the Companies Act 2006. The condensed consolidated interim financial
statements on pages 14 to 41 were approved by the Board of Directors on 26
July 2023.
Going concern
Based on the Group's cash flow forecasts and projections, the Board is
satisfied that the Group will be able to operate within the level of its
committed facilities for the foreseeable future. For this reason, the Board
continues to adopt the going concern basis in preparing its financial
statements. In making this assessment the Group has considered available
liquidity in relation to net debt and committed facilities, the Group's latest
forecasts for 2023 and 2024 cash flows together with appropriate
sensitivities.
Given the global political and economic uncertainty resulting from the
conflict in the Ukraine and inflationary pressures, we expect to see continued
volatility, some business disruption and the impact of tightening fiscal
policy in the markets in which the Group operates during the remainder of 2023
and into 2024.
Committed bank facilities and Private Placement borrowings amounting to
£1,160m, of which £580m was drawn at 30 June 2023, are subject to the same
interest cover covenant based on an adjusted EBITA measure to interest on
consolidated borrowings measured on a trailing 12-month basis at June and
December. In addition, in June 2023, the Group issued a £350m bond offering
with a coupon of 6.5%, due to mature in June 2028. Private Placement Loan
Notes of £70m mature in May 2024 and the £250m Term Loan matures in December
2024.
The latest Group forecasts for 2023 and 2024 indicate that the Group is
expected to be compliant with this covenant throughout the forecast period and
to have sufficient liquidity to continue operating throughout that period.
A range of sensitivities has been applied to the forecasts to assess the
Group's compliance with its covenant requirements over the forecast period.
These sensitivities included:
a reduction in New and Used vehicle revenue and margins in 2024 resulting from
a decreasing consumer demand in response to fiscal tightening and resulting
economic downturns;
a general liquidity reduction impacting working capital from 2024; with no
mitigating actions applied in relation to the sensitivities described above.
In scenarios where all of the above sensitivities occur at the same time, the
Group has modelled the possibility of the interest cover covenant being
breached in 2023 and 2024. With the interest cover covenant measured on a
trailing 12-month basis, the sensitised forecasts indicate that the Group is
not expected to breach any covenants and would be compliant with the interest
cover requirements at December 2023 and throughout the forecast period.
Additionally, under these circumstances, the Group expects to have sufficient
funds to meet cash flow requirements.
A reverse stress test scenario analysis, concluded that a set of circumstances
in which the Group would breach its covenant or have insufficient funds to
meet cash flow requirements are considered to be remote, relative to the
sensitivities referred to above.
The Board therefore concluded that the Group will be able to operate within
the level of its committed facilities for the foreseeable future and the
Directors consider it appropriate to adopt the going concern basis of
accounting in preparing the condensed consolidated interim financial
statements.
1 BASIS OF PREPARATION AND ACCOUNTING POLICIES CONTINUED
Accounting policies
The condensed set of consolidated financial information has been prepared
using accounting policies consistent with those in the Group's Annual Report
and Accounts 2022 with the exception of the following standards, amendments
and interpretations which have been newly adopted from 1 January 2023:
Newly adopted accounting standards
From 1 January 2023, the following standards became effective for the Group's
consolidated financial statements:
IFRS 17 Insurance Contracts;
Amendments to IFRS 17 Insurance Contracts: Initial Application of IFRS 17 and
IFRS 9 Comparative Information;
Amendments to IAS 12 relating to Deferred tax related to assets and
liabilities arising from a single transaction;
Amendments to IFRS 4 when 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.
Standards not yet effective
The following standards were in issue but were not yet effective at the
balance sheet date. These standards have not
yet been early adopted by the Group, and will be applied for the Group's
financial years commencing on or after
1 January 2024:
Amendments to IAS 1 - Non-current liabilities with covenants
Amendments to IFRS 16 - Leases on sale and leaseback
Amendments to IAS 7 and IFRS 7 - Supplier finance
Amendments due to Finance (No. 2) Act 2023 for Pillar Two income inclusion
(IIR)
Management are currently reviewing the new standards to assess the impact that
they may have on the Group's reported position and performance. Management do
not expect that the adoption of the standards listed above will have a
material impact on the financial statements of the Group.
Designation of Ethiopia as a hyperinflationary economy
The Group financial statements include adjustments for hyperinflation,
following the application of IAS 29 Financial Reporting in Hyperinflationary
Economies in relation to the Group's operations with a functional currency of
Ethiopian Birr.
The Group's consolidated financial statements include the results and
financial position of its Ethiopian operations restated to the purchasing
power or inflationary measuring unit current at the end of the period, leading
to a hyperinflationary loss in respect of monetary items being reported in
finance costs, and treated as an adjusting item. The results of the Group's
Ethiopian operations have been translated at the closing exchange rate, as
required by IAS 21 The Effects of Change in Foreign Exchange Rates for
hyperinflationary foreign operations.
Whilst IAS 29 Financial Reporting in Hyperinflationary Economies is applied in
individual financial statements as though the relevant economy was always
hyperinflationary, comparative amounts are not restated in consolidated
amounts already presented in a stable currency. The resulting difference in
the opening Ethiopian net assets has been presented as a translation
adjustment in other comprehensive income.
The inflationary factors used by the Group are the official price indices
published by the Central Statistical Agency of Ethiopia. Hyperinflationary
adjustments have been calculated using the price index prevailing at 30 June
2023, which was a CPI index of 379.0 (31 December 2022: CPI index 328.9). The
adjusted results and financial position of Ethiopia were translated at the
period-end closing rate before being included in the Group's consolidated
financial statements.
1 BASIS OF PREPARATION AND ACCOUNTING POLICIES CONTINUED
Critical accounting judgements and key sources of estimation uncertainty
The preparation of these condensed consolidated interim financial statements
in accordance with generally accepted accounting principles requires the use
of estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Although these estimates
are based on management's best knowledge, actual results may ultimately differ
from those estimates. The estimates and underlying assumptions are reviewed on
an ongoing basis.
The Directors have made a number of estimates and assumptions regarding the
future and made some significant judgements in applying the Group's accounting
policies. The critical accounting judgements and key sources of estimation
uncertainty remain consistent with those presented in the accounting policies
note within the Group's 2022 Annual Report and Accounts. Those that are new or
significant to the preparation of the interim financial statements are
presented below.
Impairment of goodwill and other indefinite life intangible assets
The carrying amount of goodwill and other indefinite life intangible assets is
shown below:
As at 30 Jun 2023 As at 31 Dec 2022
Goodwill Indefinite- Total Goodwill Indefinite- Total
£m
life intangible
£m
£m
life intangible
£m
assets
assets
£m
£m
At 1 January 270.3 857.7 1,128.0 116.3 239.0 355.3
Businesses acquired 3.9 - 3.9 139.9 592.9 732.8
Acquisition accounting adjustments 11.1 - 11.1 - - -
Effect of foreign exchange rates (2.9) 1.8 (1.1) 14.1 25.8 39.9
At 30 June/31 December 282.4 859.5 1,141.9 270.3 857.7 1,128.0
Goodwill acquired in a business combination is allocated to the cash
generating units (CGUs) or group of CGUs (hereafter collectively referred to
as 'CGU groups') that are expected to benefit from the synergies associated
with that business combination. Indefinite-life intangible assets, principally
distribution agreements acquired in a business combination,
are also allocated to the CGUs or CGU groups that are expected to benefit from
the cash flows associated with the
relevant agreements.
Indicators of impairment in goodwill and other indefinite-life intangible
assets
In accordance with the Group's accounting policy, goodwill and other
indefinite-life intangible assets are tested at least annually for impairment
and whenever events or circumstances indicate that the carrying amount may not
be recoverable.
In the first half of 2023, the Group carried out an assessment as to whether
any impairment testing is required to be performed for the six months ending
30 June 2023. As set out in IAS 36 Impairment of Assets, the assessment
involved the Group reviewing potential indicators of impairment to determine
if any of the Group's assets should be tested.
The review included examining data trends on asset valuations, reviewing
latest macro-economic data including global economic forecasts, reviewing
latest industry data including industry volumes and comparing the Group's
results against cash flows used in previously prepared impairment models and
latest forecasts. The conclusion reached from the review performed was that
there was no requirement to test any assets or cash generating units for
impairment for the six-month period to 30 June 2023.
At 31 December 2022, the Group's value in use calculations prepared for the
cash generating units represented by Central America - Suzuki business in the
Americas were sensitive to a change in the key assumptions used. The
recoverable amount calculated for the Central America CGU was £155.8m. Cash
flows were discounted back to present value using a pre-tax discount rate of
14.1%.
1 BASIS OF PREPARATION AND ACCOUNTING POLICIES CONTINUED
The cash flows used within the impairment model were based on assumptions
which are sources of estimation uncertainty and small movements in these
assumptions could lead to a further impairment. Management performed
sensitivity analysis on the key assumptions in the indefinite-life intangible
asset impairment model for Central America - Suzuki using reasonably possible
changes in these key assumptions. The sensitivities were selected based on the
inherent business volatility and the metrics that closely align to the
consequences of climate change risks and opportunities detailed on pages 44 to
54 of the 2022 Annual Report and Accounts.
Increase/ Impairment charge Impairment credit
(decrease) in assumption
£m
£m
Revenue CAGR (%) (1.0%)/1.0% (16.2) 18.2
Average gross margin (%) (0.5%)/0.5% (9.6) 9.6
Pre-tax discount rate (%) 1.0%/(1.0%) (17.7) 22.8
Long-term growth rate (%) (0.5%)/0.5% (5.0) 5.6
Other CGUs
The Group's value in use calculations are sensitive to a change in the key
assumptions used. However, with the exception
of the Group's business in the Baltics, a reasonably possible change in a key
assumption would not cause a material impairment of goodwill or
indefinite-life intangible assets in any of the other CGU groups. The value in
use calculations for the distribution agreement in the Baltics exceeded the
carrying value by 25% as at 31 December 2022 and a 1.1% increase in the
discount rate or a 2.0% reduction in the long-term growth rate, while holding
all other assumptions constant, would eliminate this headroom.
Adjusting items
The Directors believe that adjusted profit and earnings per share measures
provide additional useful information to shareholders on the performance of
the business. These measures are consistent with how business performance is
measured internally by the Board and Executive Committee. The operating profit
before adjusting items and profit before tax and adjusting items measures are
not recognised profit measures under IFRS and may not be directly comparable
with such profit measures used by other companies. The classification of
adjusting items requires significant management judgement after considering
the nature and intentions of a transaction. The Group's definitions of
adjusting items are outlined within the Group accounting policies and note 3
provides further details on current year adjusting items and their adherence
to Group policy.
In the period, the Group has reported an aggregate pre-tax adjusting items
loss of £45.0m (see note 3). The separate reporting of adjusting items helps
provide additional useful information regarding the Group's underlying
business performance and is used by management to facilitate internal
performance analysis. Items that may be considered as adjusting items include
gains or losses on the disposal of businesses, restructuring of businesses,
acquisition costs, asset impairments and the tax effects of these items. Any
reversal of an amount previously recognised as an adjusting item would also be
recognised as an adjusting item in a subsequent period.
Classification of vehicle funding arrangements
The Group finances the purchase of vehicles using vehicle funding facilities
provided by various lenders including the captive finance companies associated
with brand partners. In assessing whether the liabilities arising under these
arrangements should be classified within trade and other payables rather than
as an additional component of the Group's net debt within borrowings, the
Group considers a number of factors including whether the arrangement is a
requirement of the relationship with the OEM, in relation to specific,
separately identifiable vehicles held as inventory and the duration of the
finance. Each agreement entered into has its own terms and conditions and
determining whether a new or renewed arrangement should be classified within
trade and other payables requires significant management judgement (see note
11f).
Alternative performance measures (APMs)
In the prior year, the consolidated income statement included presentation of
certain alternative performance measures in addition to IFRS measures. In the
current period, the consolidated income statement presents only IFRS measures
which is in line with the basis of preparation disclosed in this note. The
alternative performance measures used by the Group are included in note 16.
This includes further information on the definitions, purpose and
reconciliation to IFRS measures.
2 SEGMENTAL ANALYSIS
The Group has four reportable segments which have been identified based on the
operating segments of the Group that are regularly reviewed by the chief
operating decision-maker, which has been determined to be the Executive
Committee, in order to assess performance and allocate resources. Operating
segments are then aggregated into reporting segments to combine those with
similar economic characteristics.
Following the acquisition of the Derco Group based in the Americas region, the
distribution business based in Africa is now reported and reviewed alongside
existing distribution businesses in Europe, forming a combined segment of
Europe & Africa.
The Group reports the performance of its reporting segments after the
allocation of central costs. These represent costs of Group functions.
The following summary describes the operations of each of the Group's
reportable segments:
Distribution APAC Exclusive distribution, sales and marketing activities of New Vehicles and
Parts.
Europe & Africa
Sale of New and Used vehicles together with logistics services where the Group
Americas may also be the exclusive distributor, alongside associated Aftersales
activities of service, bodyshop repairs and parts sales.
Retail Sale of New and Used Vehicles, together with associated Aftersales activities
of service, bodyshop repairs and parts sales.
Six months to 30 June 2023 Distribution Retail Total
£m
£m
APAC Europe & Africa Americas Total
£m
£m
£m
Distribution
£m
Revenue
Total revenue 1,255.2 1,258.8 1,910.5 4,424.5 1,203.0 5,627.5
Results
Adjusted operating profit from continuing operations 89.6 69.8 143.0 302.4 24.3 326.7
Operating adjusting items (21.2)
Operating profit from continuing operations 305.5
Share of profits after tax of joint ventures and associates 1.0
Profit before finance and tax 306.5
Finance income 24.8
Finance costs (127.4)
Profit before tax from continuing operations 203.9
Tax (64.6)
Profit for the period from continuing operations 139.3
The Group's reported segments are based on the location of the Group's assets.
Revenue earned from sales is disclosed by origin and is not materially
different from revenue by destination. Revenue is further analysed as follows:
Six months to 30 June 2023 £m
UK 1,064.9
Chile 896.8
Australia 661.8
Rest of the world 3,004.0
Group 5,627.5
Distribution Retail Total
Six months to 30 June 2022 £m £m
APAC Europe & Americas Total
£m Africa £m Distribution
£m £m
Total revenue 1,074.1 1,011.6 653.5 2,739.2 1,151.2 3,890.4
Results
Adjusted operating profit from continuing operations 71.6 47.2 54.9 173.7 30.3 204.0
Operating adjusting items 3.3
Operating profit from continuing operations 207.3
Share of losses after tax of joint ventures and associates (0.3)
Profit before finance and tax 207.0
Finance income 7.9
Finance costs (27.4)
Profit before tax from continuing operations 187.5
Tax (46.8)
Profit for the period from continuing operations 140.7
The Group's reported segments are based on the location of the Group's assets.
Revenue earned from sales is disclosed by origin and is not materially
different from revenue by destination. Revenue is further analysed as follows:
£m
Six months to 30 June 2022
UK 1,042.0
Chile 263.3
Australia 512.9
Rest of the world 2,072.2
Group 3,890.4
3 ADJUSTING ITEMS
From continuing operations Six months to 30 Jun 2023 £m Six months to 30 Jun 2022
£m
Other asset write-offs and impairments - 0.5
Acquisition and integration costs (21.2) (6.8)
Accelerated amortisation (SaaS) - (10.1)
Gain on pension indexation - 19.7
Total adjusting items in operating profit (21.2) 3.3
Adjusting items in finance costs:
Net monetary loss on hyperinflation (14.2) -
Interest costs on deferred dividend payment (9.6) -
Total adjusting items before tax (45.0) 3.3
Tax on adjusting items (note 6) 3.2 1.2
Total adjusting items (41.8) 4.5
During the period, operating costs of £21.2m have been incurred in connection
with the acquisition and integration of businesses. These costs have been
reported as adjusting items to better reflect the underlying performance of
the business. These primarily relate to the acquisition and integration of the
Derco group. For more details on acquisitions, please refer to note 10.
At 31 December 2022, a liability was acquired, as part of the Derco
acquisition, for the payments of a pre-completion dividend to former
shareholders. The payment of this dividend was agreed to be made in four
tranches, throughout 2023, with interest accruing on the outstanding amounts.
At 30 June 2023, three of the tranches have been paid and interest of £9.6m
has been recognised, which is expected to rise to approximately £11.0m by the
end of the year. This interest expense has been recognised within finance
costs and reported as an adjusting item.
During 2022, Ethiopia was designated as a hyperinflationary economy as its
three-year cumulative inflation rate exceeded 100%. The Group financial
statements include adjustments for hyperinflation, following the application
of IAS 29 Financial
Reporting in Hyperinflationary Economies in relation to the Group's operations
with a functional currency of Ethiopian Birr. The results and financial
position of Ethiopia for the six months ended 30 June 2023 have been restated
to include the effect of indexation and the resulting £14.2m net monetary
loss on hyperinflation has been recognised within net finance costs and
reported as an adjusting item.
In the period to 30 June 2022, the Group:
§ incurred adjusting operating costs of £6.8m in connection with the
acquisition and integration of businesses. These primarily related to the
ITC/Simpson Motors business acquired in the Caribbean and the Ditec
acquisition in Chile;
§ with effect from 1 April 2022, the Trustee of the Inchcape Motors Pension
Scheme now uses the Consumer Prices Index (CPI) instead of Retail Prices Index
(RPI) for those elements of pensions from the Group, Motors and Normand
sections that are increased in line with RPI. Management concluded that the
change in indexation represents a plan amendment and the impact of the change
in benefits payable of £19.7m should be recognised in the income statement as
a past service cost. Considering the magnitude and nature of the item, the
impact on the income statement was reported as an adjusting item; and
§ in 2021, the Group started to migrate the Group's existing ERP applications to
a cloud-based solution. This was a strategic decision to consolidate and
upgrade the systems, improve speed and performance and facilitate centralised
support following the transformation of the Information Technology
organisational structure. The new solution was determined to be Software as a
Service and therefore the existing software assets no longer fall to be
treated as an asset under IAS 38 once the migration to the new solution has
occurred. Consequently, the useful life of the existing assets was reassessed
and the impact accounted for prospectively as a change in an estimate. This
change resulted in a significant increase in the amortisation recognised for
software costs. Accordingly, in 2022, the incremental amortisation of £10.1m
was disclosed as an adjusting item.
4 FINANCE INCOME
From continuing operations Six months to Six months to
30 Jun 2023
30 Jun 2022
£m
£m
Bank and other interest receivable 21.0 5.9
Net interest income on post-retirement plan assets and liabilities 2.3 1.5
Lease finance income 0.3 0.3
Other finance income 1.2 0.2
Total finance income 24.8 7.9
5 FINANCE COSTS
From continuing operations Six months to Six months to
30 Jun 2023
30 Jun 2022
£m
£m
Interest payable on bank borrowings 54.3 5.0
Interest payable on Private Placement 3.2 3.2
Interest payable on other borrowings 1.3 -
Lease finance costs 10.0 4.6
Stock holding interest 21.2 8.3
Net monetary loss on hyperinflation (note 3) 14.2 -
Interest on deferred dividend payment 9.6 -
Other finance costs 13.6 6.3
Total finance costs 127.4 27.4
Total finance costs are analysed as follows:
From continuing operations Six months to Six months to
30 Jun 2023
30 Jun 2022
£m
£m
Finance costs excluding adjusting finance costs 103.6 27.4
Finance costs reported as adjusting items 23.8 -
Total finance costs 127.4 27.4
6 TAX
From continuing operations Six months to Six months to 30 Jun 2022 £m
30 Jun 2023
£m
Current tax - UK corporation tax - -
- Overseas tax 83.8 51.7
Adjustments to prior year liabilities - UK - -
- Overseas (3.1) 2.0
Current tax 80.7 53.7
Deferred tax (16.1) (6.9)
Total tax charge 64.6 46.8
- Tax charge on profit before adjusting items 67.8 48.0
- Tax credit on adjusting items (3.2) (1.2)
Total tax charge 64.6 46.8
The tax charge for the 6 months ended 30 June 2023 has been calculated by
applying the estimated average annual effective income tax rate for each
jurisdiction in which Inchcape operates to the interim period pre-tax income
of each jurisdiction as required by IAS 34 'Interim Financial Reporting'. Tax
credited on adjusting items has been separately calculated and is disclosed
above. Details of the adjusting items for the period can be found in note 3.
The effective tax rate for the period to 30 June is 31.7% compared to 25.0%
for the same period last year. The effective tax rate on adjusted profit for
the period is 27.2% compared to 26.1% for the same period last year.
The total tax charge in the period includes the impact of IAS 29 Financial
Reporting for Hyperinflationary Economies in relation to the financial
position of Ethiopia (see note 3).
Factors affecting current and future tax charges
The Group's future tax charge, and effective tax rate, could be affected by
several factors including; the resolution of audits and disputes, changes in
tax laws or tax rates, repatriation of cash from overseas markets to the UK,
the ability to utilise brought forward losses and business acquisitions and
disposals. In addition, a change in profit mix between low and high taxed
jurisdictions will impact the Group's future tax charge.
The utilisation of brought forward tax losses or the recognition of deferred
tax assets associated with such losses may also give rise to tax charges or
credits. The recognition of deferred tax assets, particularly in respect of
tax losses, is based upon an assessment of whether it is probable that there
will be sufficient and suitable taxable profits in the relevant legal entity
or tax group against which to utilise the assets in the future. Judgement is
required when determining probable future taxable profits. In the event that
actual taxable profits are different to those forecast, the Group's future tax
expense and effective tax rate could be affected.
In addition, Finance (No.2) Act 2023 was substantively enacted on 20 June
2023. The Act includes the legislation to implement the Organisation for
Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting
(BEPS) Pillar Two income inclusion rule (IIR) in the United Kingdom. The
legislation will be relevant for the Group from January 2024.
The Group has published its approach to tax on www.inchcape.com covering its
tax strategy and governance framework.
7 EARNINGS PER SHARE
Six months to 30 Jun 2023 £m Six months to 30 Jun 2022
£m
Profit/(loss) for the period 139.3 (99.5)
Non-controlling interests (7.2) (3.5)
Basic earnings/(loss) 132.1 (103.0)
Loss for the period from discontinued operations - 240.2
Basic earnings from continuing operations attributable to owners of the parent 132.1 137.2
Adjusting items 41.8 (4.5)
Adjusted earnings from continuing operations 173.9 132.7
Basic earnings per share
Basic earnings per share from continuing operations 32.1p 36.2p
Basic loss per share from discontinued operations - (63.4)p
Total basic earnings/(loss) per share 32.1p (27.2)p
Diluted earnings per share
Diluted earnings per share from continuing operations 31.6p 35.7p
Diluted loss per share from discontinued operations(1) - (63.4)p
Total diluted earnings/(loss) per share1 31.6p (27.2)p
Adjusted earnings per share from continuing operations
Basic Adjusted earnings per share from continuing operations 42.2p 35.0p
Diluted Adjusted earnings per share from continuing operations 41.6p 34.5p
1. Due to the impact of dilutive ordinary shares having the effect of
decreasing both the loss attributable to discontinued operations and the loss
attributable to total operations, the basic earnings per share calculated has
been shown.
Six months to 30 Jun 2023 number Six months to 30 Jun 2022 number
Weighted average number of fully paid ordinary shares in issue during the 412,365,247 379,788,540
period
Weighted average number of fully paid ordinary shares in issue during the
period:
- Held by the Inchcape Employee Trust (487,899) (783,582)
Weighted average number of fully paid ordinary shares for the purposes of 411,877,348 379,004,958
basic EPS
Dilutive effect of potential ordinary shares 6,152,343 5,553,858
Adjusted weighted average number of fully paid ordinary shares in issue during 418,029,691 384,558,816
the period for the purposes of diluted EPS
Basic earnings/(loss) per share is calculated by dividing the Basic
earnings/(loss) for the period by the weighted average number of fully paid
ordinary shares in issue during the period, less those shares held by the
Inchcape Employee Trust and repurchased as part of the share buyback
programme.
Diluted earnings/(loss) per share is calculated on the same basis as the Basic
earnings/(loss) per share with a further adjustment to the weighted average
number of fully paid ordinary shares to reflect the effect of all dilutive
potential ordinary shares. Dilutive potential ordinary shares comprise share
options and other share-based awards.
Basic Adjusted earnings (which excludes adjusting items) is adopted to assist
the reader in understanding the underlying performance of the Group. Adjusted
earnings per share is calculated by dividing the Adjusted earnings for the
period by the weighted average number of fully paid ordinary shares in issue
during the period, less those shares held by the Inchcape Employee Trust and
repurchased as part of the share buyback programme.
Diluted Adjusted earnings per share is calculated on the same basis as the
Basic Adjusted earnings per share with a further adjustment to the weighted
average number of fully paid ordinary shares to reflect the effect of all
dilutive potential ordinary shares. Dilutive potential ordinary shares
comprise share options and other share-based awards.
Information presented for diluted and diluted adjusted earnings per ordinary
share uses the weighted average number of shares as adjusted for potentially
dilutive ordinary shares as the denominator, unless it has the effect of
increasing the profit or decreasing the loss attributable to each share.
8 SHAREHOLDERS' EQUITY
A. Issue of ordinary shares
On 4 January 2023, 38,513,102 ordinary shares of 10p each in the capital of
the Company were issued in connection with the acquisition of the Derco group.
As at 31 December 2022, the acquisition had completed and, as at that date,
the shares that were issued on 4 January 2023 represented a liability to issue
a fixed number of shares in exchange for fixed financial assets and were.
accounted for as an equity instrument. As at 30 June 2023, issued share
capital of the Group amounted to a total of 413,007,132 shares.
During the period, the Group issued £nil (June 2022 - £nil, December 2022 -
£nil) of ordinary shares exercised under the Group's share option schemes.
Share buyback programme
During the six months ended 30 June 2023, the Company repurchased none of its
own shares (June 2022: 7,913,076, December 2022: 9,357,908) through purchases
on the London Stock Exchange, at a cost of £nil (June 2022: £57.8m, December
2022: £69.5m). The shares repurchased during the prior period were cancelled,
with none held as treasury shares at the end of the prior reporting period. An
amount of £nil (June 2022: £0.8m, December 2022: £0.9m), equivalent to the
nominal value of the cancelled shares, has been transferred to the capital
redemption reserve. Costs of £nil (June 2022: £0.7m, December 2022: £0.8m)
associated with the transfer to the Group of the repurchased shares and their
subsequent cancellation were charged to the profit and loss reserve.
B. Dividends
The following dividends were paid by the Group:
Six months to 30 Jun 2023 £m Six months to Year to
30 Jun 2022 31 Dec 2022
£m £m
Final dividend for the year ended 31 December 2022 of 21.3p per share 87.9 60.7 60.7
(2021: 16.1p per share)
Interim dividend for the six months ended 30 June 2022 of 7.5p per share - - 28.0
(2021: 6.4 per share)
87.9 60.7 88.7
An interim dividend of 9.6p per share for the period ending 30 June 2023 was
approved by the Board on 26 July 2023 and will be paid on 1 September 2023 to
shareholders who are on the register at close of business on 4 August 2023.
The Dividend Reinvestment Plan (DRIP) is available to ordinary shareholders
and the final date for receipt of elections to participate in the DRIP is 10
August 2023.
9 NOTES TO THE STATEMENT OF CASH FLOWS
A. Reconciliation of cash generated from operations
Six months to 30 Jun 2023 £m Six months to 30 Jun 2022
£m
Cash flows from operating activities
Operating profit - continuing operations 305.5 207.3
Operating profit - discontinued operations - 20.5
Adjusting items 21.2 (3.3)
Amortisation including non-adjusting impairment charges 5.7 6.4
Depreciation of property, plant and equipment including non-adjusting 23.7 14.3
impairment charges
Depreciation of right-of-use assets 40.3 26.9
Profit on disposal of property, plant and equipment and intangible assets (0.3) (1.4)
Gain on disposal of right-of-use assets (0.1) (0.8)
Share-based payments charge 6.8 5.3
Increase in inventories (195.7) (102.8)
Increase in trade and other receivables (43.0) (134.5)
Increase in trade and other payables 273.9 316.8
Increase in provisions 6.6 7.0
Pension contributions more than pension charge for the period(1) (0.3) (2.1)
Increase in interest in leased vehicles (0.8) (0.4)
Payments in respect of operating adjusting items (20.6) (4.7)
Other non-cash items 0.7 0.5
Cash generated from operations 423.6 355.0
1. Includes additional payments of £nil (30 June 2022: - £2.1m).
B. Net debt reconciliation
Liabilities from financing activities Assets
Borrowings Leases Sub-total Cash/bank Total
£m
£m
£m
overdrafts
net debt
£m
£m
Net (debt)/funds at 1 January 2022 (210.0) (324.1) (534.1) 588.8 54.7
Cash flows 2.0 30.7 32.7 108.7 141.4
Acquisitions (4.5) (32.9) (37.4) (77.7) (115.1)
Disposals - 13.1 13.1 (32.3) (19.2)
New lease liabilities - (13.3) (13.3) - (13.3)
Transferred from liabilities held for sale - - - - -
Foreign exchange adjustments 0.5 (14.7) (14.2) 63.3 49.1
Net (debt)/funds at 30 June 2022 (212.0) (341.2) (553.2) 650.8 97.6
Cash flows (598.3) 33.3 (565.0) 688.1 123.1
Acquisitions (617.1) (140.8) (757.9) (317.5) (1,075.4)
Disposals - - - 15.3 15.3
New lease liabilities - (45.1) (45.1) - (45.1)
Foreign exchange adjustments (0.4) (5.6) (6.0) 13.4 7.4
Net (debt)/funds at 1 January 2023 (1,427.8) (499.4) (1,927.2) 1,050.1 (877.1)
Cash flows 432.0 46.0 478.0 (561.0) (83.0)
Acquisitions (7.4) - (7.4) (4.3) (11.7)
New lease liabilities - (33.5) (33.5) - (33.5)
Other non-cash movements (3.1) (2.0) (5.1) - (5.1)
Foreign exchange adjustments (7.9) 8.9 1.0 (34.6) (33.6)
Net (debt)/funds at 30 June 2023 (1,014.2) (480.0) (1,494.2) 450.2 (1,044.0)
9 NOTES TO THE STATEMENT OF CASH FLOWS CONTINUED
Net debt is analysed as follows:
As at As at As at
30 Jun 2023
31 Dec 2022
30 Jun 2022
£m
£m
£m
Cash and cash equivalents as per the balance sheet 571.4 1,064.2 654.6
Borrowings - disclosed as current liabilities (251.1) (546.3) (5.8)
Add back: amounts treated as debt financing (see below) 129.9 532.2 2.0
Cash and cash equivalents as per the statement of cash flows 450.2 1,050.1 650.8
Debt financing
Borrowings - disclosed as current liabilities and treated as debt financing (129.9) (532.2) (2.0)
(see above)
Borrowings - disclosed as non-current liabilities (884.3) (895.6) (210.0)
Lease liabilities (480.0) (499.4) (341.2)
Debt financing (1,494.2) (1,927.2) (553.2)
Net (debt)/funds (1,044.0) (877.1) 97.6
Add back: lease liabilities 480.0 499.4 341.2
Adjusted net (debt)/cash (564.0) (377.7) 438.8
Borrowings disclosed as current liabilities include the current portion of the
Private Placement Loan Notes and bank overdrafts held in cash pooling
arrangements which have not been offset in the consolidated statement of
financial position. These are included within cash and cash equivalents in the
consolidated statement of cash flows.
As at As at As at
30 Jun 2023
31 Dec 2022
30 Jun 2022
£m
£m
£m
Cash at bank and cash equivalents 496.1 640.7 555.3
Short-term deposits 75.3 423.5 99.3
Bank overdrafts (121.2) (14.1) (3.8)
450.2 1,050.1 650.8
£91.5m (31 December 2022: £91.4m; 30 June 2022: £77.0m) of cash and cash
equivalents is held in Ethiopia where prior approval is required to transfer
funds abroad, and currency may not be available locally to effect such
transfers.
10 ACQUISITIONS AND DISPOSALS
A. Acquisitions
The Group, to expand its aftersales capacity in Singapore, acquired certain
assets and liabilities, and the ongoing operations, from Auto Insure Ptd. Ltd.
for cash consideration of £3.9m. Provisional goodwill of £3.9m arose on the
acquisition.
B. 2022 Acquisitions
Acquisition of the Derco Group
On 31 December 2022, the Group acquired 100% of the share capital of Dercorp
CL and merged a subsidiary company with Dercorp Ex (together with Dercorp CL
"Derco") for consideration of £723.1m, satisfied by the issue of 38.5m new
shares in the Inchcape group and by £407.3m in cash.
Adjustments to the acquisition balance sheet, which remains provisional at
June 2023, recognised in the period have resulted in an increase to the
provisional goodwill of £11.1m.
Other acquisitions
The acquisition accounting in respect of the acquisition of 70% of
Comercializadora Ditec Automoviles S.A., and the entire share capital of ITC
Group, was finalised in the period, with no further measurement period
adjustments made.
11 FINANCIAL RISK MANAGEMENT
A. Financial risk factors
Exposure to financial risks comprising market risks (currency risk and
interest rate risk), funding and liquidity risk and counterparty risk arises
in the normal course of the Group's business.
During the six months to 30 June 2023, the Group has continued to apply the
financial risk management process and policies as detailed in the Group's
principal risks and risk management process included in the Annual Report and
Accounts 2022.
The condensed consolidated interim financial statements do not include all
financial risk management information and disclosures required in the annual
financial statements and further details can be found in the Annual Report and
Accounts 2022.
B. Foreign currency risk
The Group publishes its consolidated interim financial statements in sterling
and faces currency risk on the translation of its earnings and net assets, a
significant proportion of which are in currencies other than sterling.
Transaction exposure hedging
The Group has transactional currency exposures, where sales or purchases by an
operating unit are in currencies other than in that unit's reporting currency.
For a significant proportion of the Group these exposures are removed as
trading is denominated in the relevant local currency. In particular, local
billing arrangements are in place for many of our businesses with our brand
partners. The principal exception is for our business in Australia which
purchases vehicles in Japanese yen and our South and Central American
businesses which purchase vehicles in Japanese yen and US dollars.
In this instance, the Group seeks to hedge forecast transactional foreign
exchange rate risk using forward foreign currency exchange contracts. The
effective portion of the gain or loss on the hedge is initially recognised in
the consolidated statement of comprehensive income to the extent it is
effective. When the hedged forecast transaction results in the recognition of
a non-financial asset or liability then, at the time the asset or liability is
recognised, the associated gains or losses that had previously been recognised
in other comprehensive income are included in the initial measurement of the
acquisition cost or other carrying amount of the asset or liability.
For all other cash flow hedges, the gains or losses that are recognised in
other comprehensive income are transferred to the consolidated income
statement in the same period in which the hedged forecast transaction affects
the consolidated income statement. Under IFRS 9 Financial Instruments, hedges
are documented and tested for the hedge effectiveness on
an ongoing basis.
C. Interest rate risk
The Group's interest rate policy has the objective of minimising net interest
expense and protecting the Group from material adverse movements in interest
rates. The Group's exposure to the risk of changes in market interest rates
arises primarily from the floating rate interest payable on the Group's bank
borrowings, supplier-related finance and the returns available on surplus
cash. For the Group's corporate debt, excluding the Revolving Credit Facility,
around 70% is at fixed rates and over 50% has a maturity of at least 3 years.
D. Credit risk
Credit risk represents the risk that a counterparty will not meet its
obligations leading to a financial loss for the Group. Credit risk arises from
cash and cash equivalents, trade receivables and other financial assets. The
Group monitors its credit exposure to its counterparties via their credit
ratings (where applicable) and through its policy of limiting its exposure to
any one party to ensure that they are within Board approved limits and that
there are no significant concentrations of credit risk. Group policy is to
deposit cash and use financial instruments with counterparties with a
long-term credit rating of A or better, where available. The concentration of
credit risk with respect to trade receivables is very limited due to the
Group's broad customer base across a number of geographic regions and the
historically low default loss percentage incurred by the Group.
E. Liquidity risk
As at 30 June 2023, the committed funding facilities of the Group comprised a
syndicated revolving credit facility of £700m (31 December 2022: £700m),
sterling Private Placement Loan Notes totalling £210m (31 December 2022:
£210m) and a term loan facility of £250m (31 December 2022: £250m). As at
30 June 2023, £120m of the £700m syndicated revolving credit facility was
drawn (31 December 2022: £nil).
The Group entered into the syndicated revolving credit facility of £700m in
February 2019, with an initial expiry date of February 2024 and options, at
lender discretion, to extend until 2026. Lenders approved the first extension
option in February 2020 resulting in the £700m commitment extending to 2025.
Lenders with total commitments of £620m approved the second extension option
in February 2021, resulting in £620m of commitments being further extended to
2026.
11 FINANCIAL RISK MANAGEMENT CONTINUED
Private Placement Loan Notes of £70m mature in May 2024, and the £250m term
loan facility matures in December 2024. The committed bank facilities and
Private Placement borrowings are subject to the same interest cover covenant
based on an adjusted EBITA measure to interest on consolidated borrowings
measured on a trailing 12-month basis at June and December. The Group is
required to maintain a ratio of not less than three to one and was compliant
with this covenant as at 30 June 2023.
In June 2023, the Group issued £350m Guaranteed Notes ("the Notes") due 2028
with a coupon rate of 6.5%. The proceeds from the issue of the Notes were used
to repay the £350m Bridge Facility entered into as part of the acquisition of
the Derco group in 2022.
F. Vehicle funding arrangements
The Group finances the purchase of new vehicles for sale and a portion of used
vehicle inventories using vehicle funding facilities provided by various
lenders including the captive finance companies associated with brand
partners. Such arrangements generally are uncommitted facilities and have a
maturity of 180 days or less. Amounts due under these vehicle funding
arrangements are included within trade and other payables in the consolidated
statement of financial position. Related cash flows are reported within cash
flows from operating activities in the consolidated statement of cash flows.
As at 30 June 2023, the total amount outstanding under such arrangements was
£1,695.7m (31 December 2022: £1,422.5m).
Vehicle funding facilities are subject to SONIA (or similar) interest rates.
The interest incurred under these arrangements is included within finance
costs in the consolidated income statement and reported as stock holding
interest (see note 5). Related cash flows are reported as interest paid in the
consolidated statement of cash flows.
G. Fair value measurements
In accordance with IFRS 13, disclosure is required for financial instruments
that are measured in the consolidated statement of financial position at fair
value. This requires disclosure of fair value measurements by level for the
following fair value measurement hierarchy:
§ quoted prices in active markets (level 1);
§ inputs other than quoted prices that are observable for the asset or
liability, either directly or indirectly (level 2); or
§ inputs for the asset or liability that are not based on observable market data
(level 3).
The following table presents the Group's assets and liabilities that are
measured at fair value:
As at 30 June 2023 As at 31 December 2022
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m £m £m £m £m £m £m £m
Assets
Derivatives used for hedging - 23.6 - 23.6 - 54.2 - 54.2
Financial assets at fair value through other comprehensive income 1.0 - 2.9 3.9 0.9 - 2.6 3.5
1.0 23.6 2.9 27.5 0.9 54.2 2.6 57.7
Liabilities
Derivatives used for hedging - (122.4) - (122.4) - (39.5) - (39.5)
- (122.4) - (122.4) - (39.5) - (39.5)
Level 1 represents the fair value of financial instruments that are traded in
active markets and is based on quoted market prices at the end of the
reporting period.
The fair value of financial instruments that are not traded in an active
market (level 2) is determined by using valuation techniques which include the
present value of estimated future cash flows. These valuation techniques
maximise the use of observable market data where it is available and rely as
little as possible on entity specific estimates.
Level 3 primarily represents the Group's equity interest in Hino Motors
Manufacturing Company SAS. Fair value is based on discounted free cash flows,
using the projection of annual income and expenses mainly based on historical
financial figures.
11 FINANCIAL RISK MANAGEMENT CONTINUED
Derivative financial instruments are carried at their fair values. The fair
value of forward foreign exchange contracts and foreign exchange swaps
represents the difference between the value of the outstanding contracts at
their contracted rates and a valuation calculated using the spot rates of
exchange and prevailing forward interest rates at 30 June 2023.
The Group's derivative financial instruments comprise the following:
Assets Liabilities
As at As at As at As at
30 Jun 2023
30 Jun 2023
31 Dec 2022 31 Dec 2022
£m £m £m £m
Cross currency interest rate swaps - 4.4 - -
Forward foreign exchange contracts 23.6 49.8 (122.4) (39.5)
23.6 54.2 (122.4) (39.5)
12 ASSETS HELD FOR SALE
As at As at
30 Jun 2023
31 Dec 2022
£m
£m
Assets held for sale 18.0 19.0
Assets held for sale relate to surplus properties in the United Kingdom and
Australia, which are actively marketed with a view to sale.
13 OTHER DISCLOSURES
A. Related parties
There have been no material changes to the principal subsidiaries and joint
ventures as listed in the Annual Report and Accounts for the year ended 31
December 2022.
All related party transactions arise during the ordinary course of business
and are on an arm's length basis.
There were no material transactions or balances between the Group and its key
management personnel during the six months to 30 June 2023.
B. Contingencies
Franked Investment Income Group Litigation Order
Inchcape is a participant in an action in the United Kingdom against HMRC in
the Franked Investment Income Group Litigation Order ("FII GLO"). As at 30
June 2023, there were 17 corporate groups in the FII GLO. The action concerns
the treatment for UK corporate tax purposes of profits earned overseas and
distributed to the UK. As previously reported, the Supreme Court has returned
the test case to the High Court to establish when the claimant in the test
case could have reasonably discovered its mistake about the UK tax treatment
of such profits. The case has now been listed to be heard by the High Court in
November 2023.
As at 30 June 2023, no further receipts have been recognised in relation to
the balance of Inchcape's claim in the FII GLO due to the uncertainty of the
eventual outcome, given that the test case has not yet been completed nor has
Inchcape's specific claim been heard by the Courts.
14 FOREIGN CURRENCY TRANSLATION
The principal exchange rates used for translation purposes are as follows:
Average rates Period end rates
30 Jun 2023 30 Jun 2022 31 Dec 2022 30 Jun 2023 30 Jun 2022 31 Dec 2022
Australian dollar 1.84 1.81 1.78 1.91 1.76 1.77
Chilean peso 1,000.41 1,070.80 1,073.09 1,016.96 1,118.04 1,028.42
Ethiopian birr(1) 69.60 66.35 64.72 69.60 63.50 64.72
Euro 1.14 1.19 1.17 1.16 1.16 1.13
Hong Kong dollar 9.68 10.18 9.70 9.95 9.56 9.44
Russian rouble(2) N/A 106.85 106.85 N/A 78.92 78.92
Singapore dollar 1.65 1.77 1.71 1.72 1.69 1.62
US dollar 1.23 1.30 1.24 1.27 1.22 1.21
1. The results for Ethiopia are translated at the closing rate, rather than
the average rate, as required by IAS 21 The Effects of Changes for Foreign
Exchange Rates for hyperinflationary foreign operations.
2. Average rates for the Russian rouble represent the average rates for the
5-month period ending 31 May 2022 and the closing rates for the Russian rouble
are as at the date of disposal of the Russian operations in 2022.
15 EVENTS AFTER THE REPORTING PERIOD
Stuart Rowley was appointed as a Non-Executive Director with effect from 17
July 2023.
16 ALTERNATIVE PERFORMANCE MEASURES
The Group assesses its performance using a variety of alternative performance
measures which are not defined under International Financial Reporting
Standards. These provide insight into how the Board and Executive Committee
monitor the Group's strategic and financial performance, and provide useful
information on the underlying trends, performance and position of the Group.
The Group's income statement and segmental analysis identify separately
adjusted items. These adjusted measures reflect adjustments to IFRS measures.
The directors consider these 'adjusted' measures to be an informative
additional measure of the ongoing trading performance of the Group. Adjusted
results are stated before adjusting items.
Adjusting items can include gains or losses on the disposal of businesses,
restructuring of businesses, acquisition costs, asset impairments and the tax
effects of these items. Adjusting items excluded from adjusted results can
evolve from one financial period to the next depending on the nature of
adjusting items or one-off type activities.
Constant currency
Some comparative performance measures are translated at constant exchange
rates, called 'constant currency' measures. This restates the prior period
results at a common exchange rate to the current period and therefore excludes
the impact of changes in exchange rates used for translation.
Performance Measure Definition Why we measure it
Adjusted gross profit Gross profit before adjusting items. A key metric of the direct profit contribution from the Group's revenue
streams (e.g. Vehicles and Aftersales)
Adjusted operating profit Operating profit before adjusting items. A key metric of the Group's underlying business performance.
Operating margin Operating profit (before adjusting items) divided by revenue. A key metric of operational efficiency, ensuring that we are leveraging global
scale to translate sales growth to 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.
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. Refer to note 3. information regarding the Group's underlying business performance and is
consistent with 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
attributable to shareholders excluding the impact of adjusting items.
Net capital expenditure Cash outflows from the purchase of property, plant, equipment and intangible A measure of the net amount invested in operational facilities in the period.
assets less the proceeds from the disposal of property, plant, equipment and
intangible assets. Refer to page 38.
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. Refer to page 38.
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. Refer to page 39.
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 9b.
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 IFRS16 lease liabilities. Refer to note 9b.
Constant currency percentage change Presentation of reported results compared to prior period translated using A measure of underlying business performance which excludes the impact of
constant rates of exchange. changes in 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.
APMs: Reconciliation of income statement measures
Continuing operations Six months to 30 Jun 2023 Six months to 30 Jun 2022
£m
£m
Gross Profit 965.3 615.3
Add back: Adjusting items charged to gross profit - -
Adjusted Gross Profit from continuing operations 965.3 615.3
Less: Segment operating expenses (638.6) (411.3)
Adjusted Operating Profit from continuing operations 326.7 204.0
(Less)/add: Adjusting items in operating expenses (21.2) 3.3
Operating Profit 305.5 207.3
Less: Net Finance Costs and JV profits/losses (101.6) (19.8)
Profit Before Tax 203.9 187.5
Add/(less): Total adjusting Items 45.0 (3.3)
Adjusted profit before tax from continuing operations 248.9 184.2
APMs: Reconciliation of cash flow measures
Six months to 30 Jun 2023 Six months to 30 Jun 2023 Six months to 30 Jun 2022 Six months to 30 Jun 2022
£m
£m
£m
£m
Net cash generated from total operating activities 265.2 287.1
Add back: Payments in respect of adjusting items 20.6 4.7
Net cash generated from operating activities, before adjusting items 285.8 291.8
Purchase of property, plant and equipment (32.5) (24.3)
Purchase of intangible assets (3.2) (1.2)
Proceeds from disposal of property, plant and equipment 1.2 7.5
Net capital expenditure (34.5) (18.0)
Net payment in relation to leases (45.3) (29.8)
Dividends paid to non-controlling interests (4.4) (2.9)
Free cash flow 201.6 241.1
Less: Free cash flow from discontinued operations - (17.4)
Free cash flow from continuing operations 201.6 223.7
APMs: Reconciliation of balance sheet measures
As at As at
30 Jun 2023
30 Jun 2022
£m
£m
Adjusted operating profit from continuing operations 326.7 204.0
Adjusted operating profit for the previous 6 month period from continuing 206.8 144.8
operations
Adjusted operating profit from continuing operations on a 12 month basis 533.5 348.8
Net assets from continuing operations 1,512.7 1,137.4
Add net debt/less (net funds) 1,044.0 (97.6)
Capital employed - continuing operations 2,556.7 1,039.8
Effect of averaging (758.4) (28.7)
Average capital employed 1,798.3 1,011.1
Return on capital employed 29.7% 34.5%
As at As at
30 Jun 2023
31 Dec 2022
£m
£m
Net debt from continuing operations (1,044.0) (877.1)
Add back: lease liabilities 480.0 499.4
Adjusted net debt from continuing operations (564.0) (377.7)
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2023 which comprises the income statement, the balance sheet, the
statement of changes in equity, the cash flow statement and related notes 1 to
16.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2023 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with United Kingdom adopted international accounting
standards. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 34, "Interim Financial
Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the company a conclusion on the condensed set of financial
statements in the half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, England
26 July 2023
The Directors confirm that the condensed consolidated interim financial
statements in the Interim Report have been prepared in accordance with UK
adopted International Accounting Standard 34, 'Interim Financial Reporting'
and that the Interim Report includes a fair review of the information required
by Disclosure and Transparency Rules 4.2.7R and 4.2.8R, namely:
§ an indication of important events that have occurred during the first six
months and their impact on the condensed consolidated interim financial
statements;
§ a description of the principal risks and uncertainties for the remaining six
months of the financial year; and
§ material related party transactions in the first six months and any material
changes in the related party transactions described in the last Annual Report.
The Directors and positions held during the period were as published in the
Annual Report and Accounts 2022. A list of current Directors is maintained on
the Inchcape plc website (www.inchcape.com).
On behalf of the Board
Duncan Tait
GROUP CHIEF EXECUTIVE
26 July 2023
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