REG - Inchcape PLC - Proposed acquisition of Derco

InchcapeAnnouncement

28/07/2022 07:16

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RNS Number : 0059U  Inchcape PLC  28 July 2022

THIS ANNOUNCEMENT AND THE INFORMATION HEREIN IS NOT FOR RELEASE, PUBLICATION
OR DISTRIBUTION IN ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A
VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

 

THIS ANNOUNCEMENT INCLUDES INSIDE INFORMATION

 

28 July 2022

 

INCHCAPE PLC

 

PROPOSED ACQUISITION OF DERCO -

EXTENDING INCHCAPE'S GLOBAL LEADERSHIP IN AUTOMOTIVE DISTRIBUTION

Inchcape announces business combination with Derco, Latin America's largest
independent automotive distributor

 

Inchcape PLC (the "Company" and together with its subsidiaries "Inchcape"),
the leading independent multi-brand global automotive distributor, announces
the signing of an agreement to implement a business combination to acquire
Derco ("Derco Holdings" and together with its subsidiaries, "Derco"), the
largest independent automotive distributor in Latin America, for a cash and
share consideration valuing Derco at £1.3 billion(1) on a debt and cash free
basis (the "Transaction").

 

Derco is a family-owned multi-brand automotive distributor, and the largest
independent distributor by volume in Latin America, with a strong track record
of profitable growth. Derco has significant presence across four attractive
markets of Chile, Peru, Colombia and Bolivia, and has long-standing
partnerships with global automotive brands such as Suzuki, Mazda, Chevrolet,
Changan, JAC, Renault, Great Wall and Haval.

 

Derco is led by an experienced management team with deep knowledge of the
markets in which they operate, and on average 15 years of experience. This
team will be a strong addition to Inchcape's fast-growing platform in the
Americas.

 

STRATEGIC highlights

·  Brings together two leading automotive distributors in Latin America:
Inchcape, with broad geographic reach and extensive brand representation, and
Derco, the largest independent distributor by volume

·   Significantly expands Inchcape's position in highly attractive and
fast growth markets within Latin America

·  Combines two best-in-class operators with complementary market
footprints and OEM brand portfolios, providing significant opportunities for
customers, OEMs and employees of the enlarged business

·    Expected to deliver significant value creation through enhanced
growth prospects and delivery of meaningful recurring synergies

·     Derco is a well-managed company, strongly aligned culturally and
strategically with Inchcape. The Del Río family (Derco's ultimate owners)
will become a shareholder (9.3% stake) in Inchcape and will be entitled to
nominate one director to the Inchcape Board following Completion

 

terms AND FUNDING of the deal

·   The agreement is based on total consideration, including cash and
shares, of approximately £1.3 billion on a debt free, cash free basis

·      This values Derco at:

o  5.5x FY2021A EBITDA(2); and

o  Approximately 6x (pre-IFRS 16)(3) based on normalised margins plus
recurring synergies

·      The transaction will be financed by Inchcape through

o  Utilising existing cash (approximately £400 million) on Inchcape's
balance sheet;

o  New debt facilities of £600 million; and

o Approximately 39 million of newly issued Inchcape Shares (the
"Consideration Shares"), valued at approximately £280 million based on the
Company's 20-day VWAP up to and including 26 July

 

financial IMPACT

·     The Transaction will result in a step-change in the size of
Inchcape's Distribution business, adding £2.0 billion of distribution
revenue. The addition of Derco to Inchcape's existing platform is expected to
increase the weight of Distribution to approximately 75% of the enlarged
group's revenue, with an enlarged Americas & Africa segment representing
approximately 35% of the enlarged group's revenue.

·      For FY 2021, Derco reported revenue of £2.0 billion and
operating profit of £236 million(4)

o   Over the longer term, Derco has demonstrated revenue and profit growth,
driven by new vehicle volume growth, underpinned by low motorisation rates,
market share gains, new contract wins and cost-discipline

o  More recently, in 2019 and 2020, Derco saw a decline in revenue and
operating profit margins due to geopolitical volatility in its markets and the
pandemic, mitigated in part by overhead efficiencies. This was followed by
strong revenue recovery and elevated margins in 2021

o   Derco's performance in 2021 benefited from strong supply for many of
its brands, coupled with pricing management and cost-control, which drove
strong growth of profitability and margins

o   Derco has continued to deliver strong financial performance in FY 2022
YTD, with revenue over the last twelve months of £2.2 billion, driven by
robust consumer demand in its markets

o   As of today, there is still significant pent-up demand for new
vehicles. However, once the ongoing supply constraints are resolved and the
supply-demand situation rebalances, the Company expects Derco to generate an
operating margin towards the top-end of the range for a typical automotive
distribution business (5-7%), before recurring synergies

·     The Company expects that the Transaction will generate significant
value for Shareholders, through enhanced growth prospects and delivery of
meaningful synergies

o The Inchcape Board expects the Transaction to deliver annualised pre-tax
recurring synergies of at least £40 million, with the significant majority
delivered by end of the second year following Completion. These primarily
comprise organisational efficiencies, procurement savings, footprint
optimisation and technology efficiencies by leveraging Inchcape's global and
regional infrastructure

o   There are also opportunities to drive significant revenue synergies by
deploying Derco's commercial model to certain Inchcape brands, harnessing
Inchcape's data and digital capabilities, and leveraging the expanded OEM
relationships, geographic footprint and best practices of both Derco and
Inchcape

o  The Company expects that the realisation of recurring and revenue
synergies will require one-off cash costs of up to £60 million in aggregate
over two years

o   Furthermore, the Transaction is expected to accelerate growth and be
margin accretive for Inchcape, even before the benefit of synergies

·      As a result, the Transaction is expected to:

o  Be 15+% accretive to Inchcape's earnings per share (excluding
implementation costs) in the first full financial year following Completion,
and 20+% accretive to earnings per share from the second year onwards as
synergies are delivered

o  Generate a Return on Invested Capital (ROIC) in excess of project cost of
capital in the third full financial year following Completion

·     Following Completion, Inchcape will retain a strong balance sheet
with the Transaction expected to increase the Company's leverage to c. 0.6x
Net Debt / EBITDA (pre-IFRS16), this is expected to reduce quickly given the
highly cash generative nature of the business

·    In light of the Transaction, the Company will not proceed with the
second £50 million tranche of its FY22 £100 million share buyback programme

·   The Company's dividend policy is unchanged, and it expects to continue
to pay out 40% of its adjusted basic earnings per share

 

timetable

·    The size of the Transaction means that it is classed as a Class 1
Transaction under the Listing Rules (the "Listing Rules") of the Financial
Conduct Authority (the "FCA"). Accordingly, the Transaction is conditional
upon, among other matters, the approval of Inchcape Shareholders

·     The Transaction is also subject to merger control clearance in
Chile and Peru and a merger control filing in Colombia

·     The Company expects to publish a shareholder circular, including a
notice of General Meeting (the "Circular") by late September or early October
2022. Subject to satisfaction of the conditions to the Transaction, Completion
is expected to occur in late 2022 or early 2023

·   The Inchcape Board intends to recommend in the Circular that Inchcape
Shareholders vote in favour of the requisite shareholder resolution to approve
the Transaction (the "Class 1 Resolution"). The directors of the Company
intend to vote in favour of Class 1 Resolution in respect of their own
beneficial holdings, which amount to approximately 0.1% of Inchcape's total
issued ordinary share capital as at the date of this Announcement

·     In a separate announcement, the Company has today reported its
Interim results for the six months to 30 June 2022, reconfirming its financial
outlook for the year

 

 

Duncan Tait, Chief Executive Officer, Inchcape, commented:

 

"The combination with Derco is a transformative and unique opportunity to
accelerate our global distribution business. We believe it will deliver
substantial shareholder value and is another great example of our Accelerate
strategy in action.

Derco will dramatically increase our scale in the fast growth Americas region,
bolstering our presence in several existing markets, and will secure Bolivia
as a new Inchcape distribution market. Derco also brings a fantastic set of
highly complementary OEM relationships, including deepening our decades-long
relationship with Suzuki, and broadens our brand footprint in the region, with
Mazda, Chevrolet, Changan, JAC, Renault, Great Wall, Haval, Citroen, DS and
Joylong.

We have long admired Derco's business, and we are delighted to partner with
the Del Río family. We are also excited about working with our talented new
colleagues at Derco to continue to accelerate the growth of the enlarged
Americas business. Together we will have extensive access to customer and
vehicle data, which is at the heart of our strategy to capture a greater share
of the vehicle lifecycle value.

As the leading independent automotive distributor globally, Inchcape will
continue to drive sector consolidation in an industry primarily made up of
regional and more local distributors and where the combination of digital
capabilities, and data and consumer insights are ever more valuable."

 

Romeo Lacerda, CEO Americas and Africa, Inchcape, commented:

 

"Derco is a great business with strong and long-established relationships with
leading OEMs. It has a reputation for operational excellence and has been
successful in expanding its distribution footprint in recent years.

Growing demand for new vehicles in Derco's highly attractive markets is
underpinned by compelling long-term demographic and economic trends in Chile,
Peru, Colombia, and Bolivia. These powerful market dynamics provide a long
run-way of growth opportunities for our business.

Inchcape's scale and geographic diversification together with its track record
for successful integration, engaging and retaining talent and market-leading
digital and data capabilities provide a strong platform for continued
profitable growth and superior value creation.

I am really looking forward to welcoming our new colleagues from Derco into
Inchcape Americas."

 

Juan Pablo Del Río, Shareholder and member of the Board of Derco, added:

 

"Inchcape's track record of expansion across the Americas is impressive, and
we have great respect for the business. Both companies enjoy a strong
strategic and cultural fit, sharing the same values and commitment to deliver
excellence for our OEM partners and consumers across our communities.

As well as its established reputation for distribution excellence, Inchcape is
the undisputed leader in digital and data for automotive distribution across
the Americas. This is an increasing area of focus for automotive OEMs, and is
one of the reasons they are so supportive of our proposed combination.

I am excited by the combination with Inchcape, and the opportunities we have
to further accelerate the growth in the Americas region, together with the
continued support of our colleagues."

 

 

OVERVIEW OF INCHCAPE

 

Inchcape is the leading independent multi-brand global automotive distributor,
operating in over 40 markets and territories with a portfolio of the world's
leading automotive brands.

 

Inchcape entered the Americas in 1993, initially distributing BMW new vehicles
and parts in Chile and Peru. The business has a fantastic track record of both
organic and inorganic growth, catalysed by the acquisition of Indumotora in
2016, Grupo Rudelman in 2018, Mercedes-Benz distribution in 2020 and Ditec,
Simpson Motors and ITC in 2022. Today, it distributes new vehicles and parts
in more than 11 markets and territories across South and Central America, for
OEMs including BMW, Mercedes-Benz and Daimler, Subaru, Suzuki, DFSK, Jaguar,
Land Rover, Geely, and various commercial vehicle partners. Today, Americas is
one of Inchcape's fastest growing regions due to low motorisation rates, which
are expected to rise considerably as the economies continue to prosper.

 

 

OVERVIEW OF DERCO

 

Derco was founded in 1959 by Jose Luis Del Río Rondanelli and is today still
almost exclusively owned by the Del Río family. It is the largest independent
multi-brand automotive distributor by volume in Latin America operating more
than 375 dealerships across Chile, Peru, Colombia and Bolivia. It has over 60
years of heritage in automotive distribution and has developed strong market
positions in its markets - number one in Chile, Peru and Bolivia and number
three in Colombia by volume - through a combination of both organic and
inorganic growth. It has long standing distribution partnerships with Suzuki
(since 1976) and Mazda (since 1982), and a track record of winning and
introducing new brands into its markets: Chevrolet in 1999; Renault in 2000;
Changan, Great Wall, JAC and Haval between 2006 and 2007; Citroen and DS in
2016; Joylong in 2020.

 

Derco distributes passenger vehicles to a network of customer-facing
dealerships that are operated either directly by Derco (as a vertically
integrated model), or by independent third-party dealers. The majority of
dealership sites in Chile, Peru and Colombia operate under the DercoCenter
brand (passenger vehicles), in which multiple brands are sold and serviced in
a single integrated site. In Bolivia, where the business operates as ImCruz
rather than Derco, these dealerships operate under the ImCruzCenter brand.

 

In addition, Derco engages in other businesses such as distribution of
machinery and trucks, for brands such as JAC, Mack and Fuso, and an
aftermarket spare parts and accessories business.

 

 

Investor and Analyst webcast

 

A virtual presentation for investors and analysts will be held today, Thursday
28th July 2022 at 08:30AM BST, in conjunction with Inchcape's interim results.
The slides accompanying the presentation will be available on Inchcape's
website shortly after the conclusion of the webcast.

 

 

The preceding summary should be read in conjunction with the full text of the
following Announcement, including its appendices. The defined terms set out in
Appendix II apply to this Announcement.

 

Enquiries:

 

 Inchcape plc - Investor Relations
 Raghav Gupta-Chaudhary                +44 7933 395 158

                                       investors@inchcape.com

 Brunswick Group - Media Enquiries
 Susan Gilchrist, Kate Holgate         +44 20 7404 5659

                                       inchcape@brunswickgroup.com

 Greenhill - Financial Adviser and Sponsor
 Charles Gournay, Dean Rodrigues       +44 20 7198 7400

 J.P. Morgan Cazenove - Financial Adviser and Joint Corporate Broker
 Nicholas Hall, Ameya Velhankar        +44 20 7742 4000

 Jefferies International - Financial Adviser and Joint Corporate Broker
 Ed Matthews, Philip Noblet            +44 20 7029 8000

 

 

Important notices

 

This Announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("UK MAR") and is issued
on behalf of the Company by Tamsin Waterhouse, Group Company Secretary. This
Announcement is issued at 7.00am BST on 28 July 2022.

 

This Announcement is not intended to, and does not constitute, or form part
of, any offer to sell or issue or any solicitation of an offer to purchase,
subscribe for, or otherwise acquire, any securities or a solicitation of any
vote or approval in any jurisdiction. Inchcape Shareholders are advised to
read carefully the Circular once it has been published. Any response to the
Transaction should be made only on the basis of the information in the
Circular to follow.

 

Greenhill & Co. International LLP ("Greenhill"), which is authorised and
regulated in the UK by the FCA, J.P. Morgan Securities plc (which conducts its
UK investment banking activities as J.P. Morgan Cazenove ("J.P. Morgan
Cazenove")), which is authorised by the Prudential Regulatory Authority (the
"PRA") and regulated by the FCA and the PRA in the UK, and Jefferies
International Limited ("Jefferies") which is authorised and regulated by the
FCA in the UK (together, the "Financial Advisers"), are acting exclusively for
the Company and no one else in connection with the Transaction and accordingly
will not be responsible to anyone other than the Company for providing the
protections afforded to their clients, or for providing advice in connection
with the Transaction, the contents of this Announcement or any other
transaction, arrangement or other matter referred to in this Announcement as
relevant.

 

Apart from the responsibilities and liabilities, if any, which may be imposed
on each of the Financial Advisers under by the Financial Services and Markets
Act 2000, as amended (the "FSMA") or the regulatory regime established
thereunder, or under the regulatory regime of any jurisdiction where

the exclusion of liability under the relevant regulatory regime would be
illegal, void or unenforceable, neither of the Financial Advisers nor any of
their respective subsidiaries, branches or affiliates, accept any duty,
liability or responsibility whatsoever (whether direct or indirect) to any
person for any acts or omissions of the Company in relation to the Transaction
or makes any representation or warranty, express or implied, as to the
contents of this Announcement, including its accuracy, completeness.
verification or sufficiency or for any other statement made or purported to be
made by it, or on its behalf, in connection with the Company or the
Transaction, or any other matter referred to herein and nothing in this
Announcement should be relied upon as a promise or representation in this
respect, whether or not as to the past or future. Each of the Financial
Advisers and their respective subsidiaries, branches and affiliates
accordingly disclaim all and any duty liability and responsibility whether
arising in tort, contract, statute or otherwise (save as referred to above) in
respect of this Announcement or any such statement or otherwise.

 

 

Cautionary statement regarding forward-looking statements

 

This Announcement may contain "forward-looking statements" with respect to
certain of the Company's plans and its current goals and expectations relating
to its future financial condition, performance, strategic initiatives,
objectives and results. Forward-looking statements sometimes use words such as
"aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal",
"believe", "seek", "may", "could", "outlook" or other words of similar
meaning. By their nature, all forward-looking statements involve risk and
uncertainty because they are based on numerous assumptions regarding
Inchcape's present and future business strategies, relate to future events and
depend on circumstances which are or may be beyond the control of Inchcape
and/or Derco and which could cause actual results of trends to differ
materially from those made in or suggested by the forward-looking statements
in this Announcement, including, but not limited to, domestic and global
economic business conditions; market-related risks such as fluctuations in
interest rates; the policies and actions of governmental and regulatory
authorities; the effect of competition, inflation and deflation; the effect of
legislative, fiscal, tax and regulatory developments in the jurisdictions in
which Inchcape and Derco and their respective affiliates operate; the effect
of volatility in the equity, capital and credit markets on profitability and
ability to access capital and credit; a decline in credit ratings of Inchcape
and/or Derco; the effect of operational and integration risks; an unexpected
decline in revenues for Inchcape or Derco; inability to realise anticipated
synergies; any limitations of internal financial reporting controls; and the
loss of key personnel. Any forward-looking statements made in this
Announcement by or on behalf of Inchcape speak only as of the date they are
made. Save as required by the UK MAR, the Disclosure Guidance and Transparency
Rules, the Listing Rules or by law, the Company undertakes no obligation to
update these forward-looking statements and will not publicly release any
revisions it may make to these forward-looking statements that may occur due
to any change in its expectations or to reflect events or circumstances after
the date of this Announcement.

 

 

28 July 2022

 

INCHCAPE PLC

 

PROPOSED ACQUISITION OF DERCO

 

Inchcape announces business combination with Derco, Latin America's largest
independent automotive distributor

 

1.    Introduction

 

The Inchcape Board today announces that Inchcape companies have entered into a
conditional agreement with the shareholders of Derco (the "Family Owners") to
implement a business combination that will result in an acquisition of Derco
by wholly-owned subsidiaries of Inchcape. The Transaction, to be satisfied
through cash and share consideration, values Derco at an enterprise value of
approximately £1.3 billion, on a debt free and cash free basis.

 

Derco is a family-owned multi-brand automotive distributor in Latin America,
and the largest independent distributor by volume, with a strong track record
of profitable growth. Derco has significant presence across four attractive
markets - Chile, Peru, Colombia and Bolivia - and partnerships with global
automotive brands such as Suzuki, Mazda, Changan, JAC, Renault, Great Wall and
Haval. In FY21 Derco generated revenue of £2.0 billion. Derco is led by an
experienced management team with deep knowledge of the markets in which they
operate, and on average 15 years of experience.

 

In view of the Transaction's size in relation to the Company, it is classified
as a Class 1 transaction for the purposes of the Listing Rules and accordingly
is conditional on the approval of Inchcape Shareholders at a General Meeting.
The Circular containing further details of the Transaction, the Directors'
recommendation, the notice of the General Meeting and the Class 1 Resolution,
is expected to be published by late September or early October 2022.

 

 

2.    Background and rationale for the Transaction

 

Inchcape is the leading independent multi-brand global automotive distributor,
operating in over 40 markets and territories with a portfolio of the world's
leading automotive brands.

 

Inchcape entered Americas in 1993, initially distributing BMW new vehicles and
parts in Chile and Peru. The business has a fantastic track record of both
organic and inorganic growth, catalysed by the acquisition of subsidiaries and
affiliates of Indumotora in 2016, Grupo Rudelman in 2018, Mercedes-Benz
distribution in 2020 and Ditec, ITC and Simpson Motors in 2022. Today, it
distributes new vehicles and parts in more than 11 markets and territories
across South and Central America, for OEMs including BMW, Mercedes-Benz and
Daimler, Subaru, Suzuki, DFSK, Jaguar, Land Rover, Geely, and various
commercial vehicle partners.

 

The Americas comprises highly attractive markets with strong growth potential
due to low motorisation rates, attractive demographics, and strong GDP per
capita growth prospects. The Automotive distribution sector in the Americas is
highly fragmented, with >300 independent distributors operating across the
region comprising of mostly small, multi-generation family-run businesses.
Across these fragmented markets, Inchcape is the leading regional player in
terms of the number of geographic markets in which it operates and the breadth
of OEM brands that it represents.

 

It is with these attractive industry dynamics and Inchcape's differentiated
proposition in mind that the Company has agreed the acquisition of Derco. The
combination brings together Derco, Latin America's largest independent
automotive distributor by volume and Inchcape, the leading independent
automotive distributor in terms of geographic reach and brand representation.
The Inchcape Board believes the Transaction to be in the best interests of
Inchcape for the following reasons:

·   Brings together two leading automotive distributors in Latin America:
Inchcape, with broad geographic reach and extensive brand representation, and
Derco, the largest independent distributor by volume

·      Significantly expands Inchcape's position in highly attractive
and fast growth markets within Latin America

·     Combines two best-in-class operators with attractive complementary
market footprints and OEM brand portfolios, providing significant
opportunities for customers, OEMs and employees of the enlarged business

·    Expected to deliver significant value creation through enhanced
growth prospects and delivery of meaningful recurring synergies

·    Derco is a well-managed company, strongly aligned culturally and
strategically with Derco. The Del Río family will become a shareholder (9.3%)
in the Company and will be entitled to nominate one director to the Inchcape
Board following Completion

 

 

Brings together two leading automotive distributors in Latin America:
Inchcape, with broad geographic reach and extensive brand representation, and
Derco, the largest independent distributor by volume

 

Derco is the largest independent distributor by volume in Latin America. It
has a strong distribution platform with leading market positions across its
four markets. Derco has a track record of market share gains (from 12% in 2014
to 18% in 2021 across its 4 markets in aggregate) largely underpinned by a
portfolio of 11 brands well-tailored to its markets. It has long standing
distribution partnerships with global automotive brands such as Suzuki, Mazda,
Renault, Changan, JAC Great Wall and Haval.

 

Within a short space of time Inchcape has developed a leading platform across
the Americas region with a broad geographic reach, 11 markets, and extensive
brand representation - 25 in total.

 

The Transaction significantly expands the scale of Inchcape's distribution
presence in the highly attractive and fast growing Americas region, bolstering
Inchcape's brand footprint in existing markets of Chile, Peru and Colombia, in
addition to gaining entry into a new market, in Bolivia.

 

 

Significantly expands Inchcape's position in highly attractive and fast growth
markets within Latin America

 

The Transaction combines Derco's distribution business with Inchcape's in the
Americas. Based on 2021 performance it would add £2.0bn of revenues to
Inchcape's existing platform, which generated revenue of approximately £1.2
billion(5) in 2021 (inclusive of full year FY21 contributions from Ditec and
ITC/Simpson Motors).

 

Americas has long been an attractive market for Inchcape, benefiting from
stronger macroeconomic dynamics compared to more developed markets. This is
the primary reason that the majority of acquisitions in Inchcape's recent
history have been concentrated in the region.

 

Americas is home to over 200m people compared to 900m across Inchcape's global
footprint, and while the region lags developed markets in terms of GDP/capita,
the growth prospects are considerably better. Furthermore, as illustrated in
the table below, the lower motorisation rates highlights how underpenetrated
the car parc is across the Americas, and as the economies prosper this will
gradually converge with more developed markets. The TIV index also shows how
much upside there is for annual new car volumes in the region to recover to
their 10 year average - the speed of recovery in the short term will be
dictated by an improvement in vehicle supply. Another factor which will
support growth in the Americas over the medium and long-term is the growth of
private debt, which has significant headroom in the region. Lastly, EV
adoption is a key topic across the industry. While the Americas is likely to
lag more developed markets, the Company expects adoption of battery electric
vehicles will gradually rise, and the Company is embracing this trend.

 

                              Inchcape Americas + Bolivia  Inchcape markets worldwide  Developed markets(6)
 Population                   218m                         911m                        -

 (total)
 GDP / capita                 US$10k                       US$23k                      US$50k

 (average)                    (from US$3k to US$17k)       (from US$1k to US$72k)      (from US$39k to US$69k)
 GDP growth                   3.3%                         3.6%                        1.8%

 (2021-26)
 Motorisation                 193                          446                         700

 (average)                    (from 80 to 314)             (from 33 to 767)            (from 543 to 805)
 2021 TIV index               78                           87                          89

 100 = 10 year average vols
 Private debt % of GDP        64%                          115%                        177%
 EV penetration               c. 8%                        c. 25%                      c. 50%

 2030 forecast
 Inflation                     5.8%                        2.7%                        1.6%

 (5 year average)

See Note 7 in Appendix I for information sources.

 

 

Combines two best-in-class operators with complementary market footprints and
OEM brand portfolios, providing significant opportunities for customers, OEMs
and employees of the enlarged business

 

Like Inchcape, Derco has several long-standing distribution partnerships with
global brands, namely Suzuki (since 1976) and Mazda (since 1982). And like
Inchcape, Derco has a track record of winning and introducing new brands into
its markets: Chevrolet in 1999, Renault in 2000; Changan, Great Wall, JAC and
Haval between 2006 and 2007, Citroen and DS in 2016, and Joylong in 2020.

 

Together, Inchcape and Derco have an attractive exposure to:

·      A broad range of leading global and growing automotive brands;

·      A cross-section of brands across the pyramid, from entry-level
volume brands to luxury brands;

·      Fast-growing segments of the market such as SUVs, pick-ups and
electric-vehicles; and

·      The full breadth of automotive segments, from passenger cars to
commercial vehicles

 

Derco's extensive brand portfolio broadens Inchcape's existing relationships
with certain brands (e.g. adds Suzuki in Chile, Peru, Colombia, and Bolivia),
and broadens Inchcape's brand footprint in its existing markets, with Mazda,
Changan, JAC, Renault, Great Wall, Haval, Citroen and DS as summarised in the
table below:

 

                                                                                          Derco relationships
           Current Inchcape                                                               Broadening Inchcape's existing relationship       New

in-market relationships
to Inchcape
 Chile     BMW, BMW-Motorrad, Rolls Royce, Subaru, Hino, DFSK, MINI, Geely, Jaguar, Land  Suzuki, Mazda, JAC, Changan, Great Wall           Renault, Haval,
           Rover, Porsche and Volvo
 Peru      BMW, Subaru, DFSK, BYD, Hino, BMW-Motorrad, MINI                               Suzuki, JAC, Changan, Citroen, Great Wall, Mazda  Haval, Renault
 Colombia  Subaru, DFSK, Hino, Mack, Dieci, Doosan, Jaguar, Land Rover and Mercedes Benz  Suzuki, Citroen                                   DS Automobiles
 Bolivia   -                                                                              Suzuki, Chevrolet, JAC, Changan, Mazda            Renault, Joylong,

The combination of the two businesses will provide an enlarged platform
offering significant benefits and opportunities for customers, OEMs and
employees.

·  For customers, they will benefit from Inchcape's digital platform, and
the leading customer experience this provides

·   For OEMs, the enlarged scale will drive enhanced data analytics and
insights, and a broader network to support growth

·   For employees, they will have an opportunity to develop careers in a
bigger business, locally, regionally and globally

 

Inchcape has a strong track record of acquiring and successfully integrating
distribution businesses in new and existing markets globally and across Latin
America, having added over 10 new businesses to the group since 2016.

 

Given the importance of the relationships with OEMs to both Inchcape and
Derco, both companies have proactively engaged with their OEM partners to
secure their support regarding the Transaction.

 

 

Expected to deliver significant value creation through enhanced growth
prospects and delivery of meaningful recurring synergies

 

The Company expects that the Transaction will significantly enhance value for
Inchcape Shareholders. It will add £2.0 billion to Inchcape's revenue from
continuing operations. Furthermore, the Transaction is expected to accelerate
growth and be margin accretive for Inchcape even before the benefit of
synergies.

 

The Company believes that the Transaction presents an opportunity to deliver
recurring synergies of at least £40 million per annum. These primarily
comprise organisational efficiencies, procurement savings, footprint
optimisation and technology efficiencies by leveraging Inchcape's global and
regional infrastructure.

 

The Company expects approximately 30% of recurring synergies can be realised
within the first full year following Completion, as they depend on internal
decisions and short-term contracts, with the remainder delivered in subsequent
years. The Company expects to deliver the significant majority of recurring
synergies by the end of second financial year following Completion.

 

In addition to the synergies quantified above, Inchcape believes that the
combination with Derco will provide significant revenue synergy opportunities,
through the ability to deploy Derco's commercial model to certain Inchcape
brands, harnessing Inchcape's data and digital capabilities, and leveraging
the expanded OEM relationships, geographic footprints and best practices of
both Derco and Inchcape. Examples include, improving aftersales retention
rates and driving higher penetration of finance and insurance products. This
will be supported by an accelerated roll out of Vehicle Lifecycle Services (a
key growth pillar and exciting opportunity) businesses such as bravoauto (a
digital first, multi-brand used car platform). These have not been publicly
quantified at this stage.

 

The recurring synergies and publicly unquantified revenue synergies indicated
above are contingent on Completion and would not be achievable by Inchcape and
Derco operating independently. The Company confirms that the narrative above
reflects both the beneficial elements and relevant costs associated in
achieving these recurring synergies.

 

The Company expects the realisation of recurring and revenue synergies will
require one-off cash costs of up to £60 million in aggregate over two years.

 

The Company has considered areas of potential dis-synergy and these were
determined to be immaterial relative to the Transaction.

 

As a result, the Company expects that the Transaction will be 15+% accretive
to Inchcape's earnings per share (excluding implementation costs) in the first
full financial year following Completion and 20+% accretive from the second
year onwards as synergies are delivered.

 

Furthermore, the Company expects the return on invested capital for the
Transaction to exceed the cost of capital in the third full financial year and
exceeding Inchcape's cost of capital in the first full financial year
following Completion.

 

 

Derco is a well-managed company, strongly aligned culturally and strategically
with Inchcape. The Del Río family will become a shareholder in Inchcape

 

Derco is a highly complementary business to Inchcape, both in respect of its
strategy for growth in automotive distribution, and the values with which it
operates its businesses.

 

Derco has over 60 years of experience operating as an automotive distributor,
since the Del Río family began importing of automotive vehicles into Chile in
1959. Over time, Derco has developed long-term partnerships with a number of
OEM brands.

 

Derco's strategy, and cultural focus as an organisation, is to focus on
providing a superior experience to customers, maximise loyalty from all
stakeholders (OEM partners, end-customers, employees, retail partners in its
dealership network) and providing new digital opportunities to customers. In
delivering against this strategy, it benefits from an experienced management
team, with a combined 195 years of experience across Derco, automotive
distribution, and global FMCG operations in Latin America.

 

Derco leverages its diversified portfolio (in terms of geographic presence
across four markets, as well as a range of OEM partners), high quality
distribution capabilities, and targeting marketing initiatives to enhance
customer experience. Following its launch in 2003 Derco has achieved strong
levels of brand equity and customer trust in its DercoCenter (Chile, Peru and
Colombia) and ImCruz (Bolivia) customer-facing brands.

 

Derco's strategy is consistent with Inchcape's Accelerate strategy,
particularly with respect to leveraging a "relationship first" culture and
efficient distribution operations as enablers to deliver Distribution
Excellence. The addition of Inchcape's global scale and digital capabilities
to Derco's existing strategy is expected to support accelerated growth in the
Americas region.

 

While Derco has remained a private, family-owned company over this period, it
has been run with independent management since 1980s, and benefits from a
comprehensive financial control regime.

 

As part of the Transaction, the Family Owners will receive approximately 39
million newly issued Inchcape Shares, which will result in the Family Owners
owning approximately 9.3% of the enlarged share capital of the Company, and
will be entitled to nominate one director to the Inchcape Board following
Completion.

 

 

3.    Information on Derco

 

History of Derco

 

Derco's history dates back to 1959, when José Luis del Río Rondanelli first
began importing automotive vehicles into Chile. Operating as a standalone
"Derco" entity since 1970, the business commenced distribution of Suzuki
vehicles in 1976, and over subsequent years continued to expand its OEM
partnerships, including Mazda in 1982, Chevrolet in 1999, Renault in 2000,
Changan, Great Wall, JAC and Haval between 2006 and 2007, Citroen and DS
Automobiles in 2016 and Joylong in 2020.

 

Over this period and in conjunction with growing its portfolio of OEM
relationships, Derco also successfully entered geographically adjacent markets
of Bolivia (1990), Peru (1997), and Colombia (2009), as well as establishing
distribution and rental operations for machinery and truck OEMs including
Komatsu forklifts (1981), Massey Ferguson tractors (1984), Landini tractors
(1984), JCB construction vehicles (1997), and several other brands spanning
construction, material handling, transport and agricultural machinery.

 

In 2003 Derco launched DercoCenter having launched DercoMaq in 1999, its
customer-facing dealerships for passenger vehicles and machinery / trucks
respectively, as well as launching DercoMaq Rental as a machinery rental
offering. In 2008 Derco launched AutoPlanet, a spare parts business targeting
Derco customers in the later stages of their vehicle lifecycle journey.

 

 

Current operations

 

Today, Derco is the largest independent automotive distributor in Latin
America in terms of volume, and it distributes vehicles for a broad range of
OEM partners across its markets.

 

The passenger vehicle distribution business, which accounts for the vast
majority of the business, includes the following brands:

 

 Passenger vehicles          Chile  Peru  Colombia  Bolivia

 Suzuki                      ü      ü     ü         ü
 Changan                     ü      ü     -         ü
 JAC                         ü      ü     -         ü
 Mazda                       ü      ü     -         ü
 Renault                     ü      ü     -         ü
 Great Wall-                 ü      ü     -         -
 Haval                       ü      ü     -         -
 Citroen and DS Automobiles  -      ü     ü         -
 Chevrolet                   -      -     -         ü
 Joylong                     -      -     -         ü

 

In each of the four markets, Derco distributes to a network of customer-facing
dealerships that are operated either directly by Derco (as a vertically
integrated model), or by independent third-party dealers. The majority of
dealership sites in Chile, Peru and Colombia operate under DercoCenter
(passenger vehicles), in which multiple brands are sold and serviced in a
single integrated site. In Bolivia, where the business operates as ImCruz
rather than Derco, these centres operate under the ImCruzCenter brand.

 

In addition, Derco engages in other businesses such as distribution of
machinery and trucks, for brands such as JAC, Mack and Fuso, and an
aftermarket spare parts and accessories business.

 

Derco's machinery and trucks distribution business operates in a similar
manner to its passenger vehicles distribution business, with customer-facing
and rental sites operating in an integrated multi-brand manner under the
DercoMaq and DercoMaq Rental brands in Chile, Peru and Colombia, and ImCruz
Maq and ImCruz Maq Rental brands in Bolivia.

 

Derco's parts retail business sells third party (non-OEM) parts and
accessories to customers from approximately 90 retail sites across Chile,
under the AutoPlanet brand for passenger vehicle parts, and SERGO brand for
machinery parts.

 

Summary financial information on Derco(4,8,9)

 

The table below shows Derco's financial performance in local currency (CLP)
for each of the past three years and are prepared on the basis of local IFRS
reporting:

 CLP'bn, y/e 31-Dec  2019   2020     2021
 Revenue             1,628  1,323    2,048
 Growth                     (18.7%)  54.7%

 Adj. EBITDA         129    86       293
 Margin              7.9%   6.5%     14.3%
 Adj. EBIT           87     44       246
 Margin              5.4%   3.3%     12.0%

 

Figures in table below converted from CLP to GBP at the average exchange rate
for the year:

 GBP'm, y/e 31-Dec  2019   2020   2021
 Revenue            1,793  1,292  1,962

 Adj. EBITDA        142    84     281
 Margin             7.9%   6.5%   14.3%
 Adj. EBIT          96     43     236
 Margin             5.4%   3.3%   12.0%

 

 

Over the longer term, the Derco has demonstrated revenue and profit growth,
driven by new vehicle volume growth, underpinned by low motorisation rates,
market share gains, new contract wins and cost-discipline.

 

More recently, in 2019 and 2020, Derco saw a decline in revenue and operating
profit margins due to geopolitical volatility in its markets and the pandemic,
mitigated in part by overhead efficiencies. This was followed by strong
revenue recovery and elevated margins in 2021.

 

Derco's performance in 2021 benefited from strong supply for many of its
brands, coupled with pricing management and cost-control, which drove strong
growth of profitability and margins.

 

Derco has continued to deliver strong financial performance in FY 2022 YTD,
with revenue over the last twelve months of £2.2 billion, driven by robust
consumer demand in its markets.

 

As of today, there is still significant pent-up demand for new vehicles.
However, once the ongoing supply constraints are resolved and the
supply-demand situation rebalances, the Company expects Derco to generate an
operating margin towards the top-end of a typical automotive distribution
business (5-7%), before recurring synergies.

 

The preceding financial information has derived (in the case of Revenue, Adj.
EBITDA and Adj. EBIT) from the IFRS combined financial statements of Derco for
the financial years ended 31 December 2019, 2020 and 2021. These figures have
been further adjusted to reflect a form consistent with the accounting
policies adopted by Inchcape in its own annual consolidated financial
statements. This financial information is subject to further external audit
procedures by Inchcape's auditors prior to publication of the Circular which,
in accordance with the Listing Rules, will include full historical three year
financial information on Derco presented in accordance with the accounting
policies adopted by Inchcape in its own annual consolidated financial
statements. Therefore such financial information may differ from the summary
financial information on Derco set out in the table above and elsewhere in
this Announcement.

 

 

4.    Financial effects of the Transaction

 

The Transaction will result in a step-change in the size of Inchcape's
Distribution business, adding £2.0bn of distribution revenue.

 

The Transaction is consistent with Inchcape's Accelerate strategy, which is
centred around growing its Distribution exposure and focusing on high growth
markets. Based on 2021 financials (on the basis of continuing operations), the
addition of Derco to Inchcape's platform is expected to increase the weight of
Distribution to approximately 75% of Inchcape's global revenue, with an
enlarged Americas & Africa segment representing approximately 35% of
enlarged group revenue.

 

The Transaction is expected to accelerate growth and be margin accretive for
Inchcape, even before the benefit of synergies.

 

 

5.    Integration and Management

 

Inchcape has a strong track record of acquiring and successfully integrating
distribution businesses in new and existing markets across Latin America,
including:

-  Interamericana Trading Corporation and Simpson Motors (operating across 30
Caribbean territories) in 2022;

-     Ditec (operating in Chile) in 2022;

-     Mercedes-Benz distribution businesses in Colombia, El Salvador, and
Guatemala in 2020;

-     Autolider (operating in Uruguay and Ecuador) in 2019;

-     Rudelman (operating in Costa Rica and Panama) in 2018; and

-   Subsidiaries and affiliates of Indumotora (operating in Chile, Peru,
Colombia and Argentina) in 2016

 

As a result of these acquisitions and Inchcape's organic growth, its presence
in the Americas has increased significantly with the business generating £1.2
billion(5) of aggregate revenue in 2021, compared to £160 million in 2016.

 

Inchcape's approach to integration has been to draw on the best of both
businesses, and Inchcape looks to capitalise on talent from the businesses it
has acquired to strengthen its own management capabilities: 7 out of 12
members of the Inchcape Americas current Executive Team joined Inchcape as a
result of acquisitions.

 

Inchcape expects to balance the opportunity to streamline the enlarged
business with the need to retain and invest in valuable talent in sales,
distribution and operational functions. The objective will be to retain the
best talent from both organisations to play an important role in driving the
next phase of Inchcape's ambition in the Americas and globally.

 

During the integration and thereafter, the combined group will focus on
operational rigour, quality and compliance as the foundations of a successful
business.

 

 

 

6.    Key terms and conditions of the Transaction

 

Transaction Agreement

 

Under the terms of the Transaction Agreement, entered into between Inchcape,
the Family Owners, Indigo Chile, IAC and Inchcape International Holdings
Limited, the Family Owners have conditionally agreed to sell 100% of Dercorp
CL, the holding company the Derco Group's businesses in Chile, to IAC, a
wholly-owned subsidiary of the Company, and to merge 100% of Dercorp Ex ,the
Chilean holding company of Derco's and Imcruz's businesses in Bolivia,
Colombia and Peru, into Indigo Chile, a wholly owned subsidiary of the
Company.

 

The aggregate consideration is based on an agreed enterprise value of £1,267
million, on a debt free and cash free basis at Completion, which will be
satisfied through the utilisation of existing cash on Inchcape's balance
sheet, new debt facilities of £600 million and approximately £280 million of
Inchcape shares. The Family Owners will be issued approximately 39 million new
Inchcape Consideration Shares (which would represent 9.3% of the total issued
Inchcape Shares immediately following Admission, assuming that no other
Inchcape Shares are issued or repurchased by the Company between the date of
this Announcement and the date of Completion). Application will be made to the
FCA and the London Stock Exchange for admission of the Consideration Shares
prior to Completion.

 

At Completion, the Family Owners will receive only new shares in Indigo Chile
as consideration for the merger with Dercorp Ex, which they will be required
to contribute to the Company in exchange for the issue of the Consideration
Shares.

 

The cash to be paid on Completion is subject to adjustment dependent on the
levels of net debt and net working capital at Completion.

 

Of the consideration, £19 million in cash and 10 million Consideration Shares
will be placed in escrow for a total period of up to two years in the event of
any claims under the Transaction Agreement.

 

Completion of the Transaction is subject to customary conditions including:

-     merger control approvals in Chile and Peru and a merger control
filing in Colombia; and

-     approval by the Inchcape Shareholders of the Class 1 Resolution.

 

A break fee of 1% of Inchcape's market capitalisation as at 27 July 2022 would
be payable by Inchcape if the Inchcape Board exercises a fiduciary out from
the Transaction or Inchcape fails to convene and hold the general meeting at
which the Class 1 Resolution will be proposed.

 

The Company expects Completion to occur by the end of 2022 or in early 2023.

 

The Transaction Agreement, which is governed by Chilean law, contains
customary representations, warranties, indemnities (including a tax covenant),
limitations on liability, and termination provisions. Inchcape International
Holdings Limited guarantees the performance of the obligations of IAC and
Indigo Chile under the Transaction Agreement.

 

Relationship Agreement

 

As a result of the fact that the Family Owners will hold approximately 9.3%.
of the Inchcape Shares following Completion, the Family Owners and the Company
will enter into a Relationship Agreement which will govern their relationship
following Completion.

 

The Relationship Agreement will entitle the Family Owners to nominate one
director to the Inchcape Board. In line with the UK Corporate Governance Code,
the director will be subject to election or re-election annually at the
Company's annual general meeting and the Company has agreed, subject to
certain terms and conditions including the Family Owners maintaining at least
a 7%. shareholding in the Company, that the director will continue to be
nominated for reappointment until and including at the Company's annual
general meeting in 2026.

 

The Family Owners have agreed not to dispose of any of the Consideration
Shares for a period of two years from Admission (subject to customary
exceptions), and for one year thereafter to dispose of Inchcape Shares only
after consultation with, and in accordance with the reasonable directions of,
the Company's brokers. The Family Owners have also agreed a standstill whereby
they and their affiliates will not acquire Inchcape Shares which would give
them and/or their affiliates an aggregate shareholding in the Company of 10%
or more.

 

In addition, Inchcape will establish an Americas Advisory Board on which two
representatives of the Family Owners will sit alongside two senior executives
from Inchcape.

 

The Relationship Agreement will terminate on the earlier of: (i) 31 December
2026, (ii) the Company ceasing to be Admitted to Listing, (iii) the Family
Owners holding less than 3% of the Inchcape Shares and (iv) the Family Owners
holding less than 7% of the Inchcape Shares as a result of a dilution event
where Inchcape exercises its right to require the shareholder appointed
director to resign from the Inchcape Board.

 

 

7.    Financing the Transaction

 

The consideration in respect of the merger of Dercorp Ex will be satisfied,
indirectly, through the issue of Inchcape Shares to the Family Owners and, in
respect of the acquisition of Dercorp CL, by cash payable directly to the
Family Owners. Inchcape will also assume or refinance Derco's outstanding
debt.

 

The Company has agreed to issue approximately 39 million Inchcape Shares to
the Family Owners on Completion pursuant to the terms of the Transaction
Agreement. Based on Inchcape's 20 day VWAP of 727p per share up to and
including 26 July 2022, the Inchcape Shares are valued at approximately £280
million. As a result of the Consideration Shares issuance, the Family Owners
are expected to receive a holding of approximately 9.3% of Inchcape's issued
and outstanding share capital at Completion.

 

The cash requirements for the Transaction will be funded from Inchcape's
existing cash on balance sheet and bank debt. The Company signed a facilities
agreement with MUFG Bank, Ltd. and BNP Paribas (acting as underwriters,
bookrunners and mandated lead arrangers) with respect to acquisition financing
of £600 million, comprising a £350 million bridge facility and a £250
million term loan facility. The bridge facility will have an initial term of
12 months commencing from the date of Completion (or 26 April 2023, whichever
is earlier), but the term is extendable at Inchcape's option by up to 12
months. The term loan will have a term of 2 years commencing from the date of
Completion (or 26 April 2023, whichever is earlier). The facilities agreement
largely mirrors the terms of Inchcape's existing syndicated revolving credit
facility agreement.

 

Following Completion, the Transaction is expected to increase Inchcape's
leverage to c.0.6x Net Debt / EBITDA (pre-IFRS16), this is expected to reduce
quickly given the highly cash generative nature of the business.

 

8.    Circular, General Meeting and Timetable to Completion

 

In view of the Transaction's size in relation to the Company, it is classified
as a Class 1 Transaction for the purposes of the Listing Rules and accordingly
is conditional on the approval of Shareholders at a General Meeting.

 

The Circular containing further details of the Transaction, the Directors'
recommendation, the notice of the General Meeting and the Class 1 Resolution
required to approve the Transaction, is expected to be published by late
September or early October 2022.

 

The completion of the Transaction is also subject to the conditions set out in
the Key terms and conditions of the Transaction paragraph above and is
expected to take place by the end of 2022 or early 2023.

 

 

*           *           *           *

 

APPENDIX I

KEY NOTES

1.   Calculated based on EV of CLP1,449 billion converted to GBP at a 20 day
average FX rate up to and including 26 July 2022 of 1,144

2.   Calculated based on EV of CLP1,449 billion and 2021A EBITDA (pre IFRS
16) of CLP265 billion. The multiple would be 5.5x 2021A EBITDA (post IFRS 16)
based on EV of CLP1,608 billion (including capitalised lease liabilities of
CLP159 billion) and 2021A EBITDA (post IFRS 16) of CLP293 billion. 2021A
operating profit (post IFRS 16) was CLP246 billion and 2021A operating (pre
IFRS 16) was CLP240 billion

3.   Normalisation based on LTM sales of approximately CLP2.5 trillion, a
normalised operating margin of 7%, 2021 Depreciation and Amortisation (pre
IFRS 16) of CLP25 billion, plus recurring synergies

4.   Historical financial information on Derco included in this announcement
has been extracted or otherwise based on the audited IFRS statutory accounts
of Derco for the financial years ending 31 December 2019, 2020 and 2021 (as
applicable), based on local IFRS reporting and Derco's accounting policies.
For the purposes of this announcement, financial information reported in CLP
has been converted to GBP at the average FX for the year

In accordance with the Listing Rules, the Circular (when published) will
include full historical three year financial information on Derco in a form
consistent with the accounting policies adopted by the Company in its own
annual consolidated accounts. Such financial information will differ from the
financial information on Derco set out in this Announcement.

5.   2021 revenue pro-forma adjusted for portfolio changes (retail disposals
and new distribution businesses)

6.   Developed markets include USA, UK, France, Germany, and Japan

7.   Sources for

·      Population, GDP, GDP Growth, and inflation: International
Monetary Fund, World Economic Outlook Database, April 2022

·      Motorisation: Fitch

·      TIV (Total Industry Volume): IHS markit

·      Private debt % of debt: Fitch

·      EV (including includes battery-electric (BEV) and, plug-in hybrid
vehicles (PHEV) and mild hybrid electric vehicles (MHEV)) penetration:
Bloomberg NEF

8.   For the purposes of Chapter 10 of the Listing Rules, reported gross
assets of Derco as at 31 December 2021 were approximately £1.2 billion; and
reported profit before tax for the financial year ending 31 December 2021 was
approximately £0.2 billion.

9.   The Adjusted EBIT and EBITDA presented in this Announcement are derived
from the IFRS combined financial statements of Derco for the respective
financial years; and have been further been adjusted for consistency with the
accounting policies adopted by Inchcape including adjustments in relation to
non-trading items. Non-trading items are items charged or credited in the
income statement which are material and non-recurring in nature

 

 

APPENDIX II

DEFINITIONS

 

The definitions set out below apply through this document, unless the context
requires otherwise.

 "£" or "GBP"              the lawful currency of the UK;
 "Admission"               admission of the Consideration Shares to listing on the premium listing
                           segment of the Official List of the FCA and to trading on the London Stock
                           Exchange's main market for listed securities becoming effective (and "Admitted
                           to Listing" shall be construed accordingly)
 "Announcement"            this announcement, made by Inchcape on 28 July 2022 in relation to the
                           Transaction;
 "Cash Consideration"      the cash payable by IAC for the transfer of shares in Dercorp CL pursuant to
                           the terms of the Transaction Agreement
 "Circular"                the circular to Inchcape Shareholders to be prepared by Inchcape in connection
                           with the Transaction
 "Class 1 Resolution"      the ordinary resolution of the Inchcape Shareholders in respect of the
                           Transaction, to be proposed at the general meeting of the Inchcape
                           Shareholders, the notice of which will be contained in the Circular
 "Company"                 Inchcape plc
 "Completion"              completion of the Transaction in accordance with the terms of the Transaction
                           Documents
 "Consideration Shares"    new Inchcape Shares to be issued and allotted by the Company to the Family
                           Owners pursuant to the terms of the Transaction Agreement
 "Derco"                   Dercorp CL SpA and Dercorp Ex and their respective subsidiaries
 "Derco Holdings"          Dercorp CL SpA and Dercorp Ex
 "Dercorp CL"              Dercorp CL SpA, a holding company for Derco Group's businesses in Chile
 "Dercorp Ex"              Dercorp Ex SpA, a holding company for Derco Group's businesses in Bolivia,
                           Colombia and Peru
 "Family Owners"           Cerro Mayo SpA, DT Huillinco SpA, Peňuelas Corp. SpA which are holding
                           companies of the Del Río family
 "FCA"                     the Financial Conduct Authority of the UK
 "FSMA"                    the Financial Services and Markets Act 2000, as amended
 "IFRS"                    UK-adopted international accountant standards in accordance with International
                           Financial Reporting Standards
 "IAC"                     Inchcape Automotriz Chile S.A., the Company's existing wholly-owned subsidiary
                           in Chile
 "Inchcape"                the Company and its subsidiary undertakings
 "Inchcape Board"          the board of directors of the Company
 "Inchcape Shares"         ordinary shares of nominal value of £0.10 each in the capital of the Company,
                           including, if the context requires, the Consideration Shares
 "Indigo Chile"            Indigo Chile Holdings SpA, the Company's existing wholly-owned subsidiary in
                           Chile
 "Listing Rules"           the listing rules made by the FCA under section 73A of the FSMA, as amended
                           from time to time
 "Relationship Agreement"  the agreement between the Family Owners and the Company, which will take
                           effect from Admission, and govern the relationship between the parties whilst
                           the Family Owners remain substantial shareholders in the Company
 "Shareholders"            a holder of Inchcape Shares, and "Shareholders" shall be construed accordingly
 "TIV"                     Total Industry Volumes
 "Transaction"             the proposed business combination consisting of the acquisition of the Derco
                           Group businesses in Chile by IAC and the proposed merger between Indigo Chile
                           and Dercorp Ex (the holding company of the Derco and Imcruz businesses in
                           Peru, Colombia and Bolivia)
 "Transaction Agreement"   the agreement between the Company, the Family Owners, IAC, Indigo Chile and
                           Inchcape International Holdings Limited in relation to the Transaction
 "Transaction Documents"   the Transaction Agreement and the other agreements, including the Relationship
                           Agreement, a merger agreement and a contribution and subscription agreement,
                           which give effect to the Transaction
 "UK MAR"                  Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by
                           virtue of the European Union (Withdrawal) Act 2018
 "US Dollar" or "US$"      the lawful currency of the United States of America from time to time
 "VWAP"                    volume weighted average price

 

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