REG - Inchcape PLC - Half-year Report
30/07/2024 07:00
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RNS Number : 2909Y Inchcape PLC 30 July 2024
Inchcape plc, the leading global automotive distributor, announces its interim
results for the six months to 30 June 2024
Inchcape becomes a pureplay automotive Distributor -
resilient performance, outlook reiterated, share buyback increased to £150m
• Major strategic inflection point for Inchcape, as the Group
becomes a pureplay automotive Distribution business:
o Divestment of UK Retail business to Group 1 Automotive for cash
consideration of £346m
§ Expected to complete during Q3 2024
o Four Distribution contracts won in H1 2024, further highlighting our
differentiated Distribution proposition
• Resilient financial performance - with revenue and profit
growth:
o Solid revenue growth of 8% in constant currency, 4% on a reported basis,
to £4.7bn
§ Organic revenue growth(1) of 4%, and 4% growth from acquisitions
o Robust profit delivery, with adjusted operating profit(2) up 7% in
constant currency to £299m, and operating margins(2) of 6.3%
§ Adjusted PBT(2) up 7% in constant currency, up 1% on a reported basis,
statutory PBT up 10%
§ Adjusted basic EPS(2) down (3)% to 34.7p due to a higher effective tax
rate. Reported basic EPS up 9% to 27.9p
• Robust operational performance against mixed market trends,
supported by continued focus on cost management:
o Resilient market share in the Americas, against lower industry volumes,
with key markets stabilising
o On-going positive momentum in APAC, supported by strong organic growth and
contribution from acquisitions
o Continued outperformance in Europe, with order bank unwind continuing,
supported by new Distribution contracts gaining momentum
o On-going focus on cost management across the Group
• Strong balance sheet, driven by excellent organic cash flow
performance:
o Free cash flow(2) of £226m (H1 2023: £189m) and free cash flow
conversion of 76%
o Adjusted net debt(2) reduced to £524m (FY 2023: £601m) and leverage
reduced to 0.7x
o Strong ROCE(2) of 28% (H1 2023: 32%), highlighting benefits of becoming a
pureplay automotive Distributor
• Disciplined approach to capital allocation, with share buyback
increased to £150m on an accelerated timetable:
o Increased share buyback reflects excellent free cash flow performance and
strong balance sheet
§ Buyback to commence on 1st August 2024 and expected to complete during Q1
2025
o Healthy pipeline of bolt-on acquisitions
o Interim dividend per share of 11.3p
• Outlook reiterated, supported by continued strategic execution:
o Maintaining our expectations for moderated growth, at constant currency,
in FY 2024
o Higher levels of growth expected over the medium to long term - driven by:
§ Anticipated recovery across a number of markets and recent Distribution
contract wins
§ On-going development of technology capabilities and continued focus on cost
management
Duncan Tait, Group CEO, commented:
"With the disposal of our UK Retail business, Inchcape will become a pureplay
operator, focused on Automotive Distribution, which is capital light, highly
cash generative, higher margin and higher returns than pure Retail businesses.
This represents a significant strategic step in our journey to becoming the
leading global distribution partner for our OEM partners. We are pleased to
announce an increased buyback programme of £150m, with an accelerated
timeline starting immediately. This increase is a demonstration of our
disciplined capital allocation policy in action, and reflects the Group's
strong financial position, following an excellent free cash flow performance
in H1 2024.
"Inchcape delivered a resilient performance in H1 2024, with a strengthening
balance sheet, reflecting our scaled and diversified growth portfolio. We
delivered strong organic revenue and profit growth, with further high levels
of cash generation and returns.
"Our success in winning new Distribution contracts continued during the first
half, with four contracts awarded in the period. These contracts, along with
our investment in acquisitions, will continue to support the business as we
grow in existing markets by building market share, expand into new markets and
develop our OEM partner portfolio to drive growth. With our global market
leadership position and our differentiated digital and data capabilities to
support our OEM partners, our Distribution platform is well positioned for the
future. To that end, we reiterate our growth expectations for FY 2024 and
remain confident about the medium to long-term outlook for the Group."
H1 2024 H1 2023 % change % change % change
constant FX(2)
organic(1)
reported
Key financials (continuing operations)
Revenue £4,725m £4,563m +4 % +8 % +4 %
Adjusted Operating Profit(2) £299m £295m +1 % +7 %
Adjusted Operating Margin(2) 6.3 % 6.5 % (20)bps (10)bps
Adjusted Profit Before Tax(2) £226m £223m +1 % +7 %
Adjusted Basic EPS(2) 34.7p 35.9p (3) %
Dividend Per Share 11.3p 9.6p +18 %
Free Cash Flow(2) £226m £189m +20 %
Reported financials
Operating Profit (continuing operations) £276m £274m +1 %
Profit Before Tax (continuing operations) £195m £178m +10 %
Total profit for the period £129m £139m (7) %
Basic EPS (continuing operations) 27.9p 25.7p +9 %
Net cash generated from operating activities £283m £265m +7 %
1. Organic growth is defined as revenue growth in operations that have
been open for at least a year at constant foreign exchange rates. See Note 14
APMs
2. These measures are Alternative Performance Measures, see Note 14
Market abuse regulation statement
This announcement contains inside information.
Results presentations
A presentation for analysts and investors will be held today, Tuesday 30(th)
July 2024, at 08:30 BST. 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/44da7bbe-1459-4628-a90b-d528b968fa24)
, or to register for conference call access please follow this link
(https://registrations.events/direct/LON21) . A replay of the analyst
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.
Management will also be hosting an online presentation for investors via
Investor Meet Company on 31(st) July 2024, 12:30 BST. Questions can be
submitted pre-event via your Investor Meet Company dashboard up until 30th
July 2024, 09:00 BST or during the live presentation. To register for the
conference call please follow this link
(https://www.investormeetcompany.com/inchcape-plc/register-investor) .
Investors who already follow Inchcape on the Investor Meet Company platform
will automatically be invited.
Financial calendar
Ex-dividend date for 2024 interim dividend 8th August 2024
Record date 9th August 2024
Last election date 15th August 2024
Payment date 6th September 2024
Q3 trading update 24th October 2024
In the Driving Seat investor seminar 14th November 2024
Contacts
Inchcape plc (investor enquiries):
Rob Gurner +44 (0)7825 189 088 investors@inchcape.com
Krishma Arora
DGA Group (media enquiries):
James Melville Ross +44 (0)20 7038 7419 inchcape@dgagroup.com
James Styles
Leah Dudley
About Inchcape
Inchcape is the leading global automotive distributor, with operations across
six continents. Inchcape works with our mobility company partners in smaller,
more complex and harder-to-reach markets, which tend to be higher growth with
low motorisation rates. By combining our in-market expertise with our unique
technology and advanced data analytics, we create innovative customer
experiences that deliver outstanding performance for our partners - building
stronger automotive brands and creating sustainable growth.
Our distribution platform connects the products of mobility company partners
with customers, and our responsibilities span product planning and pricing,
import and logistics, brand and marketing to operating digital sales, managing
physical sales and aftermarket service channels. Delivering for our partners,
our customers and our people - so they can realise their ambitions in the new
world of mobility. The Group is headquartered in London and employs over
18,000 people globally.
Earlier this year, Inchcape hosted an "In the Driving Seat" webinar to provide
investors and analysts with further understanding of the dynamics of the
Group's Distribution commercial model. A recording is available on the
Inchcape website:
https://www.inchcape.com/investors/results-reports-presentations/
(https://www.inchcape.com/investors/results-reports-presentations/)
www.inchcape.com (http://www.inchcape.com)
Our results are stated at actual exchange rates. However, to enhance
comparability we also present year-on-year changes in revenue and adjusted
operating profit in constant currency, thereby isolating the impact of
translational exchange rate effects. Following the proposed disposal of our UK
Retail business, all figures quoted in the 'Operational' and 'Operating and
financial' reviews are on a 'continuing operations' basis and therefore
exclude any contribution from UK Retail in the current and comparative years.
Operational review
Key performance indicators
Key financials (continuing operations) H1 2024 H1 2023 % change % change % change
constant FX(2)
organic(1)
reported
Revenue £4,725m £4,563m +4 % +8 % +4 %
Adjusted Operating Profit(2) £299m £295m +1 % +7 %
Adjusted Operating Margin(2) 6.3 % 6.5 % (20)bps (10)bps
Adjusted Profit Before Tax(2) £226m £223m +1 % +7 %
Free Cash Flow(2) £226m £189m +20 %
Return on Capital Employed(2) 28 % 32 % (400)bps
1. Organic growth is defined as revenue growth in operations that have been
open for at least a year at constant foreign exchange rates, see Note 14 APMs
2. These measures are Alternative Performance Measures, see Note 14
H1 2024 results - performance review
The Group delivered a resilient financial performance in H1 2024, driven by
strong top line growth, with robust margins supported by operating leverage.
Group revenue of £4.7bn rose 4% year-on-year on a reported basis and 8% in
constant currency, supported by organic growth of 4% and acquisitions which
contributed a further 4%, partly offset by currency headwinds of (4)%.
The Group delivered an adjusted operating profit of £299m, up 7% in constant
currency, offset by (6)% impact from currency, with reported growth of 1%.
Robust adjusted operating margins of 6.3% reflected organic revenue growth in
certain regions, operating leverage and a focus on cost management across the
Group. We reduced overheads despite the increased scale of the business, with
the ratio of adjusted net operating expenses to revenue improving during the
period to 10.9% (H1 2023: 11.4%).
Adjusted net finance costs amounted to £74m (H1 2023: £73m), with an
alignment of supplier terms related to inventory financing at acquired
businesses, resulting in an expense of £26m (H1 2023: £16m). The positive
impact of a reduction in average debt on net interest costs was partly offset
by some short term cash-funded inventory flows during the period.
Adjusted profit before tax grew 7% on a constant currency basis, offset by
(6)% currency headwinds with reported PBT of £226m (H1 2023: £223m).
Adjusted basic EPS was down (3)% to 34.7p, due to a higher effective tax rate.
During the period pre-tax adjusting items amounted to an expense of £31m (H1
2023: £45m). This was primarily driven by one-off costs related to
acquisition and integration costs (£23m, H1 2023: £21m), and non-cash,
non-operational losses arising from hyperinflation accounting relating to
Ethiopia (£8m, H1 2023: £14m). After adjusting items, the reported profit
before tax was £195m (H1 2023: £178m).
The highly cash-generative nature of our business model was again in evidence
during the first half, with free cash flow generation of £226m (H1 2023:
£189m), representing a conversion of adjusted operating profit of 76% (H1
2023: 64%). This was supported by a net working capital inflow of £82m (H1
2023: inflow £39m) driven by strong inventory management and a continued
alignment of supplier terms at acquired businesses. Inventory fell to £2,011m
(FY 2023: £2,718m) due to an improvement in inventory efficiency across the
Group and UK Retail inventory of £262m, which is treated as part of the
discontinued operation. Net interest payments in the period increased to £64m
(H1 2023: £57m), excluding payment for leases and currency in both periods,
for the reasons outlined above.
As at 30 June 2024, Group adjusted net debt amounted to £524m (FY 2023:
£601m) (excluding lease liabilities), with a strong free cash flow
performance partly offset by ordinary dividend payments of £100m. Including
lease liabilities, the Group ended the period with net debt of £891m (FY
2023: net debt of £1,041m). Group leverage on a proforma basis(1) was
approximately 0.7x at 30 June 2024, down from 0.8x at the end of FY 2023, and
is expected to continue to reduce in the future.
Return on capital employed during the period was 28%, down from H1 2023 when
it was 32%, due to higher average capital employed during H1 2024, as a result
of acquisitions, but higher than the reported FY 2023 ROCE of 26%. This
highlights the benefits of becoming a pureplay automotive Distribution
business.
Q2 2024 performance
Q2 2024 Group revenue was £2.4bn, up 2% on a reported basis, reflecting the
contribution of acquisitions and organic growth of 2%, offset by currency
headwinds. Q2 2024 Group revenue, particularly in APAC and the Americas, was
higher than Q1 2024. The level of organic revenue growth in Q2 2024 slowed
from Q1 2024, due to more challenging comparators, although the quarterly
organic growth rate in the Americas improved sequentially.
Strategic overview - Inchcape becomes a pureplay automotive Distributor
Inchcape is the global leader in automotive Distribution, with a highly
compelling offering for over 60 OEM partners, based on a differentiated,
scaled and diversified business model, which is asset-light and
digitally-enabled. From 2016 to 2023, supported by the Group's on-going
investment in growth opportunities, in particular through organic investment
and acquisitions, Inchcape has delivered revenue CAGR of 6%, adjusted
operating profit CAGR of 9%, an adjusted earnings per share CAGR of 5% and
strong free cash flow generation of between 60% to 70%. In addition, from 2016
to H1 2024 the Group has returned £790m to shareholders through dividends.
Following the divestment of the Group's UK Retail business to Group 1
Automotive, which is expected to complete during Q3 2024, Inchcape becomes a
pureplay operator in automotive Distribution. Proceeds from the disposal will
provide additional balance sheet capacity for the Group to invest in future
growth and to support Inchcape's capital allocation policy.
As a pureplay Distribution business, Inchcape will further focus on enhancing
its Distribution platform in small to medium-sized, more complex markets,
which are higher growth with low motorisation rates, particularly in existing
Inchcape markets. Evidence that this enhanced focus is already being achieved
is the award of a number of Distribution contracts with OEMs during H1 2024.
These contract wins are a key growth driver for Inchcape, giving us exclusive
responsibility for a brand in a market. In H1 2024, we were awarded four
Distribution contracts, with existing OEM partners including Ford in Estonia,
JAC Trucks in Colombia and Changan in the Caribbean, as well as with a new
partner, Forland, in Ecuador.
We also continued to enhance our Distribution platform through the development
of our proprietary digital and data analytics capabilities, which help to
drive superior performance for Inchcape and for our OEM partners. During the
period, we continued to expand the breadth of coverage of our core artificial
intelligence (AI) solutions in new vehicles, aftersales service and parts,
including in our recently acquired businesses. We also developed and deployed
new market-leading AI solutions during the period, including AI-based
quotations for repair services.
Our Distribution platform is supplemented by a range of Value-Added Services.
These services include our role as the exclusive distributor of relatively
high margin OEM-certified parts in our markets, which we are scaling through
the on-going roll-out of a Digital Parts Platform across our APAC region. In
addition, we run a number of global strategic partnerships on Finance and
Insurance with key finance houses, which are delivered on a local basis. We
are at an early stage for value-added services relating to New Energy
Vehicles, including Electric Vehicles, although Inchcape is already offering
some capabilities in this area in certain markets, such as battery-related
services. Our approach on used vehicles is to leverage our distribution
platform through our third party independent retail network.
Inchcape will hold an "In the Driving Seat" investor seminar on 14 November
2024, focusing on our APAC region, in the context of a refreshed Accelerate
strategy.
Our Sustainability approach
Developing our approach to Responsible Business is central to our future
plans, bringing us closer to our OEM partners and helping us to recruit,
engage and retain the best talent, and thereby ensuring Inchcape continues to
play a key role in the mobility transition in our markets. Our Sustainability
approach, "Driving What Matters", has four focus areas: Planet, People, Places
and Practices. We made good progress in each of these areas in H1 2024. On
Planet, we continued to improve disclosure and external stakeholder engagement
on key Planet-related areas through the launch of our first Sustainability
Report, supplemented by an ESG investor roadshow. On People, we rolled out our
global inclusive hiring training programme and launched our first global
safety culture survey. On Places, we showcased our 'Mobilising Hearts
(https://www.inchcape.com/mobilising-hearts/) ' initiative in Colombia and our
'Liter of Light
(https://www.inchcape.com/inchcapes-liter-of-light-contribution-in-the-philippines/)
' contribution in the Philippines. Finally, on Practices, we piloted an 'Open
Door' Policy in the Americas to encourage an open and trust-based reporting
culture where colleagues feel comfortable voicing their questions, concerns
and feedback to management.
Capital allocation
Supported by a strong balance sheet, our capital allocation policy remains
unchanged and is focused on: 1) organic investment; 2) dividend payments at
40% of adjusted EPS and with the interim dividend set at one-third of the
preceding year's dividend, the Board is declaring an interim dividend of 11.3p
(H1 2023: 9.6p); 3) value-accretive acquisitions, with a healthy pipeline of
bolt-on acquisitions at the current time; and 4) share buybacks, the viability
for which will continue to be assessed by the Board. This policy continues to
be conducted within the Group's self-mandated leverage limit of 1x adjusted
net debt: adjusted EBITDA.
Taking into account the excellent underlying free cash flow performance in H1
2024, and the Group's strong balance sheet, in line with the Group's capital
allocation policy, the Board has taken the decision to accelerate the
timetable of its share buyback and increase the amount from £100m to £150m.
This share buyback programme will commence on 1st August 2024, and is expected
to complete during Q1 2025.
Outlook
We maintain our expectations for moderated growth in FY 2024, at constant
currency. Over the medium to long term, the Group is expecting to return to
higher levels of growth, compared to FY 2024, driven by an anticipated
recovery across a number of markets, the contribution from Distribution
contract wins achieved in recent years, bolt-on acquisitions and supported by
the on-going development of Inchcape's technology capabilities and the Group's
continued focus on cost management.
Operating and financial review
The Group reported revenue of £4.7bn from continuing operations, increasing
4% year-on-year on a reported basis, with organic growth of 4% and a 4%
contribution from M&A, offset by currency headwinds of (4)%. Adjusted
operating profit(1) of £299m (H1 2023: £295m) was up 7% in constant currency
and adjusted operating margin(1) decreased slightly to 6.3%.
H1 2024 H1 2023 % change % change % change
organic(2)
reported constant FX
£m £m
Revenue
APAC 1,495 1,255 19 % 24 % 9 %
Europe & Africa 1,622 1,397 16 % 18 % 18 %
Americas 1,608 1,911 (16) % (10) % (9) %
Total 4,725 4,563 4 % 8 % 4 %
Adjusted operating profit(1)
APAC 116 86 35 % 41 %
Europe & Africa 85 70 21 % 25 %
Americas 98 139 (29) % (24) %
Total 299 295 1 % 7 %
Adjusted operating margin(1)
APAC 7.8 % 6.9 % 90bps 90bps
Europe & Africa 5.2 % 5.0 % 20bps 30bps
Americas 6.1 % 7.3 % (120)bps (110)bps
Total 6.3 % 6.5 % (20)bps (10)bps
Segments have been redefined following the UK Retail business being classified
as an asset held for sale and as a discontinued operation. See Note 2 for
segmental definitions.
APAC (32% of revenue and 39% of adjusted operating profit)
Revenue grew 24% in constant currency, including organic revenue growth of
9%, supported by market share gains in key markets, and a contribution from
acquisitions, with new brands in early stages of development. Adjusted
operating profit(1) was up 41%, with adjusted operating margins(1) up 90bps to
7.8%, driven by operating leverage and the mix effect of faster-growing,
higher margin businesses. For H2 2024, continued growth is anticipated in many
markets, with margin growth expected to be partially offset by contract wins.
Europe & Africa (34% of revenue and 28% of adjusted operating profit)
Revenue grew 18% in constant currency, with outperformance against the market
in Europe, a continuation of order bank normalisation, market share growth and
new contract wins growing quickly. Performance in Africa remained resilient.
Adjusted operating profit(1) was up 25%, with continued elevated adjusted
operating margins(1) of 5.2%, despite some dilution of accelerating contract
wins. For H2 2024, growth is expected to be supported by some improvement in
order intake, which will partly offset the effect of order bank normalisation
over the last 18 months, with operating margins in Europe expected to moderate
towards historic levels.
Americas (34% of revenue and 33% of adjusted operating profit)
Revenue fell (9)% in constant currency. Our market share across the region
remained resilient, with key markets stabilising and Central America
performing well. There were lower industry volumes across the region, with
many markets at historic lows, and some consequent pricing pressure. Derco
continues to be transformative for our business in the region, and has helped
to scale our business in the Americas, highlighted by three Distribution
contracts won in the Americas during H1 2024, with the cost synergy programme
on track. Adjusted operating profit(1) was down (24)%, with adjusted operating
margins(1) down (110)bps from H1 2023, but only (30)bps lower than H2 2023, to
6.1%. The cost synergies achieved following the Derco acquisition have
improved operating efficiency across the region, and this has mostly mitigated
the deleveraging effect of reducing market volumes. For H2 2024, we have
prudent expectations for volume recovery, but margins are expected to improve,
reflecting an improved margin exit rate at the end of H1 2024.
For financial performance, cash flow information and balance sheet information
on our UK Retail business, classified as an asset held for sale and
discontinued operation, see note 9 Acquisitions and Disposals, in this report.
1. Operating profit and operating margin stated before adjusting items at
constant currency rates
2. Organic growth is defined as revenue growth in operations that have
been open for at least a year at constant foreign exchange rates. Note 14 APMs
Gross profit drivers
We provide disclosure on the drivers of our gross profit, including:
• 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 2024 H1 2023 % change % change
reported constant FX
£m £m
Gross Profit
Vehicles 566 555 2 % 7 %
Aftersales 248 262 (5) % - %
Total 814 817 - % 5 %
During the half year period, we generated 30% of gross profit through
Aftersales (H1 2023: 32%).
Other financial items
Adjusting items: a pre-tax expense of £31m (H1 2023: £45m) was reported in
respect of adjusting items for H1 2024. This was primarily driven by costs
related to acquisition and integration costs (£23m), and non-cash,
non-operational losses arising from hyperinflation accounting relating to
Ethiopia (£8m). Further details can be found in note 3 of the interim
financial statements.
Net financing costs: Adjusted net finance costs increased to £74m (H1 2023:
£73m), driven by an alignment of supplier terms, related to inventory
financing arrangements, at acquired businesses. The positive impact of a
reduction in average debt on net interest costs was partly offset by some
short term cash-funded inventory flows during the period. Reported net finance
costs were £82m (H1 2023: £97m). This includes £8m of adjusting items
relating to non cash, non-operational losses arising from hyperinflationary
accounting in Ethiopia.
Tax: The effective tax rate on adjusted profit is 32.7% (H1 2023: 30.5%), and
on a statutory basis is 36.4% (H1 2023: 36.5%). The increase in the effective
tax rate on adjusted profit includes the impact of mix and the Group's Pillar
2 tax liability from H1 2024. The effective tax rate is expected to decline
over time.
Non-controlling interests: Profits attributable to our non-controlling
interests increased to £9m (H1 2023: £7m). The Group's non-controlling
interests comprise a 40% interest in the Group's distribution operations in
the Philippines and a 30% holding in the Mercedes-Benz distribution business
in Indonesia. Other significant non-controlling interests include a 30% share
in NBT Brunei and a 10% share of Subaru Australia.
Dividend: The Board has declared an interim dividend of 11.3p per ordinary
share which will be paid on 6th September 2024 to shareholders on the register
at close of business on 9th August 2024. The Dividend Reinvestment Plan is
available to ordinary shareholders and the final date for receipt of elections
to participate is 15th August 2024.
Capital expenditure: During the first half of 2024, the Group incurred net
capital expenditure of £23m (H1 2023: £24m), consisting of £25m gross
capital expenditure (H1 2023: £25m) and £2m of proceeds from the sale of
property (H1 2023: £1m). In 2024, we continue to expect net capital
expenditure of less than 1% of Group sales.
Financing: As at 30 June 2024, the funding structure of the Group is comprised
of a committed syndicated revolving credit facility of £900m (FY 2023:
£900m), sterling Private Placement Loan Notes totalling £140m (FY 2023:
£210m), a 5 year bond of £350m, at a fixed coupon of 6.5%, a term facility
of £250m (FY 2023: £250m) and debt remaining outstanding from acquisitions
£28m (FY 2023: £80m). As at 30 June 2024 the syndicated revolving credit
facility was drawn £130m (FY 2023: £150m). Excluding our Revolving Credit
Facility, 66% of the Group's corporate debt is at fixed rates and is not due
to be repaid for at least 3 years. The Group remains well within its debt
covenants.
Pensions: As at 30 June 2024, the IAS 19 net post-retirement surplus was £63m
(2023: £67m), 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
(2023: £2m).
RISKS
PRINCIPAL BUSINESS RISKS
The Board has reassessed the principal business risks which could impact the
performance of the Group. These include:
Tier 1:
• Cybersecurity incident;
• EV transition risks;
• Margin pressure (changing route to market, incentives);
• Macro-economic conditions (cost inflation, economic slowdown);
• HSE: Health, safety or environmental incident; and
• Political risks/social unrest;
Tier 2:
• Acquisition ROI;
• Business interruption (pandemic, natural hazards);
• Financial reporting, fraud;
• Foreign exchange volatility;
• Legal/regulatory compliance;
• Loss of Distribution contract;
• Loss of technology systems (non-cyber);
• People engagement and retention;
• People future skills;
• Supply chain disruption; and
• Strategy delivery and transformation (digital).
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, 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.
In H1 2024, 'New market entrants: business models or technology' was removed
from our Tier 2 risks. This risk was originally identified in 2020 as new
players arrived with new technology offerings, primarily in the UK retail
market. In light of the UK Retail disposal, the Group's exposure to this
competition is no longer applicable.
APPENDIX - REGIONAL BUSINESS MODELS
Americas
Country Brands
Argentina Subaru, Suzuki
Barbados(1) Changan, Chrysler, Daimler Trucks, Dodge, Freightliner, FUSO, Isuzu, JCB,
Jeep, John Deere, Mercedes-Benz, Mitsubishi, Subaru, Suzuki, Western Star
Bolivia Changan, Chevrolet, JAC Motors, Joylong, Komatsu, Mazda, Renault, Subaru,
Suzuki
Chile BMW, BMW Motorrad, DFSK, Changan, Geely, Great Wall, Hangcha, Haval, Hino, JAC
Motors, Jaguar, JCB, Komatsu, Land Rover, Landini, Massey Ferguson, Mazda,
MINI, Porsche, Renault, Rolls Royce, Still, Subaru, Suzuki, Volvo
Colombia Citroen, Develon, DFSK, Dieci, Doosan, DS Automobiles, Hangcha, Hino, JAC
Trucks, Jaguar, Komatsu, Land Rover, Liebher, Linde, Mack, Mercedes-Benz,
Still, Subaru, Suzuki, XCMG
Costa Rica Changan, JAC, Suzuki
Ecuador Freightliner, Forland, Geely, Mercedes-Benz, Subaru, Western Star
El Salvador Freightliner, Geely, Mercedes-Benz, Western Star
Guatemala Freightliner, Geely, Mercedes-Benz, Western Star
Honduras Freightliner, Geely, Mercedes-Benz, Western Star
Panama Suzuki
Peru BMW, BMW Motorrad, Changan, Citroen, DFSK, Great Wall, Haval, Hino, JAC
Motors, Komatsu, Mazda, MINI, Renault, Still, Subaru, Suzuki, XCMG
Uruguay Freightliner, Fuso, Mercedes-Benz
1.Distribution agreements for these brands across a range of Caribbean
islands, centred in Barbados
APAC
Country Brands
Brunei Lexus, Toyota
Guam(2) BMW, Chevrolet, Lexus, Toyota, Morrico heavy equipment(3)
Hong Kong Hino, Jaguar, Land Rover, Lexus, Maxus, ORA, Toyota
Indonesia Great Wall, Harley Davidson, Jaguar, Land Rover, Mercedes-Benz
Macau Hino, Jaguar, Land Rover, Lexus, ORA, Toyota
Saipan Toyota, Lexus
Singapore BYD Commercial Vehicles, Hino, Lexus, Suzuki, Toyota
Philippines Changan, Harley Davidson, Jaguar, Land Rover, Mazda, Mercedes-Benz, Ram
Thailand Jaguar, Land Rover, Tata Motors
Australia Distribution: Citroen, Peugeot, Subaru
Retail only: Isuzu Ute, Jeep, Kia, Mitsubishi, Volkswagen
New Zealand Maxus, Subaru
2. Distribution agreements for these brands across a range of Pacific islands,
centred in Guam
3. Morrico heavy equipment - Bomag, CNHI International SA, Cummins, Daimler,
Detroit Diesel International Direct, Dieci, DTNA , EL Industries, Fuso,
Haulotte, Hyundai, Kohler, Load King, New Holland, Rosenbauer, Schwarze,
Sullivan Palatek, Vac Con, WanCo
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
Luxembourg BYD, Lexus, Toyota
North Macedonia Lexus, Toyota
Poland Distribution: Jaguar, Land Rover
Retail only: BMW, BMW Motorrad, MINI
Romania Lexus, Toyota
Djibouti BMW, Changan, Komatsu, Toyota
Ethiopia Hino, Komatsu, New Holland, Suzuki, Toyota
Kenya(4) BMW, BMW Motorrad, Changan, Jaguar, Land Rover
4. Distribution agreement for Changan also distributed to Tanzania, centred in
Kenya and distribution agreement for Jaguar, Land Rover also distributed to
Uganda, centred in Kenya
Continuing operations Six months to Six months to
30 Jun 2024 30 Jun 2023
Notes £m £m
Revenue 2 4,725 4,563
Cost of sales (3,911) (3,746)
Gross profit 814 817
Net operating expenses (538) (543)
Operating profit 2 276 274
Share of profit after tax of joint ventures and associates 1 1
Profit before finance and tax 277 275
Finance income 4 22 24
Finance costs 4 (104) (121)
Profit before tax from continuing operations 195 178
Tax 5 (71) (65)
Profit for the period from continuing operations 124 113
Profit from discontinued operations 5 26
Total profit for the period 129 139
Profit attributable to:
- Owners of the parent 120 132
- Non-controlling interests 9 7
129 139
Earnings per share from continuing operations attributable to the owners of
the parent
Basic earnings per share (pence) 6 27.9p 25.7p
Diluted earnings per share (pence) 6 27.5p 25.4p
Earnings per share attributable to the owners of the parent
Basic earnings per share (pence) 6 29.1p 32.0p
Diluted earnings per share (pence) 6 28.7p 31.6p
Alternative performance measures
Operating profit from continuing operations 276 274
Adjusting items within net operating expenses: 3 23 21
Acquisition and integration costs 23 21
Adjusted operating profit from continuing operations 299 295
Share of profit after tax of joint ventures and associates 1 1
Adjusted profit before finance and tax from continuing operations 300 296
Net finance costs (82) (97)
Adjusting items within net finance costs: 3 8 24
Net monetary loss on hyperinflation 8 14
Interest on deferred dividend payment - 10
Adjusted profit before tax from continuing operations 226 223
Tax on adjusted profit (74) (68)
Adjusted profit after tax from continuing operations 152 155
Adjusted earnings per share from continuing operations
Basic adjusted earnings per share 6 34.7p 35.9p
Diluted adjusted earnings per share 6 34.2p 35.4p
See note 14 on page 36 for further details of alternative performance
measures.
The notes on pages 17 to 38 are an integral part of these condensed
consolidated interim financial statements.
Six months to Six months to
30 Jun 2024 30 Jun 2023
£m £m
Profit for the period 129 139
Other comprehensive income/(expense):
Items that will not be reclassified to the consolidated income statement
Retirement benefit schemes
- net actuarial losses (5) (18)
(5) (18)
Items that may be or have been reclassified subsequently to the consolidated
income statement
Cash flow hedges
- net fair value losses (40) (62)
- tax on cash flow hedges 9 16
Deferred tax on taxation losses - 1
Foreign currency translation
Exchange differences on translation of foreign operations (117) (49)
Adjustments for hyperinflation 10 21
Taxation on hyperinflation adjustments (1) (2)
(139) (75)
Other comprehensive expense for the period (144) (93)
Total comprehensive (expense)/income for the period (15) 46
Total comprehensive (expense)/income for the period
- Owners of the parent (19) 42
- Non-controlling interests 4 4
(15) 46
Total comprehensive (expense)/income attributable to owners of Inchcape plc
arising from:
- Continuing operations (24) 16
- Discontinued operations 5 26
The notes on pages 17 to 38 are an integral part of these condensed
consolidated interim financial statements.
As at As at
30 Jun 2024 31 Dec 2023
Notes £m £m
Non-current assets
Intangible assets 1,199 1,271
Property, plant and equipment 641 893
Right-of-use assets 313 364
Investments in joint ventures and associates 21 21
Financial assets at fair value through other comprehensive income 10g 1 1
Derivative financial instruments 10g 1 1
Trade and other receivables 37 49
Deferred tax assets 113 105
Retirement benefit asset 81 84
2,407 2,789
Current assets
Inventories 2,011 2,718
Trade and other receivables 810 835
Financial assets at fair value through other comprehensive income 10g - -
Derivative financial instruments 10g 39 38
Current tax assets 61 56
Cash at bank and short term deposits 8b 647 689
Assets held for sale and disposal group 9b 710 14
4,278 4,350
Total assets 6,685 7,139
Current liabilities
Trade and other payables (2,495) (3,150)
Derivative financial instruments 10g (153) (88)
Current tax liabilities (75) (81)
Provisions (65) (69)
Lease liabilities 8b (72) (81)
Borrowings 8b (559) (652)
Liabilities directly associated with the disposal group 9b (470) -
(3,889) (4,121)
Non-current liabilities
Trade and other payables (69) (69)
Provisions (37) (39)
Derivative financial instruments 10g - (9)
Deferred tax liabilities (256) (267)
Lease liabilities 8b (295) (359)
Borrowings 8b (618) (638)
Retirement benefit liability (18) (17)
(1,293) (1,398)
Total liabilities (5,182) (5,519)
Net assets 1,503 1,620
Equity
Share capital 7 42 42
Share premium 147 147
Capital redemption reserve 7 143 143
Merger reserve 7 312 312
Other reserves (191) (63)
Retained earnings 957 940
Equity attributable to owners of the parent 1,410 1,521
Non-controlling interests 93 99
Total equity 1,503 1,620
The notes on pages 17 to 38 are an integral part of these condensed
consolidated interim financial statements.
Notes Share Share Capital redemption reserve Merger Other reserves Retained earnings Total equity attributable to owners of the parent £m Non-controlling interests Total shareholders' equity
£m
£m
£m
capital Premium reserve £m £m
£m
£m £m
At 1 January 2023 38 147 143 316 69 820 1,533 34 1,567
Profit for the period - - - - - 132 132 7 139
Other comprehensive expense for - - - - (72) (18) (90) (3) (93)
the period
Total comprehensive (expense)/income for - - - - (72) 114 42 4 46
the period
Hedging gains and losses transferred to inventory - - - - (3) - (3) - (3)
Written put option - - - - - (1) (1) - (1)
Shares issued 4 - - (4) - - - - -
Share-based payments, net of tax - - - - - 7 7 - 7
Purchase of own shares by the Inchcape Employee Trust - - - - - (12) (12) - (12)
Dividends:
- Owners of the parent 7b - - - - - (88) (88) - (88)
- Non-controlling interests - - - - - - - (4) (4)
At 30 June 2023 42 147 143 312 (6) 840 1,478 34 1,512
Profit for the period - - - - - 138 138 6 144
Other comprehensive income/(expense) for - - - - (58) (2) (60) - (60)
the period
Total comprehensive income for the period - - - - (58) 136 78 6 84
Hedging gains and losses transferred to inventory - - - - 1 - 1 - 1
Acquisition of non-controlling interests - - - - - 3 3 (3) -
Non-controlling interests on acquisition of subsidiaries - - - - - - - 64 64
Share-based payments, net of tax - - - - - 8 8 - 8
Purchase of own shares by the Inchcape Employee Trust - - - - - (7) (7) - (7)
Dividends:
- Owners of the parent 7b - - - - - (40) (40) - (40)
- Non-controlling interests - - - - - - - (2) (2)
At 31 December 2023 42 147 143 312 (63) 940 1,521 99 1,620
At 1 January 2024 42 147 143 312 (63) 940 1,521 99 1,620
Profit for the period - - - - - 120 120 9 129
Other comprehensive (expense)/income for the period - - - - (134) (5) (139) (5) (144)
Total comprehensive (expense)/income for the period - - - - (134) 115 (19) 4 (15)
Hedging gains and losses transferred to inventory - - - - 6 - 6 - 6
Share-based payments, - - - - - 9 9 - 9
net of tax
Purchase of own shares by the Inchcape Employee Trust - - - - - (7) (7) - (7)
Non-controlling interests on acquisition of subsidiaries - - - - - - - (1) (1)
Dividends:
- Owners of the parent 7b - - - - - (100) (100) - (100)
- Non-controlling interests - - - - - - - (9) (9)
At 30 June 2024 42 147 143 312 (191) 957 1,410 93 1,503
The notes on pages 17 to 38 are an integral part of these condensed
consolidated interim financial statements.
Six months to Six months to
30 Jun 2024 30 Jun 2023
Notes £m £m
Cash generated from operating activities
Cash generated from operations 8a 443 424
Tax paid (80) (89)
Interest received 20 22
Interest paid (100) (92)
Net cash generated from operating activities 283 265
Cash flows from investing activities
Acquisition of businesses, net of cash and overdrafts acquired 9a - (4)
Net cash inflow from sale of businesses - 2
Purchase of investments in joint ventures and associates - (1)
Purchase of property, plant and equipment (34) (32)
Purchase of intangible assets (2) (3)
Proceeds from disposal of property, plant and equipment 4 1
Dividends received from joint ventures and associates 1 -
Receipt from finance sub-lease receivables 1 1
Net cash used in investing activities (30) (36)
Cash flows from financing activities
Purchase of own shares by the Inchcape Employee Trust (7) (12)
Repayment of other borrowings 8b (110) (550)
Cash inflow from bond issuance 8b - 348
Cash (outflow)/inflow from revolving credit facility 8b (20) 120
Repayment of acquisition financing bridge facility 8b - (350)
Payments to former shareholders of Derco group - (212)
Payment of capital element of lease liabilities 8b (43) (46)
Equity dividends paid 7b (100) (88)
Dividends paid to non-controlling interests (9) (4)
Net cash used in financing activities (289) (794)
Net decrease in cash and cash equivalents 8b (36) (565)
Cash and cash equivalents at beginning of the period 440 1,050
Effect of foreign exchange rate changes (18) (35)
Cash and cash equivalents at end of the period 386 450
Cash and cash equivalents consist of:
Cash at bank 560 496
Short-term deposits 87 75
Bank overdrafts (267) (121)
Cash and cash equivalents included in disposal groups held for sale 9b 6 -
386 450
The notes on pages 17 to 38 are an integral part of these condensed
consolidated interim financial statements.
Basis of preparation
The condensed consolidated interim financial statements for the period ended
30 June 2024 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 2023, 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 2023 were approved by the Board of Directors on 4 March 2024 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 10 to 40 were approved by the Board of Directors on 29
July 2024.
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 2024 and 2025 cash flows together with appropriate
sensitivities.
Committed bank facilities and Private Placement borrowings amount to £1,290m,
of which £520m was drawn at 30 June 2024. In addition, the Group issued a
£350m bond in June 2023 with a coupon of 6.5% which is due to mature in June
2028.
The Private Placement Loan notes and the Term Loan (due to mature in December
2024) are subject to the same interest cover covenant based on an adjusted
EBITA measure to interest on consolidated borrowings measured on a trailing
12-month basis at June and December.
The latest Group forecasts for 2024 and 2025 indicate that the Group is
expected to be compliant with this covenant throughout the forecast period and
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 2025
resulting from a decreasing consumer demand in response to fiscal tightening
and resulting economic downturns;
• a reduction in reported GBP earnings resulting from the
strengthening of sterling relative to other currencies;
• a general liquidity reduction impacting working capital from
2025; 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 2024 and 2025. With the interest cover covenant measured on a
trailing 12-month basis, the sensitised forecasts indicate that the Group is
not expected to breach any covenants and would be compliant with the interest
cover requirements throughout the forecast period. Additionally, under these
circumstances, the Group expects to have sufficient funds to meet cash flow
requirements.
A reverse stress test scenario analysis, concluded that a set of circumstances
in which the Group would breach its covenant or have insufficient funds to
meet cash flow requirements are considered to be remote, relative to the
sensitivities referred to above.
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.
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 2023 with the exception of the following standards, amendments
and interpretations which have been newly adopted from 1 January 2024:
Newly adopted accounting standards
From 1 January 2024, the following standards became effective for the Group's
consolidated financial statements:
Amendments to IAS 1 - Non-current liabilities with covenants
Amendments to IAS 1 - Classification of Liabilities as Current or Non-current
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)
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 will apply the amendments to IAS7 and IFRS 7 for the first time in
the current year. The amendments add a disclosure objective to IAS 7 stating
that an entity is required to disclose information about its supplier finance
arrangements that enables users of financial statements to assess the effects
of those arrangements on the entity's liabilities and cash flows. In addition,
IFRS 7 is amended to add supplier finance arrangements as an example within
the requirements to disclose information about an entity's exposure to
concentration of liquidity risk. The Group has entered into vehicle funding
arrangements to fund the purchase of vehicles (see note 10f) and will provide
the required disclosures in its annual financial statements.
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 2025:
Amendments to IAS 21 - Lack of exchangeability
IFRS 18 - Presentation and Disclosure in Financial Statements
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
2024, which was a CPI index of 455.9 (31 December 2023: CPI index 425.1). 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.
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 2023 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 2024 As at 31 Dec 2023
Goodwill Indefinite- Total Goodwill Indefinite- Total
£m
life intangible
£m
£m
life intangible
£m
assets
assets
£m
£m
At 1 January 302 929 1,231 270 858 1,128
Businesses acquired - - - 39 113 152
Period adjustments (see note 9a) 5 - 5 5 - 5
Reclassified to assets held for sale (2) - (2) - - -
Effect of foreign exchange rates (15) (57) (72) (12) (42) (54)
At 30 June/31 December 290 872 1,162 302 929 1,231
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 2024 , the Group carried out an assessment as to whether
any impairment testing is required to be performed for the six months to 30
June 2024. 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 forecasts of 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 2024.
At 31 December 2023, 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 £170m. Cash
flows were discounted back to present value using a pre-tax discount rate of
12.6%.
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
49 of the 2023 Annual Report and Accounts.
Increase/ Impairment charge Impairment credit
(decrease) in assumption
£m
£m
Revenue CAGR (%) (1.0%)/1.0% (16) 18
Average gross margin (%) (0.5%)/0.5% (9) 9
Pre-tax discount rate (%) 1.0%/(1.0%) (19) 25
Long-term growth rate (%) (0.5%)/0.5% (6) 7
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 Hino business in South America, 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 Hino distribution agreement in South America exceeded
the carrying value by 24% as at 31 December 2023. A 1.4% increase in the
discount rate, a 3.1% reduction in the long-term growth rate, or an 18%
reduction in volumes in the forecast period, while holding all other
assumptions constant, would eliminate this headroom.
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
10f).
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
expense of £31m (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 and integration 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.
Alternative performance measures (APMs)
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 14. This includes
further information on the definitions, purpose and reconciliation to IFRS
measures.
The Group has three 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 classification in the current
period of the Group's retail operations in the UK as a discontinued operation,
the Group's internal reporting has been updated to no longer distinguish
between 'Distribution' and 'Retail'. As a result the Group's remaining retail
operation in Europe has been combined with the Europe & Africa
distribution business to form a single reportable segment.
The Group reports the performance of its reporting segments after the
allocation of central costs. These represent costs of Group functions.
Reporting segment performance for 2023 has been restated for the re-allocation
of central costs following the classification of the UK retail operations as a
discontinued operation.
The following summary describes the operations of each of the Group's
reportable segments:
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.
APAC Europe & Africa Americas Total
Six months to 30 June 2024 £m £m £m £m
Revenue
Total revenue 1,495 1,622 1,608 4,725
Results
Adjusted operating profit from continuing operations 116 85 98 299
Operating adjusting items (23)
Operating profit from continuing operations 276
Share of profits after tax of joint ventures and associates 1
Profit before finance and tax 277
Finance income 22
Finance costs (104)
Profit before tax from continuing operations 195
Tax (71)
Profit for the period from continuing operations 124
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 2024 £m
Chile 738
Australia 595
Rest of the world 3,392
Group 4,725
APAC Europe & Africa Americas Total
Six months to 30 June 2023 (restated) £m £m £m £m
Revenue
Total revenue 1,255 1,397 1,911 4,563
Results
Adjusted operating profit from continuing operations 86 70 139 295
Operating adjusting items (21)
Operating profit from continuing operations 274
Share of losses after tax of joint ventures and associates 1
Profit before finance and tax 275
Finance income 24
Finance costs (121)
Profit before tax from continuing operations 178
Tax (65)
Profit for the period from continuing operations 113
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
Chile 897
Australia 662
Rest of the world 3,004
Group 4,563
Six months to Six months to
30 Jun 2024
30 Jun 2023
From continuing operations £m £m
Acquisition and integration costs (23) (21)
Total adjusting items in operating profit (23) (21)
Adjusting items in finance costs:
Net monetary loss on hyperinflation (8) (14)
Interest costs on deferred dividend payment - (10)
Total adjusting items before tax (31) (45)
Tax on adjusting items (note 5) 3 3
Total adjusting items (28) (42)
During the period, operating costs of £23m (2023: £21m) 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 9.
At 31 December 2022 a liability was acquired, as part of the Derco
acquisition, for the payment of a pre-completion dividend to former
shareholders. The payment of this dividend was agreed to be made in four
tranches, throughout 2023, with interest accruing on the outstanding amounts.
At 30 June 2023, three of the tranches had been paid and interest of £10m had
been recognised. This interest expense was 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 2024 have been restated
to include the effect of indexation and the resulting £8m net monetary loss
on hyperinflation (2023: net monetary loss of £14m) has been recognised
within net finance costs and reported as an adjusting item.
As at As at
30 Jun 2024 30 Jun 2023
From continuing operations £m £m
Interest payable on bank borrowings 30 42
Interest payable on other borrowings 22 17
Lease finance costs 9 9
Interest on inventory financing 26 16
Net monetary loss on hyperinflation (note 3) 8 14
Interest on deferred dividend payment - 10
Other finance costs 9 13
Finance costs 104 121
Bank and other interest receivable (18) (20)
Net interest income on post-retirement plan assets and liabilities (2) (2)
Other finance income (2) (2)
Finance income (22) (24)
Net finance costs 82 97
Analysed as:
Net finance costs excluding adjusting finance costs 74 73
Finance costs reported as adjusting items 8 24
Net finance costs 82 97
Six months to Six months to
30 Jun 2024 30 Jun 2023
From continuing operations £m £m
Current tax - United Kingdom tax 1 -
- Overseas tax 67 84
Adjustments to prior year liabilities - United Kingdom tax - -
- Overseas tax - (3)
Current tax 68 81
Deferred tax 3 (16)
Total tax charge 71 65
- Tax charge on profit before adjusting items 74 68
- Tax credit on adjusting items (3) (3)
Total tax charge 71 65
The tax charge for the 6 months ended 30 June 2024 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 2024 is 36.4% compared to
36.5% for the same period last year. The effective tax rate on adjusted profit
for the period is 32.7% compared to 30.5% for the same period last year.
From 1 January 2024, the Group is required to record a current tax expense in
relation to the OECD Pillar Two model rules. Included within the total tax
expense for the period to 30 June is a current tax expense in relation to
Pillar Two of £2m, split between United Kingdom Pillar Two tax of £1m and
Overseas Pillar Two tax of £1m. The Overseas Pillar Two tax expense element
relates to markets where local domestic top-up tax legislation has been
enacted. The United Kingdom Pillar Two tax expense element relates to overseas
markets where local domestic top-up tax legislation has not been enacted,
meaning the top-up tax is accrued and payable by Inchcape plc.
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, the impact of UK corporate
interest restrictions and business acquisitions and disposals. In addition, a
change in profit mix between low and high taxed jurisdictions will impact the
Group's future tax charge.
The utilisation of brought forward tax losses or the recognition of deferred
tax assets associated with such losses may also give rise to tax charges or
credits. The recognition of deferred tax assets, particularly in respect of
tax losses, is based upon an assessment of whether it is probable that there
will be sufficient and suitable taxable profits in the relevant legal entity
or tax group against which to utilise the assets in the future. Judgement is
required when determining probable future taxable profits. In the event that
actual taxable profits are different to those forecast, the Group's future tax
expense and effective tax rate could be affected.
The Group has published its approach to tax on www.inchcape.com
(www.inchcape.com) covering its tax strategy and governance framework.
Six months to Six months to
30 Jun 2024 30 Jun 2023
£m £m
Profit for the period 129 139
Non-controlling interests (9) (7)
Basic earnings 120 132
Profit for the period from discontinued operations (5) (26)
Basic earnings from continuing operations attributable to owners of the parent 115 106
Adjusting items 28 42
Adjusted earnings from continuing operations attributable to owners of the 143 148
parent
Basic earnings per share
Basic earnings per share from continuing operations 27.9p 25.7p
Basic earnings per share from discontinued operations 1.2 6.3p
Total basic earnings per share 29.1p 32.0p
Diluted earnings per share
Diluted earnings per share from continuing operations(1) 27.5p 25.4p
Diluted earnings per share from discontinued operations 1.2p 6.2p
Total diluted earnings per share 28.7p 31.6p
Adjusted earnings per share from continuing operations
Basic Adjusted earnings per share from continuing operations 34.7p 35.9p
Diluted Adjusted earnings per share from continuing operations 34.2p 35.4p
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 Six months to
30 Jun 2024 30 Jun 2023
number number
Weighted average number of fully paid ordinary shares in issue during the 413,007,132 412,365,247
period
Weighted average number of fully paid ordinary shares in issue during the
period:
- Held by the Inchcape Employee Trust (974,210) (487,899)
Weighted average number of fully paid ordinary shares for the purposes of 412,032,922 411,877,348
basic EPS
Dilutive effect of potential ordinary shares 6,044,221 6,152,343
Adjusted weighted average number of fully paid ordinary shares in issue during 418,077,143 418,029,691
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.
7 SHAREHOLDERS' EQUITY
A. Issue of ordinary shares
As at 30 June 2024, the issued share capital of the Company was 413,007,132
shares (June and December 2023: 413,007,132 shares). During the first half of
2023, the Company issued 38,513,102 ordinary shares of 10p each in connection
with the acquisition of the Derco group.
During the period, the Group issued £nil (June 2023 - £nil, December 2023 -
£nil) of ordinary shares exercised under the Group's share option schemes.
Share buyback programme
During the six months ended 30 June 2024, the Company repurchased none of its
own shares (June 2023: none; December 2023: none).
B. Dividends
The following dividends were paid to equity holders of the parent:
Six months to Six months to Year to
30 Jun 2024 30 Jun 2023 31 Dec 2023
£m £m £m
Final dividend for the year ended 31 December 2023 of 24.3p per share (2022: 100 88 88
21.3p per share)
Interim dividend for the six months ended 30 June 2023 of 9.6p per share - - 40
(2022: 7.5p per share)
100 88 128
An interim dividend of 11.3p per share for the period ending 30 June 2024 was
approved by the Board on 29 July 2024 and will be paid on 6 September 2024 to
shareholders who are on the register at close of business on 9 August 2024.
The Dividend Reinvestment Plan (DRIP) is available to ordinary shareholders
and the final date for receipt of elections to participate in the DRIP is 15
August 2024.
A. Reconciliation of cash generated from operations
Six months to Six months to
30 Jun 2024
30 Jun 2023
£m £m
Cash flows from operating activities
Operating profit - continuing operations 276 274
Operating profit - discontinued operations 7 32
Adjusting items 23 21
Amortisation including non-adjusting impairment charges 5 6
Depreciation of property, plant and equipment including non-adjusting 25 24
impairment charges
Depreciation of right-of-use assets 40 40
Share-based payments charge 9 7
Decrease/(increase) in inventories 330 (196)
Increase in trade and other receivables (99) (43)
(Decrease)/increase in trade and other payables (142) 274
(Decrease)/increase in provisions (6) 7
Pension contributions more than pension charge for the period(1) - -
Increase in interest in leased vehicles (4) (1)
Payments in respect of operating adjusting items (21) (21)
Cash generated from operations 443 424
1. Includes additional payments of £nil (30 June 2023: - £nil).
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 2023 (1,428) (499) (1,927) 1,050 (877)
Cash flows 432 46 478 (561) (83)
Period adjustments (7) - (7) (4) (11)
New lease liabilities - (34) (34) - (34)
Other non-cash movements (3) (2) (5) - (5)
Foreign exchange adjustments (8) 9 1 (35) (34)
Net (debt)/funds at 30 June 2023 (1,014) (480) (1,494) 450 (1,044)
Cash flows (20) 41 21 161 182
Acquisitions (23) (11) (34) (146) (180)
Period adjustments - (1) (1) 13 12
Disposals - - - 1 1
New lease liabilities - (3) (3) - (3)
Other non-cash movements (3) 2 (1) - (1)
Foreign exchange adjustments 19 12 31 (39) (8)
Net (debt)/funds at 1 January 2024 (1,041) (440) (1,481) 440 (1,041)
Cash flows 130 43 173 (36) 137
New lease liabilities - (40) (40) - (40)
Transferred to assets/liabilities held for sale - 60 60 - 60
Other non-cash movements (3) (1) (4) - (4)
Foreign exchange adjustments 4 11 15 (18) (3)
Net (debt)/funds at 30 June 2024 (910) (367) (1,277) 386 (891)
Net debt is analysed as follows:
As at As at As at
30 Jun 2024 31 Dec 2023 30 Jun 2023
£m £m £m
Cash at bank and short term deposits as per the statement of financial 647 689 571
position
Cash and cash equivalents included in disposal groups held for sale 6 - -
Borrowings - disclosed as current liabilities (559) (652) (251)
Add back: amounts treated as debt financing (see below) 292 403 130
Cash and cash equivalents as per the statement of cash flows 386 440 450
Debt financing
Borrowings - disclosed as current liabilities and treated as debt financing (292) (403) (130)
(see above)
Borrowings - disclosed as non-current liabilities (618) (638) (884)
Lease liabilities (367) (440) (480)
Debt financing (1,277) (1,481) (1,494)
Net debt (891) (1,041) (1,044)
Add back: lease liabilities 367 440 480
Adjusted net debt (524) (601) (564)
Borrowings disclosed as current liabilities include the £250m Term Loan due
in December 2024 and bank overdrafts held in cash pooling arrangements which
have not been offset in the consolidated statement of financial position. Bank
overdrafts are included within cash and cash equivalents in the consolidated
statement of cash flows.
As at As at As at
30 Jun 2024 31 Dec 2023 30 Jun 2023
£m £m £m
Cash at bank 560 610 496
Short-term deposits 87 79 75
Bank overdrafts (267) (249) (121)
Cash and cash equivalents included in disposal groups held for sale 6 - -
386 440 450
£94m (31 December 2023: £95m; 30 June 2023: £94m) 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.
a. Acquisitions
During the period, measurement period adjustments were made in respect of
acquisitions which completed in the second half of 2023 which resulted in an
increase in goodwill of £5m.
Disposals and discontinued operations
During the period the Group announced that, following a review of strategic
options announced in January 2024, it had agreed to sell its UK Retail
operations to Group 1 Automotive UK Limited, a wholly-owned subsidiary of
Group 1 Automotive, Inc. for a cash consideration of approximately £346m. The
sale is expected to complete in Q3 2024. The UK Retail operation is reported
in the current period as a discontinued operation. Financial information
relating to the discontinued operation for the period to the date of disposal
is set out below.
Financial performance and cash flow information
The financial performance and cash flow information presented are for the six
months ended 30 June 2024 and for the six months to 30 June 2023.
Six months to Six months to
30 Jun 2024
30 Jun 2023
£m £m
Revenue 1,032 1,065
Expenses(1) (1,025) (1,033)
Operating profit 7 32
Finance costs (8) (6)
Profit before tax (1) 26
Tax 6 -
Profit after tax of discontinued operations 5 26
Net cash inflow from operating activities 7 28
Net cash outflow from investing activities (9) (10)
Net cash outflow from financing activities (3) (4)
Net (decrease)/increase from cash generated from discontinued operations (5) 14
1. Transaction and separation costs of £10m were incurred in the period
in relation to the planned disposal of the UK Retail business. The costs
relate to legal fees, bankers' fees and other professional fees.
Assets and liabilities of disposal groups classified as held for sale
The disposal groups relate to the assets and liabilities attributable to the
agreed disposal of the UK Retail business.
Total
30 June 2024
£m
Intangible assets 2
Property, plant & equipment 262
Right of use assets 54
Deferred tax assets 7
Inventories 296
Trade and other receivables 83
Cash and cash equivalents 6
Total assets of disposal groups held for sale 710
Trade and other payables (408)
Provisions (2)
Lease Liabilities (60)
Total liabilities of disposal groups held for sale (470)
Assets classified as held for sale
31 December 2023
£m
Assets classified as held for sale 14
Assets held for sale related to surplus properties in the United Kingdom which
were actively marketed with a view to sale.
10 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 2024, 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 2023.
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 note 23 of the Annual
Report and
Accounts 2023.
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, US dollars, Euros and
Chinese yuan.
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. Excluding the Revolving Credit Facility, 66% of the Group's corporate
debt is at fixed rates of interest and is not due to be repaid for at least
three 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 2024, the committed funding facilities of the Group comprised a
syndicated revolving credit facility of £900m (31 December 2023: £900m),
sterling Private Placement Loan Notes totalling £140m (31 December 2023:
£210m), a five-year bond of £350m (31 December 2023: £350m), and a term
loan facility of £250m due to mature in December 2024 (31 December 2023:
£250m). As at 30 June 2024, £130m of the £900m syndicated revolving credit
facility was drawn (31 December 2023: £150m).
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. The £350m public bond is held at amortised cost.
In December 2023, the Group's syndicated revolving credit facility was
amended, increasing the facility to £900m and extending the maturity to
December 2028.
Private Placement Loan Notes of £70m were repaid in May 2024, reducing the
total from £210m to £140m.
The Term Loan 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 2024
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 2024, the total amount outstanding under such arrangements was
£1,434m (31 December 2023: £1,877m).
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 interest on
inventory financing (see note 4). 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 2024 As at 31 December 2023
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 - 40 - 40 - 39 - 39
Financial assets at fair value through other comprehensive income - - 1 1 - - 1 1
- 40 1 41 - 39 1 40
Liabilities
Derivatives used for hedging - (153) - (153) - (97) - (97)
- (153) - (153) - (97) - (97)
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.
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 2024.
The Group's derivative financial instruments comprise the following:
Assets Liabilities
As at As at As at As at
30 Jun 2024 31 Dec 2023 30 Jun 2024 31 Dec 2023
£m £m £m £m
Forward foreign exchange contracts 40 39 (153) (97)
40 39 (153) (97)
11 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 2023.
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 2024.
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 2024, there were 16 corporate groups in the FII GLO. As previously
reported, the High Court held in February 2024, that for claims for a refund
of the unlawfully paid tax to cover the entire period of claims they must have
been submitted before 6 June 2006. Inchcape submitted a claim on 25 November
2003 and the High Court's judgment means that Inchcape's claim is within time
to cover the entire period of its claim. However, the Court of Appeal has
granted HMRC leave to appeal the High Court's decision and a date for this
hearing is being scheduled.
In view of the significant uncertainty about the eventual outcome of the
appeals process, Inchcape has not recognised any amount in respect of its
claim to a refund of this tax.
FCA review of Motor Finance commission
Prior to 2021 the Group, along with other automotive dealers, brokered
financing for UK customers under which the Group received a variable level of
commission from lenders. Following recent decisions by the Financial Ombudsman
relating to complaints raised by consumers regarding such commission
arrangements, the Financial Conduct Authority (FCA) has initiated a review
into motor finance commission arrangements and sales across several lending
firms. If the FCA finds that there has been widespread misconduct, and that
consumers have lost out, it will identify how best to ensure that such
consumers are appropriately compensated. The FCA's review is due to conclude
later this year. Given the inherent uncertainties regarding the outcome of the
review and, if applicable, the nature, scope, timing of and responsibility for
any compensation arrangements, it is not practicable to estimate the timing
and extent, if any, of the potential financial impact on the Group.
The exchange rates used for translation purposes are as follows:
Average rates Period end rates
30 Jun 2024 30 Jun 2023 31 Dec 2023 30 Jun 2024 30 Jun 2023 31 Dec 2023
Australian dollar 1.92 1.84 1.88 1.89 1.91 1.87
Chilean peso 1,196.99 1,000.41 1,044.70 1,193.29 1,016.96 1,130.41
Ethiopian birr(1) 72.81 69.60 71.84 72.81 69.60 71.84
Euro 1.17 1.14 1.15 1.18 1.16 1.15
Hong Kong dollar 9.91 9.68 9.75 9.87 9.95 9.98
Singapore dollar 1.71 1.65 1.67 1.71 1.72 1.68
US dollar 1.27 1.23 1.25 1.26 1.27 1.28
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.
13 EVENTS AFTER THE REPORTING PERIOD
The Group notes that on 25 July 2024, the Court of Appeal upheld the decision
in the case involving Virgin Media Limited and NTL Pension Trustees II Limited
relating to the validity of certain historical pension changes which could
potentially lead to additional liabilities for some pension schemes and
sponsors. The Group is assessing whether there is any potential impact on the
Group. Although there is currently no cause to conclude that there will be any
additional liabilities in the Group's defined benefit pension scheme, no
conclusion has been reached and therefore no quantification of the potential
financial impact, if any, has been determined.
On 28 July 2024, the Ethiopian government announced that its currency, the
Ethiopian Birr, would transition from a managed floating to a floating
exchange rate system. This change could have a significant impact on the
official Birr exchange rate. A future change in the official Birr exchange
rate will impact the reported net assets and profits of our Ethiopian
subsidiary, when translated into the Group's presentational currency of
sterling, in future periods. As at 30 June 2024, the Group's consolidated net
assets included £155m in relation to the Ethiopian subsidiary.
On 29 July 2024, the Board approved a £150m share buyback programme which
will commence on 1 August 2024 and is expected to complete during Q1 2025. On
29 July 2024, the FCA gave its approval of the sale of the Group's UK Retail
operations to Group 1 Automotive UK Limited and the transaction is expected to
complete on 1 August 2024.
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 Adjusted operating profit divided by revenue. A key metric of operational efficiency, ensuring that we are leveraging global
scale to translate sales growth to profit.
Ratio of adjusted overheads to revenue Adjusted net operating expenses divided by revenue. A measure of the operational efficiency of the Group.
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.
Adjusted earnings before interest, tax, depreciation and amortisation Represents the earnings before interest expense, taxation, depreciation and One of the key measures used in monitoring the Group's leverage and capital
amortisation expenses, and excluding the impact of adjusting items. allocation.
Adjusting items Items that are charged or credited in the consolidated income statement which The separate reporting of adjusting items helps provide additional useful
are material and/or 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 36.
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 36.
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 8b.
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. Refer to overall balance sheet strength and is widely used by external parties.
note 8b.
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
current year 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 statement of comprehensive income measures
As at As at
30 Jun 2024
30 Jun 2023
Continuing operations £m £m
Gross Profit 814 817
Add back: Adjusting items charged to gross profit - -
Adjusted Gross Profit from continuing operations 814 817
Less: Segment operating expenses (515) (522)
Adjusted Operating Profit from continuing operations 299 295
(Less)/add: Adjusting items in operating expenses (23) (21)
Operating Profit 276 274
Less: Net Finance Costs and JV profits/losses (81) (96)
Profit Before Tax 195 178
Add/(less): Total adjusting Items 31 45
Adjusted profit before tax from continuing operations 226 223
Revenue 4,725 4,563
Adjusted net operating expenses 515 522
Ratio of adjusted net operating expenses to revenue 10.9 % 11.4 %
APMs: Reconciliation of statement of cash flows measures
As at As at As at As at
30 Jun 2024
30 Jun 2024
30 Jun 2023
30 Jun 2023
£m £m £m £m
Net cash generated from total operating activities 283 265
Add back: Payments in respect of adjusting items 21 21
Net cash generated from operating activities, before adjusting items 304 286
Purchase of property, plant and equipment (34) (32)
Purchase of intangible assets (2) (3)
Proceeds from disposal of property, plant and equipment 4 1
Net capital expenditure (32) (34)
Net payment in relation to leases (42) (45)
Dividends paid to non-controlling interests (9) (4)
Free cash flow 221 203
Less: Free cash flow from discontinued operations 5 (14)
Free cash flow from continuing operations 226 189
APMs: Reconciliation of statement of financial position measures
As at As at
30 Jun 2024
30 Jun 2023
£m £m
Adjusted operating profit 299 295
Adjusted operating profit for the previous 6 month period 325 180
Adjusted operating profit on a 12 month basis 624 475
Net assets 1,503 1,512
Less: Net assets from discontinued operations (240) (220)
Net assets from continuing operations 1,263 1,292
Add: net debt/less (net funds) 891 1,044
Add: net funds/(net debt) from discontinued operations 6 (65)
Capital employed - continuing operations 2,160 2,271
Effect of averaging 56 (761)
Average capital employed 2,216 1,510
Return on capital employed 28.2 % 31.5 %
As at As at
30 Jun 2024
31 Dec 2023
£m £m
Net debt (891) (1,041)
Add back: lease liabilities 367 440
Adjusted net debt (524) (601)
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 to 30 June
2024 which comprises the income statement, the balance sheet, the statement of
changes in equity, the cash flow statement and related notes 1 to 13.
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 to 30 June 2024 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
29 July 2024
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 2023. 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
29 July 2024
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