Final Results
19 March 2009
Inchcape plc
2008 Annual Results Announcement
Inchcape delivers solid profits in 2008
and a significant reduction in net debt in the fourth quarter
Inchcape plc, a leading independent automotive distributor and retailer, announces its annual results for the year ended 31 December 2008.
Operational and strategic highlights:
-
Resilient business model delivered solid profit in 2008
-
Swift and decisive response to rapid and unprecedented industry downturn in H2 2008
-
Operational focus on five core business priorities to seek to maximise profitability and cash flow:
-
Reducing cost base
-
Managing working capital
-
Reducing capital expenditure
-
Growing market share, whilst protecting margins
-
Growing aftersales
-
-
£58m annualised cost savings actioned (at 2009 exchange rates)
-
Musa Motors (initial 75.1% shareholding acquired July 2008) performed in line with expectations
The Group today also released a separate announcement regarding a proposed rights issue to raise approximately £232m of net proceeds aimed at accelerating the deleveraging of the Group and further strengthening its capital structure.
Financial highlights*:
-
Group sales up 3.4% to £6.3bn (2007: £6.1bn)
-
PBT** £190.7m (2007: £235.1m)
-
PBT £108.2m (2007: £240.0m)
-
Operating margin at 3.8% (2007: 4.4%)**
-
Adjusted EPS** 30.0p (2007: 37.0p)
-
Basic EPS 11.2p (2007: 38.0p)
-
31 December 2008 net debt £408m, significantly below 30 September 2008 level
-
Fully compliant with its only debt covenant
* All figures in actual currency
** Before Exceptional items
André Lacroix, Group Chief Executive of Inchcape plc, commented:
'Recent market conditions have been unprecedented and extremely challenging, affecting the entire car industry on a global basis. We have responded swiftly by reducing our cost base, right sizing the business for the current environment and deleveraging the Group.
We have completed the evaluation of our capital structure and believe that raising new equity capital from our shareholders is the right solution to improve our financial flexibility and headroom while putting in place a more appropriate capital structure for the Group going forward.
Inchcape is a proven industry leader with a broad geographic spread, a multi-channel business model and long-standing relationships with strong brand partners. This combination together with a lower cost base, stronger financial position and our unique understanding of our customers means the Group is well placed to gain market share during the downturn. While we believe trading conditions will remain extremely challenging throughout 2009, we are confident that the actions we have taken put us in a strong position to deliver a solid performance this year. Looking further ahead, Inchcape is positioned to take advantage of growth opportunities as markets recover.'
Update on Group Funding
Our financial position has improved since our pre-close trading statement on 15 December 2008, when we announced that the Group had net debt of £540m at 30 November 2008. At that time, we noted that the decline in new car sales had accelerated in November in most parts of the world, and that the rapid and unprecedented industry downturn in so many of the Group's markets made it difficult to forecast results with a great degree of certainty. Therefore, the Group engaged with its finance providers to ensure that it had arrangements in place appropriate for a downturn in trading in 2009. On 12 January 2009, we announced that these discussions were continuing and that the Group was also evaluating a range of options for its capital structure, including a potential equity issue.
Prudent and proactive action taken by management to maximise cash flow and reduce working capital, together with significant currency benefits, resulted in a reduction in Group net debt at 31 December 2008 to £408m. The actions the Board initiated to reduce overheads, working capital and capital expenditure are improving the Group's performance and cash generation. Although the Group expects trading conditions to remain extremely challenging throughout 2009 and the actual results for January and February were well below last year, they have exceeded management's expectations in difficult markets, due to a good start to the year in Singapore and a stabilisation of UK used car margins. Currently, March order levels for the Group's UK operations are in line with our expectations.
Consequently, the financial position of the Group has improved. At 31 December 2008 the Group was in compliance with its financing arrangements and had appropriate headroom. The Board expects that although new car sales are forecast to continue declining in 2009 and the first half of 2010, the Group will benefit from the expected resilience in the service and parts businesses, lower costs, lowered UK interest rates, the strengthening of many of the Group's key operational currencies against sterling and careful working capital management.
The Board considered renegotiating the interest cover covenant both in the Group's banking facilities and in its Private Placement notes to give the Group increased headroom (as announced on 15 December 2008). The Board has concluded that, given the current conditions in the debt markets, any renegotiation is likely to result in significantly increased finance charges, not improve the available headroom under the financial covenant and cause the Group to incur material one-off fees.
The Board therefore believes that it would not be in the interests of shareholders to amend its current financing arrangements. However, in the light of the economic uncertainty, the Group intends to maintain its policy of managing its balance sheet so that it is appropriate for market and economic conditions and will launch the proposed rights issue to accelerate the deleveraging of the Group.
Inchcape's full annual report and accounts will be made available on its website, www.inchcape.com.
For further information, please contact:
Group Communications, Inchcape plc
+44 (0) 20 7546 0022
Investor Relations, Inchcape plc
+44 (0) 20 7546 8432
Financial Dynamics (Jonathon Brill/Billy Clegg)
+44 (0) 20 7831 3113
Notes to editors
About Inchcape:
Inchcape is a leading, independent international automotive distributor and retailer operating in 26 mature and emerging markets. Inchcape has diversified multi-channel revenue streams including sale of new and used vehicles, parts, service, finance and insurance,
Inchcape's vision is to be the world's most customer-centric retailer and represents some of the world's leading automotive brands, including Toyota, Lexus, Subaru, BMW, Mazda, Mercedes-Benz, Volkswagen, Audi and Honda.
Inchcape, which has been listed on the London Stock Exchange since 1958, is headquartered in London, employs over 15,000 people and has scale operations in the UK, Singapore, Australia, Hong Kong, Greece, Belgium and Russia.
2008 Annual Results
Chairman's statement
|
|
2008 |
2007 |
|
|
£m |
£m |
|
Sales |
6,259.8 |
6,056.8 |
|
Adjusted profit before tax |
190.7 |
235.1 |
|
Exceptional items |
(82.5) |
4.9 |
|
Profit before tax |
108.2 |
240.0 |
Despite the weakening trading conditions in many markets around the world, we are pleased to report results for 2008 in line with our expectations, reflecting the progress we have made against our growth strategy and the benefits of excellent portfolio diversification.
Performance
Group sales have increased by 3.4% to £6.3bn for the full year to 31 December 2008, benefiting from strategic and focused acquisitions and from organic sales growth in most of our markets. On a like for like, constant currency basis, sales fell by 4.3% reflecting the impact of an unprecedented and rapid downturn that started to affect our industry in the second half of 2008.
Profit before tax and exceptional items of £190.7m was 18.9% lower than 2007 and adjusted earnings per share fell 18.9% to 30p. On a statutory basis, which includes exceptional items, profit before tax of £108.2m was 54.9% below 2007 and earnings per share fell 70.5% to 11.2p.
We responded swiftly to the market decline by reducing our cost base, closing 24 less profitable sites, reducing our workforce by more than 2,000 people and implementing other restructuring measures which are expected to generate an annualised saving of approximately £58m at 2009 exchange rates. These actions have resulted in an exceptional charge in 2008 of £28.3m together with a charge of £54.2m for goodwill impairment largely due to the downturn in Latvia.
When reviewing the performance of our business units, trading profit is a key measure and is defined as operating profit excluding the impact of exceptional items and unallocated central costs.
In our Distribution businesses we grew sales by 5.8% despite challenging trading conditions. We primarily benefited from strong performances in Singapore, where we outperformed the market with new model launches and strong commercial vehicle sales resulting in a trading profit growth of 23.9%, in Hong Kong with a trading profit growth of 17.7% and in the Rest of World with trading profit growth of 23.2%. We retained market share as well as market leadership in Greece and sales in Belgium grew 0.2% on 2007 under very difficult conditions. In Australia, whilst new models helped to improve market share by 10bp, the market decline resulted in a trading profit decrease of 3.7%.The UK fleet management business, Inchcape Fleet Solutions, suffered from a residual value provision increase of £8.5m.
Sales in our Retail businesses grew by 1.6% in 2008, benefiting from our acquisitions in Russia, 9.3% growth in Australia and a new Lexus retail centre in China. Across Europe, sales grew 3.0% as a result of strong performance in Greece and Finland. In the UK we outperformed the market with like for like sales falling 5.4% in a market which fell 11.3%. In the Russia and Emerging Markets segment, trading profits increased by 40.9% largely as a result of our acquisitions in Russia and growth in Poland.
Acquisition and disposal summary
We made further progress in our UK disposal programme in accordance with our strategy to streamline the business following the acquisition of European Motor Holdings plc in 2007. We sold our Vauxhall business and the majority of our Volvo retail outlets for a total consideration of £17.0m. These transactions followed the disposals of Inchcape Automotive, Wilcomatic, and the Bentley, Ferrari and Maserati retail outlets in 2007.
We have reinvested the proceeds from these disposals into our Russia and Emerging Markets segment, announcing in March the acquisition of the remaining 24.9% stake in our St Petersburg business for a total cash consideration of £28.5m.This gave the Group full ownership of its operations in St Petersburg and was another step in the implementation of the Group's multi-brand Retail footprint, providing broad segment coverage in what is expected to be one of the fastest growing markets in the world.
In April, we announced further expansion in this market with the acquisition of an initial 75.1% shareholding in Musa Motors group, one of Russia's largest car retailing groups, giving Inchcape a significant scale position in Moscow through 16 sites with key global brand partners. The initial consideration was £100.3m. This acquisition has positioned Inchcape with one of the largest networks of premium brands in Moscow.
In May we announced another landmark in our expansion into the Chinese market with the official opening of our wholly owned Lexus retail centre in Shaoxing.
During the year we also sold our French operation to its management team for a consideration of £7.6m.
Dividend
The Board is not recommending the payment of a final ordinary dividend for the year in light of the current deterioration of trading conditions (2007 - 10.5p). The Board recommended a half year dividend for 2008 of 5.46p which reflected a 4.0% increase on the half year 2007 dividend.
We currently do not expect to recommend any dividend for the financial year ending 31 December 2009.
We intend to return to our stated aim of maintaining a progressive dividend policy as soon as trading conditions allow.
Share buy back
The Group purchased £16.0m of its shares in 2008 through the acquisition of 4.5m shares, now held as Treasury shares at an average price of £3.59 per share.
Approach to governance and management
We continue to focus on the importance of good governance and observe the Combined Code and other relevant guidance for listed companies in our global operations. Integrating socially responsible behaviour into every aspect of how we operate and define ourselves remains high on our agenda. In 2008 we have built on the foundations of a global approach to Corporate Responsibility (CR) that is making responsible economic, environmental and social behaviour intrinsic to the way we work.
People
Our people strategy is to have engaged people in winning teams, creating the ultimate customer experience for our brand partners. On behalf of the Board, I wish to express thanks to our colleagues across the Group for their commitment and spirit in delivering these results for 2008.
I would like to make special mention of William Tsui, Chairman of Inchcape Asia-Pacific who sadly passed away in February 2009, after 18 years with the Group. Under his leadership, our businesses in Hong Kong, Macau, Singapore, Brunei, Guam and Saipan consolidated their market leading positions. Latterly William spearheaded our entry into China. William will be remembered for his passion for the motor industry and our customers and for his truly inspirational leadership.
Strengthening our Capital Structure
The Group has historically maintained what was considered to be an appropriate level of borrowings given the prevailing economic environment. Given the prospect of a difficult trading environment in 2009 and beyond, we intend to continue our actions to reduce net debt.
In order to further strengthen the position of the Group, the Board believes it is both appropriate and in the best interests of its shareholders to raise net proceeds of approximately £232m via a Rights Issue which we announced on 19 March 2009.
We intend to use the net proceeds of this Rights Issue to reduce the level of indebtedness which in the short term will increase headroom and delay the refinancing of existing facilities. In the longer term, we expect that strengthening the Group's balance sheet through this Rights Issue together with the action we have taken to lower our cost base, our geographic spread and diversified revenue streams, will better position us to take advantage of the market recovery.
Outlook
Although the Group expects trading conditions to remain extremely challenging throughout 2009 and the actual results for January and February were well below last year, they have exceeded management's expectations in difficult markets, due to a good start to the year in Singapore and a stabilisation of UK used car margins. Currently, March order levels for the Group's UK operations are in line with our revised expectations. The fundamentals of our Group remain solid and our strategic direction is clear. We have responded quickly and decisively to global economic conditions. Our experienced management teams, our track record of operational excellence, our focus on superior customer service and the strength of our long-standing relationships with our brand partners give us confidence that we will successfully weather the current storm in our industry and emerge stronger.
Board Change
As previously announced, I will be retiring from the position of Non-executive Chairman in May 2009, following 14 years with the Company, six years as Group Chief Executive and three years as Chairman. I am delighted that Ken Hanna, who has been a Non-executive Director of Inchcape for six years, is to be appointed Non-executive Chairman of the Group with effect from 14 May 2009. Ken has considerable skills and expertise with a proven track record both at a financial and operational level and as a Non-executive Director, as well as direct experience of operating businesses in emerging and developed markets.
I have thoroughly enjoyed my years with Inchcape, especially working with so many talented colleagues both on the Board and in the business and I know that I am leaving the Group in very good hands.
Peter Johnson
Chairman
19 March 2009
Chief executive's review
Inchcape is a leading independent, international automotive distributor and retailer, with scale operations in Australia, Belgium, Greece, Hong Kong, Russia, Singapore and the UK as well as operations in 19 other markets. We represent some of the world's leading automotive brands with whom we have long-standing relationships.
During 2008, the car industry faced unprecedented challenges as the economic downturn spread rapidly across the world.
While Inchcape is not immune to the downturn, I believe we are well placed to ride it out successfully, based on the intrinsic strengths of our business together with the prudent and decisive actions we are taking, so that we will be well positioned to capitalise on market recovery.
We have more than 160 years of successful international trade experience based on a pioneering spirit that has seen us at the forefront of every industry in which we have participated. Our focus today is squarely on the car market where we have been an industry leading retailer and distributor for many years. We continue to owe this pre-eminence to two fundamental factors: the resilience of our business model, and the clarity of our vision and strategy.
In addition, we have an exceptional senior team with an in-depth knowledge of the automotive industry and local markets and who share a collective record of decisive, successful management in the face of economic upheaval.
Solid
A diversified and resilient business model
We believe our business model has a number of key strengths including a diversity that ensures resilience and provides a balanced portfolio of income streams.
First, we have a broad geographic spread with scale positions and a presence across both mature and emerging markets. We benefit from a decentralised organisational model which enables us to stay close to changes in the market place and react quickly to flex our operational focus. We enjoy a leading market share in many markets thanks to our first-hand experience and hard-won knowledge of different buying preferences and our relentless focus on superior customer service.
Second, we have long-standing relationships with strong brand partners who outperform the market, giving us access to a pipeline of attractive new models. Our brand strategy is market specific, enabling us to fit the right brand with the right market to pursue our core purpose of creating the ultimate customer experience for our brand partners, whilst aiming to maximise market share.
Third, we have a multi-channel structure, in which our Distribution businesses - where we represent every aspect of a brand partner's presence in a specific national market - have historically delivered stable, strong cash generation and our Retail businesses provide access to diversified and resilient sources of revenue through, for example, aftersales service and parts.
These diversified income streams (our value drivers) give us both the growth opportunities that drive our business forward (new and used car sales, third-party finance and insurance products) and defensive income (aftersales service and parts) that becomes increasingly important in times of economic difficulty.
Aftersales represents approximately 50% of our gross margin. This is an area on which we are focusing greater resources than ever before as an integral component of our Customer 1st strategy, emphasising the quality and value benefits for car-owners in staying with their franchise retailer after the expiry of their warranty period.
It is a significant area of opportunity for us as even during times of declining new vehicle sales, the total population of cars on the road (the car parc) continues to grow and more motorists concentrate on maintaining rather than replacing their existing vehicle.
Our focus on maximising the economic contribution of all our value drivers by constantly driving new efficiencies has enabled us historically to deliver strong margins. We seek to continue to improve our performance throughout 2009, when difficult market conditions mean that maximising returns will be particularly important.
A clear vision and strategy
Meeting our vision of being the industry's most customer-centric retailer anywhere in the world is fundamental to the success of our business model.
Our goal of creating and delivering the ultimate customer experience is a key differentiator for Inchcape in our industry and provides the basis of our long-standing relationships with many of the world's leading motor manufacturers. Our passion for superior customer service reflects directly on the reputation of our brand partners, making this a compelling reason for them to select Inchcape as their partner of choice.
This Customer 1st approach is central to our business and drives decisions taken at every level of the organisation. Understanding the customer's view of our performance is vital and we continue to invest strongly in mystery shopper and customer feedback programmes and leading technologies to support our activities. These combine to give us a constant view of our performance from the customer's perspective and help us identify opportunities the moment they emerge.
The combination of our unique business model and our differentiating customer focus has underpinned Inchcape's success for many years. Today, it is enabling us to outperform our competitors in the most difficult trading conditions to affect our industry for more than a generation.
Responsive
Managing the downturn
We have responded swiftly to the economic downturn with decisive management action to make our business even sharper, more effective and more efficient. We believe this will help us both minimise the negative impact from the current downturn and prepare us to emerge stronger when the market recovers. We have narrowed our management focus to the five basics of our business, our 'five key priorities': growing market share whilst protecting margins; growing aftersales; reducing costs; managing working capital; and reducing uncommitted capital expenditure.
Focusing on these priorities now, means that we will be well-placed to take advantage of the growth opportunities that come with recovery.
Market share growth
Growing market share whilst protecting margins in our Retail businesses springs directly from our Customer 1st strategy, with a focus on traffic conversion through rigorous, disciplined sales processes and outstanding levels of customer service.
Further, in today's market, our ability to help customers gain access to the finance credit they need to buy a car is a clear advantage. In our Distribution businesses we will grow our market share through disciplined marketing effectiveness, taking full advantage of our brand partners' new product launches and offering strong value for money propositions to our customers.
Aftersales growth
Growing our aftersales business will come from focused service and parts marketing, a strong emphasis on retaining customers and providing outstanding levels of customer service through, for example, our 'vehicle health check'. The key for us today is to recognise and respond to every transaction as an opportunity to build a long-term customer relationship that delivers value to both parties. This is central to our Customer 1st strategy.
Further, in our aftersales workshops, we continue to apply ourselves to driving productivity enhancement and therefore gross margin.
Cost reduction
In terms of cost saving, we already have a major restructuring programme underway that will deliver an annualised benefit of approximately £58m, based on 2009 exchange rates. This includes a 12% reduction of our global workforce, tight new restrictions on travel and a retail site and office rationalisation which by the first half of 2009 will have resulted in the closure of 24 less profitable sites, comprising 16 retail centres, one used car centre and one PDI centre in the UK, two retail centres in Greece and four in the Baltics. The Group has implemented a general hiring freeze and a policy of no salary increases in 2009 or management bonuses for 2008.
Additionally, we are negotiating harder than ever before on everything we spend and successfully taking advantage of reduced advertising media costs.
Working capital management
Managing our working capital as efficiently as possible is a top priority right across the business. Unsold stock on forecourts is a major expense for any motor retailer and we have set stock reduction targets across the Group. We have the support of our brand partners to match our inventory levels to the new market demand, which is successfully helping us to contain our working capital levels.
Capital expenditure reduction
Our forward capital expenditure programme is largely driven by the agreements we have in place with our brand partners, some of which commit us to building new retail centres in an agreed expansion timetable. The excellent relationships we have with our brand partners however, mean we have been able to defer some projects. In addition, we are slowing some aspects of the implementation of our new SAP system across the Group, while streamlining its adoption in our Retail business to benefit as rapidly as possible from its main commercial advantages.
Confident
Solidly positioned for market recovery
We are confident that taking these proactive steps now will prepare us for the best possible performance once the market recovers when, we believe, opportunities will be significant. We see a number of structural and economic factors that will help shape the future of our industry.
It is likely that, when it comes, recovery will take place faster in the emerging markets, where the current low levels of car ownership means that there is greater potential for the demand for new and used vehicles to increase. We will be able to use our existing presence in those emerging markets to full advantage.
However, there will be significant opportunities in the mature markets too, stemming from the need for vehicle replacement as the car parc ages, combined with technological innovation which will both stimulate demand and drive down the cost of ownership.
Industry consolidation means that we will face a reduced number of competitors in some of our markets, so that when the recovery comes it is likely that we will be growing from a position of higher market share, providing the opportunity for improved throughput and economic performance of our retail centres.
Further, we believe vehicle manufacturers will address the current oversupply of vehicles by rationalising their production to create a better balance between supply and demand, which should lead to enhanced margins on both new and used cars.
For all these reasons, we are excited by our future prospects, while recognising the medium-term challenges that we face. And we have a number of Inchcape-specific factors that give us great confidence.
We operate as market leader in many markets with a scale position and with brand partners who continue to outperform the industry and who have the resources to innovate and stimulate demand. We will benefit from a pipeline of new products which are set to deliver better value, better performance and lower CO2 emissions.
Following a period of integration, our aim is to have established scale operations in emerging markets, enabling them to make a growing contribution to the Group. Our decentralised organisational model gives us a significant advantage as we are capable of responding rapidly to the changes in our industry. Superior levels of customer service based on our differentiating Customer 1st strategy and leading retail operating systems will help us grow share in many of our markets. As an organisation, we will be leaner and more efficient which will provide us with leverage when the market returns.
Further, I am constantly impressed by the quality of our employees across the Group. Despite the economic downturn, I see our people displaying a true 'Inchcape spirit' and a real passion for delivering exceptional customer service.
In short, our proven business model and strategy, allied with the firm and prudent actions being taken by our experienced management teams today, mean that Inchcape is set to emerge from the current downturn leaner, stronger and more successful than ever.
We are confident that we will emerge a winner.
André Lacroix
Group Chief Executive
Operational review
Regional analysis*
|
|
2008 |
2008 |
2008 |
2007 |
2007 |
2007 |
|
|
Operating |
Exceptional |
Trading |
Operating |
Exceptional |
Trading |
|
|
profit |
items |
profit |
profit |
items |
profit |
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
Australia |
41.3 |
(1.3) |
42.6 |
43.8 |
- |
43.8 |
|
Europe |
33.6 |
(7.0) |
40.6 |
50.1 |
- |
50.1 |
|
Hong Kong |
33.2 |
(0.1) |
33.3 |
40.3 |
12.0 |
28.3 |
|
Singapore |
57.0 |
- |
57.0 |
46.0 |
- |
46.0 |
|
UK |
- |
(23.1) |
23.1 |
62.5 |
(7.1) |
69.6 |
|
Russia and Emerging Markets |
(26.6) |
(49.1) |
22.5 |
29.6 |
- |
29.6 |
|
Rest of World |
30.5 |
(0.5) |
31.0 |
25.1 |
- |
25.1 |
|
Total |
169.0 |
(81.1) |
250.1 |
297.4 |
4.9 |
292.5 |
|
Central Costs |
(11.0) |
(1.4) |
|
(27.5) |
- |
|
|
Operating profit |
158.0 |
(82.5) |
|
269.9 |
4.9 |
|
* At actual rates
Key Performance Indicators (KPIs)
The Inchcape plc Board of Directors and the Executive Management team monitor the Group's progress against its strategic objectives and the financial performance of the Group's operations on a regular basis. Performance is assessed against the strategy, budgets and forecasts.
To enhance comparability, we review the results in a form that isolates the impact of currency movements from period to period by applying a constant currency rate. Unless otherwise stated, all year on year changes in sales and trading profit figures quoted in the Operating review are provided in constant currency.
We also measure the quality of revenues through the mix of revenue streams, and the flow through of value from sales revenue to trading profit.
Financial KPIs
Vehicle market size
Defined as total new vehicle registrations.
Vehicle market share
Derived from Inchcape's registrations as a percentage of the overall market size.
Sales
The consideration receivable from the sale of goods and services. It is stated net of rebates and any discounts and excludes sales related taxes.
Trading profit
Defined as operating profit excluding the impact of exceptional items and unallocated central costs.
Trading margins (return on sales)
Calculated by dividing trading profit by sales.
Like for like sales and like for like trading profit
Excludes the impact of acquisitions from the date of acquisition until the thirteenth month of ownership and businesses that are sold or closed. It further removes the impact of retail centres that are relocated. This is from the date of opening until the thirteenth month of trading in the new location.
Group profit before tax
The profit made after operating and interest expense but before tax is charged.
Group working capital
Defined as inventory, receivables, payables and supplier-related credit.
Operating cash flow
Defined as trading profit adjusted for depreciation and amortisation plus the change in working capital.
Non-financial KPIs
We continue to measure several non financial KPIs, particularly regarding customer service, relating to both the purchase of new and used vehicles and also aftersales. For example, Net Promoter Score (NPS) is being used to measure customer satisfaction across the Group, in line with our vision to be the world's most customer-centric automotive retailer.
Further, we measure employee engagement Group-wide through our annual Heartbeat survey conducted in partnership with Gallup.
Group
The prevailing conditions in the global financial markets have significantly affected the demand for, and price levels of, new and used vehicles.
In Q4 2008 most of our markets experienced a significant downturn: the UK declined 27%; Hong Kong 41%; Greece 21% and Australia 15%.
These significant market declines have contributed to a decline in our Group operating profit, before exceptional items, of 17.4% for the full year, from sales which declined by 3.3%.This compares to the first six months where we reported operating profit growth of 13.4% before exceptionals, on sales which grew by 5.1%.
The sales decline was however partially mitigated by a solid performance from aftersales, on which our like for like revenues grew by 4.2% for the Group for the full year compared to 2007. This is an area of significant opportunity which has received an increasing focus through 2008 and will continue to do so in 2009 and beyond.
We responded swiftly to the market decline by reducing our cost base, closing 24 less profitable sites, reducing our workforce by more than 2,000 people and implementing other restructuring measures which are expected to generate an annualised saving of approximately £58m at 2009 exchange rates. These actions have resulted in an exceptional charge in 2008 of £28.3m together with a charge of £54.2m for goodwill impairment largely due to the downturn in Latvia.
We continue to reflect our management structure in our reporting by separately providing an analysis of the two segments of our business, Retail and Distribution, by geographical region. We have continued our expansion into emerging markets, particularly in the strategically important Russian market. We continue to include Russia, China, the Balkans, the Baltics and Poland within the Russia and Emerging Markets segment on the basis that these markets have started to grow but have yet to reach a mature stage of development and accordingly are in the growth phase of the development cycle. We have re-named the segment 'Russia and Emerging Markets' in our reporting.
Distribution business
Although like for like sales were 5.2% down versus 2007, trading margins remained buoyant at 7.3%, delivering a total trading profit of £192.9m.
Across Europe, we delivered some solid results in the face of significantly reduced markets. Our Greek Toyota and Lexus business retained its market leadership position to deliver trading profit growth of 6.6%.The Belgian market grew 2%,partly aided by the biennial motor show, however our share declined by 1.0ppt, resulting in a 12.8% decline in like for like sales.
The markets in Asia continued to be very competitive, with the market in Hong Kong growing 7% for the full year, but declining by 41% in Q4. In Singapore, market conditions were challenging, as expected, and the market declined by 13% (excluding parallel imports). However, with strong marketing campaigns and new model launches together with the impact of the appreciation of the Yen on our competitors, we achieved a 7.9% increase in trading profit.
Our Russia and Emerging Markets segment has been significantly affected by the economic downturn resulting in a like for like trading profit decline of 84.2% with the Baltics particularly affected.
Our Rest of World segment delivered strong results with like for like sales growth of 11.2% and like for like trading profit growth of 16.4% contributing a total trading profit for 2008 of £30.8m.
Retail business
Our Retail businesses have been significantly affected by the global decline and overall we saw a decline in like for like sales of 3.5%. Total trading profit decreased by 36.6%.
In the UK we continue to outperform. In a market which declined by 11% our like for like sales reduced by 5.4%.Trading margins reduced from 2.4% to 1.2%.
Across Europe we continue to drive our turnaround strategy. In 2008 like for like revenues declined by 1.2%, delivering a total trading profit of £0.7m.
In our Russia and Emerging Markets segment, like for like sales increased by 3.8%, resulting in a total trading profit of £18.6m, largely due to our recent acquisitions in Russia.
Australia
|
|
2008 |
2007 |
% change |
% change |
|
|
£m |
£m |
|
constant currency |
|
Sales |
695.4 |
657.5 |
5.8 |
(3.1) |
|
Trading profit |
42.6 |
43.8 |
(2.7) |
(11.0) |
Strategy
We have been the distributor for Subaru in Australia and New Zealand since 1992 and a retailer since 2001.We currently own 11 retail centres out of a total Subaru retail centre network of 106 across Australia. We also operate nine retail centres for a further four of the top 12 automotive brands by volume in Australia (Volkswagen, Hyundai, Mitsubishi and Kia). Inchcape retail centres are located in Melbourne (including a flagship retail centre for Subaru), the greater Sydney area and in the northern Brisbane district of Queensland.
In Australia, we also own AutoNexus which provides logistics services to the automotive industry. In 2008, AutoNexus was responsible for the storage and logistic management of over 48,400 vehicles and 1.4m of parts lines dispatched.
In our Subaru Distribution business we aim to be Australia's premium Japanese automotive brand and to leverage that position in our Retail business to become Australia's most customer-centric automotive retail group.
Market
The Australian vehicle market declined by 4% in 2008, with the large engine passenger cars segment particularly affected, while diesel engine vehicles gained share. The market began to be affected by the global downturn in Q4 with a decline of 15%. Market conditions were very competitive, fuelled by high levels of sales support and marketing expenditure with consumers particularly sensitive to fuel consumption.
Performance
Our Subaru Distribution business achieved a milestone of 11 consecutive years of record sales in 2008. Sales of 38,492 vehicles distinguished the business in a difficult market where many competitors weakened. Subaru in Australia maintained the largest market share for the brand (3.8%) of any major region outside Japan.
Subaru's core strength was underlined by the success of the new generation Forester, which regained its position as the country's best-selling compact SUV, with best-ever sales of 14,423 units in 2008, up 14.9%. The Subaru Impreza became one of Australia's fastest selling models of 2008.
Trading margins were below 2007, at 7.8% due to the investment required for the launch of two key new models.
Our Retail business achieved like for like revenues of 1.0% above 2007, a performance which was further enhanced by gross margins which grew by 0.6ppt versus last year. However total trading profits were 7.7% below 2007 (excluding a one off property sale recorded in 2007).
Our AutoNexus business had another successful year, winning several new contracts.
Outlook
The new vehicle market is forecast to decline in 2009. We expect market conditions to remain highly competitive as the market adjusts to lower sales volumes and excess levels of inventory. The strength of the Subaru brand in Australia has enabled us to enter into an agreement with Esanda to replace GMAC for the provision of wholesale finance to support our dealer network. The Subaru product offering should enable us to compete strongly in 2009.
Europe
|
|
2008 |
2007 |
% change |
% change |
|
|
£m |
£m |
|
constant currency |
|
Sales |
1,229.2 |
1,203.9 |
2.1 |
(11.2) |
|
Trading profit |
40.6 |
50.1 |
(19.0) |
(29.4) |
Strategy
In Belgium, we are the distributor for Toyota and Lexus. We own eight Toyota and Lexus retail centres in Belgium, with the remaining network of 85 retail centres in Belgium owned by independent third party retailers.
In Luxembourg, we are the distributor and retailer of Jaguar, Toyota and Lexus, with one retail centre for each brand.
In Greece, we are the distributor for Toyota and Lexus. We own seven retail centres with the remaining network of 35 Toyota and Lexus retail centres and 40 authorised repairers independently owned.
In Finland, we are the distributor for Jaguar, Land Rover and Mazda with four retail centres in Helsinki and three outside the city.
We aim to drive growth in market share in our Distribution business and to continue our turnaround plan for Retail. In Distribution, growth will be driven by new model launches and a focus on operational excellence, supported by tight overhead cost control. In Retail, our plan continues to focus on operational excellence and improvements in footfall conversion.
Market
In Belgium, the new car market was up by 2% for the year, although Q4 was flat versus 2007. In Greece, the market declined by 6% in 2008.The Finnish car market grew by 11% in part due to a car taxation change.
Performance
In a year that saw the run-out of many Toyota models, trading profits in our Distribution business declined by £16.8m (29.7%).The Retail business delivered a total trading profit of £0.7m which was in line with last year following our disposal in July 2008 of our French business.
In Belgium, with no new product, our Distribution business saw market share reduce by 1.0ppt versus 2007 in a market which grew by 2%. Like for like sales declined by 12.8%, and our gross margin was lower than last year due to intense competition and vehicles on run out campaigns. Together with flat overheads, trading profits were 80.3% down. The Retail business experienced like for like sales down by 7.9%, and with overheads in line with 2007 trading profits were 45.7% below last year.
In Greece, our Distribution business continued to lead the market and hold a 9.9% share of passenger car market. In the Retail business, our Customer 1st focus and business restructuring continues to deliver results. Total sales declined by 0.2%, but with tight control on overheads, total trading profits were up by 8.3%.
In Finland, we gained market share but like for like sales in our Distribution business fell by 15.8% due to a significant decline in our distribution activities in the Baltics. Although this was partly mitigated by a 1.3ppt improvement in gross margins, trading profits were 48.2% lower than 2007. However, our Retail business performed better with a 1.2% decline in like for like sales offset by a 2ppt growth in trading margins and lower overheads resulting in a like for like trading loss which was 82.7% better than 2007.
Outlook
Our markets in Europe are expected to be materially down in 2009.
In Greece, we expect to minimise the impact on trading profit by closing two loss-making retail centres, focusing on strict cost controls and by taking full advantage of the new model line up.
In Belgium, we are confident we will be able to benefit from new product launches, a continued focus on customer satisfaction, careful inventory management and the opening of a state of the art Toyota factory at Anderlecht during the year.
In Finland, we aim to offset the decline with new models exploiting trends towards diesel and the recent Co2 legislation.
Hong Kong
|
|
2008 |
2007 |
% change |
% change |
|
|
£m |
£m |
|
constant currency |
|
Sales |
291.1 |
241.5 |
20.5 |
12.3 |
|
Trading profit |
33.3 |
28.3 |
17.7 |
9.6 |
Strategy
In Hong Kong, we are the distributor for Toyota, Lexus, Hino Trucks, Daihatsu, Jaguar and Mazda. We operate VIR for these brand partners in this market. Our largest business in Hong Kong is Crown Motors, which represents Toyota, Lexus, Hino Trucks and Daihatsu. We have won the Toyota Triple Crown Award (in recognition of outstanding customer service, retail excellence and innovation) for 16 consecutive years since 1992, the only company in the world to have done so over such an extended period.
We continue to make progress in Hong Kong with a particular focus on the luxury segment through our Lexus range and will continue to expand in the growing multi passenger vehicle (MPV) segment, following the launch of new models in 2008, with further new model launches in 2009.
Market
We experienced a significant change in the market in 2008. The first three quarters saw a market growth rate of 28% however during Q4 the market declined by 41%. For the year, the market was up by 7% on 2007.
Performance
We have further strengthened our market position in Hong Kong with sales of 13,661 vehicles in 2008, representing a combined market share of 36.3%. As a result of the very solid growth in the first three quarters of the year, full year like for like sales were 20.6% better than 2007, benefiting from the launch of the Noah and Alphard models into the fast growing MPV segment. Tight overhead cost control contributed to the delivery of trading profit growth of 9.6% versus 2007 (excluding a one off profit of £2.9m related to property booked in 2007).
Outlook
Forecasts indicate the market will be materially down in 2009. We do expect that with the launch of new models during the year we will further strengthen our market position. Tight cost control and growth in aftersales continue to be the major themes in the current difficult time. Aftersales will receive increasing focus throughout 2009.
Singapore
|
|
2008 |
2007 |
% change |
% change |
|
|
£m |
£m |
|
constant currency |
|
Sales |
484.4 |
480.3 |
0.9 |
(12.2) |
|
Trading profit |
57.0 |
46.0 |
23.9 |
7.9 |
Strategy
In Singapore, we are the distributor for Toyota, Lexus, Hino Trucks and Suzuki. We have represented Toyota in Singapore since 1967, following a merger at that time with Borneo Motors, which is now a subsidiary of the Group. Borneo Motors has been Singapore's market leading retailer by sales for seven consecutive years since 2002.Our subsidiary Champion Motors has held the Suzuki distribution franchise since 1977.
Our strategy focuses on retaining market leadership with acceptable margins in an overall declining and highly competitive market. Revenue generation is focused on growing share with new model launches where possible and developing special editions of existing models to drive differentiation and margin. We continue to develop other revenue streams further, specifically in aftersales and finance.
Market
The pace of deregistrations continued to slow as expected and led to an overall market decline of 13% (excluding parallel imports) compared to 2007. Competition from parallel imports continued to increase through the first half of 2008, driven by importers selling new models from Japan and the aggressive pricing from local distributors buying in Yen. However, with strong marketing campaigns and new model launches together with the impact of the appreciation of the Yen on our competitors, we achieved a 7.9% increase in trading profit.
Performance
We have outperformed the market in the second half of 2008, thanks to an excellent product mix. Like for like sales were down by 11.9% but this was mitigated by significantly better trading margins, which grew by 2.2ppt, resulting in a full year trading profit which was 7.9% higher than 2007. Despite high competitive pressure, we have maintained our market leadership position.
As expected, our performance in the commercial vehicle segment was lower in 2008 as a result of competitor model launches. Our market share was down 6.6ppt versus 2007.
Our Suzuki business delivered another solid performance, registering a slight market share gain compared to 2007.
Outlook
The market is forecast to be materially down in light of the Land Transport Authority quota announcement and slowing deregistrations. We expect that new model and special edition launches will help us to grow market share. Our aftersales business will continue to benefit from our market leadership position.
UK
|
|
2008 |
2007 |
% change |
% change |
|
|
£m |
£m |
|
constant currency |
|
Sales |
2,340.1 |
2,713.5 |
(13.8) |
(13.8) |
|
Trading profit |
23.1 |
69.6 |
(66.8) |
(66.8) |
Strategy
In the UK, Inchcape has a significant retail business with 130 franchised retail centres and a focus on core premium / premium volume brand partners. We also operate a fleet leasing business, Inchcape Fleet Solutions (IFS).
Since May 2006, the Group has acquired and integrated Lind Automotive Group Holdings Limited and European Motor Holdings plc. The enlarged portfolio has extended the Group's geographic reach and we now have scale operations in the core regions of the South East, Midlands, North and North East of England.
We have streamlined our portfolio to focus on the following core brands: Audi, BMW, Honda, Jaguar, Land Rover, Lexus, Mercedes-Benz, MINI, Porsche, smart, Toyota and Volkswagen.
We aim to create significant differentiation by delivering an outstanding level of customer service through our Inchcape Advantage programme and drive growth in aftersales and car finance penetration.
IFS offers fleet management and leasing services to corporate and government customers. With over 50 years' experience in the automotive industry, IFS has a combined fleet size of approximately 31,000 vehicles.
Market
The economic downturn created unprecedented challenges for the UK automotive industry in 2008. We saw a significant change in the market from May 2008, with a rapid acceleration of the decline through the second and third quarters, resulting in a full year decline of 11% to 2.1m units. Diesel market share reached an all-time high of 43.6%. Market pricing was significantly affected, resulting in used car prices being well below 2007 levels.
Performance
We continue to outperform our competitors and in the face of an 11% market decline, we achieved a like for like retail sales drop of 5.4% versus 2007. Pressure on new and used margins continued throughout 2008 and as a result like for like trading margins declined from 2.4% to 1.2% in 2008.
An £8.5m increase in residual value provision in IFS has resulted in a like for like trading loss of £5.7m. This provision increase is due to the fall in used car pricing, resulting in lower than expected realisable values on leased vehicles which will be returned over the next two to three years.
Outlook
The new vehicle market is expected to decline materially in 2009. Notwithstanding this decline, much greater stability is anticipated in the used vehicle market while aftersales is expected to continue to make a significant contribution.
Russia and Emerging Markets
|
|
2008 |
2007 |
% change |
% change |
|
|
£m |
£m |
|
constant currency |
|
Sales |
929.0 |
518.6 |
79.1 |
57.1 |
|
Trading profit |
22.5 |
29.6 |
(24.0) |
(33.3) |
Strategy
We operate 20 retail businesses in Moscow and St Petersburg. Two further retail centres for Toyota are under construction, one in Moscow and one in St Petersburg.
In St Petersburg, we own and operate one of the largest car retailing businesses in the city. In 2008, we acquired a 75.1% shareholding in Musa Motors, one of the largest car retail groups in Russia, providing the Group with scale presence in the Moscow region.
We are a distributor for Toyota and Lexus in Bulgaria and Romania. In Romania, we have increased our retail presence in Bucharest with a new large-scale facility. In Bulgaria, we are increasing our retail presence in Sofia and developing our independent network in the countryside. In addition, we are the distributor for Toyota and Lexus in Macedonia and Albania.
In Poland, we retail BMW and MINI in Warsaw and Wroclaw.
In the Baltics, we are the distributor and we operate VIR for Mazda, Jaguar and Land Rover. We are also the retailer for BMW, Mitsubishi and Hyundai in these markets. We have market-leading positions in Latvia with a 12% share and in Lithuania with 15%.
In China, we have Toyota and Lexus retail centres in Shaoxing. A third retail centre, for Lexus in Shanghai, is due to open in 2009.
Market
The second half of the year saw a significant shift in all emerging markets. In Russia, the market for international brands fell by 6% in Q4, the first decline in many years. In China, although the passenger car market declined by 6% in 2008, foreign brand sales grew by 8%. The Balkans market dropped 11% in 2008 (Q4 decline of 37%) and the Baltics market declined 22% in 2008 (Q4 decline of 50%). In Poland, the market increased by 6% in 2008, largely reflecting good economic growth.
Performance
Our Musa Motors acquisition performed in line with expectations in the six months to December. Our existing business in St Petersburg delivered like for like trading profits that were 14.7% higher than 2007. Overall, Russia contributed £18.9m of trading profit to the Group in 2008.
Our performance in the Baltics was affected by a significant market decline with Latvia the worst affected. Overall trading profits declined by £9.5m versus 2007. We continue to restructure our business in the region to reflect the current and projected future business environment.
In the Balkans, overall trading profit fell by £9.0m in 2008 primarily as a result of a 78.6% drop in trading profit in Romania.
In Poland, like for like trading profit increased by 120.5% with a sales increase of 21%.
In China, we successfully opened our Lexus site in Shaoxing in January and we saw sales from our existing Toyota site grow by 56.3% versus 2007. Including the new Lexus site total revenues in China grew by 212.2%.
Outlook
In Russia, 2009 is expected to be challenging, with the market forecast to be materially down. The Group should benefit from expected increase in the highly profitable area of aftersales.
The markets in the Baltics and the Balkans are expected to be substantially down.
Although the Polish market is expected to be down in 2009, the Group expects improvements in sales processes and the opening of a new BMW retail centre for Warsaw to offset this forecast lack of growth.
In China, growth is forecast to continue, although more slowly than in recent years, and will be helped by our new Lexus site opening in Shanghai in 2009.
Rest of World
|
|
2008 |
2007 |
% change |
% change |
|
|
£m |
£m |
|
constant currency |
|
Sales |
290.6 |
241.5 |
20.3 |
12.1 |
|
Trading profit |
31.0 |
25.1 |
23.5 |
16.6 |
Strategy
Our Rest of World operations incorporate Brunei, Chile, Ethiopia, Guam, New Zealand, Peru and Saipan. In Chile and Peru, the Group is the distributor for BMW. We have represented BMW in Chile for 12 years and in Peru for eight. In addition, the Group operates VIR in Brunei, Guam and Saipan for Toyota and Lexus, whilst in Ethiopia we are the distributor and retailer of Toyota.
We will continue to focus on operational excellence in these markets and drive organisational efficiencies through tight cost controls.
Market
We saw good growth across most of the other markets in which we trade. In South America, the market in Chile grew 4% and 81% in Peru. Brunei recorded a more modest growth of 2%. In Guam, New Zealand and Saipan, the markets contracted by 2%, 5% and 6% respectively.
Performance
We continue to maintain market leadership positions in Guam, Saipan and Brunei and in 2008 these markets delivered a similar like for like trading profit to 2007.
Our business in Ethiopia delivered another solid set of results in 2008,with trading profit growth of 15.3% on sales growth of 18.5%.
We delivered a strong performance in South America. Like for like trading profits were up 56.7% compared to 2007.
In New Zealand, pressure on the new car market and used car margins and a reduction in the used car market contributed to a decline in trading profits on a like for like basis.
Outlook
We continue to be confident of good performance in many of these markets in 2009 despite an expected market decline. Focus will be on preserving our market leadership position in the luxury segment and strengthening the core business, especially aftersales.
Financial review
The Group has produced results in line with our expectations. The following Financial review details the financial implications of our operational activity and the risks which we monitor and take steps to mitigate.
Central costs
Unallocated central costs for the full year are £9.6m before exceptional items, down from £27.5m in 2007.This decrease is largely a reflection of the Group's performance during the year which has resulted in no management bonuses being paid and an overall credit being recorded in respect of share-based awards.
Joint ventures and associates
The share of profit after tax of joint ventures has decreased by £1.3m to £2.2m in 2008. This is mainly as a result of the acquisition of the remaining stake in our joint venture in Djibouti, thereby converting it to a 100% owned subsidiary.
Exceptional items
The exceptional items consist of goodwill impairment charges of £54.2m, a one off charge of £28.3m in connection with the restructuring of certain Group businesses, (which is expected to deliver approximately £58m of annualised cost savings at 2009 exchange rates) and a £3.6m exceptional tax charge. The exceptional profit recorded in 2007 related to the sale of Inchroy (£12.0m profit), Inchcape Automotive and non-core retail centres in the UK (£7.1m loss).
Net financing costs
The net financing cost of £52.0m was £18.6m higher than in 2007 and is a reflection of the Group's higher level of net debt. The majority of the additional interest relates to the financing of the Musa acquisition, together with the annualised cost of the acquisition of the Audi and Peugeot businesses in Russia, the acquisitions in the Baltics in 2007 and the higher level of working capital reflecting the downturn in the markets.
Tax
The subsidiaries headline tax rate for the year is 26% compared to 25% in 2007. This increase arises due to the mix of profits across the territories in which we operate. The rate is expected to increase in 2009 due once again to the profit mix, and to the restricted ability to obtain tax relief on UK financing costs.
Minority interests
Profits attributable to minority interests reduced to £3.9m in 2008 from £5.7m in 2007. This was largely the result of the acquisition in March 2008 of the remaining 24.9% interest in our St Petersburg businesses from the joint venture partner, the Olimp Group. The Group's minority interests at the year end principally comprise a 33% minority holding in UAB Vitvela, Lithuania and 10% in Subaru Australia.
Foreign currency
During 2008, the Group benefited by £22.9m from translation of its overseas profits into Sterling at the 2008 average exchange rate.
Following the recent fall in Sterling against most of the Group's major currencies, a Board decision has been taken to protect the 2009 earnings by purchasing Sterling call options on a matching basis with overseas earnings for all major territories, excluding Russia.
Cash flow and net debt
The Group's operations continued to be cash generative in 2008, with cash flow from operating activities of £183.7m. The tight management of working capital in the face of the downturn in the automotive sector has been a key factor in the delivery of this result.
During the year, the Group returned nearly £90m to shareholders with £73.1m through dividend payments and £16.0m through a programme of buying shares in the market. In addition, the Group invested £264.0m in acquisitions and capital expenditure, funded by additional borrowing facilities, and realised £54.5m from the disposal of businesses and other assets. Overall, the Group had net debt of £407.8m at 31 December 2008 compared to £213.5m at 31 December 2007.
Pensions
During the year, and in line with the funding programme agreed with the Trustees in 2006, the Group made cash contributions to the UK defined benefit scheme amounting to £20.8m. However, a reduction in the market value of scheme assets during 2007 has resulted in a net pension surplus at 31 December 2008 of £6.0m, compared to a net surplus at the end of 2007 of £28.5m.
Acquisitions and disposals
The Group continued its expansion in emerging markets in 2008 and invested a total of £135.4m in acquisitions, offset by total proceeds from disposal of non-core businesses of £27.3m.
In March, the Group acquired the remaining 24.9% stake in the St Petersburg business for a total cash consideration of £28.5m. As a result, the Group now owns 100% of one of the largest automotive retail businesses in St Petersburg, the second largest city in Russia.
In July, the Group acquired a 75.1% interest in Musa Motors group for an initial consideration of US$200m, with a further payment due dependent on 2008 Earnings before Interest, Tax and Amortisation (EBITA) and subject to a cap of US$250m. The remaining 24.9% is due to be acquired in early 2011 for a payment dependent on 2010 EBITA, again subject to a cap of US$250m. As a result, the Group has therefore accounted for Musa Motors group as if it was a wholly owned subsidiary. This acquisition provides the Group with a significant scale position in Moscow.
The Group disposed of its non-core Vauxhall business and majority of its Volvo retail centres in the UK for £17.0m and also sold its French operation to its management team for a consideration of £7.6m.
Capital expenditure
The Group maintained its policy of investing to improve the operating standards of its retail centres and to develop new greenfield centres at a cost of £117.8m. The Group also continued with its implementation plan for a global SAP system for its operating businesses. The first retail centre went live with the system in February 2009.
Capital expenditure relating to SAP in 2008 was £18.7m.
Barbara Richmond
Group Finance Director
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2008
|
|
Before Exceptional Items |
Exceptional Items |
Total |
Before Exceptional Items |
Exceptional Items |
Total |
|
|
2008 |
2008 |
2008 |
2007 |
2007 |
2007 |
|
|
|
(note 3) |
|
|
(note 3) |
|
|
|
£m |
£m |
£m |
£m |
£m |
£m |
|
Revenue (note 2) |
6,259.8 |
- |
6,259.8 |
6,056.8 |
|
6,056.8 |
|
Cost of sales |
(5,358.8) |
(1.8) |
(5,360.6) |
(5,174.3) |
- |
(5,174.3) |
|
Gross profit |
901.0 |
(1.8) |
899.2 |
882.5 |
- |
882.5 |
|
Net operating expenses |
(660.5) |
(80.7) |
(741.2) |
(617.5) |
4.9 |
(612.6) |
|
Operating profit (note 2) |
240.5 |
(82.5) |
158.0 |
265.0 |
4.9 |
269.9 |
|
Share of profit after tax of joint ventures and associates |
2.2 |
- |
2.2 |
3.5 |
- |
3.5 |
|
Profit before finance and tax |
242.7 |
(82.5) |
160.2 |
268.5 |
4.9 |
273.4 |
|
Finance income (note 4) |
68.4 |
- |
68.4 |
57.3 |
- |
57.3 |
|
Finance costs (note 5) |
(120.4) |
- |
(120.4) |
(90.7) |
- |
(90.7) |
|
Profit before tax |
190.7 |
(82.5) |
108.2 |
235.1 |
4.9 |
240.0 |
|
Tax |
(49.3) |
(3.6) |
(52.9) |
(57.9) |
- |
(57.9) |
|
Profit for the year |
141.4 |
(86.1) |
55.3 |
177.2 |
4.9 |
182.1 |
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
- Equity holders of the parent |
|
|
51.4 |
|
|
176.4 |
|
- Minority interests |
|
|
3.9 |
|
|
5.7 |
|
|
|
|
55.3 |
|
|
182.1 |
|
Basic earnings per share (pence) (note 7) |
11.2p |
|
|
38.0p |
|
Diluted earnings per share (pence) (note 7) |
11.2p |
|
|
37.8p |
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED 31 DECEMBER 2008
|
|
2008 |
2007 |
|
|
£m |
£m |
|
Cash flow hedges |
111.6 |
33.0 |
|
Net investment hedge |
(14.4) |
- |
|
Fair value losses on available for sale financial assets |
(1.1) |
(0.2) |
|
Effect of foreign exchange rate changes |
205.4 |
30.3 |
|
Actuarial (losses)/gains on defined benefit pension schemes |
(41.3) |
32.1 |
|
Foreign exchange gains recycled through the consolidated income statement |
(2.1) |
- |
|
Tax recognised directly in shareholders' equity |
(30.8) |
(22.2) |
|
Net gains recognised directly in shareholders' equity |
227.3 |
73.0 |
|
Profit for the year |
55.3 |
182.1 |
|
Total recognised income and expense for the year |
282.6 |
255.1 |
|
|
|
|
|
Attributable to: |
|
|
|
- Equity holders of the parent |
273.1 |
248.4 |
|
- Minority interests |
9.5 |
6.7 |
|
|
282.6 |
255.1 |
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2008
|
|
2008 |
2007 |
|
|
£m |
£m |
|
Non-current assets |
|
|
|
Intangible assets |
537.4 |
400.5 |
|
Property, plant and equipment |
708.1 |
519.3 |
|
Investments in joint ventures and associates |
21.3 |
15.3 |
|
Available for sale financial assets |
17.9 |
15.6 |
|
Trade and other receivables |
26.5 |
24.2 |
|
Deferred tax assets |
11.5 |
10.2 |
|
Retirement benefit asset |
49.4 |
51.9 |
|
|
1,372.1 |
1,037.0 |
|
Current assets |
|
|
|
Inventories |
1,084.1 |
797.5 |
|
Trade and other receivables |
271.8 |
262.6 |
|
Available for sale financial assets |
2.0 |
1.1 |
|
Derivative financial instruments |
306.9 |
12.9 |
|
Current tax assets |
6.0 |
2.9 |
|
Cash and cash equivalents |
458.0 |
343.4 |
|
|
2,128.8 |
1,420.4 |
|
Assets held for sale and disposal group (note 12) |
5.4 |
168.6 |
|
|
2,134.2 |
1,589.0 |
|
Total assets |
3,506.3 |
2,626.0 |
|
|
|
|
|
Current liabilities |
|
|
|
Trade and other payables |
(1,123.9) |
(940.2) |
|
Derivative financial instruments |
- |
(8.3) |
|
Current tax liabilities |
(48.2) |
(42.2) |
|
Provisions |
(50.6) |
(31.3) |
|
Borrowings |
(165.3) |
(155.3) |
|
|
(1,388.0) |
(1,177.3) |
|
Non-current liabilities |
|
|
|
Trade and other payables |
(78.1) |
(41.4) |
|
Provisions |
(52.0) |
(39.4) |
|
Deferred tax liabilities |
(69.1) |
(18.5) |
|
Borrowings |
(856.1) |
(409.6) |
|
Retirement benefit liability |
(43.4) |
(23.4) |
|
|
(1,098.7) |
(532.3) |
|
Liabilities directly associated with the disposal group (note 12) |
- |
(78.6) |
|
Total liabilities |
(2,486.7) |
(1,788.2) |
|
Net assets |
1,019.6 |
837.8 |
|
|
|
|
|
Shareholders' equity |
|
|
|
Share capital (note 9) |
121.9 |
121.6 |
|
Share premium (note 9) |
126.1 |
123.4 |
|
Capital redemption reserve (note 9) |
16.4 |
16.4 |
|
Other reserves (note 9) |
273.1 |
12.7 |
|
Retained earnings (note 9) |
458.0 |
539.5 |
|
Equity attributable to equity holders of the parent |
995.5 |
813.6 |
|
Minority interests (note 9) |
24.1 |
24.2 |
|
Total shareholders' equity |
1,019.6 |
837.8 |
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2008
|
|
2008 |
2007 |
|
|
£m |
£m |
|
Cash flows from operating activities |
|
|
|
Cash generated from operations (note 10a) |
183.7 |
293.0 |
|
Tax paid |
(57.6) |
(49.8) |
|
Interest received |
20.0 |
12.4 |
|
Interest paid |
(74.0) |
(49.5) |
|
Net cash generated from operating activities |
72.1 |
206.1 |
|
|
|
|
|
Cash flows from investing activities |
|
|
|
Acquisition of businesses, net of cash and overdrafts acquired |
(135.4) |
(329.6) |
|
Net cash inflow from sale of businesses |
27.3 |
85.5 |
|
Purchase of property, plant and equipment |
(117.8) |
(72.0) |
|
Purchase of intangible assets |
(10.8) |
(8.1) |
|
Proceeds from disposal of property, plant and equipment |
26.8 |
47.3 |
|
Net disposal of available for sale financial assets |
0.4 |
- |
|
Dividends received from joint ventures and associates |
1.3 |
2.6 |
|
Net cash used in investing activities |
(208.2) |
(274.3) |
|
|
|
|
|
Cash flows from financing activities |
|
|
|
Proceeds from issue of ordinary shares |
3.0 |
8.5 |
|
Share buy back programme |
(16.0) |
(18.5) |
|
Net purchase of own shares by ESOP Trust |
(4.2) |
(2.0) |
|
Cash inflow from Private Placement |
- |
277.1 |
|
Net cash inflow/(outflow) from borrowings other than Private Placement |
275.2 |
(95.5) |
|
Payment of capital element of finance leases |
(0.7) |
(0.6) |
|
Loans granted to joint ventures |
(1.7) |
- |
|
Settlement of derivatives |
17.5 |
(4.3) |
|
Equity dividends paid |
(73.1) |
(71.1) |
|
Minority dividends paid |
(2.6) |
(1.8) |
|
Net cash from financing activities |
197.4 |
91.8 |
|
|
|
|
|
Net increase in cash and cash equivalents (note 10b) |
61.3 |
23.6 |
|
Cash and cash equivalents at the beginning of the year |
198.6 |
166.2 |
|
Effect of foreign exchange rate changes |
52.9 |
8.8 |
|
Cash and cash equivalents at the end of the year |
312.8 |
198.6 |
|
|
|
|
|
Cash and cash equivalents consist of: |
|
|
|
Cash at bank and in hand |
351.3 |
273.0 |
|
Short-term bank deposits |
106.7 |
70.4 |
|
Bank overdrafts |
(145.2) |
(144.8) |
|
|
312.8 |
198.6 |
NOTES
1 BASIS OF PREPARATION AND ACCOUNTING POLICIES
BASIS OF PREPARATION
The consolidated Financial statements have been prepared on the basis of the accounting policies set out in the Annual Report and Accounts 2007, which were prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC Interpretations as adopted by the European Union and implemented in the UK, and the Listing Rules of the Financial Services Authority.
A number of new standards, amendments and interpretations are effective for the first time for 2008. The Group has adopted, with effect from 1 January 2008, the amendment to IAS 23 'Borrowing Costs' and the IFRIC interpretations noted below.
The amendment to IAS 23 removes the option of immediately expensing borrowing costs that are directly attributable to a qualifying asset. Under IAS 23, such costs are required to be capitalised as part of the cost of the relevant asset. The Group has adopted the amended standard on a prospective basis from 1 January 2008.
Borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset, are capitalised as part of the cost of that asset. All other borrowing costs are recognised as an expense in the period in which they are incurred.
Borrowing costs are capitalised from the first date on which the expenditure is incurred for the asset, borrowing costs are incurred and activities are undertaken to prepare the asset for its intended use. A Group capitalisation rate is used to determine the magnitude of borrowing costs capitalised on each qualifying asset. This rate is the weighted average of Group borrowing costs, excluding those borrowings made specifically for the purpose of obtaining a qualifying asset.
IFRIC 14 'The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction' has been adopted with effect from 1 January 2008. This interpretation provides guidance on how to assess the limit on the amount of surplus in a defined benefit scheme that can be recognised as an asset under IAS 19 Employee Benefits. The application of this Standard has affected one of the defined benefit pension schemes of the Group, with the full effect being recognised in the Statement of recognised income and expense in the year.
The consolidated Financial statements presented for the years ended 31 December 2007 and 2008 do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The Group's published Financial statements for the year ended 31 December 2007 have been reported on by the Group's auditors and filed with the Registrar of Companies. The report of the auditors was unqualified and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985. The financial information for the year ended 31 December 2008 and the comparative information have been extracted from the audited Financial statements for the year ended 31 December 2008 prepared under IFRS, which have not yet been approved by shareholders and have not yet been delivered to the Registrar.
GOING CONCERN
In determining whether the Group is a going concern, the Directors have reviewed the Group's current financial position and have prepared detailed financial projections. These projections reflect the recent unprecedented downturn in economic conditions and credit availability across the Group's operations, the actions already taken to restructure the business and the plans in place to focus operations on the five core priorities of growing market share, growing aftersales, reducing overheads, managing working capital and capital expenditure.
The projections also assume that: new car sales will continue to decline in 2009 and not begin to recover until the second half of 2010; the service and parts business will be more resilient to the downturn; lower UK interest rates will continue; key brand partners will remain in production and supply on normal terms of trade; and there will be no further significant downturn in the global economic environment.
These projections, even after allowing for headroom to accommodate a reasonable downside scenario (including weaker trading and adverse movements in currency and interest rates), indicate that the Group would be able to manage its operations so as to remain within its current facilities and in compliance with its banking covenants.
Accordingly, after making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue as a going concern for the foreseeable future. As such, the Group continues to adopt the going concern basis in preparing the annual report and accounts.
2 SEGMENTAL ANALYSIS
Primary reporting format - geographical segments
The Group's primary reporting format is by geographical segments.
The geographical segments disclosed are aligned with the risks and rewards associated with different territories. Emerging markets, are those countries in which the Group operates that have started to grow but have yet to reach a mature stage of development and accordingly are in the growth phase of the development cycle. These currently comprise Russia, China, Balkans, Baltics and Poland.
The Group's geographical 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.
Transfer prices between geographical segments are set on an arm's length basis.
|
|
Australia |
Europe |
Hong Kong |
|
2008 |
£m |
£m |
£m |
|
Revenue |
|
|
|
|
Revenue from third parties |
695.4 |
1,229.2 |
291.1 |
|
Results |
|
|
|
|
Operating profit before exceptional items |
42.6 |
40.6 |
33.3 |
|
Exceptional items |
(1.3) |
(7.0) |
(0.1) |
|
Segment result |
41.3 |
33.6 |
33.2 |
|
Share of profit after tax of joint ventures and associates |
- |
2.1 |
- |
|
Profit before finance and tax |
41.3 |
35.7 |
33.2 |
|
Finance income |
|
|
|
|
Finance costs |
|
|
|
|
Profit before tax |
|
|
|
|
Tax |
|
|
|
|
Profit for the year |
|
|
|
|
|
Singapore |
United Kingdom |
Russia and Emerging Markets |
|
2008 |
£m |
£m |
£m |
|
Revenue |
|
|
|
|
Revenue from third parties |
484.4 |
2,340.1 |
929.0 |
|
Results |
|
|
|
|
Operating profit before exceptional items |
57.0 |
23.1 |
22.5 |
|
Exceptional items |
- |
(23.1) |
(49.1) |
|
Segment result |
57.0 |
- |
(26.6) |
|
Share of profit after tax of joint ventures and associates |
- |
0.5 |
(0.4) |
|
Profit before finance and tax |
57.0 |
0.5 |
(27.0) |
|
Finance income |
|
|
|
|
Finance costs |
|
|
|
|
Profit before tax |
|
|
|
|
Tax |
|
|
|
|
Profit for the year |
|
|
|
|
|
Rest of World |
Total pre Central |
Central |
Total |
|
2008 |
£m |
£m |
£m |
£m |
|
Revenue |
|
|
|
|
|
Revenue from third parties |
290.6 |
6,259.8 |
- |
6,259.8 |
|
Results |
|
|
|
|
|
Operating profit before exceptional items |
31.0 |
250.1 |
(9.6) |
240.5 |
|
Exceptional items |
(0.5) |
(81.1) |
(1.4) |
(82.5) |
|
Segment result |
30.5 |
169.0 |
(11.0) |
158.0 |
|
Share of profit after tax of joint ventures and associates |
- |
2.2 |
- |
2.2 |
|
Profit before finance and tax |
30.5 |
171.2 |
(11.0) |
160.2 |
|
Finance income |
|
|
|
68.4 |
|
Finance costs |
|
|
|
(120.4) |
|
Profit before tax |
|
|
|
108.2 |
|
Tax |
|
|
|
(52.9) |
|
Profit for the year |
|
|
|
55.3 |
|
|
Australia |
Europe |
Hong Kong |
Singapore |
United Kingdom |
|
2008 |
£m |
£m |
£m |
£m |
£m |
|
Segment assets and liabilities |
|
|
|
|
|
|
Segment assets |
342.2 |
367.3 |
79.8 |
109.7 |
1,077.5 |
|
Investment in joint ventures and associates |
- |
11.1 |
- |
- |
4.5 |
|
Assets held for sale |
- |
5.4 |
- |
- |
- |
|
Cash and cash equivalents |
- |
- |
- |
- |
- |
|
Other unallocated assets * |
- |
- |
- |
- |
- |
|
Total assets |
342.2 |
383.8 |
79.8 |
109.7 |
1,082.0 |
|
|
|
|
|
|
|
|
Segment liabilities |
(215.6) |
(229.4) |
(18.1) |
(38.8) |
(475.2) |
|
External borrowings |
- |
- |
- |
- |
- |
|
Liabilities directly associated with the disposal group |
- |
- |
- |
- |
- |
|
Other unallocated liabilities * |
- |
- |
- |
- |
- |
|
Total liabilities |
(215.6) |
(229.4) |
(18.1) |
(38.8) |
(475.2) |
|
|
Russia and Emerging Markets |
Rest of World |
Total pre Unallocated |
Unallocated |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
|
Segment assets and liabilities |
|
|
|
|
|
|
Segment assets |
662.2 |
117.9 |
2,756.6 |
- |
2,756.6 |
|
Investment in joint ventures and associates |
5.7 |
- |
21.3 |
- |
21.3 |
|
Assets held for sale |
- |
- |
5.4 |
- |
5.4 |
|
Cash and cash equivalents |
- |
- |
- |
458.0 |
458.0 |
|
Other unallocated assets * |
- |
- |
- |
265.0 |
265.0 |
|
Total assets |
667.9 |
117.9 |
2,783.3 |
723.0 |
3,506.3 |
|
|
|
|
|
|
|
|
Segment liabilities |
(115.9) |
(60.3) |
(1,153.3) |
- |
(1,153.3) |
|
External borrowings |
- |
- |
- |
(1,021.4) |
(1,021.4) |
|
Liabilities directly associated with the disposal group |
- |
- |
- |
- |
- |
|
Other unallocated liabilities * |
- |
- |
- |
(312.0) |
(312.0) |
|
Total liabilities |
(115.9) |
(60.3) |
(1,153.3) |
(1,333.4) |
(2,486.7) |
* Other unallocated assets and liabilities include central provisions, tax, cash and debt, dividends and assets and liabilities not directly related to operating activities.
|
|
Australia |
Europe |
Hong Kong |
|
2007 |
£m |
£m |
£m |
|
Revenue |
|
|
|
|
Revenue from third parties |
657.5 |
1,203.9 |
241.5 |
|
Results |
|
|
|
|
Operating profit before exceptional items |
43.8 |
50.1 |
28.3 |
|
Exceptional items |
- |
- |
12.0 |
|
Segment result |
43.8 |
50.1 |
40.3 |
|
Share of profit after tax of joint ventures and associates |
- |
1.8 |
0.2 |
|
Profit before finance and tax |
43.8 |
51.9 |
40.5 |
|
Finance income |
|
|
|
|
Finance costs |
|
|
|
|
Profit before tax |
|
|
|
|
Tax |
|
|
|
|
Profit for the year |
|
|
|
|
|
Singapore |
United Kingdom |
Russia and Emerging Markets |
|
2007 |
£m |
£m |
£m |
|
Revenue |
|
|
|
|
Revenue from third parties |
480.3 |
2,713.5 |
518.6 |
|
Results |
|
|
|
|
Operating profit before exceptional items |
46.0 |
69.6 |
29.6 |
|
Exceptional items |
- |
(7.1) |
- |
|
Segment result |
46.0 |
62.5 |
29.6 |
|
Share of profit after tax of joint ventures and associates |
- |
0.9 |
- |
|
Profit before finance and tax |
46.0 |
63.4 |
29.6 |
|
Finance income |
|
|
|
|
Finance costs |
|
|
|
|
Profit before tax |
|
|
|
|
Tax |
|
|
|
|
Profit for the year |
|
|
|
|
|
Rest of World |
Total pre Central |
Central |
Total |
|
2007 |
£m |
£m |
£m |
£m |
|
Revenue |
|
|
|
|
|
Revenue from third parties |
241.5 |
6,056.8 |
- |
6,056.8 |
|
Results |
|
|
|
|
|
Operating profit before exceptional items |
25.1 |
292.5 |
(27.5) |
265.0 |
|
Exceptional items |
- |
4.9 |
- |
4.9 |
|
Segment result |
25.1 |
297.4 |
(27.5) |
269.9 |
|
Share of profit after tax of joint ventures and associates |
0.6 |
3.5 |
- |
3.5 |
|
Profit before finance and tax |
25.7 |
300.9 |
(27.5) |
273.4 |
|
Finance income |
|
|
|
57.3 |
|
Finance costs |
|
|
|
(90.7) |
|
Profit before tax |
|
|
|
240.0 |
|
Tax |
|
|
|
(57.9) |
|
Profit for the year |
|
|
|
182.1 |
|
|
Australia |
Europe |
Hong Kong |
Singapore |
United Kingdom |
|
2007 |
£m |
£m |
£m |
£m |
£m |
|
Segment assets and liabilities |
|
|
|
|
|
|
Segment assets |
189.1 |
361.6 |
61.2 |
80.9 |
948.3 |
|
Investment in joint ventures and associates |
- |
7.6 |
- |
- |
4.0 |
|
Assets held for sale |
1.1 |
4.0 |
- |
- |
163.5 |
|
Cash and cash equivalents |
- |
- |
- |
- |
- |
|
Other unallocated assets * |
- |
- |
- |
- |
- |
|
Total assets |
190.2 |
373.2 |
61.2 |
80.9 |
1,115.8 |
|
|
|
|
|
|
|
|
Segment liabilities |
(178.2) |
(310.4) |
(18.4) |
(25.8) |
(334.7) |
|
External borrowings |
- |
- |
- |
- |
- |
|
Liabilities directly associated with the disposal group |
- |
- |
- |
- |
(78.6) |
|
Other unallocated liabilities * |
- |
- |
- |
- |
- |
|
Total liabilities |
(178.2) |
(310.4) |
(18.4) |
(25.8) |
(413.3) |
|
|
Russia and Emerging Markets |
Rest of World |
Total pre Unallocated |
Unallocated |
Total |
|
2007 |
£m |
£m |
£m |
£m |
£m |
|
Segment assets and liabilities |
|
|
|
|
|
|
Segment assets |
311.8 |
70.8 |
2,023.7 |
- |
2,023.7 |
|
Investment in joint ventures and associates |
3.0 |
0.7 |
15.3 |
- |
15.3 |
|
Assets held for sale |
- |
- |
168.6 |
- |
168.6 |
|
Cash and cash equivalents |
- |
- |
- |
343.4 |
343.4 |
|
Other unallocated assets * |
- |
- |
- |
75.0 |
75.0 |
|
Total assets |
314.8 |
71.5 |
2,207.6 |
418.4 |
2,626.0 |
|
|
|
|
|
|
|
|
Segment liabilities |
(64.8) |
(32.9) |
(965.2) |
- |
(965.2) |
|
External borrowings |
- |
- |
- |
(564.9) |
(564.9) |
|
Liabilities directly associated with the disposal group |
- |
- |
(78.6) |
- |
(78.6) |
|
Other unallocated liabilities * |
- |
- |
- |
(179.5) |
(179.5) |
|
Total liabilities |
(64.8) |
(32.9) |
(1,043.8) |
(744.4) |
(1,788.2) |
* Other unallocated assets and liabilities include central provisions, tax, cash and debt, dividends and assets and liabilities not directly related to operating activities.
Secondary reporting format - business segments
The Group's secondary reporting format is by business segments.
The disclosures comprise two key business segments - Distribution and Retail. Distribution comprises Vertically integrated import, distribution and retail as well as import and distribution. In addition, Distribution includes Financial Services and Other businesses.
The secondary disclosures below analyse Distribution and Retail by geographical region. Additional disclosure has also been provided on the segmentation of profitability and operating assets and liabilities.
Transfer prices between business segments are set on an arm's length basis.
|
|
Australia |
Europe |
Hong Kong |
Singapore |
|
2008 |
£m |
£m |
£m |
£m |
|
Distribution |
|
|
|
|
|
Revenue |
|
|
|
|
|
Revenue from third parties |
432.2 |
837.9 |
291.1 |
484.4 |
|
Results |
|
|
|
|
|
Operating profit before exceptional items |
33.7 |
39.9 |
33.3 |
57.0 |
|
Exceptional items |
(1.3) |
(4.0) |
(0.1) |
- |
|
Segment result |
32.4 |
35.9 |
33.2 |
57.0 |
|
Share of profit after tax of joint ventures and associates |
- |
2.1 |
- |
- |
|
Profit before finance and tax |
32.4 |
38.0 |
33.2 |
57.0 |
|
|
United Kingdom |
Russia and Emerging Markets |
Rest of World |
Total Distribution |
|
2008 |
£m |
£m |
£m |
£m |
|
Distribution |
|
|
|
|
|
Revenue |
|
|
|
|
|
Revenue from third parties |
20.7 |
305.1 |
283.3 |
2,654.7 |
|
Results |
|
|
|
|
|
Operating profit before exceptional items |
(5.7) |
3.9 |
30.8 |
192.9 |
|
Exceptional items |
- |
(47.3) |
(0.5) |
(53.2) |
|
Segment result |
(5.7) |
(43.4) |
30.3 |
139.7 |
|
Share of profit after tax of joint ventures and associates |
0.2 |
- |
- |
2.3 |
|
Profit before finance and tax |
(5.5) |
(43.4) |
30.3 |
142.0 |
|
2008 |
Australia |
Europe |
Hong Kong |
Singapore |
United Kingdom |
|
Distribution |
£m |
£m |
£m |
£m |
£m |
|
Segment assets and liabilities |
|
|
|
|
|
|
Segment assets |
246.3 |
301.2 |
79.8 |
109.7 |
93.8 |
|
Investment in joint ventures and associates |
- |
11.1 |
- |
- |
1.9 |
|
Assets held for sale |
- |
- |
- |
- |
- |
|
Cash and cash equivalents |
- |
- |
- |
- |
- |
|
Other unallocated assets * |
- |
- |
- |
- |
- |
|
Total assets |
246.3 |
312.3 |
79.8 |
109.7 |
95.7 |
|
Segment liabilities |
(180.1) |
(211.7) |
(18.1) |
(38.8) |
(76.4) |
|
External borrowings |
- |
- |
- |
- |
- |
|
Liabilities directly associated with the disposal group |
- |
- |
- |
- |
- |
|
Other unallocated liabilities * |
- |
- |
- |
- |
- |
|
Total liabilities |
(180.1) |
(211.7) |
(18.1) |
(38.8) |
(76.4) |
|
2008 |
Russia and Emerging Markets |
Rest of World |
Total Distribution |
|
Distribution |
£m |
£m |
£m |
|
Segment assets and liabilities |
|
|
|
|
Segment assets |
206.1 |
115.6 |
1,152.5 |
|
Investment in joint ventures and associates |
- |
- |
13.0 |
|
Assets held for sale |
- |
- |
- |
|
Cash and cash equivalents |
- |
- |
- |
|
Other unallocated assets * |
- |
- |
- |
|
Total assets |
206.1 |
115.6 |
1,165.5 |
|
|
|
|
|
|
Segment liabilities |
(45.6) |
(60.0) |
(630.7) |
|
External borrowings |
- |
- |
- |
|
Liabilities directly associated with the disposal group |
- |
- |
- |
|
Other unallocated liabilities * |
- |
- |
- |
|
Total liabilities |
(45.6) |
(60.0) |
(630.7) |
|
|
Australia |
Europe |
United Kingdom |
Russia and Emerging Markets |
|
2008 |
£m |
£m |
£m |
£m |
|
Retail |
|
|
|
|
|
Revenue |
|
|
|
|
|
Revenue from third parties |
263.2 |
391.3 |
2,319.4 |
623.9 |
|
Results |
|
|
|
|
|
Operating profit before exceptional items |
8.9 |
0.7 |
28.8 |
18.6 |
|
Exceptional items |
- |
(3.0) |
(23.1) |
(1.8) |
|
Segment result |
8.9 |
(2.3) |
5.7 |
16.8 |
|
Share of profit after tax of joint ventures and associates |
- |
- |
0.3 |
(0.4) |
|
Profit before finance and tax |
8.9 |
(2.3) |
6.0 |
16.4 |
|
|
Rest of World |
Total Retail |
Total pre Central |
Central |
Total |
|
2008 |
£m |
£m |
£m |
£m |
£m |
|
Retail |
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
Revenue from third parties |
7.3 |
3,605.1 |
6,259.8 |
- |
6,259.8 |
|
Results |
|
|
|
|
|
|
Operating profit before exceptional items |
0.2 |
57.2 |
250.1 |
(9.6) |
240.5 |
|
Exceptional items |
- |
(27.9) |
(81.1) |
(1.4) |
(82.5) |
|
Segment result |
0.2 |
29.3 |
169.0 |
(11.0) |
158.0 |
|
Share of profit after tax of joint ventures and associates |
- |
(0.1) |
2.2 |
- |
2.2 |
|
Profit before finance and tax |
0.2 |
29.2 |
171.2 |
(11.0) |
160.2 |
|
2008 |
Australia |
Europe |
United Kingdom |
Russia and Emerging Markets |
Rest of World |
|
Retail |
£m |
£m |
£m |
£m |
£m |
|
Segment assets and liabilities |
|
|
|
|
|
|
Segment assets |
95.9 |
66.1 |
983.7 |
456.1 |
2.3 |
|
Investment in joint ventures and associates |
- |
- |
2.6 |
5.7 |
- |
|
Assets held for sale |
- |
5.4 |
- |
- |
- |
|
Cash and cash equivalents |
- |
- |
- |
- |
- |
|
Other unallocated assets * |
- |
- |
- |
- |
- |
|
Total assets |
95.9 |
71.5 |
986.3 |
461.8 |
2.3 |
|
|
|
|
|
|
|
|
Segment liabilities |
(35.5) |
(17.7) |
(398.8) |
(70.3) |
(0.3) |
|
External borrowings |
- |
- |
- |
- |
- |
|
Liabilities associated with the disposal group |
- |
- |
- |
- |
- |
|
Other unallocated liabilities * |
- |
- |
- |
- |
- |
|
Total liabilities |
(35.5) |
(17.7) |
(398.8) |
(70.3) |
(0.3) |
|
2008 |
Total Retail |
Total pre Unallocated |
Unallocated |
Total |
|
Retail |
£m |
£m |
£m |
£m |
|
Segment assets and liabilities |
|
|
|
|
|
Segment assets |
1,604.1 |
2,756.6 |
- |
2,756.6 |
|
Investment in joint ventures and associates |
8.3 |
21.3 |
- |
21.3 |
|
Assets held for sale |
5.4 |
5.4 |
- |
5.4 |
|
Cash and cash equivalents |
- |
- |
458.0 |
458.0 |
|
Other unallocated assets * |
- |
- |
265.0 |
265.0 |
|
Total assets |
1,617.8 |
2,783.3 |
723.0 |
3,506.3 |
|
|
|
|
|
|
|
Segment liabilities |
(522.6) |
(1,153.3) |
- |
(1,153.3) |
|
External borrowings |
- |
- |
(1,021.4) |
(1,021.4) |
|
Liabilities associated with the disposal group |
- |
- |
- |
- |
|
Other unallocated liabilities * |
- |
- |
(312.0) |
(312.0) |
|
Total liabilities |
(522.6) |
(1,153.3) |
(1,333.4) |
(2,486.7) |
|
2007 |
Australia |
Europe |
Hong Kong |
Singapore |
|
Distribution |
£m |
£m |
£m |
£m |
|
Revenue |
|
|
|
|
|
Revenue from third parties |
416.6 |
824.1 |
241.5 |
480.3 |
|
Results |
|
|
|
|
|
Operating profit before exceptional items |
35.0 |
49.3 |
28.3 |
46.0 |
|
Exceptional items |
- |
- |
12.0 |
- |
|
Segment result |
35.0 |
49.3 |
40.3 |
46.0 |
|
Share of profit after tax of joint ventures and associates |
- |
1.8 |
0.2 |
- |
|
Profit before finance and tax |
35.0 |
51.1 |
40.5 |
46.0 |
|
Finance income |
|
|
|
|
|
Finance costs |
|
|
|
|
|
Profit before tax |
|
|
|
|
|
Tax |
|
|
|
|
|
Profit for the year |
|
|
|
|
|
2007 |
United Kingdom |
Russia and Emerging Markets |
Rest of World |
Total Distribution |
|
Distribution |
£m |
£m |
£m |
£m |
|
Revenue |
|
|
|
|
|
Revenue from third parties |
67.5 |
242.0 |
237.5 |
2,509.5 |
|
Results |
|
|
|
|
|
Operating profit before exceptional items |
4.9 |
16.4 |
25.0 |
204.9 |
|
Exceptional items |
(8.8) |
- |
- |
3.2 |
|
Segment result |
(3.9) |
16.4 |
25.0 |
208.1 |
|
Share of profit after tax of joint ventures and associates |
0.9 |
- |
0.6 |
3.5 |
|
Profit before finance and tax |
(3.0) |
16.4 |
25.6 |
211.6 |
|
Finance income |
|
|
|
|
|
Finance costs |
|
|
|
|
|
Profit before tax |
|
|
|
|
|
Tax |
|
|
|
|
|
Profit for the year |
|
|
|
|
|
2007 |
Australia |
Europe |
Hong Kong |
Singapore |
United Kingdom |
|
Distribution |
£m |
£m |
£m |
£m |
£m |
|
Segment assets and liabilities |
|
|
|
|
|
|
Segment assets |
102.5 |
272.7 |
61.2 |
80.9 |
67.7 |
|
Investment in joint ventures and associates |
- |
7.6 |
- |
- |
1.9 |
|
Assets held for sale |
1.1 |
4.0 |
- |
- |
- |
|
Cash and cash equivalents |
- |
- |
- |
- |
- |
|
Other unallocated assets* |
- |
- |
- |
- |
- |
|
Total assets |
103.6 |
284.3 |
61.2 |
80.9 |
69.6 |
|
|
|
|
|
|
|
|
Segment liabilities |
(146.8) |
(276.2) |
(18.4) |
(25.8) |
(49.0) |
|
External borrowings |
- |
- |
- |
- |
- |
|
Liabilities associated with disposal group |
- |
- |
- |
- |
- |
|
Other unallocated liabilities * |
- |
- |
- |
- |
- |
|
Total liabilities |
(146.8) |
(276.2) |
(18.4) |
(25.8) |
(49.0) |
|
2007 |
Russia and Emerging Markets |
Rest of World |
Total Distribution |
|
Distribution |
£m |
£m |
£m |
|
Segment assets and liabilities |
|
|
|
|
Segment assets |
180.4 |
68.6 |
834.0 |
|
Investment in joint ventures and associates |
- |
0.7 |
10.2 |
|
Assets held for sale |
- |
- |
5.1 |
|
Cash and cash equivalents |
- |
- |
- |
|
Other unallocated assets* |
- |
- |
- |
|
Total assets |
180.4 |
69.3 |
849.3 |
|
|
|
|
|
|
Segment liabilities |
(48.5) |
(32.5) |
(597.2) |
|
External borrowings |
- |
- |
- |
|
Liabilities associated with disposal group |
- |
- |
- |
|
Other unallocated liabilities * |
- |
- |
- |
|
Total liabilities |
(48.5) |
(32.5) |
(597.2) |
* Other unallocated assets and liabilities include central provisions, tax, cash and debt, dividends and assets and liabilities not directly related to operating activities.
|
2007 |
Australia |
Europe |
United Kingdom |
Russia and Emerging Markets |
Rest of World |
|
Retail |
£m |
£m |
£m |
£m |
£m |
|
Revenue |
|
|
|
|
|
|
Revenue from third parties |
240.9 |
379.8 |
2,646.0 |
276.6 |
4.0 |
|
Results |
|
|
|
|
|
|
Operating profit before exceptional items |
8.8 |
0.8 |
64.7 |
13.2 |
0.1 |
|
Exceptional items |
- |
- |
1.7 |
- |
- |
|
Segment result |
8.8 |
0.8 |
66.4 |
13.2 |
0.1 |
|
Share of profit after tax of joint ventures and associates |
- |
- |
- |
- |
- |
|
Profit before finance and tax |
8.8 |
0.8 |
66.4 |
13.2 |
0.1 |
|
Finance income |
|
|
|
|
|
|
Finance costs |
|
|
|
|
|
|
Profit before tax |
|
|
|
|
|
|
Tax |
|
|
|
|
|
|
Profit for the year |
|
|
|
|
|
|
2007 |
Total Retail |
Total pre Central |
Central |
Total |
|
Retail |
£m |
£m |
£m |
£m |
|
Revenue |
|
|
|
|
|
Revenue from third parties |
3,547.3 |
6,056.8 |
- |
6,056.8 |
|
Results |
|
|
|
|
|
Operating profit before exceptional items |
87.6 |
292.5 |
(27.5) |
265.0 |
|
Exceptional items |
1.7 |
4.9 |
- |
4.9 |
|
Segment result |
89.3 |
297.4 |
(27.5) |
269.9 |
|
Share of profit after tax of joint ventures and associates |
- |
3.5 |
- |
3.5 |
|
Profit before finance and tax |
89.3 |
300.9 |
(27.5) |
273.4 |
|
Finance income |
|
|
|
57.3 |
|
Finance costs |
|
|
|
(90.7) |
|
Profit before tax |
|
|
|
240.0 |
|
Tax |
|
|
|
(57.9) |
|
Profit for the year |
|
|
|
182.1 |
|
2007 |
Australia |
Europe |
United Kingdom |
Russia and Emerging Markets |
Rest of World |
|
Retail |
£m |
£m |
£m |
£m |
£m |
|
Segment assets and liabilities |
|
|
|
|
|
|
Segment assets |
86.6 |
88.9 |
880.6 |
131.4 |
2.2 |
|
Investment in joint ventures and associates |
- |
- |
2.1 |
3.0 |
- |
|
Assets held for sale |
- |
- |
163.5 |
- |
- |
|
Cash and cash equivalents |
- |
- |
- |
- |
- |
|
Other unallocated assets* |
- |
- |
- |
- |
- |
|
Total assets |
86.6 |
88.9 |
1,046.2 |
134.4 |
2.2 |
|
|
|
|
|
|
|
|
Segment liabilities |
(31.4) |
(34.2) |
(285.7) |
(16.3) |
(0.4) |
|
External borrowings |
- |
- |
- |
- |
- |
|
Liabilities associated with the disposal group |
- |
- |
(78.6) |
- |
- |
|
Other unallocated liabilities * |
- |
- |
- |
- |
- |
|
Total liabilities |
(31.4) |
(34.2) |
(364.3) |
(16.3) |
(0.4) |
|
2007 |
Total Retail |
Total pre Unallocated |
Unallocated |
Total |
|
Retail |
£m |
£m |
£m |
£m |
|
Segment assets and liabilities |
|
|
|
|
|
Segment assets |
1,189.7 |
2,023.7 |
- |
2,023.7 |
|
Investment in joint ventures and associates |
5.1 |
15.3 |
- |
15.3 |
|
Assets held for sale |
163.5 |
168.6 |
- |
168.6 |
|
Cash and cash equivalents |
- |
- |
343.4 |
343.4 |
|
Other unallocated assets* |
- |
- |
75.0 |
75.0 |
|
Total assets |
1,358.3 |
2,207.6 |
418.4 |
2,626.0 |
|
|
|
|
|
|
|
Segment liabilities |
(368.0) |
(965.2) |
- |
(965.2) |
|
External borrowings |
- |
- |
(564.9) |
(564.9) |
|
Liabilities associated with the disposal group |
(78.6) |
(78.6) |
- |
(78.6) |
|
Other unallocated liabilities * |
- |
- |
(179.5) |
(179.5) |
|
Total liabilities |
(446.6) |
(1,043.8) |
(744.4) |
(1,788.2) |
* Other unallocated assets and liabilities include central provisions, tax, cash and debt, dividends and assets and liabilities not directly related to operating activities.
3 EXCEPTIONAL ITEMS
|
|
2008 |
2007 |
|
|
£m |
£m |
|
|
|
|
|
Profit on disposal of Inchroy joint venture |
- |
12.0 |
|
Loss on disposal of Inchcape Automotive Limited |
- |
(5.8) |
|
Loss on disposal of other UK businesses |
- |
(1.3) |
|
Goodwill impairment |
(54.2) |
- |
|
Restructuring costs |
(28.3) |
- |
|
Operating exceptional items |
(82.5) |
4.9 |
|
Exceptional tax |
(3.6) |
- |
|
Total exceptional items |
(86.1) |
4.9 |
4 FINANCE INCOME
|
|
2008 |
2007 |
|
|
£m |
£m |
|
|
|
|
|
Bank and other interest receivable |
16.9 |
11.6 |
|
Expected return on post-retirement plan assets |
49.4 |
43.8 |
|
Other finance income |
2.1 |
1.9 |
|
Total finance income |
68.4 |
57.3 |
5 FINANCE COSTS
|
|
2008 |
2007 |
|
|
£m |
£m |
|
|
|
|
|
Interest payable on bank borrowings |
11.7 |
8.9 |
|
Interest payable on Private Placement |
18.2 |
11.3 |
|
Interest payable on revolving credit facility |
11.3 |
2.9 |
|
Interest payable on other borrowings |
3.2 |
6.4 |
|
Fair value gain on cross-currency interest rate swaps |
(147.6) |
(8.0) |
|
Fair value adjustment on Private Placement |
144.8 |
8.3 |
|
Stock holding interest |
21.5 |
18.2 |
|
Interest expense on post-retirement plan liabilities |
43.1 |
39.1 |
|
Other finance costs |
17.1 |
3.6 |
|
Capitalised borrowing costs |
(2.9) |
- |
|
Total finance costs |
120.4 |
90.7 |
6 TAX
|
|
2008 |
2007 |
|
Current tax: |
£m |
£m |
|
|
|
|
|
- UK corporation tax |
8.0 |
36.9 |
|
- Double tax relief |
(11.6) |
(30.1) |
|
Current tax - UK |
(3.6) |
6.8 |
|
Current tax - Overseas |
56.8 |
54.6 |
|
|
53.2 |
61.4 |
|
Adjustments to prior year liabilities |
|
|
|
- UK |
1.0 |
2.1 |
|
- Overseas |
(1.0) |
(0.9) |
|
Current tax |
53.2 |
62.6 |
|
Deferred tax |
(3.9) |
(4.7) |
|
Tax before exceptional tax |
49.3 |
57.9 |
|
Exceptional tax - current tax |
(2.4) |
- |
|
Exceptional tax - deferred tax |
6.0 |
- |
|
Exceptional tax |
3.6 |
- |
|
Total tax charge |
52.9 |
57.9 |
The effective tax rate for the year of 25.9% before exceptional items (2007 - 24.6%) is higher than the standard rate of tax of 20.4% (2007 - 21.4%). The standard rate comprises the average statutory rates across the Group, weighted in proportion to accounting profits.
7 EARNINGS PER SHARE
|
|
2008 |
2007 |
|
|
£m |
£m |
|
Profit for the year |
55.3 |
182.1 |
|
Minority interests |
(3.9) |
(5.7) |
|
Basic earnings |
51.4 |
176.4 |
|
Exceptional items |
86.1 |
(4.9) |
|
Adjusted earnings |
137.5 |
171.5 |
|
|
|
|
|
Basic earnings per share |
11.2p |
38.0p |
|
Diluted earnings per share |
11.2p |
37.8p |
|
Basic Adjusted earnings per share |
30.0p |
37.0p |
|
Diluted Adjusted earnings per share |
29.9p |
36.8p |
|
|
2008 |
2007 |
|
|
number |
number |
|
Weighted average number of fully paid ordinary shares in issue during the year |
486,854,223 |
484,498,889 |
|
- Held by the ESOP Trust |
(1,257,218) |
(1,760,001) |
|
- Repurchased as part of the share buy back programme |
(26,602,853) |
(18,625,305) |
|
Weighted average number of fully paid ordinary shares for the purposes of basic EPS |
458,994,152 |
464,113,583 |
|
Dilutive effect of potential ordinary shares |
290,040 |
2,285,346 |
|
Adjusted weighted average number of fully paid ordinary shares in issue during the year for the purposes of diluted EPS |
459,284,192 |
466,398,929 |
Basic earnings per share is calculated by dividing the basic earnings for the year by the weighted average number of fully paid ordinary shares in issue during the year, less those shares held by the ESOP Trust and those repurchased as part of the share buy back programme.
Diluted earnings per share is calculated on the same basis as the basic 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 deferred bonus plan awards.
Adjusted earnings (which excludes exceptional 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 ESOP Trust and those repurchased as part of the share buy back 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 deferred bonus plan awards.
8 DIVIDENDS
The following dividends were paid by the Group:
|
|
2008 |
2007 |
|
|
£m |
£m |
|
Interim dividend for the six months ended 30 June 2008 of 5.46p per share (2007 - 5.25p per share) |
25.0 |
24.5 |
|
Final dividend for the year ended 31 December 2007 of 10.5p per share (2006 - 10.0p per share) |
48.1 |
46.6 |
|
|
73.1 |
71.1 |
There is no proposal to pay a final dividend for the year ending 31 December 2008. Dividends paid above exclude £4.6m (2007 - £3.0m) payable on treasury shares and shares held by the ESOP Trust.
9 SHAREHOLDERS' EQUITY
|
|
Share capital |
Share premium |
Capital redemption reserve |
Other reserves |
|
|
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
At 1 January 2007 |
120.6 |
115.9 |
16.4 |
(37.7) |
|
|
|
|
|
|
|
Total recognised income and expense for the year |
- |
- |
- |
50.4 |
|
Share-based payments charge |
- |
- |
- |
- |
|
Net purchase of own shares by ESOP Trust |
- |
- |
- |
- |
|
Share buy back programme |
- |
- |
- |
- |
|
Dividends: |
|
|
|
|
|
- Equity holders of the parent |
- |
- |
- |
- |
|
- Minority interests |
- |
- |
- |
- |
|
Issue of ordinary share capital |
1.0 |
7.5 |
- |
- |
|
Acquisition of business |
- |
- |
- |
- |
|
At 1 January 2008 |
121.6 |
123.4 |
16.4 |
12.7 |
|
|
|
|
|
|
|
Total recognised income and expense for the year |
- |
- |
- |
260.4 |
|
Share-based payments credit |
- |
- |
- |
- |
|
Net purchase of own shares by ESOP Trust |
- |
- |
- |
- |
|
Share buy back programme |
- |
- |
- |
- |
|
Dividends: |
|
|
|
|
|
- Equity holders of the parent |
- |
- |
- |
- |
|
- Minority interests |
- |
- |
- |
- |
|
Issue of ordinary share capital |
0.3 |
2.7 |
- |
- |
|
Acquisition of businesses |
- |
- |
- |
- |
|
Acquisition of minority interest |
- |
- |
- |
- |
|
At 31 December 2008 |
121.9 |
126.1 |
16.4 |
273.1 |
|
|
Retained earnings |
Equity attributable to equity holders of the parent |
Minority interest |
Total shareholders' equity |
|
|
£m |
£m |
£m |
£m |
|
|
|
|
|
|
|
At 1 January 2007 |
428.6 |
643.8 |
7.2 |
651.0 |
|
|
|
|
|
|
|
Total recognised income and expense for the year |
198.0 |
248.4 |
6.7 |
255.1 |
|
Share-based payments charge |
4.5 |
4.5 |
- |
4.5 |
|
Net purchase of own shares by ESOP Trust |
(2.0) |
(2.0) |
- |
(2.0) |
|
Share buy back programme |
(18.5) |
(18.5) |
- |
(18.5) |
|
Dividends: |
|
|
|
|
|
- Equity holders of the parent |
(71.1) |
(71.1) |
- |
(71.1) |
|
- Minority interests |
- |
- |
(1.8) |
(1.8) |
|
Issue of ordinary share capital |
- |
8.5 |
- |
8.5 |
|
Acquisition of business |
- |
- |
12.1 |
12.1 |
|
At 1 January 2008 |
539.5 |
813.6 |
24.2 |
837.8 |
|
|
|
|
|
|
|
Total recognised income and expense for the year |
12.7 |
273.1 |
9.5 |
282.6 |
|
Share-based payments credit |
(0.9) |
(0.9) |
- |
(0.9) |
|
Net purchase of own shares by ESOP Trust |
(4.2) |
(4.2) |
- |
(4.2) |
|
Share buy back programme |
(16.0) |
(16.0) |
- |
(16.0) |
|
Dividends: |
|
|
|
|
|
- Equity holders of the parent |
(73.1) |
(73.1) |
- |
(73.1) |
|
- Minority interests |
- |
- |
(2.6) |
(2.6) |
|
Issue of ordinary share capital |
- |
3.0 |
- |
3.0 |
|
Acquisition of businesses |
- |
- |
0.6 |
0.6 |
|
Acquisition of minority interest |
- |
- |
(7.6) |
(7.6) |
|
At 31 December 2008 |
458.0 |
995.5 |
24.1 |
1,019.6 |
The increase in shareholder's equity during the period relates to share options exercised.
During the year, the Group repurchased 4,460,000 (2007 - 4,535,000) of its own shares through purchases on the London Stock Exchange. The total consideration paid was £16.0m (2007 - £18.5m) and this has been deducted from the Retained earnings reserve. The shares repurchased during the year equate to 0.9% (2007 - 0.9%) of the issued share capital. The shares are held as treasury shares and may either be cancelled or used to satisfy share options at a later date.
10 NOTES TO THE CASH FLOW STATEMENT
|
|
2008 |
2007 |
|
|
£m |
£m |
|
a Cash flows from operating activities |
|
|
|
|
|
|
|
Operating profit |
158.0 |
269.9 |
|
Exceptional items |
82.5 |
(4.9) |
|
Amortisation |
3.7 |
6.5 |
|
Depreciation |
27.5 |
27.2 |
|
Profit on disposal of property, plant and equipment |
(2.6) |
(9.0) |
|
Share-based payments (credit)/charge |
(0.9) |
4.5 |
|
Increase in inventories |
(27.9) |
(13.9) |
|
Decrease/(increase) in trade and other receivables |
65.6 |
(2.3) |
|
(Decrease)/increase/ in trade and other payables |
(112.8) |
30.8 |
|
Increase in provisions |
7.9 |
8.1 |
|
Decrease in post-retirement defined benefits * |
(16.2) |
(15.4) |
|
Movement in vehicles subject to residual value commitments |
4.3 |
(7.0) |
|
Payment in respect of operating exceptional items |
(5.8) |
- |
|
Other items |
0.4 |
(1.5) |
|
Cash generated from operations |
183.7 |
293.0 |
* The decrease in post-retirement defined benefits includes additional payments of £16.1m (2007 - £14.8m).
|
|
2008 |
2007 |
|
b Reconciliation of net cash flow to movement in net debt |
£m |
£m |
|
|
|
|
|
Net increase in cash and cash equivalents |
61.3 |
23.6 |
|
Net cash inflow from borrowings and finance leases |
(274.5) |
(181.0) |
|
Change in net cash and debt resulting from cash flows |
(213.2) |
(157.4) |
|
Effect of foreign exchange rate changes on net cash and debt |
33.7 |
8.8 |
|
Loan notes issued on acquisition |
- |
(4.5) |
|
Net movement in fair value |
2.8 |
(0.3) |
|
Net loans and finance leases relating to acquisitions and disposals |
(17.6) |
(41.1) |
|
Movement in net debt |
(194.3) |
(194.5) |
|
Opening net debt |
(213.5) |
(19.0) |
|
Closing net debt |
(407.8) |
(213.5) |
Net debt has been restated for this note to include the derivative relating to the Private Placement borrowing and is analysed as follows:
|
|
2008 |
2007 |
|
|
£m |
£m |
|
|
|
|
|
Cash at bank and in hand |
351.3 |
273.0 |
|
Short-term bank deposits |
106.7 |
70.4 |
|
Bank overdrafts |
(145.2) |
(144.8) |
|
Cash and cash equivalents |
312.8 |
198.6 |
|
Bank loans |
(858.0) |
(409.0) |
|
Other loans |
(9.2) |
(5.1) |
|
Finance leases |
(9.0) |
(6.0) |
|
|
(563.4) |
(221.5) |
|
Fair value of cross-currency interest rate swap |
155.6 |
8.0 |
|
Net debt |
(407.8) |
(213.5) |
11 ACQUISITIONS AND DISPOSALS
Acquisitions
On 8 July 2008, 75.1% of the issued share capital of Musa Motors was purchased for a cash consideration of US$200.0m. This US$200.0m is an initial down payment, with a further payment due which is dependent on 2008 EBITA less acquired debt, subject to a cap of US$250m in total. The remaining 24.9% is to be acquired in early 2011, with payment dependent on 2010 EBITA, capped at US$250m.
On 25 March 2008, the Group acquired the remaining 24.9% stake in its St Petersburg business from its joint venture partner, Olimp Group, for total cash consideration of £28.5m, with goodwill arising on this acquisition of £20.9m. This eliminates the minority interest previously accounted for.
Disposals
The Group disposed of a number of dealerships and operations during the year, with net disposal proceeds of £27.3m, and a loss on disposal of businesses of £1.2m, which has not been disclosed as an exceptional item. These disposals include the disposal of the Group's business in France for a profit on disposal of £0.4m (after £2.1m adjustment for historical foreign currency differences recycled to the consolidated income statement on disposal), satisfied by a pre-completion reduction in capital of £18m and disposal proceeds of £7.6m, and the disposal of various retail outlets in the UK for £18.9m (loss on disposal £2.5m). Additionally, an asset swap in Australia during the period gave rise to a net gain of £0.8m, recognised in the consolidated income statement.
12 ASSETS HELD FOR SALE AND DISPOSAL GROUP
|
|
2008 |
2007 |
|
|
£m |
£m |
|
|
|
|
|
Assets directly associated with the disposal group |
- |
163.5 |
|
Assets held for sale |
5.4 |
5.1 |
|
Assets held for sale and disposal group |
5.4 |
168.6 |
|
Liabilities directly associated with the disposal group |
- |
(78.6) |
|
|
|
|
|
The assets and liabilities in the disposal group comprise the following: |
|
|
|
Goodwill |
- |
11.1 |
|
Property, plant and equipment |
- |
48.6 |
|
Inventories |
- |
81.0 |
|
Trade and other receivables |
- |
22.8 |
|
Assets held for sale and disposal group |
- |
163.5 |
|
|
|
|
|
Trade and other payables |
- |
(78.6) |
|
Liabilities directly associated with the disposal group |
- |
(78.6) |
Following the Group's announcement of its intention to dispose of certain non-core franchises in the UK, a number of UK businesses were classified in the disposal group in 2007. The disposal of these non-core businesses progressed during 2008 and businesses with net assets of £20.3m were disposed of during the year. Following the acquisition of the Jaguar and Land Rover franchises by Tata, the Board decided to retain these brands in the UK and these businesses were therefore removed from the disposal group.
Assets held for sale in 2008 relate to surplus properties which are being actively marketed.
13 FOREIGN CURRENCY TRANSLATION
The main exchange rates used for translation purposes are as follows:
|
|
|
Average rates |
|
Year end rates |
|
|
2008 |
2007 |
2008 |
2007 |
|
|
|
|
|
|
|
Australian dollar |
2.19 |
2.39 |
2.06 |
2.27 |
|
Euro |
1.27 |
1.46 |
1.03 |
1.36 |
|
Hong Kong dollar |
14.56 |
15.63 |
11.14 |
15.52 |
|
Singapore dollar |
2.63 |
3.02 |
2.07 |
2.87 |
14 POST BALANCE SHEET EVENTS
On 19 March 2009, the Group announced its proposal to raise net proceeds of approximately £232m through a Rights Issue. The Directors intend that the net proceeds would be used to reduce indebtedness, which in the short-term will increase headroom and delay refinancing of existing facilities. In the longer-term the Group will be in a better position to take advantage of market recovery.
Principal business risk factors
Enterprise risk identification and management
The Group applies an effective system of Risk management in terms of identifying and monitoring actions to manage these risks.
Risk is a part of doing business; the risk management system aims to provide assurance to the Board on the effectiveness of our control framework in managing risk against a background of highly diverse and competitive markets. The key benefits of the system include: maximised resource efficiency through controlled prioritisation of issues, benchmarking between business units, sharing of best practice and effective crisis management.
The following provides an overview of the principal business risk areas facing the Group along with a description, where relevant, of the mitigating actions in place.
Market conditions
Over the past 12 months, the global car industry has suffered an unprecedented and rapid downturn. This downturn and the broader economic conditions have had an impact on the Group. The Group is focusing on five core business priorities. This focus is intended to position the Group to take advantage of improvements in the markets in which it operates as and when they begin to recover.
Another aspect of the current market conditions is the availability of credit for our customers. Inchcape is using its relationships with external finance providers and its brand partners to try and secure such credit on acceptable terms.
Brand partners
The strength of relationships with our brand partners is critical to the ongoing success of the Group. We maintain these relationships through constant focus on performance, effective communication and ensuring that our objectives are closely aligned to those of our brand partners.
The brand partners whom we represent may also be affected by the current downturn, which in turn could have an impact on the Group. However, we believe that our brand partners are amongst the strongest in the industry and are therefore best placed to weather the current market conditions.
Treasury management and policy
The centralised treasury department manages the key financial risks of the Group encompassing funding and liquidity risk, interest rate risk, counterparty risk and currency risk. The Treasury function operates as a service centre under Board-approved objectives and policies.
Funding and liquidity risk
The Group's policy is to ensure that the funding requirements forecast by the Group can be met within available, committed facilities.
The inventory lead time in the automotive industry can present a liquidity risk in a contracting market, however this is offset by strict controls on inventory levels which were tightened across the Group during the year. Access to supplier credit also reduces the Group's exposure to current credit markets, as this funding is generally available on extended and favourable terms, even in a contracting market, and this credit funds the largest cash outflows of the Group.
The effect of the current general reduction in credit availability has not yet increased the liquidity risk exposure of the Group, as the actual liquidity position of the Group is secure in the medium term, due to the current committed and available borrowing facilities in place.
At the end of the year the Group's principal committed facility for general corporate purposes, was a five year syndicated £500m revolving credit facility put in place with relationship banks in April 2007. In April 2008 the maturity of this facility was extended for an additional year to 2013.This facility was drawn by £370m at the year end. A three year term loan of £35m put in place in April 2007 was fully drawn during the year.
The Group also has in place funding with Private Placement loan notes totalling $550m. Loan notes totalling $350m mature in May 2017 and a further $200m of loan notes mature in May 2019.
In July 2008 the Group put in place a three year syndicated £185m revolving credit facility and a £40m bilateral facility with relationship banks. These facilities were not drawn at the year end.
The committed bank facilities and Private Placement borrowings are all the subject of one financial covenant being an interest cover covenant based on an adjusted EBITA measure to interest on consolidated borrowings. The covenant is tested on a trailing 12 month basis at 30 June and 31 December each year and is required to be not less than three to one. The Group was compliant with this covenant during the year and regularly monitors actual and prospective compliance.
The proceeds of the Rights Issue, announced on 19 March 2009, are intended to reduce indebtedness which in the short term will further increase headroom and delay the refinancing of existing facilities. In the longer-term this will better position the Group to take advantage of market recovery.
Currency risk
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 businesses with our brand partners. For those businesses that continue to be billed in foreign currency, Group policy is that committed transactional exposures are hedged into the reporting currency of that business. If possible, foreign exchange exposures will be matched internally before hedging externally.
The Group also faces currency risk on the translation of its earnings and net assets, a significant proportion of which are in currencies other than Sterling. On translation into Sterling, currency movements can affect the Group income statement and balance sheet.
Historically the Group has adopted a policy of not hedging the translation of its overseas earnings. This policy has been reviewed in the light of the increasingly high proportion of the Group's earnings from overseas and a new policy has been adopted, effective for 2009,which gives management the opportunity to hedge translation exposures. Any hedges put in place take into account current exchange rates and management expectations for future exchange rate movements. The purchase of options are approved instruments for hedging translation exposures.
Hedging instruments are approved by the Board and are restricted to forward foreign exchange contracts, currency options and foreign exchange currency swaps. Foreign exchange currency swaps are also used to hedge transaction exposures arising on cross border Group loans.
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. Throughout 2008 the Group has borrowed at floating rates only (after taking into account existing interest rate hedging activities) with the exception of US$75m at a fixed rate of 5.94% in the UK and £11.5m in Russia. This approach reflects the reduction in interest rates during 2008 and the benign interest outlook.
Group policy permits the fixing of up to 30% of gross borrowings at fixed interest rates if deemed appropriate by management.
Should further interest rate hedging activities be undertaken in the future, the Board has approved the use of interest rate swaps, forward rate agreements and options.
Counterparty risk
The amount due from counterparties, arising from cash deposits and the use of financial instruments, creates credit risk. Limits are in place which reduce credit risk by stipulating the aggregate amount and duration of exposure to any one counterparty dependent upon the applicable credit rating. Credit ratings and the appropriate limits are reviewed regularly.
There is also a risk in the current economic climate where the Group operates distribution businesses relating to the financial health of the Group's third party dealer networks. However, the Group has a long and successful history of managing distribution businesses and an experienced management team running day-to-day operations.
Pensions
The Group has defined benefit pension schemes to which it may be required to increase its contributions in the event of an adverse change in the Group's financial position and/or to fund an increase in the cost of future benefits. The Group maintains an open dialogue with the pension trustees to ensure that they have appropriate information upon which to base their decisions.
Acquisition integration
The Group has grown considerably in recent years as a result of acquisitions. Due to the unprecedented economic downturn, it is possible that the Group will not realise all the projected benefits of the acquisitions, however the Group continues to integrate the acquired entities successfully.
Litigation and Regulatory Risk
The Group is subject to laws and regulations in each of the countries in which it operates, all of which are subject to change and which if breached could have an impact on its business. The Group ensures that it obtains timely information about forthcoming changes and that it has robust procedures in place to minimise any risk of detriment or non compliance.
The Group's operations also expose it to the risk of litigation. In order to mitigate this risk, processes are in place which are aimed at reducing the potential for litigation and for escalating any problems which do arise with a view to managing the exposure appropriately.
Attracting, developing and retaining talented employees
The ability of the Group to achieve its strategic objectives depends partly on its ability to recruit, retain and develop highly skilled competent people at all levels. The Group has a talent review process, remuneration is externally benchmarked to ensure ongoing competitiveness and succession plans are developed for all key positions.
Related party transactions
The Company entered into no related party transactions that require disclosure.
The Group disclosures are as follows:
a. Principal subsidiaries and joint ventures
The consolidated Financial statements include the principal subsidiaries and joint ventures listed below:
|
Subsidiary |
Country of incorporation |
Shareholding |
Description |
|
Subaru (Australia) Pty Limited |
Australia |
90.00% |
Distribution |
|
Toyota Belgium NV/SA |
Belgium |
100.00% |
Distribution |
|
The Motor & Engineering Company of Ethiopia Ltd S.C. |
Ethiopia |
94.10% |
Distribution |
|
Inchcape Motors Finland OY |
Finland |
100.00% |
Distribution |
|
Toyota Hellas SA |
Greece |
100.00% |
Distribution |
|
Crown Motors Limited |
Hong Kong |
100.00% |
Distribution |
|
Inchcape Olimp OOO |
Russia |
100.00% |
Retail |
|
Musa Motors Group |
Russia |
75.10% |
Retail |
|
Borneo Motors (Singapore) Pte Ltd |
Singapore |
100.00% |
Distribution |
|
Baltic Motors Group |
Latvia |
100.00% |
Distribution |
|
Inchcape Finance plc |
United Kingdom |
100.00% |
Central treasury company |
|
Inchcape Fleet Solutions Limited |
United Kingdom |
100.00% |
Financial services* |
|
Inchcape International Holdings Limited |
United Kingdom |
100.00% |
Intermediate holding company |
|
Inchcape Retail Limited |
United Kingdom |
100.00% |
Retail |
|
The Cooper Group Limited |
United Kingdom |
100.00% |
Retail |
|
European Motor Holdings Limited |
United Kingdom |
100.00% |
Retail |
|
Lind Limited |
United Kingdom |
100.00% |
Retail |
|
Joint Ventures |
|
|
|
|
Unitfin SA |
Greece |
60.00% |
Financial Services |
|
Tefin SA |
Greece |
50.00% |
Financial Services |
* Included within Distribution in the business segmental analysis
The ultimate parent company of the Group is Inchcape plc, a company incorporated and domiciled in England and Wales and listed on the London Stock Exchange.
b. Trading transactions
Intra-group transactions have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below:
|
|
Transactions |
Amounts outstanding |
||
|
|
2008 |
2007 |
2008 |
2007 |
|
|
£m |
£m |
£m |
£m |
|
Vehicles purchased from joint ventures and associates |
60.6 |
65.3 |
2.8 |
2.2 |
|
Vehicles sold to joint ventures and associates |
429.9 |
378.2 |
1.1 |
1.3 |
|
Other income paid to joint ventures and associates |
3.6 |
3.1 |
1.8 |
0.7 |
|
Other income received from joint ventures and associates |
3.1 |
11.9 |
4.8 |
7.7 |
All of the transactions arise in the ordinary course of business and are on an arm's length basis. The amounts outstanding are unsecured and will be settled in cash. There have been no guarantees provided or received for any related party receivables. The Group has not raised any provision for doubtful debts relating to amounts owed by related parties (2007 - £nil).
c. Compensation of key management personnel
The remuneration of the Executive Directors and the Executive Committee was as follows:
|
|
2008 |
2007 |
|
|
£m |
£m |
|
Short term employment benefits |
4.5 |
6.7 |
|
Post-retirement benefits |
1.0 |
1.0 |
|
Share-based payments |
(1.5) |
2.6 |
|
Compensation for loss of office |
0.3 |
0.2 |
|
|
4.3 |
10.5 |
The remuneration of the Directors and other key management is determined by the Remuneration Committee having regard to the performance of individuals and market trends.
Directors' responsibilities
The Directors are responsible for preparing the Annual Report and accounts in accordance with applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), and the parent Company Financial statements and the Directors' Remuneration report in accordance with applicable law and United Kingdom Accountancy Standards (United Kingdom Generally Accepted Accounting Practice).The Group and parent Company Financial statements are required by law to give a true and fair view of the state of affairs of the Company and the Group and the profit or loss of the Group for that period.
In preparing those Financial statements, the Directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and estimates that are reasonable and prudent;
• State that the Group Financial statements comply with IFRS as adopted by the EU, and, with regard to the parent Company Financial statements, that applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial statements;
• Prepare Group and parent Company Financial statements on a going concern basis, unless it is inappropriate to presume that the Company and the Group will continue in business, in which case there should be supporting assumptions or qualifications as necessary.
The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the Group Financial statements comply with the Companies Act and Article 4 of the IAS Regulation and the Company Financial statements and the Directors' Remuneration report complies with the Directors Remuneration Report Regulations 2002.They are also responsible for safeguarding the assets of the Company and the Group, and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company's website. The work carried out by the auditors does not involve consideration of these matters, and accordingly the auditors accept no responsibility for any changes that may have occurred to the Financial statements since they were initially presented on the website. Information published on the internet is accessible in many countries with different legal requirements.
Legislation in the UK governing the preparation and dissemination of Financial statements may differ from legislation in other jurisdictions.
Each of the Directors confirms that to the best of their knowledge:
• The Group Financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group, and;
• The Operating review and Financial review, include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces
This information is provided by RNS
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