Annual Report and Accounts 2011
Industry leader
Engineered for
performance
Financial highlights
Inchcape delivers robust EPS growth
Sales
£5.8bn
2010: £5.9bn
Cash flows from
operating activities
£244.7m
2010: £274.3m
Net assets
£1,357.5m
2010: £1,289.3m
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Operating profit
(before exceptional items)
£244.4m
2010: £225.5m
Profit before tax
(before exceptional items)
£227.7m
2010: £214.0m
Adjusted earnings per share*
(before exceptional items)
35.5p
2010: 32.0p
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Operating profit
Profit before tax
Earnings per share*
£231.0m
2010: £203.6m
£203.4m
2010: £192.1m
31.0p
2010: 27.9p
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* 2007/08/09 numbers restated to reflect the bonus element of the Rights Issue and the Share Consolidation
Global industry leader
operating in the luxury and
premium automotive market.
Strengthened industry position
during the downturn and robust
earnings recovery as of 2010.
Business geared to deliver
significant operational leverage
as we grow the top line.
Uniquely positioned to benefit
from premiumisation of fast
growing Asia Pacific and the
Emerging Markets.
Scale brand partner
relationships and strong
balance sheet to leverage
consolidation opportunities.
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Contents
Directors’ Report: Business Review
2
Engineered for performance
14
Inchcape worldwide
16
Chairman’s statement
17
Group Chief Executive’s strategic review
18
Inchcape strategy
22
Key performance indicators
23 Operating review
31
32
34 Corporate Responsibility
Finance review
Principal risks
Board of Directors
Executive committee
Directors’ Report: Governance
38
39
41 Corporate governance report
51
58
60
Directors’ report on remuneration
Other statutory information
Investor relations
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Accounting policies
Notes to the accounts
Five year record
Report of the auditors – Group
Financial statements
62
63
64
65
66
67
74
121
122
123 Company balance sheet
124 Accounting policies
125 Notes to the accounts
131
Report of the auditors – Company
Shareholder information
132 Company details
Online driver/reporting format
We continue to minimise the environmental impact of our
printed report by reducing the print run, length and weight
of paper used, while aiming to raise the quality of reporting,
level of disclosure and effectiveness of communication.
Our online offering has been improved and our new
‘Reporting Centre’ allows visitors to view and download
the Annual Report, link to further information in the corporate
website, and view videos about our business. We have also
added a new and interactive ‘Year in Review’ section that
communicates about our current positioning in the market.
We hope you find the online format easy to use and are
assured that the same quality of reporting is maintained
in print and online.
See online:
www.inchcape.com/reportingcentre
www.inchcape.com/annualreport2011
www.inchcape.com/yearinreview2011
www.inchcape.com
1
Engineered for
performance
2
Inchcape plc ¦ Annual Report and Accounts 2011
Inchcape is engineered for performance and poised
to take advantage of the exciting growth opportunities
in both emerging and developed markets.
We apply rigorous performance monitoring to a range
of operational and customer metrics, allowing us to respond
quickly and decisively to global conditions. We are geared to
deliver significant operational leverage across the business.
In this year’s Annual Report, we emphasise how we deliver
performance as we execute our Customer 1st Strategy.
Inchcape is truly engineered for performance and has
a competitive advantage in the following areas:
1
Performance track record
in all economic cycles.
Page 4
2
Performance discipline
through operational focus on ‘Top Five Priorities’.
Page 6
3
Performance management
with industry leading processes.
Page 8
4
Performance advantage
for customers with ever better cars
and superior customer service.
Page 10
5
Performance ahead
with exciting growth prospects.
Page 12
www.inchcape.com
3
Engineered for performance
1
Performance
track record
in all economic cycles
4
Inchcape plc ¦ Annual Report and Accounts 2011
Inchcape’s unique and proven business model has five key components: a broad geographic spread with scale
operations; a focused portfolio of world leading luxury and premium automotive brands; a well financed route to
market for our brand partners; growth and defensive value drivers; and empowered local management. Together,
these have secured our performance track record through all economic cycles.
The Inchcape business model
Proven business model in global premium car markets with strong performance in all cycles.
G r o w th drivers
Broad geographical
spread with scale
operations
Portfolio of world leading
luxury & premium brands
hicle s a l e
e
V
S
e
r
s
Financ
e a
n
d
i
n
s
u
r
a
n
c
e
Global
brand
partners
Well financed route to
market for our brand
partners: Distribution
and Retail
Diversified revenue streams
from growth and defensive
value drivers
v
i
c
e
P arts
Defensive d r i v e r
s
Empowered organisation is responsive to market
changes and aligned on global processes
Broad geographic spread
We operate in 26 markets, with 21
of these in the world’s fast growing
economies of Asia Pacific and the
Emerging Markets. While the mature
nations of Western Europe are
projected to continue recording
steady growth in luxury and premium
car sales from 2012 to 2015 and
beyond, rapid and sustained growth
is forecast from the premiumisation
in the Asia Pacific region and other
emerging nations. These markets are
set to become the greatest drivers
for Inchcape’s growth in the next
decade, as countries like China
and Russia further cement their
place among the top global
automotive markets.
Portfolio of world leading luxury
and premium brands
Our unique portfolio of leading luxury
and premium automotive brands
includes Audi, BMW, Jaguar, Land
Rover, Lexus, Mercedes-Benz, Porsche,
Rolls-Royce, Subaru, Toyota and
Volkswagen. Luxury and premium
brands continue to be the driving
force of growth in automotive sales,
outperforming other segments in the
majority of markets with innovative
developments in powertrains and
environmental research.
Well financed route to market
Inchcape plays a key role in the
automotive value chain, providing
a trusted and well-funded route to
market for our brand partners.
Through our retail route, we provide
manufacturers with quality brand
representation with scale facilities
on a regional basis. Our competitive
differentiation is the creation of
a superior customer experience
delivered through the proprietary
processes of our Inchcape
Advantage programme.
Our distribution route involves
a wider range of critical functions
carried out on behalf of our brand
partners, including many activities
that in other markets would be carried
out by the manufacturer themselves.
As the distributor, we operate as
the manufacturer’s exclusive
master-franchise partner in a particular
territory. We carry out all of the
marketing and sales activities, from
selecting market-specific models,
setting prices, ordering new cars and
parts and their subsequent distribution,
to appointing and managing the entire
dealer network (of which we typically
own 10-20% ourselves). We also
undertake national marketing activities,
including brand advertising, public
relations and customer database
management and the fulfilment of
back-office functions.
In city-state markets such as Hong Kong
and Singapore, we operate both as
the exclusive distributor and the
exclusive retailer for our brand partners.
Called vertically integrated retail (VIR),
this enables us to capitalise on
important margin opportunities.
Growth and defensive value drivers
Our diversified revenue streams are
balanced to deliver strong margins
during times of economic growth
and decline alike. Our ‘growth’
value drivers are sales of new and
used vehicles, alongside the finance
and insurance products that are
associated with them. Inchcape’s
‘defensive’ value drivers are aftersales,
servicing and parts, which in an
average year deliver c.50% of
our annual gross profit.
Empowered organisation is
responsive to market changes and
aligned on global processes
Our decentralised management
structure enables local management
teams to use their in-depth personal
knowledge of individual markets within
a globally aligned group structure.
Our scale enables investments in
world-class Group wide information
systems, shared best practice and
advanced business processes while
our in-depth market knowledge and
the ability to respond swiftly and
decisively to fast-changing conditions
gives us important advantages in our
local markets. Therefore our
organisational model provides the
benefits of both global scale and local
agility, enabling us to compete both in
local markets and worldwide, through
all stages of the economic cycle.
www.inchcape.com
5
Engineered for performance
2
Performance
discipline
through operational focus
on ‘Top Five Priorities’
6
Inchcape plc ¦ Annual Report and Accounts 2011
Inchcape’s organic growth through the downturn, with peak operating cash flow during 2009, strong earnings
recovery in 2010 and robust profit growth in 2011, owes much to the Group’s balanced operational focus on its
‘Top Five Priorities’, which supports its differentiating Customer 1st strategy. This performance discipline will remain
in place in 2012 and beyond.
d strategy
Differentiated strategy
cial initiatives
Commercial initiatives
to grow revenues ahead
enues ahead
of competitors
mpetitors
es
Cash initiatives
and
to grow profit and
sh
operating cash
faster than
revenue
Growing
Growing
market share
market share
Growing
Growing
aftersales
aftersales
Improving
Improving
margin
margin
Controlling
Controlling
working capital
working capital
Selective capital
Selective capital
expenditure
expenditure
Balanced focus on commercial and cash initiatives in every operation
Selective capital expenditure
During 2011, our strong financial
position enabled us to maintain our
investment programme in strategic
sites to take advantage of growth
opportunities in the premium and
luxury segments in Asia Pacific and
the Emerging Markets, as we
continued to invest in increasing our
retail and aftersales capacity in Russia,
Poland, South America and China.
In 2012, we will build a new Porsche
retail centre in Nanchang, China. We
are well placed to take advantage
of future opportunities in these high
growth, high margin markets.
Cash initiatives
Our cash initiatives are designed
to grow profit and operating cash
faster than revenue and these are
driven by focused performance
management processes based
on daily, weekly and monthly
operational and financial metrics.
Improving margin
Gross margin is improved with
careful value driver mix management,
based on rigorous benchmarking,
while overheads are tightly controlled
through a constant focus on improving
productivity, returns on marketing
investments and costs.
Controlling working capital
We remain resolute on our working
capital discipline with proven
processes in place to effectively
manage the supply chain to 1.5
months stock cover across the Group.
Commercial initiatives
Commercial initiatives designed
to increase both our market share
and our aftersales operations are
growing Group revenue ahead of
the competition. Our local marketing
teams are recognised for their
innovative marketing programmes
which are driving customer traffic
into our showrooms and aftersales
customers into our service centres.
Growing market share
Vehicle sales initiatives dovetail into
our Inchcape Advantage programme
to make the retail visit a special
experience, from the initial welcome
and a flexible test drive programme
all the way through to a memorable
car handover process.
Growing aftersales
In aftersales too, creative
programmes, such as our digital
vehicle health checks, express service
and oil and tyre programmes, ensure
a differentiated customer experience
based on trust and integrity. Our
marketing focus on achieving higher
customer retention in the post
warranty period is proving successful.
www.inchcape.com
7
Engineered for performance
3
Performance
management
with industry leading processes
8
Inchcape plc ¦ Annual Report and Accounts 2011
The Group has a deeply ingrained performance management discipline both centrally and locally – in breadth and
in depth. We consider this to be fundamental to the Group’s success. The processes we operate are comprehensive
and completed in a timely manner in order to inform the business for greater operational efficiency. It is an approach
which combines central governance alongside tools for strong and knowledgeable local management to respond
rapidly and effectively to the changing individual needs of their specific markets.
We apply a consistent approach to operational and financial metrics right across the Group as evidenced by
our balanced scorecard, by region, as part of our monthly reporting. This highlights the key metrics to management
and enables rigorous benchmarking alongside performance tracking.
Inchcape Performance Management Cycle
5 Year
Strategy Plan
Yearly
Budget
3+9
Forecast*
9+3
Forecast*
CAPEX
Committee
IA
Committee**
iPOM
Committee***
Talent
Performance
Review
Board
Governance
Daily, weekly
& monthly
traffic & volume data
Weekly/monthly P&L, Cash Flow
& Working Capital reports
Monthly balanced scorecard,
by site, country and region
Monthly performance reviews
with each market
12 month
rolling forecast
Global governance
There is certainly breadth to
our performance management
approach. Our strategic, long and
short term financial planning sits
alongside committee structures
for capital expenditure approval
and monitoring, customer
management (Inchcape Advantage),
risk management (iPOM Inchcape
Peace of Mind), talent performance
and of course, the governance of
a strong Board of Directors.
Local insights
The depth of our approach starts
with our unique Inchcape Advantage
portal with real-time customer metrics
for both sales and aftersales for every
single site and flows through to
Group-level weekly and monthly
financial metrics, monthly business
performance reviews held between
the Group and Market CEOs and
regional 12 month rolling forecasts.
Year on year
market share
growth
Growing
aftersales
c.50%
of gross profit from
aftersales
1.5 months
stock cover
Performance
tracking
* Full year forecast once a year: Q1 actual + 9
months in 3+9; 9 months actual + Q4 in 9+3
** Inchcape Advantage Committee is
responsible for the development of this core
strategic programme
*** Inchcape Peace of Mind Committee
is responsible for risk management
www.inchcape.com
9
Engineered for performance
4
Performance
advantage
for customers with ever better
cars and superior customer service
10
Inchcape plc ¦ Annual Report and Accounts 2011
Customer service has successfully differentiated us from our competitors through our Inchcape Advantage
programme, which enables us to constantly evolve and refi ne our operational processes based on the fi ndings
of 12,000 interviews that we undertake every month with both customers and non-customers. This close customer
contact additionally provides insight to drive strong marketing programmes to differentiate our ‘value for money’
propositions. Inchcape Advantage lies at the heart of our competitive advantage and empowers our core purpose
to create the ultimate customer experience for our brand partners.
Attractive ‘value for money’
We have proven marketing capability
in our distribution businesses. Marketing
excellence combined with a deep
and sophisticated local knowledge in
the markets in which we operate allows
us to leverage the strong pricing power
of our brands and deliver attractive
‘value for money’ campaigns.
Our brand partners
Inchcape is unique in the range
of long-standing and deep brand
partnerships we enjoy with the world’s
leading premium and luxury motor
manufacturers. These companies
represent the fastest growing sales
sector in mature and emerging
markets alike, right across the world.
In addition, we operate in 21 of the
world’s fast growing markets in Asia
Pacifi c and the Emerging Markets.
These two factors combine to ideally
place us to meet global demands
for automotive innovation, a primary
driver of growth among the fast
expanding middle classes in
developing countries across the
Asia Pacifi c region and elsewhere.
Technical innovations
are driving growth
Ever increasing demand for
innovations that drive down the cost
of ownership is fundamental to the
continuing popularity of the leading
automotive brands with which we
work. Our brand partners’ investments
in research and development have
placed them at the forefront of
improvements in environmental
technologies, safety, reliability
and connectivity.
Superior customer service
Excellent service is key to a customer’s
perception that the value derived from
a transaction is greater than the price
that they have paid, a factor that our
research reveals is of increasing
importance in the purchase decision.
Our outstanding customer service is
proving to be a winning factor in sales
conversion and customer retention.
www.inchcape.com
11
Engineered for performance
5
Performance ahead
with exciting growth prospects
12
Inchcape plc ¦ Annual Report and Accounts 2011
Inchcape’s business model and balance sheet strength ideally position us to benefit from five important global trends
that will dominate the automotive industry, which is projected for high growth in the years to come, enabling us to
return to peak earnings and beyond. These trends are particularly significant for Inchcape as we have the scale
and global presence, market leadership position, high quality brand partnerships and the financial strength to fully
capitalise on them.
Global TIV (m)
Global car sales are forecast
to grow significantly*
+30%
100
80
60
40
20
0
11
12
13
14
15
16
Global car parc (m)
Number of cars on the road
globally forecast to increase**
+16%
100
80
60
40
20
0
11
12
13
14
15
16
* source: IHS Automotive
** source: LMC Automotive
Strongest players will lead
industry consolidation
The strongest and well capitalised
players in the industry will continue
to lead its consolidation. Inchcape is
well positioned to gain access to these
expansion opportunities, benefiting
from our long standing and close
relationships with the world’s leading
manufacturers, a proven track record
of effective brand stewardship across
five continents and a strong balance
sheet. This is evidenced by our newly
won distribution contract with Land
Rover and Ford in Hong Kong and
Macau and exclusive representation
of Rolls-Royce in Chile.
Uniquely positioned
to take advantage
of global growth
Broad based global recovery
Structural growth led by wealth
creation in Asia Pacific and the
Emerging Markets
Technology will create value
and accelerate vehicle replacement
in advanced markets
Car parc growth in both the fast
growing and advanced markets
Strongest players will
lead industry consolidation
Broad based global recovery
It is evident that the global economic
recovery will continue to be uneven.
That said, the forecast for the total car
market is exciting as the global industry
is geared for 30% growth over the next
five years (source: IHS Automotive).
Given our geographic spread, we
are well positioned to benefit from
this uneven recovery.
Structural growth led by
wealth creation in Asia Pacific
and the Emerging Markets
Structural growth in the industry
will be led by wealth creation in Asia
Pacific and the Emerging Markets.
With our strong portfolio of luxury and
premium brands, Inchcape is uniquely
positioned to take advantage of the
premiumisation of these markets as
consumers increasingly aspire to
better lifestyles.
Technology will create value
and accelerate replacement in
advanced markets
In advanced markets, new technology
will create value and drive vehicle
replacement. Inchcape’s leading luxury
and premium brand partners are at the
forefront, with their leading-edge
development of hybrid and electric
vehicles and fuel efficient technology
for both diesel and petrol engines.
Car parc growth in both the fast
growing and advanced markets
Research shows that the global car
parc, comprising new and used cars,
is set to grow by 16% over the next five
years (source: LMC Automotive). While
this is an obvious driver of our continued
growth through the sale of new and
used vehicles, its significance for us
is further strengthened through the
opportunities it provides for the sale
of finance and insurance products
and for aftersales servicing through
the whole ownership life-cycle as
the car parc increases.
www.inchcape.com
13
Directors’ Report: Business Review
Inchcape worldwide
Global footprint uniquely positions
Inchcape for future growth
Australasia
Inchcape is the distributor for
Subaru in Australia and New
Zealand and operates a multi
brand retail strategy in Australia.
Europe
Inchcape operates distribution
and retail across four western
European markets – Belgium,
Greece, Finland and
Luxembourg.
North Asia
Inchcape operates a multi
brand VIR model in Hong Kong,
Macau, Guam and Saipan.
See page 25
See page 26
See page 27
Financial highlights
Sales
£1,011.0m
2010: £1,030.3m
Trading profit
£55.3m
2010: £62.5m
Financial highlights
Sales
£806.0m
2010: £870.9m
Trading profit
£24.0m
2010: £27.8m
Financial highlights
Sales
£433.3m
2010: £430.6m
Trading profit
£42.0m
2010: £34.0m
See online:
www.inchcape.com/ar11
Key
Distribution
Brand partners
Brand partners
Brand partners
Retail
Vertically
integrated
retail (VIR)
Market channels
Market channels
Market channels
14
Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Business Review
Contribution to Group by Sales (%)
Contribution to Group Trading Profit (%)
Asia Pacific and
the Emerging Markets
50.8%
UK and Europe
49.2%
Asia Pacific and
the Emerging Markets
67.8%
UK and Europe
32.2%
South Asia
Inchcape operates a multi
brand VIR model in Singapore
and Brunei.
United Kingdom
Inchcape operates a
scale retail business with
premium brand partners in
key regions together with
a fleet leasing business.
Russia and
Emerging Markets
Inchcape operates a VIR model
in the Baltics, Africa and South
America, distribution and retail
in the Balkans, and retail in Russia,
China and Poland.
See page 28
See page 29
See page 30
Financial highlights
Sales
£296.2m
2010: £371.8m
Trading profit
£26.0m
2010: £36.1m
Financial highlights
Sales
£2,059.3m
2010: £2,125.8m
Trading profit
£60.4m
2010: £55.9m
Financial highlights
Sales
£1,220.5m
2010: £1,056.0m
Trading profit
£54.1m
2010: £31.8m
Brand partners
Brand partners
Brand partners
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Market channels
Market channels
Market channels
www.inchcape.com
15
Directors’ Report: Business Review
Chairman’s statement
Inchcape has delivered robust
earnings growth in 2011
In a year that has been characterised by challenging conditions
in many developed markets countered by strong demand and
industry growth for premium vehicles in Asia Pacific and the
Emerging Markets, I am pleased to report robust results for 2011
coupled with a strong year end net cash position. Inchcape
has delivered ahead of expectations in the UK and Europe
as well as achieving excellent results in our Asia Pacific and
Emerging Markets despite the supply issues faced following
the Japanese earthquake in March.
Performance
Group sales decreased by 1.0% to £5.8bn for the full year to
31 December 2011 largely as a result of the temporary supply
constraints from the March earthquake and tsunami in Japan
which affected our Subaru distribution business in Australasia
and our Toyota/Lexus operations in Europe and Asia, combined
with the challenging market conditions in Greece and the UK.
On a like for like, constant currency basis, sales decreased by 1.7%.
Our swift and decisive actions to strengthen and protect the
business in response to the global downturn since the last quarter
of 2008 have significantly reduced our cost base. In the fourth
quarter of 2011 we announced further productivity initiatives
to offset the impact of inflation on our global cost base in 2012.
The Group remains focused on tight cost control throughout
its operations.
Our 4.5% Group trading margin is a 30bps improvement on last
year and only 40bps below our 2006 peak. Given that like for like
revenues are significantly below our historical peak this is a great
result, highlighting the emphasis on performance management
and the potential for the Group to gain from operating leverage.
Profit before tax and exceptional items of £227.7m was 6.4% higher
than 2010 and adjusted earnings per share rose by 10.9% to 35.5p.
On a statutory basis, profit before tax was £203.4m, 5.9% above 2010.
Cash generated from operations during the year was £244.7m
which represents a 105.9% conversion of statutory operating profit.
Capital expenditure
Following two years of reduced capital expenditure the Group
invested at a greater level in 2011 while continuing to be selective
and specific in our spending, in line with our Top Five Priorities. We
have expanded our capacity in Chile, Peru, Poland and Russia;
where we also opened new sites in Moscow for BMW and Land
Rover in 2011. We have made further strategic greenfield
investments in China, with our new 3S Jaguar Land Rover site in
Shaoxing and are building a new site with Porsche in Nanchang.
We are also building a new Porsche site in the UK.
Board
Following seven years with the Group, Michael Wemms retired
in May 2011. Michael has been a valuable member of the Board,
bringing a depth of knowledge and experience to his role as
16
Inchcape plc ¦ Annual Report and Accounts 2011
Chairman of the Remuneration Committee. Michael stepped
down from the Remuneration, Audit, Nominations and Corporate
Responsibility (CR) Committees at the beginning of the year.
I would like to thank Michael for his contribution during his time
with the Group.
Vicky Bindra joined the Board on 1 July 2011 and Till Vestring
joined the Board on 1 September 2011. I am delighted with the
new appointments as these bring valuable international and
Asian expertise to the Board.
Dividend
The Board is pleased to recommend a payment of a final
dividend for the year ended 31 December 2011 of 7.4p per share
(2010: 6.6p). This gives a total dividend for 2011 of 11.0p per share.
Approach to governance and CR
We see governance as an evolving set of principles and the
Annual Report gives the Board an opportunity to communicate
how we have incorporated these principles to underpin the
delivery of the Group’s strategy. The Corporate Governance
Report on pages 41 to 50 aims to set out how we have structured
the Board, how we have reviewed and evaluated ourselves
and our processes, and what changes we have made to ensure
the Board and its committees remain effective. In 2011 the
CR Committee, responsible for the strategic direction of the
Group’s CR programme, continued to develop a global
approach to making responsible economic, environmental
and social behaviour fundamental to the way we work.
People
We have experienced another year of challenges and
opportunities, and I wish to express my sincere thanks, on behalf
of the Board, to all our colleagues across the Group for their
outstanding commitment and support in 2011.
Outlook
Inchcape is uniquely positioned in the global car industry and while
we remain cautious regarding the short term outlook in some of
our markets, we expect to deliver another solid performance in
2012. The global recovery remains uneven with the European
sovereign credit issues continuing to unsettle financial markets.
We expect the trading environment to remain challenging in the
UK and Europe as the various austerity measures are likely to affect
consumer confidence and disposable income. However, we
are well positioned to take advantage of the structural growth
prospects driven by the premiumisation of consumer demand
in Asia Pacific and the Emerging Markets.
Ken Hanna,
Chairman
Directors’ Report: Business Review
Group Chief Executive’s strategic review
Engineered for performance
André Lacroix
Group Chief Executive
Our results for 2011 clearly demonstrate the resilience of our unique
business model as we strengthened our profitability and balance
sheet while continuing to grow market share around the world.
Sales
£5.8bn
-1.0%
Operating profit
before exceptional items
£244.4m
+8.4%
Profit before tax
before exceptional items
£227.7m
+6.4%
A strategy engineered for performance
Inchcape is a global industry leader in automotive distribution and
retailing. We have deep relationships with the world’s leading luxury
and premium brands and have scale operations in 26 markets.
21 of these are in the fast growing economies of Asia Pacific and
the Emerging Markets with burgeoning new middle classes that
are driving the robust growth of global industry volumes.
premium vehicles in Asia Pacific and the Emerging Markets,
although consumer confidence weakened further in the more
mature and developed economies of the UK and Europe.
However in the UK, we benefited from our position in the market,
as the luxury and premium segment continued to outperform in
an increasingly competitive environment. This meant that we too
outperformed the industry, managing to again win market share.
Our vision is to be the world’s most customer-centric automotive
retail group driven by our Customer 1st strategy to both strengthen
the performance of our existing assets through improved market
share and aftersales service retention and, through the strong
brand partner relationships that this creates, to gain access to
expansion opportunities in high margin/high growth areas of the
world. We operationalise this strategy to deliver organic growth
through a disciplined focus on our ‘Top Five Priorities’, growing
market share, growing aftersales, improving margins, controlling
working capital and being selective about capital expenditure,
and we drive consistently superior customer service in every site
through the proprietary processes of our unique Inchcape
Advantage programme.
Over the last three years, we have taken swift and decisive action
to protect and strengthen our business against the impact of the
economic downturn. These actions have supported the delivery
in 2011 of strong profits for the Group, with EPS +11% year on year
following 18% EPS growth in 2010. This was achieved despite a
small decrease in revenue from the previous year, highlighting the
effectiveness of our cost controls and governance at the Group,
country and retail centre level.
Our results for 2011 clearly demonstrate the value of our
international reach, which has successfully protected us against
the uneven recovery of the global automotive market. During
the year we witnessed strong growth momentum for luxury and
Against a difficult economic backdrop, it is pleasing to report that
our disciplined approach to performance enabled us to grow
market share in Europe during the year. We benefited from strong
growth in Russia and Emerging Markets as we focused on meeting
the aspirations of these economies’ fast-growing middle classes.
All this was achieved despite significant supply difficulties due to
the Japanese earthquake in the spring that affected our
operations in Asia Pacific.
In 2011, we also made important strategic investments in
our retail and aftersales capacity in a number of key markets
including China, Russia, Poland, Peru and Chile, and we were
awarded two strategically significant distribution contracts in
Hong Kong and Chile. Our close relationship with our manufacturer
brand partners and long standing track record of performance
has given us access to expansion opportunities in these exciting
growth markets.
We first entered China in 2007 with the three objectives of testing
the retail unit economics, building a local organisation and
establishing best practice operating processes. We achieved this
by 2010 through three successful pilot operations, one in Shanghai
and two in Shaoxing. 2011 saw further expansion in China, with
two Jaguar Land Rover facilities in Shaoxing and the award of
the highly prestigious retail franchise for Porsche in Nanchang,
which is set to open in 2012. These are key elements of our strategy
for China, which sees us target 20 retail sites in the next five years.
www.inchcape.com
17
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Directors’ Report: Business Review
Group Chief Executive’s strategic review continued
Looking to other newer markets for Inchcape, we have 22 retail
centres in Moscow and St Petersburg. This reflects predictions that
Russia will be Europe’s largest – and the world’s fourth biggest –
car market within the next five years. Building a portfolio of scale
businesses with our core brand partners in the fast-growing
premium segment is the right expansion strategy for Inchcape
in markets that are set to become the largest in the world.
Naturally, as we move forward we will continue to exercise strong
control over our working capital and inventory management as
a key aspect of our Top Five Priorities. But as the global middle class
grows in both scale and buying power, we are a company whose
structure and strategy make consistent growth over the years to
come an achievable reality. This is the key benefit to being
engineered for performance.
During 2011 we were appointed as distributor for Land Rover and
Ford in Hong Kong and Macau and as exclusive representative
of Rolls-Royce in Chile, where we have complete responsibility
for these brands within the markets. These successful gains clearly
show that desirable distribution contracts are available to the
right businesses with a proven track record of effective brand
stewardship, a disciplined process to integrate acquisitions and
a strong balance sheet.
Our strong performance for 2011 gives us a solid platform for
growth into the future. We plan to take advantage of growth
opportunities that arise in the global industry, leveraging our
financial strength and long standing, deep brand partnerships.
Looking ahead to 2012 and beyond, we will benefit from
five unique strengths as we seek to engineer the best possible
performance for our brand partners, customers and shareholders.
A brief summary of these follows.
Performance track record in all economic cycles
Our unique business model is based on a number of key strengths
and has played a key role in ensuring that the Group has, over
the years, delivered a performance track record during growth,
downturn and recovery cycles.
First, we have a broad geographic spread with scale operations in
26 markets, of which 21 are among the world’s fastest growing Asia
Pacific and Emerging Markets. In fact, Inchcape is the world’s only
A strategy engineered for performance
Proven business model in
global premium car markets
with strong performance in all
economic cycles.
G r o w th drivers
Financ
s
hicle s a l e
e
V
e a
n
d
i
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s
u
r
a
n
c
e
Global
brand
partners
S
e
r
vic
e
P arts
Defensive d r
s
i v e r
Well financed route to
market for our brand
partners: Distribution
and Retail
Diversified revenue streams
from growth and defensive
value drivers
Broad geographical
spread with scale
operations
Portfolio of leading luxury
& premium brands
Empowered organisation is responsive to market changes
and aligned on global processes
Inchcape is a world leading automotive retailer and distributor.
Across our 26 markets, we operate as distributor in 22 of these,
with retail only operations in the UK, Poland, Russia and China.
Furthermore, 21 of our markets are in the fast growing economies
of Asia Pacific and the Emerging Markets.
18
Inchcape plc ¦ Annual Report and Accounts 2011
Our clear vision and strategy
aim to generate consistently
excellent results for our
shareholders.
Vision
To be the world’s most
customer-centric
automotive retail group
Strategy
Strengthen
Superior customer
value proposition
through Inchcape
Advantage
Core Purpose
To create the
ultimate customer
experience
for our brand
partners
Strategy
Expand
Consolidation in
high margin/high
growth areas
Superior customer service both strengthens the performance
of our existing assets, enabling us to improve market share and
aftersales service retention and, through the strong brand partner
relationships that this creates, also provides
us with better access to expansion opportunities
in high margin/high growth areas.
Directors’ Report: Business Review
Group Chief Executive’s strategic review continued
automotive distribution and retail Group with scale businesses
across five continents.
an even higher proportion of customers following the expiry
of their warranties.
This geographic reach has been key to the six consecutive years
of growth and strong returns we achieved prior to the downturn
in 2008, peak operating cashflow in 2009, strong earnings recovery
in 2010 and robust profit growth in 2011, despite challenging UK
and European markets and the impact of the Japanese
earthquake.
Second is the diversity of our revenue streams, covering both
‘defensive’ and ‘growth’ value drivers.
We generate around 50% of our gross profit from the ‘defensive’
value drivers of aftersales servicing and parts, which balance our
‘growth’ revenue streams of vehicle sales alongside finance and
insurance products. Looking ahead, however, we believe that
there is a great opportunity to expand our aftersales business
significantly by not only growing new aftersales customer bases
in our expanding emerging market operations but also
by further building on our competitive strengths to retain
Typically, the industry experiences a high proportion of aftersales
customers leaving franchised centres once the vehicle warranty
expires. Our approach is to concentrate additional marketing
resource on customer retention, highlighting the tangible value
of our state of the art onsite equipment, live links to manufacturer
diagnosis and resolution systems, and the top level of training
our operatives receive directly from our brand partners. In our
Singapore business for example, this approach has resulted in
more than double the percentage of customers who make us
responsible for their vehicle servicing for six years and more.
We also leverage our industry leading service standards, based
on our complete transparency with customers, which ensures
we undertake no work without their prior agreement and
understanding. In this way, we demonstrate that there is no
better place to go than an Inchcape service centre throughout
the entire life of a vehicle.
Strong operational discipline
on ‘Top Five Priorities’ supports
Inchcape’s differentiating
Customer 1st strategy.
Differentiated
strategy
Growing
market share
Growing
aftersales
Commercial initiatives
to grow revenues ahead
of competitors
Improving
margin
Controlling
working capital
Selective
capital
expenditure
Cash initiatives
to grow profit
and operating
cash faster
than revenue
Balanced focus on commercial and cash initiatives in every operation
To deliver organic growth, we execute our differentiated
Customer 1st strategy with a strong operational discipline
on what we call our ‘Top Five Priorities’.
Inchcape Advantage is critical
to driving revenues
ahead of the competition.
Purchase
Ownership
Customer
data
Traffic
Leads
Test drivers
Enquiries
Bookings
Lead times
CaptCapture ure rate
Capture rate
Identify focus
areas &
recognise
progress
Superior customer value
Delivering superior and differentiated customer service is the
over-arching strategic goal for the Group.
Inchcape Advantage, our programme to deliver consistently superior
customer service in every centre through our proprietary processes,
was formed after extensive consumer research.
www.inchcape.com
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Directors’ Report: Business Review
Group Chief Executive’s strategic review continued
A further critical factor behind Inchcape’s success is our
decentralised organisation, which enables us to gain from the
empowerment of highly knowledgeable local management who
can respond rapidly and decisively to changing market conditions.
Alongside the global alignment of processes, controls,
performance measures, governance and the sharing of best
practice across the Group, this enables us to adapt rapidly and
to tailor our approach precisely to the needs of each local market.
Performance discipline through operational focus
on our Top Five Priorities
At Inchcape, we constantly seek to achieve a balance between
commercial and cash initiatives to ensure we remain focused
on growth while maintaining a disciplined approach to
financial returns.
At the base of our business is the strength we gain through
our close partnerships with the world’s leading luxury and
premium automotive brands. We maximise the opportunities
these represent through focusing on what we call our ‘Top Five
Priorities’, the elements of which ensure we grow our revenues
ahead of our competitors through increasing market share and
aftersales, while successfully growing profit and operating cash
faster than revenue through improved margins, control of our
working capital and by being selective about capital
expenditure investment.
For example, since the global downturn of 2008 we have
undertaken a number of separate rationalisations of our
business to manage costs and strengthen our margins across the
organisation. These have included the closure of underperforming
and non-core retail sites, the move of a number of national head
offices into cost-effective office suites above showrooms and a
more disciplined approach to marketing that involves a greater
emphasis on digital advertising with better commercial returns.
Such initiatives have seen us drive a particularly strong profit and
cash performance over the last three years that demonstrates
the defensive strengths of our business model.
Looking ahead, while we recognise the need to invest in the
increase of our revenues and profitability in the years to come,
we will not relax our focus on tight cost and cash controls, even
in already strong economies or those markets moving out of
downturn and into recovery.
One of the main reasons we were able to improve our competitive
position during the economic downturn, which has seen many of
our competitors either suffer long term damage or fail altogether,
was the fact that the market intelligence we gain through the
leading indicators of our unique Inchcape Advantage portal
enables us to carry only six weeks’ worth of stock across the Group.
This enables us to manage our working capital efficiently, so giving
us exceptional financial strength and flexibility. Drawing on the
investments in customer insight that we make, it will continue
to be a unique advantage for Inchcape as we maintain our
focus throughout 2012 and beyond.
Performance management with industry
leading processes
An ethos of rigorous performance management is ingrained
in Inchcape’s culture through the frequent and timely
implementation of key processes; centrally, locally and at every
level of the organisation. These include the use of a suite of sales
and aftersales based customer metrics, which provide leading
indicators to help manage the business, and the sharing of best
practice across the Group.
The way in which Inchcape is structured and the day to day
management practices we use throughout the organisation are
designed to ensure we grow revenue ahead of our competitors
and grow operating profit and gross margin faster than revenue.
For example, our commitment to daily, weekly and monthly
management reporting and disciplined central governance
underpins well informed local decision making, in which
expenditure is only ever justified by its positive impact on our
profitability. This is further supported by our daily analysis of the
metrics we access through our unique ‘customer funnel’ – dynamic
information relating to the purchase and aftersales process that we
glean through live customer contacts at every point in the journey.
This gives us early insights into future customer behaviour that
drive performance for every brand in every national market
and retail centre.
These are examples of our broad and deep range of performance
management measures collectively building strategic planning
and control tools into the heart of our business to deliver an
integrated set of forecasting, budgeting, governance, review,
analysis and talent development tools that enable global policies
to be tailored for local and regional markets.
Performance advantage for customers with ever
better cars and superior customer service
Every month, we conduct around 12,000 interviews with our
customers and non buyers to provide us with the insight we need
to drive revenues ahead of our competitors and to stay closely
in touch with changing consumer behaviour and attitudes. These
are clearly showing us that consumers have changed since the
downturn of 2008 and 2009 in markets across the world, and are
now, more than ever, seeking value for money in their purchases.
This does not mean that they are seeking low cost alternatives
to the models they used to buy. On the contrary, we are witnessing
the ‘premiumisation’ of Emerging Markets and Asia Pacific
countries as newly middle class customers seek better quality,
innovation and environmental performance from their vehicles.
In advanced economies, luxury and premium vehicles are gaining
market share as the brand strength of our manufacturer partners
provide superior value for money.
We in turn leverage this pricing power of our brand partners with
outstanding customer service to create superior margins, delivering
value through the right vehicle specifications, warranty support,
cost effective marketing, service support and finance options.
20
Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Business Review
Group Chief Executive’s strategic review continued
Our manufacturer partners are investing more than ever in green
technologies that are in fast growing demand from perceptive
buyers. BMW, for example, has achieved a 63% improvement in
the MPG performance and a 39% reduction in the CO2 emissions
of its 2011 320d model over its 2005 equivalent, and our other
manufacturer partners have achieved similar advances.
The fourth is the predicted growth of the global car parc in both
advanced and emerging markets. The global car parc, comprising
new and used cars, is set to grow by 16% over the next five years
(source: LMC Automotive) which will drive revenue growth for
us in both the highly profitable areas of used cars and in
aftersales servicing.
The fifth trend is the fact that in a fragmented global marketplace
only the strongest players will lead industry consolidation through
expansion and the erosion of weaker rivals. Vehicle manufacturers
will want to strengthen both their market coverage and quality
of operations and, as we have demonstrated in 2011, Inchcape
is well positioned to gain access to expansion opportunities,
benefiting from our long standing and deep relationships with
the world’s leading car manufacturers, a proven track record
of effective brand management, customer service excellence
and a strong balance sheet.
As a Group we are already focused on positioning ourselves
to take advantage of and benefit from these key trends, again
moving ahead of our competition to seize opportunities as
they arise.
We have a unique and proven business model, a differentiated
strategy, a strong operational focus and Inchcape people who
have a genuine passion for performance.
Inchcape is a global industry leader and engineered
for performance.
André Lacroix,
Group Chief Executive
ro
See online: www inchcape.com/ar11
Customer service is, and has been for some years, our number
one competitive advantage. Not only does it enable the
strengthening of existing assets for improved market share
and aftersales service retention, it also facilitates expansion
opportunities as we leverage our increasingly powerful brand
partner relationships.
Inchcape Advantage, our unique Group-wide programme
for continuous improvement, which is now in its fifth year, lies
at the heart of our strategic commitment to customer-centric
operational excellence. Its proprietary processes are what drive
the organic growth of our business, both through delivering for
our customers and through the resultant superior relationships
with our brand partners.
To maintain and expand upon our leading position, we intend
to constantly raise the bar in every aspect of customer service.
This we have done in 2011, and we will continue to drive further
improvements during 2012 and into the future.
Performance ahead with exciting growth prospects
Looking to the future, for many of the reasons I have already
outlined, Inchcape is uniquely positioned to take advantage of
five important trends that are set to affect the global car market.
The growth prospects are truly exciting in our industry as we expect
the global car market to increase by 30% (source: IHS Automotive)
in the next five years.
The first key trend is the expected broad based global recovery
in the medium term. Some of our markets have quickly rebounded
in 2010 and 2011 and are now ahead of their pre-2008 levels.
Some of our markets are slightly below their 2007 peak level and
are poised for growth as the ageing of the car parc will accelerate
the recovery pace in the years to come. Thanks to our geographic
spread, we are well positioned to benefit from this uneven recovery.
The second trend is the growing wealth in Asia Pacific and the
Emerging Markets. Between 2011 and 2016, these markets will
represent 94% of the world’s population growth (source: IMF)
and 72% of GDP growth (source: EIU). As a result, these regions
will also be the key drivers of the predicted 16% growth in the
global car parc over the same period (source: LMC Automotive),
responsible for 78% of car industry growth and coming to represent
64% of global car sales by 2016 (source: IHS Automotive). Inchcape
is already in 21 such growth markets.
The third trend is of accelerated car replacement in advanced
markets thanks to the technological advances pioneered by our
brand partners, particularly those that reduce the cost of ownership.
Inchcape’s premium brand partners are at the forefront of these
advances, with their leading-edge development of hybrid and
electric vehicles and fuel efficient technology for both diesel
and petrol engines.
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21
Directors’ Report: Business Review
Key performance indicators (KPIs)
Measuring our performance
These KPIs are how we measure our business performance
The Board of Directors and the Group Executive Committee 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. 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.
Sales
Trading profit
Trading margin
Like for like sales and
trading profit
Definition
Excludes the impact of
acquisitions from the date
of acquisition until the 13th
month of ownership and
businesses that are sold or
closed. It further removes the
impact of retail centres that
are relocated from the date
of opening until the 13th month
of trading in the new location.
These numbers are presented
in constant currency.
Achievements in 2011
Like for like sales decreased
by 1.7% while like for like trading
profit grew by 3.5% as we
continued to focus on cost
management in all our markets.
+3.5%
Like for like
trading profit
Definition
Operating profit excluding the
impact of exceptional items
and unallocated central costs.
Achievements in 2011
Trading profit increased by 5.5%
driven by our continued focus
on our Top Five Priorities in all of
the Group’s regions and tight
cost controls.
Definition
Calculated by dividing trading
profit by sales.
Achievements in 2011
The Group’s trading margin
grew 30bps to 4.5% despite a
challenging year in a number
of our markets.
Definition
Consideration receivable from
the sale of goods and services.
It is stated net of rebates and
any discounts, and excludes
sales related taxes.
Achievements in 2011
Sales marginally declined by
1.0% with strong sales growth
in Russia and Emerging Markets
offsetting much of the impact
of the earthquake in Japan
and tougher trading conditions
in some markets.
£5.8bn
2010: £5.9bn
8
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Trading profit split
21.1%
Australasia
9.2%
Europe
16.1%
North Asia
9.9%
South Asia
23.1%
UK
Russia and Emerging Markets 20.6%
£261.8m
07
08
09
10
11
Working capital
Definition
Inventory, receivables, payables,
and supplier related credit.
Achievements in 2011
We have maintained our stock
cover at our target of 1.5 months
through the year and have
reduced our working capital
by a further 33.7% to £12.2m,
a historical low for the Group.
Profit before tax and
exceptional items
Definition
Represents the profit made
after operating and interest
expense but before tax is
charged excluding the
impact of exceptional items.
Achievements in 2011
Profit before tax and exceptional
items increased by 6.4%, to
£227.7m only £7.4m away
from the 2007 peak.
£227.7m
2010: £214.0m
4.5%
2010: 4.2%
6.00
5.25
4.50
3.75
3.00
2.25
1.50
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10
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Cash generated from
operations
Definition
Trading profit adjusted for
depreciation, amortisation
and other non cash items plus
the change in working capital
and provisions.
Achievements in 2011
Our strong control over working
capital has again enabled the
Group to deliver an operating
cash flow of £244.7m.
£12.2m
2010: £18.4m
£244.7m
2010: £274.3m
240
210
180
150
120
90
60
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£
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2
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5
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2
£
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7
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1
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5
5
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£
280
245
210
175
140
105
70
35
0
m
5
.
2
5
2
£
m
9
.
4
2
1
£
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7
.
6
7
£
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4
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8
1
£
07
08
09
10
11
07
08
09
10
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Inchcape plc ¦ Annual Report and Accounts 2011
360
315
270
225
180
135
90
45
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m
2
.
2
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11
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7
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6
3
3
£
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3
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4
7
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£
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4
4
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7
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3
8
1
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07
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09
10
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Directors’ Report: Business Review
Operating review
Strong recovery
John McConnell
Group Finance Director
Our disciplined focus on the Top Five Priorities
has delivered strong margin growth and
strong cash generation.
Sales
£5.8bn
-1.0%
Trading profit
£261.8m
+5.5%
Working capital
£12.2m
-33.7%
Net cash
£243.5m
+18.3%
Performance indicators – Results
Sales
Trading profit
Trading margin %
Like for like sales
Like for like trading profit
Like for like sales growth %
Like for like trading profit growth %
Profit before tax before exceptional items
Working capital
Cash generated from operations
Net cash
Year ended
31.12.2011
£m
Year ended
31.12.2010
£m
5,826.3
261.8
4.5
5,736.5
260.5
0.1
5.3
227.7
12.2
244.7
243.5
5,885.4
248.1
4.2
5,729.0
247.5
6.0
25.8
214.0
18.4
274.3
205.8
% change
(1.0)
5.5
0.3ppt
0.1
5.3
(5.9)ppt
(20.5)ppt
6.4
(33.7)
(10.8)
18.3
% change in
constant
currency
(2.8)
3.8
0.3ppt
(1.7)
3.5
4.4
Our results are stated at actual rates of exchange. However to enhance comparability we also present year on year changes in
sales and trading profit in constant currency thereby isolating the impact of exchange. Unless otherwise stated changes in sales
and trading profit in the operating review are at constant currency.
The global economic environment in 2011 remained uneven with
growth in Asia Pacific and the emerging economies whilst the UK
and Europe were challenging. Demand for new and used cars
grew in Russia, Australia, the Baltics, South America, Hong Kong
and Belgium but demand in the UK weakened and Greece
experienced a further severe downturn.
The supply disruption resulting from the Japanese earthquake
and tsunami in March was addressed quickly and effectively
by the Group and our brand partners. The full year impact on
revenues was less than initially expected in all markets except
Australasia, where the loss of sales amounted to approximately
three months and South Asia where the loss of sales amounted
to approximately one month.
Singapore sales affected by the temporary disruption to supply.
Focus on margin growth and cost control has been rigorous
throughout the Group. Pre-exceptional operating costs were
reduced by 8.1% to £611.7m. This ensured our trading margin
improved by 0.3ppts to 4.5% and our trading profit grew by
3.8% to £261.8m.
Working capital has been tightly controlled resulting in a
historically low position of £12.2m and a strong cash generation
from operations of £244.7m.
Net capital expenditure was £88.5m as the Group continued
to invest in capacity expansion, and greenfield sites mostly in
Asia Pacific and the Emerging Markets.
In these conditions the Group’s sales were £5.8bn, representing
a decline of 2.8% compared to last year with Australia and
Net cash at the end of the year was £243.5m, up by £37.7m
compared to the end of 2010.
www.inchcape.com
23
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Directors’ Report: Business Review
Operating review continued
2011
Operating
profit £m
2011
Exceptional
items £m
2011
Trading profit
£m
2010
Operating
profit £m
2010
Exceptional
items £m
2010
Trading profit
£m
54.6
21.3
41.9
26.0
52.5
53.7
(19.0)
231.0
(0.7)
(2.7)
(0.1)
–
(7.9)
(0.4)
(1.6)
(13.4)
55.3
24.0
42.0
26.0
60.4
54.1
58.4
23.1
34.0
35.2
47.5
28.1
(22.7)
203.6
(4.1)
(4.7)
–
(0.9)
(8.4)
(3.7)
(0.1)
(21.9)
62.5
27.8
34.0
36.1
55.9
31.8
Retail business
Although our retail sales were flat year on year at £3.5bn, with our
continued focus on the Top Five Priorities the Group grew trading
profit by 13.7% in 2011.
The Group’s UK retail business sales declined by 3.1% in
a market that declined by 4.4% compared to 2010. The
growth in UK retail like for like sales of 1.6% represents a clear
out-performance of the broader market. The focus on margin
growth opportunities and cost management resulted in trading
profit growth of 8.3% and a record annual trading margin of 2.6%,
an increase of 0.2ppts.
Our Australian retail business was affected by the Japanese
earthquake. Sales were down 4.8% and trading margins were
0.7ppts lower at 3.2% as a result of lower sales and the
normalisation of used car margins.
Our European region experienced a sales decline of 14.5%
compared to 2010 driven primarily by the severe market
downturn in Greece.
Demand in the Russian market continued to strengthen in
2011 and with strong cost controls in the Baltics, Russia and
the other emerging markets, sales for the segment grew by
13.8% to £908.6m, delivering a trading profit of £24.0m, up
89.9% year on year.
Regional analysis
The Group reports its regional analysis in line with IFRS 8
’Operating Segments’, which we adopted in 2009. This
standard requires operating segments to be identified on
the basis of internal reports about components of the Group
that are regularly reviewed by the chief operating decision
maker in order to assess their performance and to allocate
resources to the segments. These operating segments are
then aggregated into reporting segments to combine those
with similar characteristics.
Distribution
Retail
Australasia
Europe
North Asia
South Asia
United Kingdom
Russia and Emerging Markets
Australasia
Europe
United Kingdom
Russia and Emerging Markets
Included within the Russia and Emerging Markets segment are
Russia, China, South America, Africa, the Balkans, the Baltics,
and Poland on the basis that prior to the global downturn these
markets had entered the growth phase of their development
cycle and we expect these markets to return to that growth
phase in the medium term.
Australasia
Europe
North Asia
South Asia
United Kingdom
Russia and Emerging Markets
Central costs
Operating profit
Business analysis
Year ended
31.12.2011
£m
Year ended
31.12.2010
£m % change
% change in
constant
currency
Sales
Distribution
Retail
Like for like sales
Distribution
Retail
Trading profit
Distribution
Retail
Like for like trading profit
Distribution
Retail
2,357.4
3,468.9
2,352.2
3,384.3
172.0
89.8
173.4
87.1
2,455.9
3,429.5
2,455.8
3,273.2
170.5
77.6
170.2
77.3
(4.0)
1.1
(4.2)
3.4
0.9
15.7
1.8
12.7
(6.5)
–
(6.7)
2.2
(0.7)
13.7
0.3
10.7
Distribution business
The distribution business has performed well despite challenging
market and supply conditions with sales down 6.5% on 2010
to £2.4bn. Strong margin management initiatives and focused
controls on costs meant that trading profit declined by 0.7%
to £172.0m.
In the European markets, we benefited from market growth
in Belgium (up 5% on 2010) and Finland (up 13%). Greece
experienced another year of vehicle market contraction,
down 32% versus 2010.
In our North Asia businesses, trading profit increased by 29.1%
to £42.0m on the back of robust market growth driven by a 12%
increase in the Hong Kong new car market. As expected, South
Asia experienced a further 25% decline in the market as a result
of the continued restrictions on the availability of Certificates
of Entitlement (COE).
The Australian market contracted by 3% in 2011 after a 10%
increase in 2010 as Japanese brands faced restricted supply.
Our market share declined by 0.5ppts to 3.4%. Australasia
distribution trading profit was £42.7m, an 18.8% decrease
on the previous year. The prior year trading profit included
a one-off profit of £7.3m from the disposal of a surplus
property. Excluding this effect, underlying trading profit
decreased by 4.0%.
Russia and Emerging Markets’ distribution businesses
experienced strong growth with a trading profit of £30.1m
and a trading margin of 9.7%, up 3.1ppts on 2010. However
it should be noted that the 2010 result included a £7.5m
impairment charge on a property in Romania. Excluding
this effect, underlying trading profit increased by 25.4%.
24
Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Business Review
Operating review continued
Australasia
Resilient financial performance despite
challenging supply conditions
Sales
Distribution
Retail
Like for like sales
Distribution
Retail
Trading profit
Distribution
Retail
Like for like
trading profit
Distribution
Retail
Trading margin %
Distribution
Retail
Year ended
31.12.2011
£m
Year ended
31.12.2010
£m
% change
in constant
currency
% change
1,011.0
621.4
389.6
996.0
621.4
374.6
55.3
42.7
12.6
55.6
42.7
12.9
5.5
6.9
3.2
1,030.3
657.4
372.9
1,016.8
657.4
359.4
62.5
47.9
14.6
(1.9)
(5.5)
4.5
(2.0)
(5.5)
4.2
(11.5)
(10.9)
(13.7)
(10.5)
(13.7)
(4.8)
(10.6)
(13.7)
(5.0)
(19.4)
(18.8)
(21.4)
62.4
47.9
14.5
6.1
7.3
3.9
(10.9)
(10.9)
(11.0)
(0.6)ppt
(0.4)ppt
(0.7)ppt
(18.8)
(18.8)
(19.0)
(0.6)ppt
(0.4)ppt
(0.7)ppt
Our retail business delivered a trading profit of £12.6m
despite a 4.8% sales decrease as a result of the closure of
two underperforming non-core brand retail centres and Subaru
supply constraints. Used car margins normalised from their record
highs and we continued making progress in aftersales retention.
Outlook for 2012
We expect to see solid growth in the market given the
normalisation of supply from Japan. We expect to benefit from
the launch of the new XV crossover SUV in January 2012 and
the new generation Impreza in the second quarter.
We will continue to face restricted supply in the first quarter
of the year.
We anticipate some pressure on gross margin due to the
appreciation of the Yen. We have put in place currency hedging
contracts for the majority of 2012 sales to manage our JPY/AUD
exposure on vehicles and parts purchases from Japan.
Our operational focus on our Top Five Priorities of growing market
share, growing aftersales, improving margins, controlling working
capital and selective capital expenditure should enable us to
further increase our competitive position in 2012.
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Key financial highlights
Sales
£1,011.0m -1.9%
(2010: £1,030.3m)*
Trading profit
£55.3m -11.5%
(2010: £62.5m)*
Contribution
to Group sales
17.4%
Contribution
to Group profit
21.1%
George Ashford
Chief Executive Officer,
Inchcape Australasia
* at actual exchange rates
The market
The Australian market had a strong year in 2011, being in
excess of one million units for only the fourth time, although
volume contracted by 3% versus 2010. The industry was
supported by a government incentive scheme in 2011,
however in the wake of the March 2011 tsunami and
earthquake, key Japanese brands suffered an 8.3%
volume decrease due to supply constraints.
Business model & strategy
We are the distributor for Subaru in Australia and New Zealand.
We also have multi-franchise retail operations in Sydney,
Melbourne and Brisbane. These operations hold franchises for
Subaru, Volkswagen, Mitsubishi and Kia. We own 21 retail centres
and manage a network of 104 independently owned centres
on behalf of Subaru throughout Australasia.
Supporting these operations, our logistics business Autonexus is
responsible for managing vehicle and parts inventory distribution
and vehicle preparation on behalf of Subaru Australia and our
retail business as well as other independent dealers.
Our strategy for our distribution operations is to continue to
grow market share through our superior Customer 1st business
processes. Our retail operations are focused on delivering
an outstanding customer experience for our brand partners
and driving revenue from sales of new and used cars, service
and vehicle parts.
Our operating performance
Following a very strong first quarter the Japanese tsunami and
earthquake severely disrupted the supply of vehicles and parts
driving a 10.5% decrease in sales for the year.
Our distribution trading profit of £42.7m was the result of strong
focus on overhead and margin control initiatives. While trading
profit decreased by 18.8%, 2010 included a one-off gain of £7.3m
on the disposal of surplus property. Excluding this gain, underlying
trading profit would have been 4.0% lower than 2010.
www.inchcape.com
25
Directors’ Report: Business Review
Operating review continued
Europe
Resilient financial performance despite
challenging conditions in Greece
Sales
Distribution
Retail
Like for like sales
Distribution
Retail
Trading profit
Distribution
Retail
Like for like
trading profit
Distribution
Retail
Trading margin %
Distribution
Retail
Year ended
31.12.2011
£m
Year ended
31.12.2010
£m
% change
in constant
currency
% change
806.0
658.5
147.5
806.0
658.5
147.5
24.0
24.3
(0.3)
24.0
24.3
(0.3)
3.0
3.7
(0.2)
870.9
701.3
169.6
870.9
701.3
169.6
27.8
26.9
0.9
27.8
26.9
0.9
3.2
3.8
0.5
(7.5)
(6.1)
(13.0)
(7.5)
(6.1)
(13.0)
(13.7)
(9.7)
(133.3)
(9.0)
(7.7)
(14.5)
(9.0)
(7.7)
(14.5)
(15.2)
(11.3)
(132.4)
(13.7)
(9.7)
(133.3)
(0.2)ppt
(0.1)ppt
(0.7)ppt
(15.2)
(11.3)
(132.0)
(0.2)ppt
(0.1)ppt
(0.7)ppt
Our operating performance
Despite the challenging trading environment, our European
businesses delivered a resilient trading profit of £24.0m,
a decrease of 15.2%.
In Belgium, we delivered a robust performance, growing revenue
despite the impact of delayed product availability in the period
April-September 2011 following the tsunami in Japan. Volume
increased by 12%, enabling us to grow market share. Toyota
Belgium is now market leader in the petrol segment.
In Greece we remained profitable, although trading profit
declined due to difficult trading and economic conditions.
Despite this, we delivered a record market share of
13.2%, up 0.3ppts year on year.
Outlook for 2012
The economies in Europe remain challenging with low levels
of consumer confidence and rising unemployment.
In Belgium, the cancellation of the Government CO2 incentive
scheme as from January is expected to reduce market volumes
in 2012. However we plan to grow Toyota market share with
the launch of new models.
In Greece we expect that the ongoing recession, high
unemployment and additional austerity measures will result
in a further decline in the market. The focus on our Top Five
Priorities and the reduction of our cost base will partially
mitigate the effect of the industry decline.
Key financial highlights
Sales
£806.0m -7.5%
(2010: £870.9m)*
Trading profit
£24.0m -13.7%
(2010: £27.8m)*
Contribution
to Group sales
13.8%
Contribution
to Group profit
9.2%
Bertrand Mallet
Chief Executive Officer,
Belgium
Aris Aravanis
Chairman & Managing
Director, Toyota Hellas
Jean Van der Hasselt
Chief Executive Officer,
Russia and the Nordics
* at actual exchange rates
The market
Belgium’s market grew 5% compared to 2010 aided by a
Government CO2 incentive, targeted at low emission, small
engine vehicles. As it was announced that this incentive
scheme would end from January 2012, there was a significant
uplift in December 2011 registrations.
As anticipated, the Greek market declined by another 32% in
2011, following a 40% decline in 2010, having been significantly
affected by the deep recession, high unemployment and
austerity measures.
Finland’s economic recovery continued in 2011 delivering
market growth of 13% compared to 2010.
Business model & strategy
In Belgium and Luxembourg we distribute Toyota and Lexus
and own eight retail centres with a network of 96 further retail
centres operated by independent third party retailers and
31 repair outlets. In Luxembourg we also have a retail centre
for Jaguar.
In Greece we are the distributor for Toyota and Lexus owning
six retail centres and overseeing a further 45 which are
independently owned.
In Finland we are distributor for Jaguar, Land Rover and
Mazda, owning four retail centres and managing a network
of 57 independent retailers. We are delighted to announce
we were recently appointed the exclusive retailer for Fisker
in Finland with one retail centre.
In distribution, growth is driven by strong marketing programmes
increasing traffic into the dealer network with new model
launches supported by tight overhead control.
In retail, we focus on customer centric operational excellence
and improving footfall conversion.
26
Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Business Review
Operating review continued
North Asia
Market leadership position, Toyota Triple
Crown Award winner for 20th year
Key financial highlights
Sales
£433.3m +0.6%
(2010: £430.6m)*
Trading profit
£42.0m +23.5%
(2010: £34.0m)*
Patrick Lee
Chief Executive Officer,
Inchcape North Asia
Sales
Distribution
Like for like sales
Distribution
Trading profit
Distribution
Like for like
trading profit
Distribution
Trading margin %
Distribution
Contribution
to Group sales
7.4%
Contribution
to Group profit
16.1%
Year ended
31.12.2011
£m
Year ended
31.12.2010
£m
% change
in constant
currency
% change
433.3
430.6
0.6
428.1
430.6
(0.6)
4.9
3.7
42.0
34.0
23.5
29.1
43.4
34.0
27.6
33.1
9.7
7.9
1.8 ppt
1.8 ppt
* at actual exchange rates
The market
The market in Hong Kong grew 12% from 2010 despite the
supply problem caused by the earthquake in Japan, reflecting
continued economic recovery.
Business model & strategy
In Hong Kong and Macau we are the distributor for Toyota, Lexus,
Hino Trucks, Daihatsu and Jaguar. At the end of 2011 we began
distribution and retail for Land Rover in Hong Kong and Macau
and ceased to distribute Mazda. We own and operate all 20
retail centres for these brand partners in this market.
We are pleased to announce we have recently been awarded
the exclusive distribution and retail rights for Ford in Hong Kong
and in Macau.
In Guam we are the distributor and retailer for Toyota, Lexus,
Chevrolet and Scion owning all three retail centres and in
Saipan we are distributor and retailer for Toyota with one
further retail centre.
Our operating performance
In Hong Kong, we maintained our position as number one
in the passenger car segment for the 22nd consecutive year
and celebrated winning the ‘Toyota Triple Crown’ Award
(number one in passenger car sales, commercial sales and
overall market position) for the 20th consecutive year, the only
company to have done so over such an extended period.
Market share was slightly lower than 2010 with the temporary
supply issues affecting our second quarter sales. We benefited
from the successful launch of Toyota Ractis in the second half
of the year and a strong performance of the Lexus brand.
Sales and trading profit for North Asia grew by 4.9% and 29.1%
respectively in 2011 despite the supply challenges in the year.
Continued strong focus on cost controls and margin initiatives
resulted in a trading margin which has improved to 9.7%, up
1.8ppts on 2010.
Outlook for 2012
We anticipate the market will continue to grow in 2012. We
will leverage another strong line up of product launches across
all brands we represent, including Toyota Mark X, Auris, Prius C,
Prius V, Lexus GS and LX and Range Rover Evoque. Further, we
will continue to drive sales and aftersales through our industry
leading Inchcape Advantage Plus programmes.
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www.inchcape.com
27
Directors’ Report: Business Review
Operating review continued
South Asia
Robust operating margin of 8.8%
Key financial highlights
Sales
£296.2m -20.3%
(2010: £371.8m)*
Trading profit
£26.0m -28.0%
(2010: £36.1m)*
Koh Ching Hong
Managing Director,
Inchcape South Asia
Sales
Distribution
Like for like sales
Distribution
Trading profit
Distribution
Like for like
trading profit
Distribution
Trading margin %
Distribution
Contribution
to Group sales
5.1%
Contribution
to Group profit
9.9%
Year ended
31.12.2011
£m
Year ended
31.12.2010
£m
% change
in constant
currency
% change
296.2
371.8
(20.3)
(23.7)
296.2
371.8
(20.3)
(23.7)
26.0
36.1
(28.0)
(31.1)
26.0
36.1
(28.0)
(31.1)
8.8
9.7
(0.9)ppt
(0.9)ppt
* at actual exchange rates
The market
As expected, the market in Singapore continued to decline
in 2011 and ended the year 25% down on 2010, due to
a reduction of the number of Certificates of Entitlement
(COE) available following the slowdown of de-registrations.
Business model & strategy
In Singapore we are the distributor for Toyota, Lexus, Hino Trucks
and Suzuki. We have represented Toyota in Singapore since
1967. We have held the Suzuki distribution franchise since
1977. We own and operate all six retail centres in the market.
In Brunei we are the distributor for both Toyota and Lexus
owning and operating all four retail centres.
Our operating performance
Although sales revenue declined by 23.7% as a result of the
fall in volume of new car sales in Singapore and the impact
on supply following the earthquake in Japan, South Asia
delivered £26.0m trading profit with a 8.8% trading margin
thanks to strong management of our sales mix and strong
gross margin performance.
We continued to protect our gross margin by defending our
pricing power despite competitive pressure on price and the
strength of the Japanese Yen.
We continued to outperform the aftersales market through
an expansion of customer contact activities to grow enquiries
and capture rate. We strengthened the member benefits
programme and increased upselling opportunities with the
introduction of new service packages and parts offerings.
Outlook for 2012
We expect the market will start to rebound gradually from
the end of 2012 with an increase in availability of COEs.
We aim to grow our market share through new model launches
such as the Toyota Camry, Toyota Prius C, Lexus GS and Suzuki
Swift Sport.
We will face supply constraints in the first quarter for models
being manufactured in Thailand such as the Toyota Vios,
Corolla and Camry as a result of the floods in November 2011.
Our aftersales business will benefit from our innovative approach
to retention of warranty and post warranty customers.
Our controls on cost and cash will remain firmly in place
during 2012.
28
Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Business Review
Operating review continued
United Kingdom
Record operating margin
Key financial highlights
Year ended
31.12.2011
£m
Year ended
31.12.2010
£m
% change
in constant
currency
% change
Sales
£2,059.3m -3.1%
(2010: £2,125.8m)
Trading profit
£60.4m +8.1%
(2010: £55.9m)
Connor McCormack
Chief Executive Officer,
Inchcape UK
Contribution
to Group sales
35.3%
Contribution
to Group profit
23.1%
Sales
Distribution
Retail
Like for like sales
Distribution
Retail
Trading profit
Distribution
Retail
Like for like
trading profit
Distribution
Retail
Trading margin %
Distribution
Retail
2,059.3
36.1
2,023.2
2,027.5
36.1
1,991.4
60.4
6.9
Awaiting Data
53.5
2,125.8
36.9
2,088.9
1,997.4
36.9
1,960.5
55.9
6.5
49.4
TBC
(3.1)
(2.2)
(3.1)
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(2.2)
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8.1
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(2.2)
(3.1)
1.5
(2.2)
1.6
8.1
6.2
8.3
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6.9
53.9
2.9
19.1
2.6
55.6
6.5
49.1
2.6
17.6
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0.2 ppt
9.4
6.2
9.8
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1.5 ppt
0.2 ppt
We outperformed the market with like for like sales increasing
by 1.6% in our retail business, primarily driven by our market
share gains. Aftersales performance also benefited from the
roll out of customer contact centres in the Audi, Toyota, Lexus,
Mercedes-Benz and Volkswagen businesses. An ongoing focus
on tightly controlling operating expenses also contributed to
a record trading margin performance of 2.6%, which is 0.2ppts
up on 2010.
IFS delivered a strong £6.9m trading profit, up 6.2% on 2010
with a trading margin of 19.1%, 1.5ppts ahead of 2010 as
we benefited from increased fleet volumes and rigorous
cost controls.
Outlook for 2012
The UK economic outlook remains uncertain in 2012. Continued
modest GDP growth, combined with higher unemployment,
is expected to result in a decline in retail market volumes. Our
brand partners will continue to grow their market share and
we expect to take advantage of an attractive new product
pipeline, including the BMW 3 series, Audi Q3, Volkswagen UP!
and Beetle, Lexus GS and Mercedes-Benz B Class.
We are confident that our customer centric strategy combined
with continued focus on operational excellence and efficiency
will enable us to deliver a resilient performance.
The market
As expected, the UK market declined in 2011 to 1.9m units
(down 4%), due to the impact of the Government scrappage
scheme which ended in the first half of 2010. On an underlying
basis, excluding scrappage, the market increased by 0.9%, with
growth in the corporate market more than offsetting declines in
the private sector. Market growth slowed in the second half due
to the increasingly uncertain economic environment and
pressure on consumer spending.
Business model & strategy
We have scale operations in the South East, Midlands, North
and North East of England with a streamlined portfolio of 117
retail centres focused on premium brands. We aim to create
differentiation by delivering outstanding customer service
through our Inchcape Advantage programme and to drive
growth in aftersales and car finance penetration.
We were awarded two further franchises in the luxury and
premium segment: a Porsche retail centre in Portsmouth that
will open in 2012 and the West London Volkswagen franchise
due to open in 2015.
The distribution element of our results is made up of our fleet
management and leasing business, Inchcape Fleet Solutions
(IFS), which offers services to corporate and government
customers. With over 50 years’ experience, IFS has a combined
fleet size of approximately 50,000 vehicles.
Our operating performance
Our strategy to focus on premium brands continued to provide
strong results. Inchcape Retail’s like for like total market share
increased by 0.3ppts, as we continued to focus on delivering
an exceptional customer experience through the Inchcape
Advantage programme.
www.inchcape.com
29
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Directors’ Report: Business Review
Operating review continued
Russia and Emerging Markets
Strong market growth in premium and luxury brands
delivering significant margin improvement
Key financial highlights
Sales
£1,220.5m +15.6%
(2010: £1,056.0m)*
Trading profit
£54.1m +70.1%
(2010: £31.8m)*
Contribution
to Group sales
21.0%
Contribution
to Group profit
20.6%
Louis Fallenstein
Managing Director,
Emerging Markets
Jean Van der Hasselt
Chief Executive Officer,
Russia and the Nordics
* at actual exchange rates
The market
There was continuing growth in most of our emerging markets
driven mainly by Russia (up 39%), South America (up 20%), Africa
and Poland. Continued uncertain economic outlook and credit
restrictions in the Balkans resulted in a further market decline.
The Baltic economies recovered strongly in 2011 driven primarily
by increased availability of consumer finance and increased
consumer confidence. This contributed towards market growth
of over 70% compared to 2010. After a strong growth rate of
31% in 2010, China’s passenger car market growth slowed to
5% in 2011 with luxury brands outperforming the market (up 45%).
Business model & strategy
In Russia we operate 22 scale retail centres in St Petersburg and
Moscow representing 11 brands. We ceased trading with the
Renault brand in the latter part of 2011 given our lack of scale.
In the Balkans we are the distributor for Toyota and Lexus
operating six retail centres and in Poland we own four retail
centres for BMW and MINI.
We operate VIR for Mazda, Jaguar and Land Rover across
the Baltic region and we operate VIR for Mitsubishi in Lithuania.
Additionally we retail BMW, Ford and MINI in Latvia and Ford
and Hyundai in Lithuania. We operate a total of 23 retail
centres across the region.
In Ethiopia we operate VIR for Toyota and in South America
we are the distributor and retailer for BMW and were appointed
the exclusive representative for Rolls-Royce in Chile in 2011.
In China we have five scale retail centres for Toyota, Lexus,
Jaguar and Land Rover in Shanghai and Shaoxing. We have
also been awarded the Porsche franchise for Nanchang and
are currently building a retail centre there which is due to be
completed toward the end of 2012.
Sales
Distribution
Retail
Like for like sales
Distribution
Retail
Trading profit
Distribution
Retail
Like for like
trading profit
Distribution
Retail
Trading margin %
Distribution
Retail
Year ended
31.12.2011
£m
Year ended
31.12.2010
£m
% change
in constant
currency
% change
1,220.5
311.9
908.6
1,182.7
311.9
870.8
54.1
30.1
24.0
50.7
30.1
20.6
4.4
9.7
2.6
1,056.0
257.9
798.1
1,041.5
257.9
783.6
31.8
19.1
12.7
15.6
20.9
13.8
13.6
20.9
11.1
70.1
57.6
89.0
16.4
24.5
13.8
14.4
24.5
11.2
85.9
82.8
89.9
31.6
18.8
12.8
3.0
7.4
1.6
60.4
60.1
60.9
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1.0 ppt
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61.7
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0.9 ppt
Our operating performance
Russia and Emerging Markets delivered strong growth in 2011
with revenue up 16.4% on 2010 and trading profit growing by
85.9% to £54.1m; £30.1m in distribution and £24.0m in retail. Due
to strong margin management and cost controls, trading margin
increased 1.7ppts to 4.4%. Included in the 2010 trading profit was
an impairment charge of £7.5m on land in Romania. Adjusting
for this item, underlying trading profit growth was 47.8%.
In Russia, the market recovery continued albeit at a faster rate
in the regions than in the major cities. We delivered a trading
profit of £20.3m with a return on sales of 3.0%. In June 2011 we
completed the purchase of Musa Motors for a final payment
of £19.6m.
We delivered a strong performance and leading market share
in Chile and Peru due to innovative marketing initiatives and
leading customer service. Ethiopia also delivered a strong
performance based on our continued growth in aftersales.
Poland continued to perform well. Our Balkans operations
remained profitable throughout the year and our combined
Baltics business delivered a solid trading performance.
Our China business continued to grow with a Jaguar Land Rover
flagship store opened in Shaoxing in October 2011.
Outlook for 2012
We expect to see further growth in Russia and across many
of the markets in South America, Africa and Poland. In the
Balkans the recovery is expected in the second half of the year.
Although we anticipate the rate of market growth in the Baltics
to be moderate in 2012 we still anticipate a strong year for the
market and further improvements in our financial performance.
The China luxury passenger car market is forecast to grow by
15% in 2012.
We plan to continue to invest in capacity expansion in our retail
facilities in Moscow, Santiago, Lima and Wroclaw. We will further
strengthen our presence in the luxury market with Rolls-Royce
operations starting in March 2012 in Chile.
30
Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Business Review
Finance Review
The Group has delivered a solid performance in 2011.
In addition to the segmental results, the financial implications
of our operating activities are detailed below
Dividend
The Board recommends a final ordinary dividend of 7.4p per
share which is subject to the approval of shareholders at the
2012 Annual General Meeting. This gives a total dividend for
2011 of 11.0p per share. A final ordinary dividend for 2010 of
6.6p per ordinary share was paid in 2011.
Pensions
During the year, and in line with the funding programme agreed
with the Trustees, the Group made cash contributions to the UK
defined benefit scheme amounting to £24.1m (2010: £28.4m). A
revision of market and actuarial assumptions for defined benefit
schemes has resulted in a closing deficit on Group schemes of
£14.9m, compared to a deficit of £22.2m in 2010.
Acquisitions and disposals
In June 2011 the Group completed the purchase of Musa Motors
for a final cash consideration of US$32m (£19.6m). The Group also
realised £5.5m from the disposal of underperforming sites, which
were identified as part of the restructuring exercise conducted
in the fourth quarter of 2010.
Capital expenditure
The Group increased its investment in retail capacity expansion
with the development of greenfield sites and the enlargement
of existing facilities primarily in Asia Pacific and the Emerging
Markets. Net capital expenditure was £88.5m in 2011.
John McConnell,
Group Finance Director
Central costs
Unallocated central costs for the full year are £17.4m before
exceptional items (2010: £22.6m). This includes a one-off gain
of £6.1m relating to the settlement of certain liabilities in one
of the Group’s pension schemes.
Joint ventures and associates
The share of profit after tax from joint ventures was a loss of £3.0m
(2010: loss of £1.7m) driven by a net loss in our Greek joint venture
as a result of the impact of the austerity measures in the market
and the start-up of a joint venture retail operation in Russia.
Operating exceptional items
We have reported operating exceptional costs of £13.4m for 2011
(2010: £21.9m), which relate to a global restructuring exercise
conducted in the fourth quarter of 2011. The restructuring will
ensure we continue to maintain an organisational structure and
cost base which reflects trading conditions across the Group.
Net financing costs
Net financing costs before exceptional items for the full year
of £13.7m are £3.9m higher than in 2010 primarily due to a loss
of £2.4m on the mark-to-market reporting of the hedges for
the US Loan Notes (2010: a gain of £2.0m).
Exceptional finance costs of £10.9m represent an impairment
charge on Greek Government Bonds held by our insurance
business in Greece to back warranty liabilities.
Tax
The effective tax rate before exceptional items for the year
is 26% compared to 29% in 2010. This is due to the impact
of reducing tax rates in a number of our markets and the
successful conclusion of overseas territories audits.
Non controlling interests
Profits attributable to our non controlling interests were £5.6m,
compared to £5.1m in 2010. At the year end the Group’s
non controlling interests principally comprise a 33% minority
holding in UAB Vitvela in Lithuania, a 30% share in NBT Brunei
and a 10% share of Subaru Australia.
Foreign currency
During 2011, the Group benefited by £1.2m (2010 benefit: £9.9m)
from the translation of its overseas profits before tax into Sterling
at the 2011 average exchange rate.
Cash flow and net funds
The Group’s operations have generated strong cash flow in 2011.
Working capital ended the year at an historical low of £12.2m
(2010: £18.4m) as we adjusted our inventory in the UK and Europe
to reflect challenging trading conditions and as we benefited
from the delayed payment for late shipments in some of our
operations. At the end of 2011 we had £243.5m in net cash.
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31
Directors’ Report: Business Review
Principal risks
The Group applies an effective system of risk management
which identifies, monitors and mitigates risks
Further details of the Group’s risk management process can
be found on pages 44 to 46.
Risk is a part of doing business: the risk management system
aims to provide assurance to all stakeholders of 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
best practice and effective crisis management.
The following provides an overview of the principal business
risk areas facing the Group, along with the mitigating
actions in place.
Strategy, including customer and consumer
Description of risk
Impact
Mitigation
Failure to deliver on our five
key areas of strategic focus:
growing market share; growing
aftersales; improving margin;
controlling working capital and
selective capital expenditure
We do not increase our profits,
revenues and margins. There
may be an impact on our
relationships with the brand
partners whom we represent
(cid:114)(cid:1) The Group is investing in its Inchcape Advantage and Customer 1st
programmes to ensure that we win new customers and retain existing
ones, with particular emphasis upon retaining customer loyalty in respect
of older vehicles
(cid:114)(cid:1) The Group is investing in new ways of reaching its customers including
through use of the internet and social media
(cid:114)(cid:1) Obtaining favourable credit terms and making improvements in supply
chain management
(cid:114)(cid:1) Group wide focus on working capital (particularly aged stock) reduction
(cid:114)(cid:1) Thorough reviews of all proposed capital expenditure to ensure Group
investment hurdles are met
Finance and Treasury
Description of risk
Impact
Mitigation
Funding and liquidity risk
Unable to meet obligations within
available committed facilities
(cid:114)(cid:1) The Group maintains sufficient committed facilities to meet forecast debt
requirements and ensure adequate headroom is maintained
Currency risk
Transactional foreign
exchange exposures
(cid:114)(cid:1) A significant proportion of Group trading is denominated in local currency
(cid:114)(cid:1) Where possible, foreign exchange exposures are matched internally before
Interest rate risk
Increase in net finance costs
hedging externally
(cid:114)(cid:1) Where businesses are billed in a foreign currency, committed transactional
exposures are hedged back to the reporting currency
(cid:114)(cid:1) Continuous monitoring of short and long term interest rates
(cid:114)(cid:1) Group policy permits the fixing of gross borrowings at fixed interest rates
if deemed appropriate by management
Counterparty risk
Credit losses
(cid:114)(cid:1) Approved credit parties and limits with regular review
Brand partners, key relationships and reputation
Description of risk
Impact
Mitigation
Not sustaining current
high quality relationships
with brand partners
Impact on our ability to retain
existing businesses on contract
renewal and to take on
new opportunities
Inability to continue to work with
brand partners best placed to
deliver competitive technologies
Impact on ability to deliver
on strategy through lack
of competitive products
(cid:114)(cid:1) Constant focus on performance, effective communication and ensuring
that our objectives are closely linked to those of our brand partners
(cid:114)(cid:1) Constant focus on building and retaining high quality relationships with brand
partners best placed to invest in technology
32
Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Business Review
Principal risks continued
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Systems and Technology
Description of risk
Failure to appropriately support
the business operations
Impact
Fraud
Loss of competitive advantage
Mitigation
(cid:114)(cid:1) Strategy in place to invest in new systems and technology
(cid:114)(cid:1) Investments made to support legacy systems
People, including EH&S
Description of risk
Impact
Mitigation
Failure to attract, develop
and retain talent
Unable to deliver business plans
Employees who lack motivation
and engagement
(cid:114)(cid:1) Global annual performance management process
(cid:114)(cid:1) Talent review and planning process
(cid:114)(cid:1) Internal annual employee engagement survey and action planning
(cid:114)(cid:1) External benchmarking of remuneration
(cid:114)(cid:1) Succession plans in place for key positions
Economic, political and environmental
Description of risk
Impact
Mitigation
Corporate responsibility risk
Loss of reputation as a good
corporate citizen
(cid:114)(cid:1) Board supported global corporate responsibility programme
Increased demand for
greener technologies
European markets recover more
slowly due to governmental
austerity measures
Consumers seek alternate vehicles
(cid:114)(cid:1) Group works closely with brand partners who recognise their environmental
responsibility and invest in new technology
Lower purchases of new vehicles
(cid:114)(cid:1) Group has multi-market strategy with a presence in Asia Pacific and
the Emerging Markets where the potential for strong growth is forecast
(cid:114)(cid:1) Group has multi-channel business model including used cars and
aftersales which reduce dependency on a single revenue stream
Legal and regulatory
Description of risk
Impact
Mitigation
Litigation and regulatory risk
Litigation or breaching the
laws or regulations of the
countries in which we operate
could have a financial
and/or reputational impact
(cid:114)(cid:1) The Group ensures that it obtains timely information about forthcoming
changes in legislation and that it has robust procedures in place to minimise
any risk of detriment or non-compliance
(cid:114)(cid:1) 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 appropriate exposure
(cid:114)(cid:1) The Group has a risk management programme in place aimed at preventing
issues from arising where possible and managing any that do crystallise
Tax, pensions and insurance
Description of risk
Impact
Mitigation
Increase in cash contributions
in the event of adverse change
in the schemes’ financial position
Risk arising out of the Group’s
defined benefit pension funds
These risks will primarily be:
(cid:116)(cid:1) Investment risk
(cid:116)(cid:1) Interest rate risk
(cid:116)(cid:1) Inflation risk
(cid:116)(cid:1) Increasing life expectancy
(cid:114)(cid:1) The Group employs specialist staff who monitor the financial health and
compliance of the schemes on a quarterly basis. The Group has agreed fixed
cash contributions with each scheme on a medium term horizon, based on
a prudent outlook for the scheme's financial position
(cid:114)(cid:1) An active programme of identifying and reducing risk, particularly investment
risk, is in place for all schemes. The schemes benefit from significant hedging
against both interest rate movements and inflation, and direct exposure to
equity markets has been significantly reduced through this process
(cid:114)(cid:1) All the schemes participate in a specialised life expectancy study with a
recognised market leader in this field. This study informs a prudent assumption
for life expectancy and allows a monitoring process to ensure that the schemes
are prepared for, and funded on the basis that individuals are expected to
live for longer in the future
www.inchcape.com
33
Directors’ Report: Business Review
Corporate Responsibility
We believe that it is the enthusiasm and spirit of our people that
shape and empower our Corporate Responsibility culture
Introduction from the Group Chief Executive
I am happy to present our 2011
Corporate Responsibility Report which sets
out our progress and achievements
during the year.
We continue to be committed to integrating socially responsible
behaviour into every aspect of how we operate. Our Corporate
Responsibility (CR) strategy aims to ensure a sustainable business
for the benefit of all our stakeholders and the communities in which
we operate while managing our impact on the environment. To
implement this strategy effectively across all our markets we focus
on five core areas; Environment, People, Brand Partners, Customers
and Communities.
This year we have made progress in all five CR core areas.
We rolled out the automated CO2 collection programme during
2010 and have continued to focus on the integrity of the data
throughout the year to ensure robustness. We have worked hard
to improve employee communications and have launched our
new Group-wide intranet, The Light. Our carefully selected brand
partners continue to be at the forefront of technology, making
it possible for our customers to better manage their own impact
on the environment.
During 2011, our colleagues were once again involved in
numerous programmes and partnerships to support their
local communities. Community involvement is central to us
as these activities engage our people and positively impact
the communities in which we operate, making them stronger
and better places in which to live, work and do business.
I truly believe that it is the spirit of our people that drives our
CR culture and our ability to combine the local knowledge,
enthusiasm and expertise of our employees with clearly
defined values, standards and policies enables us to
contribute responsibly and sustainably to society.
André Lacroix,
Group Chief Executive
34
Inchcape plc ¦ Annual Report and Accounts 2011
Governance and management
The Board has delegated authority to the CR Committee.
Thus the CR Committee provides oversight of the CR policy and
assists in its delivery. The day to day management of CR activities
are delegated to local CR working groups and CR champions
within each of our businesses which offer a network of support
for the CR Committee. Our CR activities are focused through
our CR Aware campaign. Above all, the CR Committee’s role
is to ensure that our day to day business operations respond
to opportunities and challenges posed by CR issues.
CR is integral to business decision making and the standards
expected of the Group and its stakeholders are clearly
communicated throughout. The Subsidiary Governance
Manual contains the policies which set the standard for the
way we do business across the Group. Compliance is checked
annually through year end reporting and internal audit reviews.
The Board – responsible for the strategic direction of CR
and ensuring that CR is integrated into the Group’s strategy.
CR Committee – responsible for setting the CR Policy within
the framework established by the Board and ensuring that our
business operations respond to the opportunities and risks posed
by CR issues.
CR Working Groups – responsible for ensuring that the CR policy
is promoted and communicated effectively and for developing
CR best practice at local levels.
CR Champions – employees with global and local responsibilities
support the CR Working Groups and CR Committee.
Environment
In 2008, the Group commenced collecting data to determine
its CO2 footprint, measured against three Key Performance
Indicators (KPIs). During 2011 we continued the roll out of the
automated CO2 collection programme introduced in 2010,
within each market.
Energy
Transport
Flights
This KPI measures our global electricity and gas
usage. Since 2008, data has been collected
on the basis of megawatt hours for electricity
and cubic metres for gas.
This KPI measures the movement of cars and
parts from the point of ownership (which
means legal or contractual ownership) to the
point we cease to have legal ownership. This
includes test drives. We calculate our CO2
footprint by car or parts kilometres depending
on the mode of transport with a CO2 multiplier.
This KPI measures the impact of the movement
of our people. We have recorded the number
of flights (each flight leg counts as one unit)
and calculate our flight CO2 emissions with
a multiplier by flight kilometre.
As the Group operates three routes to market – distribution, retail
and VIR – there are variances in our CO2 footprint across these
channels. Direct comparisons between the markets’ operating
channels are unlikely to produce meaningful results at the
Directors’ Report: Business Review
Corporate Responsibility continued
Our five core areas
Communities
We support our local
communities to make
positive impacts where
we operate
Customers
We drive constantly
improving levels
of customer
service every day,
everywhere
Environment
We manage our
CO2 footprint by
understanding
our impact
People
We attract, train
and motivate
by engaging our
people in the
strategy and vision
of the Group
Brand partners
We partner with
brands that are
at the forefront of
green technology
developments
Core areas of focus and their risks
Impact
Risk
Communities
Lack of engagement with the communities in
which we operate leading to a poor reputation
and lack of understanding of our customer base
Environment
Energy can be a significant cost to the Group
as well as increasing our CO2 footprint
Unnecessary business travel can increase
the CO2 footprint of the Group
Unmanaged shipments of cars and parts
can adversely impact our CO2 footprint
Management
Encourage employees to support local charities
and initiatives that directly benefit their community
By finding ways to cut back on energy usage the
Group saves money and also significantly reduces
its CO2 emissions
Manage travel by use of alternative
communication tools
Ensure co-ordinated shipping programmes
to meet supply
Customers
Poor customer service leads to decrease
in revenue
Inchcape Advantage embedded in all our sales
and aftersales operations
People
Employees lack motivation and engagement;
unable to attract and retain talent
Net promoter score to measure customer satisfaction
and identify areas for improvement
By ensuring that employees are fully engaged they
will continue to provide the ultimate customer service
that will enable us to become the most customer
centric automotive retailer in the world
Brand
partners
Unable to deliver on strategy through lack
of competitive products
Carefully selecting brand partners that invest
in technology
Support brand partners in seeking positive labour
practices including safe working environments and
the eradication of child labour
present time and we are looking for opportunities to exploit
synergies between the channels by having a consistent
approach to CO2 management and by sharing best practice.
continuing to build up sufficient data to ensure we can perform
meaningful analysis of the significance of any trends that
may emerge.
In 2011 we started to develop a sliding scale of targets, as a ‘one
size fits all’ approach does not allow meaningful objectives to be
set. It is important that our data is robust and we are still working
on control processes to ensure that the data collected is
relevant, fit for purpose and capable of independent verification.
Our initial analysis shows how many CO2 tonnes we produce per
pound Sterling of revenue against each of our KPIs. We are
Carbon Reduction Commitment
Within the markets in which we operate the Group is subject
to local regulations on CO2 emissions. In the UK, the combined
operations of our Head Office, UK Retail businesses and Inchcape
Fleet Solutions, qualify us for participation in the Government’s
Carbon Reduction Commitment scheme (CRC scheme).
www.inchcape.com
35
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Corporate Responsibility continued
The CRC scheme requires large public and private sector
organisations to buy allowances, from 2012 onwards, to cover
emissions produced from their usage of electricity and heat.
During 2011, the CRC scheme published a Performance
League Table which ranked organisations according to the
measures they have taken on energy use as preparation for
taking part in the CRC scheme. The Table ranks participants
on the basis of performance in three metrics. The metrics are
not created so as to provide like for like comparisons, rather
to look at all qualifying companies irrespective of scale
or business model. In the early years of the CRC scheme,
the early adopter metric is the most relevant as it is the sole
indicator of performance for the purposes of the Table. This
metric takes into account early action initiatives made by an
organisation to reduce its carbon emissions prior to April 2011.
Qualification for the early adopter metric required organisations
to be assessed for coverage of the Carbon Trust Standard
and automatic meter readings. Other metrics will apply
within the next few years and will be taken into account
when assessing performance.
Given the upfront investment required for the early adoption
metric, which would be of tangible benefit for only a short
period of time, and the current lack of data to assess real
comparative performance, the Group decided not to invest
in early action initiatives but to continue to focus on the longer
term projects which are already embedded into the Group’s
overall CR strategy.
People
We believe that it is our people that make a difference.
During 2011 we furthered our people strategy to achieve our
ultimate goal of having ‘Engaged People in Winning Teams’.
For more information about our people strategy, please visit
www.inchcape.com/people_and_careers.
Average number of employees 2011
13,854
Australasia
Europe
North Asia
South Asia
UK
Russia and Emerging Markets
We seek to eliminate discriminatory practices and promote
the support of fundamental human rights in all our operations.
Talent management
We proactively manage the development of our leadership
population through our Talent Review and Planning Process
which is currently in its fifth year. This process looks to evaluate
each manager on a regular basis against both the achievement
of their objectives (‘what’ they are tasked to do) as well as the
quality of their leadership skill (‘how’ they achieve their results).
By having this consistent global view of how we evaluate our
leadership population we are able to identify development
opportunities, promotional opportunities and also have in
place our succession plans. We have made several key
people decisions as a result of the talent and performance
management process including international opportunities
which have enabled our people to have a more stimulating
career path.
Employee communication
During 2011, we continued to keep our employees well informed
and therefore engaged, which is important to us. We recently
launched The Light, our new Group intranet, to provide all of our
colleagues with a direct line of sight to our strategy. The pilot was
successfully launched in the UK in July 2011, and will be rolled
out to the rest of the Group by March 2012.
The site has been designed to be a central hub of information
and news about the Group, an enabler of team collaboration
and best practice sharing. It is the first common internal
communications platform that all of our colleagues will
be able to access no matter where they are in the world.
Employee survey
Our Heartbeat employee engagement programme has been
a significant contributor to strong employee morale. For three
weeks in May 2011, employees participated in the Heartbeat
survey, run in collaboration with Gallup. We continued our
previous year’s success with over 90% of employees
participating. The results of the survey are incorporated into
team level scorecards from which, based on responses to the
Heartbeat survey, each team develops an action plan to help
increase their level of engagement with the business.
Employee safety
Many of our employees work with hazardous substances and
heavy machinery. Our approach to safety aims to manage
risks effectively by ensuring that our employees are fully trained
and our workplaces comply with safety regulations. We report
and monitor accidents and lost time incidents to ensure that
the safety of our employees and customers remains at the
top of our agenda.
Location
Australasia
Europe
North Asia
South Asia
UK
Russia & Emerging Markets
%
6
7
25
2
56
4
2011
7
9
32
2
74
5
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19
3
54
13
2010
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29
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Brand partners
Our brand partners are carefully selected for each market in
which we operate. They have each developed comprehensive
sustainability programmes and the automotive industry in general
has made significant progress in reducing vehicle emissions. Our
brand partners are at the forefront of technological advances
in this area. New technology will create value and accelerate
vehicle replacement in advanced markets.
Customers
As part of our Customer 1st strategy, our Inchcape Advantage
programme aims to deliver outstanding customer service ‘every
time, every day, everywhere’.
Our customer processes, training and systems throughout our
retail centres allow local managers to set targets based on
customer satisfaction measured through Net Promoter Score
(NPS) and sales and service funnel management analysis. Our
system for tracking daily customer information includes retail
centre traffic, sales leads, test drives and vehicle and sales orders.
The mystery shop facilitates customer understanding and
is carried out on a monthly basis. Each retail centre submits
feedback from 20 buyers and 20 non-buyers. This exercise
is also undertaken with aftersales customers.
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Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Business Review
Corporate Responsibility continued
Our award winning Inchcape Advantage web portal is used
to collect and monitor results from daily customer information
which allows us to benchmark our businesses across all our
markets. The Inchcape Advantage programme is used to
monitor both our own performance as a retailer and the
performance of our third party retailers where we manage
the network as a distributor. It is this focus that helps us deliver
outstanding customer service, builds loyalty and results in
stronger relationships which leaves the Group better
positioned to grow market share.
Customer 1st in 2011
(cid:114)(cid:1) We carried out 2,255 mystery shop exercises in 217 retail
centre showrooms across the Group
(cid:114)(cid:1) We carried out 2,087 mystery shop exercises in 204 service
centres across the Group
(cid:114)(cid:1) We talked to over 82,000 customers for our vehicle sales
NPS programme
(cid:114)(cid:1) We talked to over 78,000 service customers for our
aftersales NPS
NPS has improved again across the Group in both sales
and aftersales.
As part of our aftersales service we offer a Vehicle Health
Check which includes:
Communities
Our people continued to drive our CR strategy locally during
2011. We encourage support of local charities and initiatives
as this approach increases our colleagues’ engagement in CR
activities and helps us further connect with the communities in
which we operate. Information on the amazing support given
by our colleagues to their local communities can be found on
our website www.inchcape.com/responsibility.
In order to communicate our CR activities with employees we
proposed The Green Baton initiative as stated in last year’s
report. The Green Baton site will sit within the CR section of The
Light and will feature a series of pages that not only explain the
programme, but provide a platform for each region to share
its good news and initiatives around CR with the rest of the
Group. Regional CR information will then be archived so that
colleagues can find ideas and best practices after the region’s
promotional period has passed.
Our Values
Much more than just words, our Values are shared beliefs
within our business that inform our day to day behaviours.
Based on 170 years of history, they help us operate with
a true pioneering spirit alongside genuine integrity and
deep respect for each other:
(cid:114)(cid:1) Tyre pressure check
(cid:114)(cid:1) CO2 test and emissions test
(cid:114)(cid:1) Air condition check
(cid:114)(cid:1) Engine lubricant test
A Green Test Drive is offered in some retail centres which
gives tips on how to drive more efficiently, how to improve
environmental impact and how to reduce vehicle running
costs. Accessories are also available including low rolling
resistance tyres, which can reduce CO2 emissions by around
2%, and low friction engine lubricants, which can reduce
CO2 emissions by around 0.5%.
Progress against goals
(cid:114)(cid:1) Respect for each other
(cid:114)(cid:1) Winning together
(cid:114)(cid:1) Treating every £ as our own
(cid:114)(cid:1) Integrity without compromise
(cid:114)(cid:1) Pioneering new ideas
(cid:114)(cid:1) Passionate about customers
(cid:114)(cid:1) Caring for our environment
For more information on our Values please visit
www.inchcape.com/about us/Values.
Objective
What we did in 2011
What we aim to do in 2012
Raising awareness of local CR activities
and employee engagement through
The Green Baton
Launched new intranet site, The Light,
to support The Green Baton in the UK;
began a roll out programme globally
Ensure that The Light is rolled out in
all regions and prepare for the launch
of The Green Baton
Identifying opportunities to demonstrate
and share our best practice within
our industry
Measured accident rates and agreed
targets for reduction. Commenced
global audit of Health & Safety. Worked
with the SMMT and brand partners to
share best practice
Global audit of Health & Safety
completed in 2012 by external
third party
Extending Health & Safety best practice
to our operations worldwide
Reviewed time lost through accidents
and monitored impact on business
Global audit of Health & Safety completed
in 2012 by external third party
Continued support of the communities
in which we operate
Encouraged local initiatives and
provided support for these
Support local initiatives and establish
The Green Baton as a global
communication tool
CO2 data collection
Continued to develop the automated
collections system and tested greater
depth of data to perform detailed
qualitative and quantitative trend analysis
Test the data collected to ensure that it
is robust; measure CO2 usage since the
beginning of the collection project; discuss
reduction targets
Identification of CO2 reduction
and/or off-set opportunities in our
core markets
Reviewed opportunities which impact
our CO2 footprint
Establish management targets for each
business; review new technologies to assist
with the agreed plans
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www.inchcape.com
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Directors’ Report: Governance
Board of Directors
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1 Ken Hanna
Chairman
Appointment to Board: September 2001
4 John McConnell
Group Finance Director
Appointment to Board: October 2009
8 Nigel Northridge
Non-Executive Director
Appointment to Board: July 2009
Ken became Chairman in May 2009. He is
also a Non-Executive Director of Tesco plc
and Aggreko plc. Ken will become Chairman
of Aggreko plc in April 2012. Prior to joining
Inchcape, Ken was an Executive Director
and Chief Financial Officer of Cadbury plc. He
was previously a Partner of Compass Partners
International and Group Finance Director and
Chief Executive of Dalgety plc and had previous
experience with Guinness plc (now Diageo plc),
Avis Europe and Black & Decker.
Ken is Chairman of the Nominations Committee
and a member of the Remuneration Committee.
2 André Lacroix
Group Chief Executive
Appointment to Board: September 2005
André is a Non-Executive Director of Reckitt
Benckiser Group plc and the Chairman of Good
Restaurants AG. He was previously Chairman
and Chief Executive Officer of Euro Disney S.C.A.
Prior to this he was the President of Burger King
International, previously part of Diageo.
André is a member of the Nominations and
CR Committees.
3 Will Samuel
Deputy Chairman and Senior
Independent Non-Executive Director
Appointment to Board: January 2005
Will is Chairman of Howden Joinery Group plc
and the Ecclesiastical Insurance Group. He
is also a senior advisor of Lazard & Co, a
Non-Executive Director of the Edinburgh
Investment Trust plc and a Director of the
All Churches Trust. In January 2012, Will was
appointed by the Financial Services Authority
as its senior advisor on investment banking.
He was previously a Director of Schroders plc,
Co-Chief Executive Officer of Schroder Salomon
Smith Barney (a division of Citigroup Inc.) and
Vice Chairman, European Investment Bank of
Citigroup Inc and Chairman of H.P. Bulmer plc.
Will is a chartered accountant.
Will is a member of the Remuneration, Audit
and Nominations Committees.
John was appointed as Group Finance Director
of Inchcape plc in October 2009, having worked
with the Group since 1999. John joined Inchcape
Australasia as Chief Financial Officer before
moving to the role of Chief Executive Officer of
Australasia. Prior to joining Inchcape he worked
with Reckitt and Colman (now Reckitt Benckiser)
for 13 years in a variety of senior financial roles in
the UK, Germany and Australia.
Nigel is Chairman of Paddy Power plc
and Debenhams plc. He spent 32 years with
Gallaher Group plc in sales and marketing roles,
becoming the Group Chief Executive in 2000.
He was previously a Non-Executive Director of
Thomas Cook plc and the Senior Independent
Non-Executive Director of Aggreko plc.
Nigel is Chairman of the Remuneration Committee.
9 Vicky Bindra
Non-Executive Director
Appointment to Board: July 2011
Vicky joined the Board on 1 July 2011. He
is President of Asia/Pacific, Middle East &
Africa (APMEA) for MasterCard Worldwide.
Prior to joining MasterCard in June 2009,
Vicky has worked with Bain & Company, Citi
and GE Capital. He was a member of the Citi
Management Committee and held various
senior roles within the company including
head of SME Business for International, Sales
& Marketing for North America Retail. He was
a financial services partner for Bain & Company
in the New York office.
Vicky is a member of the CR Committee.
10 Till Vestring
Non-Executive Director
Appointment to Board: September 2011
Till joined the Board on 1 September 2011.
Till is Managing Partner of Bain & Company
South East Asia. Till has a 20 year career at
Bain & Company of which the last 18 were
spent in Asia with postings in Sydney, Hong Kong,
Tokyo and Singapore. He has served as head
of Bain’s Automotive & Industrial Practice in Asia
as well as on Bain’s global Partner Nomination
& Compensation Committee. He has extensive
experience advising multinationals on growth
strategy across Asia as well as advising
leading Asian companies on strategy,
M&A and organisation.
5 Alison Cooper
Non-Executive Director
Appointment to Board: July 2009
Alison is Chief Executive of Imperial Tobacco
Group PLC. Alison joined Imperial Tobacco
Group in 1999 and has held a number of
senior roles including Director of Finance and
Planning, Regional Director Western Europe,
Corporate Development Director and Chief
Operating Officer. Previously she was with
PricewaterhouseCoopers LLP.
Alison is a member of the Audit Committee.
6 David Scotland
Non-Executive Director
Appointment to Board: February 2005
David was previously an Executive Director of
Allied Domecq plc and a Non-Executive Director
of Photo-Me International plc, Brixton plc and
Thompson Travel Group plc. He was also a
Trustee and Director of Winston’s Wish, a child
bereavement registered charity.
David is the Chairman of the CR Committee
and a member of the Remuneration and
Nominations Committees.
7 Simon Borrows
Non-Executive Director
Appointment to Board: October 2010
Simon was appointed as Chief Investment
Officer of 3i Group plc in October 2011. He is
also a Non-Executive Director of The British
Land Company PLC. Previously, Simon was the
Chairman of Greenhill & Co International LLP
and was a founding partner of Greenhill’s
European business. Before starting Greenhill
he was Managing Director of Baring Brothers
International Limited.
Simon is Chairman of the Audit Committee.
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Directors’ Report: Governance
Executive committee
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1 André Lacroix
Position: Group Chief Executive
Appointment to Executive Committee: February 2006
Please see page 38 for full biography.
2 John McConnell
Position: Group Finance Director
Appointment to Executive Committee: February 2006
Please see page 38 for full biography.
3 Aris Aravanis
Position: Chairman & Managing Director, Toyota Hellas
Appointment to Executive Committee: July 2009
Skills and experience: During his tenure with Inchcape, Aris has led
the establishment and development of Tefin, a finance company that
was constituted by Toyota Hellas and EFG Eurobank, to the top of the
automotive financing market in Greece. In February 2000, Aris assumed
the position of General Manager of Toyota Hellas and then became Deputy
Managing Director and member of the Board of Directors. During his service,
Toyota has established solid and clear leadership in the Greek market.
Before joining Toyota Hellas and Inchcape, Aris had extensive experience
in the finance field working in various sectors including the food industry,
electric cabling and banking.
4 George Ashford
Position: Chief Executive Officer, Inchcape Australasia
Appointment to Executive Committee: October 2006
Skills and experience: George was appointed as Chief Executive Officer,
Inchcape Australasia in January 2012. George joined Inchcape in March
2006 as Director of Implementation, Inchcape Advantage. In this role
George led the implementation of Inchcape Advantage, a Group-wide
strategic programme putting the customer at the heart of the Group’s
service initiatives. In October 2006, George was appointed Managing
Director European Retail where he led the implementation of world
class retail operation programmes across the European retail network.
He was also responsible for the integration of businesses acquired in the
Baltics and the construction and opening of four greenfield operations
in eastern Europe. George was Chief Executive Officer, Toyota Belgium
from July 2009 to December 2011.
George joined Inchcape from Yum Restaurants International (previously
Pepsi Restaurants International), where he spent 10 years holding several
senior management positions.
5 Stéphane Chatal
Position: Group Chief Information Officer
Appointment to Executive Committee: November 2011
Skills and experience: Stéphane was appointed as Chief Information
Officer in 2008 and is responsible for the Group’s IS strategy, its
implementation and the IS function.
Before joining the Group, Stéphane spent over four years with Reckitt
Benckiser in senior IT roles, most recently as Global Solutions Director.
Prior to Reckitt Benckiser, Stéphane worked for Procter & Gamble for
12 years, where he was responsible for the global implementation
of multi-country, single instance SAP systems and centralised shared
service centres.
6 Claire Chapman
Position: General Counsel and Group Company Secretary
Appointment to the Executive Committee: March 2007
Skills and experience: Claire joined Inchcape in March 2007 and is
responsible for the Group’s legal and compliance programmes, mergers
and acquisitions, major contracts, corporate projects and restructurings;
effective corporate governance and Board management.
Claire was formerly a solicitor at Freshfields Bruckhaus Derringer from
1991 to 1995 before joining the legal team at the Reuters Group PLC
from 1995 to 2007. Claire held various roles whilst at Reuters, working for
their UK, European and US businesses. She was General Counsel for the
UK from 2000 to 2003 and General Counsel for Europe, Middle East and
Africa from 2004 to 2007, advising on a range of matters from major
commercial and IT contracts, global projects, integration and key
corporate projects. Additionally she advised on company secretariat
matters from 2004 to 2007.
Claire is a qualified solicitor for England and Wales and Attorney at Law,
New York and has a Masters in International Law.
7 Tony George
Position: Group HR Director
Appointment to the Executive Committee: February 2007
Skills and experience: Tony joined the Group in February 2007. He has over
23 years of experience in Human Resources and General Management
in International FMCG, chemicals, telecommunications and customer
service oriented retail companies. In his previous role he was HR Director,
Corporate Functions for Vodafone plc and prior to that, SVP International
Partner Resources for Starbucks Coffee Company based in the US. He
has also worked with ICI in India and Diageo plc where, at the time of
the formation of the Company, he was the first Global Management
Development Director UDV in the UK and latterly was the SVP International
HR for the Burger King business. During his career Tony has lived and
worked in India, the UK, USA and Australia.
8 Jean Van der Hasselt
Position: Chief Executive Officer, Russia and the Nordics
Appointment to Executive Committee: June 2009
Skills and experience: Jean joined Inchcape in 2003 as Chief Executive
Officer of Toyota Belgium, having been in the automotive industry since
1985. During this tenure the network has been successfully restructured,
leading to fewer and better retailers whilst improving market share and
maximising the profitability for Toyota Belgium. The successful run out
campaign of Toyota’s best selling model in 2006 led to an overall best
market share performance. In 2010, Jean was appointed CEO Russia and
the Nordics and has responsibility for our Russian and Nordic operations
that include Finland, Estonia, Latvia and Lithuania.
Prior to Inchcape, Jean held several Director positions within the Volvo
organisation and was Managing Director for the Volvo Cars operations
in Belgium, actively contributing to the set up of the PAG structure,
leading to effective synergies within Ford’s luxury brand cluster.
www.inchcape.com
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Directors’ Report: Governance
Executive Committee continued
9 Koh Ching Hong
Position: Managing Director, Inchcape South Asia
Appointment to Executive Committee: August 2009
13 Louis Fallenstein
Position: Managing Director, Emerging Markets
Appointment to Executive Committee: January 2012
Skills and experience: Louis was appointed as the Managing Director,
Emerging Markets in January 2012 . He is responsible for the Emerging
Markets region, encompassing all of our retail and distribution activities in
Poland, the Balkans, South America and Africa. He oversees both current
operations and our future expansion plans in these markets.
Prior to this Louis was Franchise Director BMW in our UK business. Louis has
been with the Group since the acquisition of European Motor Holdings plc
in 2006. Prior to that, he spent the majority of his career in senior roles within
the UK automotive industry. Louis has been a major force in the integration
of the Lind Automotive Group and European Motor Holdings with existing
UK retail businesses and has been a key member of the UK leadership
team over the last six years.
14 Bertrand Mallet
Position: Chief Executive Officer, Toyota Belgium
Appointment to Executive Committee: July 2008
Skills and experience: Bertrand was appointed as Chief Executive Officer,
Toyota Belgium in January 2012. Prior to this appointment he was the
Managing Director of the Emerging Markets and previously the Group
Strategy Director.
Before joining the Group in 2008, Bertrand spent over six years with
Euro Disney in both Strategy and Sales roles, most recently as Managing
Director for the French market. During his tenure, a new sales and
marketing approach was defined and implemented. Prior to Euro Disney,
he spent five years as a senior consultant with Bain & Company, both
in France and in the US. His main areas of focus were around retail and
distribution. Bertrand began his career in Sales and Marketing with
Automobiles Peugeot in Sweden.
15 Connor McCormack
Position: Chief Executive Officer, Inchcape UK
Appointment to Executive Committee: November 2009
Skills and experience: Connor has been with the Group since July 2005,
having initially joined Inchcape as Finance Director, UK Retail. Connor
has led the business through the acquisitions and integrations of the Lind
Automotive Group and European Motor Holdings, as well as playing an
instrumental part in the right sizing of the UK business in the second half
of 2008, as the global economy entered the downturn. Connor was
appointed Chief Executive Officer of the UK business in November 2009.
Prior to Inchcape, Connor held senior positions with B&Q plc, Kingfisher plc,
the L’Oreal Group and the Gillette Company.
Skills and experience: Ching Hong joined Borneo Motors as its Managing
Director in January 2008. He was appointed as Managing Director,
Inchcape South Asia in August 2009 and is responsible for Borneo Motors
and Champion Motors in Singapore and NBT in Brunei. Prior to joining the
Group, Ching Hong was Managing Director of Fuji Xerox Singapore and
an Executive member of Fuji Xerox Asia Pacific Senior Management from
1996 to 2008. In these roles he led the transformation and restructuring
of its business model and business approach, thereby increasing market
share, doubling revenue and leading the organisation into the prestigious
Singapore Quality Class, achieving a high customer satisfaction index.
10 Arthur Kipferler
Position: Group Strategy and Business Development Director
Appointment to Executive Committee: February 2011
Skills and experience: Arthur joined the Group on 1 February 2011.
Arthur worked for the Toyota Motor Corporation from 2002 until 2011
with assignments in the European headquarters in Brussels and in national
sales in central Europe and the USA. He successfully led numerous strategic
projects, among them a new European customer satisfaction programme,
the streamlining of the European distributor network, the launch of Lexus
in the Czech and Slovak Republics and major cost reduction efforts.
From 1999 to 2002 Arthur was with The Boston Consulting Group, advising
on strategic, corporate development and operational projects mostly
in the automotive industry. After becoming a Partner and Director of
the company, Arthur led the Global Automotive Practice Group.
11 Ken Lee
Position: Group Communications Director
Appointment to Executive Committee: November 2006
Skills and experience: Ken joined Inchcape in September 2003 as
Marketing Director for the UK businesses, where he led the development
of online car retailing and a pioneering customer experience
programme. In early 2006 he was appointed Customer Strategy
Director to lead the Group-wide identification of customer insights to
drive the Company’s pioneering Inchcape Advantage programme.
In late 2006 he was appointed to the Executive Committee as Group
Communications Director with global responsibility for internal and
external communications.
Prior to joining Inchcape, Ken held the position of Group Marketing
Director at the RAC from 1999 to 2003 having been part of the team that
acquired and then led the business post demutualisation. During his tenure
the company moved from a car breakdown organisation to a customer
focused motoring services group. Before joining the RAC, Ken worked for
Lex Service plc, where as Marketing Director he successfully established
the Hyundai brand in the UK.
12 Patrick S Lee
Position: Chief Executive Officer, Inchcape North Asia
Appointment to Executive Committee: November 2006
Skills and experience: Patrick is in charge of our VIR operations in Hong
Kong, Macau and Guam. Representing Toyota in all three markets, Toyota
has maintained the No.1 position for several years. He is also responsible
for Inchcape’s operations in China. Before joining Inchcape, Patrick was the
Group General Manager, Sales and Marketing of Kerry Beverages Ltd from
1998 to 2006. Kerry Beverages owned and operated 11 Coca-Cola bottling
plants in China. Patrick’s experience in auto retailing came from a Toronto
Honda dealership where he worked for three years and was awarded the
highest honour ‘Sales Master’ by Honda Canada for two consecutive years.
Patrick started his career in brand marketing with Procter & Gamble and has
worked in various locations including Canada, Switzerland, Thailand and
Hong Kong. Patrick holds a BBA and an MBA from the Chinese University
of Hong Kong.
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Directors’ Report: Governance
Corporate governance report
Governance is at the heart of everything we do
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Introduction from the Chairman
One of the key topics the Board discussed during the year was
that of Board composition. The Nominations Committee spent
time defining the current skills set represented by the Directors
and identified several areas where additional knowledge and
experience would enhance the Board.
In identifying the appropriate skills now required on the Board,
the Nominations Committee began developing a set of criteria
for potential candidates including knowledge and experience
and key skills in order to commence the recruitment process,
taking into account our strategy of expansion in Asia Pacific
and the Emerging Markets.
As a result of this process I am pleased to report that we recruited
two excellent Non-Executive Directors during the year, Vicky Bindra
and Till Vestring, both of whom are based in Singapore and who
bring a wealth of Asian and operational business experience to
our discussions. An in-depth induction programme was provided
to each of them, details of which can be found on page 43.
In addition to the new appointees, Michael Wemms retired from
the Board in May 2011 after seven years of valued service. The
Board members and I would like to thank Michael for his advice
and assistance, both as a member of the Board but also during
his time as our Remuneration Committee Chairman.
Diversity of our Board members has also been a particular focus
during the year and with the publication of the report “Women
on Boards” by Lord Davies, gender has been a specific discussion
point. The report provides recommendations to address the lack
of balance in the number of women on boards, including a
recommendation for listed companies to set out their targets for
the proportion of women who serve on their board. Additionally,
the Financial Reporting Council has recently consulted on whether
to make further changes in light of the Davies Report. Within the UK
Corporate Governance Code there is a requirement for
organisations to actively consider the make up and diversity of
their boards. Our Board already benefits from having a broad
range of skills, backgrounds and experience, which has been
further enhanced by our two new appointments. We will continue
to take diversity considerations into account when making
appointments to the Board, including those raised by Lord Davies.
development which, in turn, will provide a diverse range
of potential candidates for future roles on the boards of UK
companies. As a result the Nominations Committee has proposed
that succession planning for executive management will again
be an agenda item for the full Board during 2012.
Another key activity during 2011 was our Board evaluation
process. The evaluation was carried out by an external
independent consultant. The Board was encouraged to give
open and thoughtful feedback on its performance and that of the
Committees. The exercise was a very positive experience, assisting
the Board in seeking to continually improve its performance and
effectiveness. An outline of the Board evaluation can be found
on page 44.
The Board carried out a review of the Non-Executive Directors’ fees
during the year. Traditionally the Non-Executive Directors’ fees are
reviewed annually, however there had been no increase in fees
since 2007. The fee structure was updated to reflect current market
practice and details of the new fee structure is shown on page
54 of the Directors’ report on remuneration.
Statement of Code compliance
The Board has been fully compliant with the UK Corporate
Governance Code (the Code) during 2011. For Code provision
B7.1, annual re-election of all directors at the AGM, as the Code
applied to accounting periods on or after 29 June 2010 we
decided not to re-elect all the directors at the 2011 AGM but
all directors will be up for re-election at the 2012 AGM.
The information required under DTR 7.2.6 is given on pages
58 to 59 and forms part of the Corporate Governance Report.
In the following report we show how the Board and the Executive
Committee have run the Company over the last year, how
we made decisions, how we managed risks, how we monitored
controls and how we engaged with our stakeholders. I hope that
this information will help put into context our strategy and the
financial results we have achieved.
The Davies Report sparked a further discussion for the Board
this year on how to develop our senior management to ensure
that we can provide opportunities for long-term executive
Ken Hanna,
Chairman
www.inchcape.com
41
Directors’ Report: Governance
Corporate governance report continued
Inchcape committee structure
Inchcape plc
Audit
Committee
Remuneration
Committee
Executive
Committee
Nominations
Committee
Corporate
Responsibility
Committee
Delegated authorities:
Financial Reporting
Financial Risk Management
Internal Control
Delegated authorities:
Remuneration Policy
Incentive Plans
Performance Targets
Delegated authorities:
Group Strategy
Operational Management
Delegated authorities:
Balance of the Board
Leadership of the Group
Delegated authorities:
Oversight of the
Group CR Programme
Delegated authorities:
Risk Oversight
Principal Risks Assessment
Control Processes
iPOM Committee
Group Capital Committee
Delegated authorities:
Oversight of Group
Capital Expenditure
Leadership
The Board
Name of Director
Chairman
Ken Hanna
Deputy Chairman & Senior Independent
Non-Executive Director
Will Samuel
Group Chief Executive
André Lacroix
Group Finance Director
John McConnell
Non-Executive Directors
Vicky Bindra (appointed 1 July 2011)**
Simon Borrows
Alison Cooper
David Scotland*
Nigel Northridge
Till Vestring (appointed 1 September 2011)
Michael Wemms (retired 11 May 2011)
– monitoring the performance of the Group and the members
of the Board;
Board Meetings
– ensuring that the systems of controls remain sound and relevant;
Scheduled
Attended
7
7
7
7
3
7
7
7
7
2
2
7
7
7
7
2
7
7
6
7
2
2
– ensuring there is a comprehensive risk management and
mitigation programme and process in place.
To help the Board discharge its duties a formal schedule of Matters
Reserved for the Board sets out the decisions it is responsible for
and can be found on our website www.inchcape.com.
If a Director has any concerns about the running of the Company,
his or her concerns would be recorded in the Board minutes.
No concerns were raised in 2011.
The Board delegates some decisions to its Committees
and further information on the decisions that they make
can be found in their reports on pages 47 to 50. Day to day
management is the responsibility of the Executive Directors
and the Executive Committee.
Division of responsibilities
The Role
of the
Chairman
The Role of the
Group Chief
Executive
* David Scotland was unable to attend the meeting on 8 April 2011.
** Vicky Bindra was unable to attend the meeting on 27 July due to commitments
prior to his appointment to the Board.
Biographies of the Directors can be found on page 38.
Statement of how the Board operates
The Board is collectively responsible for the long term success
of the Group, setting the strategic agenda and establishing its
risk appetite. This is achieved by:
– ensuring that the Board comprises competent individuals
with a breadth of knowledge and experience that brings
independent views to the decisions being made;
– ensuring that the Board has appropriate, timely information
and access to professional development and advice;
– ensuring that the Executive Committee have the necessary
skills and experience in order to further the strategic goals
of the Company;
42
Inchcape plc ¦ Annual Report and Accounts 2011
Leads the Board, sets the
agenda including agreeing
strategy and risk appetite
Is responsible for ensuring
that information is accurate
and relevant to enable
decision making
As Chairman of the
Nominations Committee,
is responsible for
succession planning
Leads the Board
evaluation process
Leads the Executive Committee
Is responsible for the
day to day operational
management of the Business
Manages the Group’s risk and
internal control framework
Reports to the Board on
significant developments and
performance of the Group
Regularly engages in dialogue
with shareholders to ensure that
they are up to date with the
Group’s activities
Directors’ Report: Governance
Corporate governance report continued
Non-Executive Directors
The Non-Executive Directors as members of the Board and
its Committees have the responsibility for the following:
(cid:114)(cid:1) Assisting in the development of the Group’s strategy;
(cid:114)(cid:1) Scrutinising the performance of management by measuring
performance against targets at each Board meeting through
strategic and market reviews and a monthly performance report;
(cid:114)(cid:1) Monitoring the reporting of performance at Board and Audit
Committee meetings;
(cid:114)(cid:1) Ensuring the integrity of financial controls and that systems
of risk management are robust and defensible at Board
and Audit Committee meetings;
(cid:114)(cid:1) Determining the levels of remuneration at the Remuneration
Committee meetings;
(cid:114)(cid:1) Appointment (and removal) of Directors and succession
planning for the Executive Committee at the Nominations
Committee and Board meetings.
All Committee Chairmen report to the Board on the Committee’s
activities at each Board meeting.
Will Samuel is the Deputy Chairman and Senior Independent
Director and in this role he acts as a sounding board for the
Chairman and, should the need arise, is available to shareholders
whose concerns have not been resolved by the Chairman or the
Executive Directors or should such contact not be appropriate.
A series of meetings were held in March 2011, where Ken Hanna
met with the Non-Executive Directors without the Executive
Directors present. In addition, Will Samuel also met with the
Non-Executive Directors without Ken Hanna or the Executive
Directors present.
Effectiveness
To ensure that the Board remained effective throughout the
year the Board reviewed its effectiveness within the context
of the principles and provisions of section B of the Code and
examined each area throughout the year. The Board also
reviewed the Financial Reporting Council’s guidance of board
effectiveness and the Association of British Insurers’ report on
board effectiveness, both of which were published during 2011.
Composition
Industry
background
Balance of Non-
Executive Directors
Length of service
(cid:81) Financial 50%
(cid:81) Retail 40%
(cid:81) Consultancy 10%
(cid:81) Non-Executive
Directors 70%
(cid:81) Executive Directors 20%
(cid:81) Chairman 10%
3
2
1
0
0-2
years
2-5
years
5-9
years
All of the Non-Executive Directors are considered independent
in accordance with the Code.
Appointments to the Board
The Nominations Committee has responsibility for referring potential
appointments to the Board for approval and is assisted by external
search consultants. Further information on its activities can be
found in the Nominations Committee report on page 47.
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Will Samuel and David Scotland both completed six years’ service
in 2011. Their length of service was taken into account when
considering succession planning and it was felt that their detailed
knowledge of the Group’s operations was crucial during this time
of Board changes.
Commitment
The time commitment required by Non-Executive Directors is set
out in their Letter of Appointment and is reviewed annually by the
Nominations Committee to ensure that it remains appropriate. The
Company recognises that its Board members may be invited to
become directors of other companies and that this additional
experience is likely to benefit the deliberations of the Board. Details
of other directorships held by the Executive and Non-Executive
Directors are given in their biographies on page 38. The Executive
Directors are generally permitted to take one Non-Executive
Directorship as long as it does not lead to conflicts of interest
or undue time commitment. André Lacroix holds two such positions:
Non-Executive Director for Reckitt Benckiser Group plc for which
he received a fee of £85,000 and as Non-Executive Chairman of
Good Restaurants AG for which he does not receive a fee.
Development
New Directors receive a tailored induction programme designed
to give them a comprehensive understanding of the values,
operations and strategy of the Group. Our two new Non-Executive
Directors were inducted during 2011. Their programmes were split
into two parts, an operational induction programme and a head
office induction programme.
Induction programme for Vicky Bindra and Till Vestring
Part 1
(cid:114)(cid:1) A tour of the head office in Singapore
(cid:114)(cid:1) Market overview of Inchcape South Asia
(cid:114)(cid:1) Site visit to the Toyota and Lexus showroom,
service and body and parts facilities in Singapore
(cid:114)(cid:1) Site visit to the New Vehicle Delivery Centre and
Suzuki showroom and service centre (Vicky only)
Part 2
(cid:114)(cid:1) UK business overview with UK Chief Executive and
UK Finance Director
(cid:114)(cid:1) Site visit – UK Retail Head Office – Mercedes-Benz
(cid:114)(cid:1) Site visit – Toyota Oxford
(cid:114)(cid:1) Chairman – the Board, its committees, history of
the Group, vision and values
(cid:114)(cid:1) Group Chief Executive – strategy, overview
of operational businesses, analyst and
investor engagement
(cid:114)(cid:1) General Counsel & Group Company Secretary –
Directors’ duties and regulatory rules, governance
and Board administration
(cid:114)(cid:1) Group HR Director – key management, succession
planning, remuneration policy
(cid:114)(cid:1) Group Finance Director – financial review, current KPIs
(cid:114)(cid:1) Group Financial Controller – operational
financial review, reporting systems and processes
(cid:114)(cid:1) Group Chief Information Officer – overview of the
Group’s IT strategy and structure
(cid:114)(cid:1) Group Strategy and Business Development Director –
strategy and Inchcape Advantage
(cid:114)(cid:1) Director of Taxation – overview of the Group’s
tax structure
(cid:114)(cid:1) Group Treasury Director – structure of the
Group’s banking relationships, committed and
uncommitted facilities
(cid:114)(cid:1) Group Communications Director – brand, marketing,
internal and external communications
www.inchcape.com
43
Directors’ Report: Governance
Corporate governance report continued
In order to ensure that the Non-Executive Directors continue to
have up to date knowledge of the Group’s operations, we hold
a two day Board meeting at a UK or overseas retail centre which
includes a site visit, regional update and meetings with key
management and operational staff.
The Chairman also reviewed any training and development needs
with Directors during his or her one on one performance review.
During 2011, the Non-Executive Directors attended a one day
investor relations event during which the Chief Executive gave
an in-depth update on vision and strategy to shareholders.
Presentations were also given by the market Chief Executive and
senior management of our businesses in Australia, Hong Kong,
China, Singapore and Emerging Markets.
Information and support
The information received by the Board is vital to ensure that members
are able to contribute fully to discussions. The Chairman and the
Group Company Secretary ensure that the information received
by Directors encourages open debate and enables the Board to
make well informed decisions. All Directors receive Committee
papers regardless of whether they are members of that Committee
to ensure that each member has access to all available information.
The Board also receives regular financial and governance updates
to enable the Directors to keep informed of progress to date and
best practice developments between Board meetings.
Independent professional advice and support are available
to all Directors should they request it.
Board evaluation
In 2011 the Board was evaluated by an external independent third
party. The evaluation consisted of a tailored questionnaire focusing
on overall effectiveness, strategy, Board knowledge, training and
development, succession, risk management, the Committees and
administration. The evaluation employed a range of techniques
including ‘scoring’ and commentary from participants.
The three main areas where action points were identified were:
2011 Objectives
2011 Achievements
Strategic
planning
Succession
planning
Structure and
remit of the
Audit Committee
The implementation of the two day
Strategy Away Day gave the Board
the opportunity to focus entirely on the
strategic plan and review progress to date.
The Board carried out an in-depth review
of succession planning for the Executive
Committee at the Strategy Away Day.
The Audit Committee membership was
reduced to three Non-Executive Directors
all with relevant financial experience to
enable the Committee to focus in more
depth on the key issues.
Focus for 2012
Continue to
focus on strategy
and processes
for measuring
performance to date
against objectives.
Enhance the process
for succession
planning at Board
and Executive
Committee level.
Review composition
of the Board and
its Committees.
The Board discussed the findings of the Board evaluation including
the results for each of the Committees and determined the main
action points and the focus for the 2012 evaluation. The Chairman
also met each Non-Executive Director individually to discuss his or
her performance throughout the year and personal commentary
from the Board evaluations were provided to the Chairman
to assist with the personal performance evaluations of the
Non-Executive Directors.
The Deputy Chairman and Senior Independent Non-Executive
Director met with the Non-Executive Directors to evaluate the
performance of the Chairman.
Accountability
Financial & business reporting
The Board is responsible for establishing and maintaining adequate
internal controls over regular financial reporting for the Group,
including the consolidation process.
There is a comprehensive system of internal controls in place,
including an Annual Operating Plan (AOP) which is reviewed
and approved by the Board. Monthly actual results are reviewed
by management against the AOP, and where appropriate, revised
forecasts are presented to the Board. All data to be consolidated
into the Group’s financial statements is reviewed thoroughly by
management to ensure that it complies with relevant accounting
policies, and that financial reporting gives a true and fair reflection
of the financial position of the Group.
Internal controls over this financial reporting framework are
designed to provide reasonable assurance regarding the reliability
of regular internal financial reporting as well as the preparation of
financial statements in accordance with IFRS. Management and
Internal Audit conduct regular assessments of the effectiveness of
internal controls over financial reporting based on the framework
contained in the Turnbull Guidance. There have been no significant
changes in internal controls over financial reporting during 2011
that have, or are likely to have, materially affected the Group’s
internal controls over financial reporting.
Based on these statements, the Board concludes that as at
31 December 2011, the Group’s internal system of control
over financial reporting was effective.
Risk management
The Group has in place comprehensive processes to manage
risks across its businesses which are regularly audited and the
results reported to the Audit Committee and the Board for their
review. Inchcape Peace of Mind (iPOM) is the Group wide risk
management programme. It provides a simple system which
aims to:
identify
and reduce
our risks
raise
awareness
through
education and
training
embed the
prevention
of risk within
our business
processes
iPOM provides rewards for the ‘right way of doing business’:
it is aligned to our Values and ensures that we drive the right
behaviours across our business to embed compliance in all
that we do.
44
Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Governance
Corporate governance report continued
Seven steps
All risk activities are benchmarked against seven key steps:
Step
Purpose
1 Written compliance
standards and procedures
What are the rules?
2 Oversight responsibilities
assigned to appropriate
personnel
3 Appropriate delegation
of authority
Training and education
4
Who is in charge?
What employee education
is in place regarding the rules
and standards?
5 Routine monitoring,
reporting and auditing
How do we know the rules
are being followed?
Enforcement and discipline What happens if the rules
6
and standards are not
being followed?
7 Response and prevention
Principal Risks Accountability
As part of the risk governance process, the mapping of
risk accountability across key operational and functional
areas was reviewed in 2011. Whilst the Board has overall
risk management oversight, it has formally delegated this
responsibility to various Committees under formal terms of
reference. Through these formal terms of reference, risk items
are tabled on a rolling basis over each 12 month period,
either to meet external requirements (e.g. company reporting
obligations) or internal governance requirements.
Group iPOM Committee
Key day to day risk oversight is managed through the Group
iPOM Committee.
The Committee is chaired by the Group Chief Executive and its
members are the Group Finance Director, the General Counsel &
Group Company Secretary, the Group HR Director and the Head
of Internal Audit.
The Group iPOM Committee’s processes have been updated
to reflect the changing risk environment and, in particular, can
address both systemic and dynamic risks. This Group meets six
times a year to ensure that:
(a) the right management focus is on key risks and actions
to mitigate identified and emerging risks;
(b) a compliance programme is in place which meets
external benchmarks and is appropriate in terms of
the legal requirements, content, sector, cost and
resources; and
(c) appropriate defences are in place to mitigate exposure
and effect a response to any risk that may crystallise.
The Group iPOM Committee is also responsible for developing and
managing the Group’s overall Principal Risk Register, which is based
on risks identified at market/region and Group level.
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Market iPOM Committees
Reporting into the Group iPOM Committee are the market iPOM
Committees. These are a sub-committee of each market’s
Executive Committee to ensure that risk management oversight
remains at the highest level within each market or region. Each
market iPOM Committee operates through standard terms of
reference which ensures that there is a consistent approach to
identifying and managing systemic and dynamic risks. Additionally,
the meeting dates are coordinated so that appropriate reviews
are performed consistent with the Group iPOM Committee
schedule and the Board and Board Committee meetings.
Each market iPOM Committee will review its own risk register using
FlexEye reports at its own market iPOM Committee meeting. The
FlexEye risk management system allows each business to identify
and assess risks to their business; propose actions to implement
preventative or detective controls to mitigate against these risks;
estimate the level of impact these actions will have and monitor
progress against these actions, as well as seeing what other Group
businesses are proposing as risks and assessing whether these are
also applicable in some way to their own business.
Internal Audit will continue to monitor risks capture and actions
through Internal Audit reviews.
2011 key areas of focus
During 2011, we additionally focused on several areas to ensure
that our processes reflected not only best practice, but also key
regulatory areas and developments that are pertinent to our
business. Highlights of these key areas are below:
Focus area
Activity
iPOM
UK Bribery Act
Environmental
Health and
Safety (EH&S)
Data privacy
We continued to ensure that iPOM was
fully communicated throughout the Group
and embedded into our processes through
a series of targeted communications
and presentations.
Starting in 2010 and continuing throughout
2011, we carried out a risk analysis of our
exposure under UK, local and international
conventions relating to anti-bribery and
corruption. We have updated our policies
and performed face to face training with
our senior management population in
addition to developing an online training
package suitable for use with the
remainder of the organisation.
We commissioned an independent third
party to perform a benchmarking review
of our standards globally in respect of
EH&S. We will use the findings of this review
to improve, as needed, our performance
in this area during 2012.
We carried out an internal review of our
practices and compliance in respect of
data privacy requirements in our markets
globally to ensure that we continue to
treat not only our employees but our
customer data in the right way and to
ensure that we continue to have a strong
foundation for our Customer 1st initiative.
www.inchcape.com
45
Directors’ Report: Governance
Corporate governance report continued
In order to harmonise and simplify the Group’s approach to risk
under iPOM, two key areas have been reviewed during 2011:
2012 key areas of focus
Again for 2012 we have identified areas of focus. These include:
Principal risk categories
To ensure consistency across our risk reporting we have updated
our principal risk categories. We now track risks under one of
eight categories:
Focus area
iPOM
Activity
We will continue to ensure that iPOM
is fully communicated throughout the
Group and embedded into our processes.
An iPOM website, with access to key
information and policies and procedures,
will be launched, along with continued
emphasis on targeted communications
and presentations.
We will focus on ensuring that FlexEye is
fully operational within the Group as the
primary risk reporting and action planning/
mitigating tool.
Risk management
reporting
Audit Committee and auditors
The Board has delegated responsibility for risk management
and internal controls to the Audit Committee. Details of the
Committee’s activities during the year can be found in the Audit
Committee Report on pages 48 to 49. A statement of the Directors’
responsibility for reporting the financial statements is set out on
page 58.
Remuneration
The Board has delegated responsibility for setting the level and
components of remuneration and for developing remuneration
policy to the Remuneration Committee. Details of the Committee’s
activities during the year can be found in the Remuneration
Committee Report on page 50 and the Directors’ report on
remuneration can be found on pages 51 to 54.
Relations with Shareholders
The Group Chief Executive and Group Finance Director met with
institutional investors throughout the year. We also held an investor
day in which institutional investors were invited to receive an
update on performance to date. The investor seminar in May
focused on Asia Pacific and Emerging Markets in line with the
Group’s strategy. Shareholders received an in-depth overview
and strategy update from the Group Chief Executive and regional
presentations with Q&A sessions from the senior management
teams in Hong Kong, China, Singapore, Australia, the Balkans,
Africa, South America, Russia and the Baltics.
The Board recognises the importance of maintaining good
communications with all shareholders to ensure understanding
of the Group’s performance and strategy. The Annual General
Meeting (AGM) gives institutional and private shareholders an
opportunity to meet the Board and ask any questions they may
have regarding the Group. Each year we send shareholders a
prepaid reply form which gives any shareholders unable to attend
the AGM an opportunity to give their views. At the 2011 AGM we
were pleased to invite shareholders to the launch of the Inchcape
book ‘Pioneering Spirit’. The book celebrates the energy, foresight
and business acumen that has built the Group into a global force.
The Group is committed to reducing its impact on the environment
in line with its CR policy and encourages shareholders to receive
communications electronically in order to reduce printing and
paper usage. Shareholders can register for email alerts on our
website at www.inchcape.com/investors. It is important for investors
to receive communications in the form most appropriate to their
needs and they can change the way in which they receive
shareholder communications at any time.
(cid:114)(cid:1) Strategy including customer and consumer;
(cid:114)(cid:1) Finance and Treasury;
(cid:114)(cid:1) Brand partners, key relationships and reputation;
(cid:114)(cid:1) Systems and technology;
(cid:114)(cid:1) People, including EH&S;
(cid:114)(cid:1) Economic, political and environmental;
(cid:114)(cid:1) Legal and regulatory;
(cid:114)(cid:1) Tax, pensions and insurance.
These were implemented in the 2010 Annual Report and are
used consistently throughout the Group.
Business Risk Assessment (BRA)
The BRA process has been our key risk capture and tracking
methodology in recent years. The BRA was used to identify key
strategic risks which may impact the Group’s risk profile. Owners
were assigned to each risk and action plans prepared. The BRA
was cascaded through the organisation with local owners and
action plans also being assigned which either reflected the Group
risk or a sub-set of that risk as it pertained to that local market.
Additionally, the BRA has been reviewed as part of the AOP
process and monitored through the internal audit reviews.
Improvement actions
As part of the on-going efforts to enhance the risk management
process within the Group, FlexEye has been introduced to better
manage risks. This new approach is improving the visibility of risk
reporting and of action planning to mitigate risks, both at market,
regional and Group levels. By using technology, we are also
making the process of risk capture more efficient.
We propose to continue to review the Group’s principal risks at
the Board Strategy review each October, with the Board having
primary responsibility for this. Risk identification, action plans and
mitigation also remain part of the Strategic Plan and AOP process
and monthly budget review process.
However, the Group iPOM Committee formally reviews the Group
and market risks at each Group iPOM Committee (six times a year)
using reports generated through FlexEye. This will:
(cid:114)(cid:1) allow better cross market/region trend analysis;
(cid:114)(cid:1) allow better cross risk analysis;
(cid:114)(cid:1) allow increased visibility of actions and mitigation plans progress;
(cid:114)(cid:1) remove duplication of reporting through the adoption of a single
automated system;
(cid:114)(cid:1) ensure both dynamic and systemic risks are identified
and managed.
46
Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Governance
Corporate governance report continued
Nominations Committee report
Ken Hanna
Chairman
Key responsibilities
(cid:114)(cid:1) Evaluate balance of skills, knowledge and experience on
the Board
(cid:114)(cid:1) Agree skills profile for candidates to fill vacant Board positions
(cid:114)(cid:1) Nominate suitable candidates to the Board for approval
(cid:114)(cid:1) Succession planning
The Terms of Reference for the Nominations Committee
can be found on the website www.inchcape.com/
aboutus/governance
Members
Ken Hanna – Chairman
Will Samuel
André Lacroix
David Scotland
Michael Wemms (retired 11 May 2011)
Committee Meetings
Scheduled
Attended
2
2
2
2
1
2
2
2
2
1
Only members of the Committee have the right to attend
Committee meetings, however other individuals such as the
Group HR Director and external consultants attend by invitation.
Committee activities during the year
March
The Committee reviewed the composition of the Board. The
Committee spent time defining the current skills set represented
on the Board and in particular discussed the position in respect of
diversity, including gender, and the findings of the Davies Report.
The Committee identified several areas where additional
knowledge and experience would enhance the Board and the
desired skill set for potential candidates was agreed in order to
commence the recruitment process.
The Committee also agreed that the external search consultants
would prepare a summary of recommendations for circulation
to the Committee.
Governance
(cid:114)(cid:1) The Committee discussed the retirement and re-election of
Directors and agreed to adopt the principles of the Combined
Code for 2011 and adopted the principles of the UK Corporate
Governance Code for 2012. The Committee agreed that
all Directors would stand for election or re-election at the
2012 AGM.
(cid:114)(cid:1) The Committee reviewed the length of service of the Directors
and discussed succession planning.
(cid:114)(cid:1) The Committee discussed the time commitment required by
the Non-Executive Directors in order for them to discharge their
duties effectively and it was agreed the current requirements
remained appropriate.
(cid:114)(cid:1) The Committee reviewed the policy on multiple board
appointments and confirmed that it had been complied with
throughout the year.
(cid:114)(cid:1) The Committee evaluated its processes and agreed to update its
terms of reference, approved standing agenda items and agreed
that the full Board should review Executive Committee succession
planning at the Strategy Away Day in October. It also agreed that
two scheduled meetings would continue to be held each year.
May
Additional meeting. The Committee approved the recommendation
to the Board of the appointment of Vicky Bindra.
July
Additional meeting. The Committee approved the recommendation
to the Board of the appointment of Till Vestring.
The Committee also discussed changes to the Audit Committee
membership and the need to ensure that a range of skills were
represented on each Committee as well as taking into account
balancing the time commitments of the Non-Executive Directors.
The Committee agreed that Nigel Northridge and David
Scotland would step down from the Audit Committee
particularly taking into account their recent appointments
as Remuneration Chairman and CR Committee
Chairman respectively.
November
The Committee reviewed the membership of the CR Committee
and agreed that Vicky Bindra would be an excellent addition
to the Committee. The Committee recommended his
appointment to the Board for approval.
Governance
(cid:114)(cid:1) The Committee reviewed its terms of reference and confirmed
that it had been fully compliant throughout the year.
(cid:114)(cid:1) The Committee reviewed the job description of the Senior
Independent Director and agreed that Will Samuel should
continue in this role.
(cid:114)(cid:1) The Committee reviewed its membership and confirmed that
it complied with the Code and approved the recommendation
for Ken Hanna to continue as Chairman of the Committee.
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Directors’ Report: Governance
Corporate governance report continued
May
The Committee agreed the process for reviewing the CR Report
annually to ensure that its message was being clearly
communicated to shareholders and employees.
The first of the core areas, People, was explored in detail by
the Committee. The presentation included data from industry
experts and best practice examples on employee engagement.
The Committee discussed strategic messaging and agreed that
the Group’s intranet site should be developed in order to
communicate the Group’s CR messages globally.
The Committee received an update on the Group’s CO2
data collection process and discussed the KPIs to ensure
that they remained relevant to the Group.
November
After a review of the membership of the Committee, Vicky Bindra
joined the Committee.
The Committee developed the key themes for the 2011 CR Report
and discussed the reporting processes.
The Committee agreed that internal communication and
engagement in CR would be a key priority for 2012.
The CR risk strategy was discussed by the Committee.
The Committee received an update on the new technologies
which could be introduced to assist with the Group’s CO2 emissions
and the Group’s own best practice approach.
Governance
(cid:114)(cid:1) The Committee reviewed its terms of reference and confirmed
that it had been compliant throughout the year.
(cid:114)(cid:1) The Committee agreed that a rolling agenda would be drafted
for review in 2012.
Audit Committee Report
Simon Borrows
Chairman
Key responsibilities
(cid:114)(cid:1) Monitor integrity of financial statements
(cid:114)(cid:1) Review and approve the Annual Report & Accounts
(cid:114)(cid:1) Review Group accounting policies
(cid:114)(cid:1) Review internal controls and risk management – iPOM
(cid:114)(cid:1) Internal and external audit function
The Terms of Reference for the Audit Committee
can be found on the website
www.inchcape.com/aboutus/governance
CR Committee Report
David Scotland
Chairman
Key responsibilities
(cid:114)(cid:1) Develop Group’s CR strategy and monitor
external developments
(cid:114)(cid:1) Review Group’s CR Policy
(cid:114)(cid:1) Monitor Group’s CR risk exposure
(cid:114)(cid:1) Review annual CR report
The Terms of Reference for the CR Committee can be found
on the website www.inchcape.com/aboutus/governance
Members
David Scotland – Chairman
Vicky Bindra
(appointed 30 November 2011)
Claire Chapman
André Lacroix
Tony George*
Michael Wemms (retired 11 May 2011)
Committee Meetings
Scheduled
Attended
3
1
3
3
3
2
3
1
3
3
2
2
* Tony George was unable to attend the meeting on 29 November 2011.
The CR Report can be found on pages 34 to 37.
Committee activities during the year
January
The Committee discussed the themes to be included in the CR
section of the Annual Report and Accounts. The draft report was
reviewed and approved by the Committee. The Committee
recommended that the CR Report be approved by the Board.
The Committee also reviewed its approach to reporting and
discussed ways in which the Group could improve its reporting
procedures in the future.
The Committee looked at ways in which new technologies
could assist with decreasing CO2 emissions in dealerships
within the Group.
The Committee discussed the process for engaging employees
in CR and how to incorporate its vision and values into the
Group’s processes.
Governance
(cid:114)(cid:1) The Committee agreed that the core CR areas should be added
as an agenda item. One core area would be explored in detail
each year to ensure that it remains relevant and industry experts
would be invited to advise the Committee on best practice.
48
Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Governance
Corporate governance report continued
Members
Simon Borrows – Chairman
Alison Cooper
Nigel Northridge*
Will Samuel
David Scotland*
Michael Wemms (retired 11 May 2011)
Committee Meetings
Scheduled
Attended
4
4
2
4
2
1
4
4
2
4
2
1
The Committee discussed the Internal Audit and Risk
Management Status report and in particular reviewed the
Key Control questionnaire findings from the yearly review.
The Report included an update on the whistleblowing policy
and procedures.
The Committee was provided with an update on litigation.
The Committee discussed the performance and reviewed
the effectiveness of the external auditor without the auditor
being present.
* Nigel Northridge and David Scotland stepped down from the Committee in
July 2011
Only members of the Committee have the right to attend
Committee meetings, however other individuals such as the
Chairman, Group Chief Executive, Group Finance Director, Group
Head of Internal Audit and external auditors attend by invitation.
Committee activities during the year
March
The Committee reviewed the processes adopted for the year
end results and in particular reviewed the going concern
statement and the 2010 Annual Report and Accounts. The
Committee recommended that the 2010 Accounts be
approved by the Board.
The Committee received the Auditors’ Report from
PricewaterhouseCoopers LLP. The Committee reviewed
and approved the auditors’ independence, the auditors’
engagement letter, the management representation letter and
the re-appointment of the auditors for 2011(subject to shareholder
approval at the AGM). The auditors confirmed that they complied
with the UK regulatory and professional requirements, including
Ethical Standards issued by the Auditing Standards Practices Board,
and their objectivity was not compromised.
The Committee reviewed its policy on the provision of non audit
services by PricewaterhouseCoopers LLP. The purpose of the policy
is to ensure that the auditors remain objective and independent.
The Committee confirmed that the policy guideline of a 1:1 fee
ratio continued to be applicable and reviewed the engagement
of auditors for any non audit work and the restrictions on permitted
areas of non audit work. The Committee tested the performance
of the auditors against the policy. A statement of the fees paid
for audit and non audit services is provided in note 3d on page 84.
The Internal Audit Charter setting out the responsibility, authority
and processes of the Internal Audit function was reviewed and
approved by the Committee.
The Committee reviewed the Internal Audit and Risk Management
Status Report and measured performance to date against the
internal audit plan. The Committee confirmed it was satisfied with
the level of internal controls across the Group however it agreed
that it would continue to focus on controls to ensure that they
remain effective. The Report included an update on the
whistleblowing policy and procedures.
The Committee was provided with an update on tax and litigation.
Governance
(cid:114)(cid:1) The Committee reviewed the processes in place within the
Group to meet the accountability and audit requirements of the
Code and confirmed that these remain robust and defensible.
(cid:114)(cid:1) The Committee reviewed its Terms of Reference and approved
the changes recommended to the Committee.
May
PricewaterhouseCoopers LLP presented its report on Internal
Controls to the Committee.
July
The Committee reviewed the processes adopted for the interim
results and in particular reviewed the going concern statement.
The Committee received the Auditor Report and Internal
Control recommendations.
The Committee reviewed the Internal Audit and Risk Management
Status Report and measured performance to date against the
internal audit plan. The Report included an update on the
whistleblowing policy and procedures.
The Committee reviewed the non audit services provided by
PricewaterhouseCoopers LLP during the year and confirmed that
they remained within the scope of the policy for non audit services.
The Committee was provided with an update on tax
and litigation.
October
The Committee endorsed PricewaterhouseCoopers LLP’s 2012
Audit Plan recommending it for approval by the Board.
The Committee endorsed PricewaterhouseCoopers LLP’s fee
proposal recommending it for approval by the Board.
The Committee reviewed the Internal Audit and Risk Management
Status Report and agreed that Internal Audit would review the risk
management plans as part of the audit process in addition to the
risk and market reviews. The Report included an update on the
whistleblowing policy and procedures.
The Committee was provided with an update on tax and litigation.
Governance
(cid:114)(cid:1) The Committee reviewed, with PricewaterhouseCoopers LLP,
emerging regulatory issues.
November
The Committee discussed the iPOM framework, the structure for
managing and monitoring risks through the Group and Market
iPOM Committees, linking the risk and control framework and the
mapping of responsibility and oversight across various Committees,
both at Board and Executive level.
The Committee approved the 2012 Internal Audit Plan. The
discussion included a review of internal processes to ensure that
they remained robust.
The remit and effectiveness of the Internal Audit Charter was
reviewed by the Committee.
The Committee was provided with an update on tax and litigation.
Governance
(cid:114)(cid:1) The Committee reviewed its Terms of Reference and confirmed
that it had been compliant throughout the year.
(cid:114)(cid:1) The Committee confirmed that Will Samuel satisfied the recent
and relevant financial experience criteria under the provisions
of the Code.
Internal and external auditor private sessions took place
throughout the year as requested.
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Directors’ Report: Governance
Corporate governance report continued
Remuneration Committee Report
Nigel Northridge
Chairman
Key responsibilities
(cid:114)(cid:1) Remuneration Policy
(cid:114)(cid:1) Annual bonus targets
(cid:114)(cid:1) Performance targets for share incentive plans
(cid:114)(cid:1) Executive Committee remuneration
The Terms of Reference for the Remuneration Committee
can be found on the website www.inchcape.com/
aboutus/governance
Members
Nigel Northridge – Chairman
Ken Hanna
Will Samuel
David Scotland
Michael Wemms (retired 11 May 2011)
Committee Meetings
Scheduled
Attended
3
3
3
3
2
3
3
3
3
2
Only members of the Committee have the right to attend
Committee meetings, however other individuals such as the Group
Chief Executive, Group HR Director and external consultants advise
the Committee and attend by invitation.
Committee activities during the year
January
The Committee received an update on progress to date for the
performance targets for the 2010 annual bonus scheme and the
share incentive plans.
The Committee reviewed the 2010 Directors’ Report on
Remuneration to be included in the Annual Report and Accounts
and recommended it for approval by the Board.
The performance targets for the 2008 executive share option grant
and 2008 co-investment plan were reviewed by the Committee.
The rules of the performance share plan were reviewed by the
Committee along with the draft Notice of Meeting to be issued
to shareholders for voting on the approval of the new plan at
the AGM. The Committee approved the rules and the wording
of the Notice.
The Committee approved the grant of awards under the
performance share plan and co-investment plan subject to
shareholder approval being received at the AGM.
The Committee approved the operation of the SAYE scheme
during 2011.
The Committee reviewed the status of headroom limits in line with
Association of British Insurers Guidelines and agreed that headroom
limits would continue to be reviewed twice a year.
Governance
(cid:114)(cid:1) The Committee reviewed the Terms of Reference of the
sub-committee established to deal with the administration
of its share plans and agreed that, subject to shareholder
approval, the new plans should be added.
November
The Committee reviewed the SAYE grant made in 2011 and the
performance to date of the targets for the 2009 Executive Share
Option Plan.
The Committee reviewed the status of headroom limits in line with
Association of British Insurers Guidelines and confirmed that the
Company was compliant during the year.
The Committee reviewed the progress to date for the performance
targets of the 2011 bonus scheme.
Kepler Associates (Kepler) gave an update to the
Committee on recent developments in Corporate Governance,
remuneration trends and current best practice. The Committee
agreed that the Remuneration Policy remained in line with
governance requirements.
It was agreed that the Pension Policy would be reviewed by
the Board in 2012.
The Committee reviewed the proposed performance measures
and targets for the 2011 annual bonus scheme.
Governance
(cid:114)(cid:1) The Committee reviewed its Terms of Reference and confirmed
The Committee received an update on the Shareholder
Consultation which began in 2010. The Committee noted the
comments from its institutional shareholders and agreed that the
new Remuneration Policy was of suitable quality to attract,
motivate and retain employees, was in line with the Group’s
strategic focus and was aligned with stakeholders’ interests.
that it had been fully compliant throughout the year.
(cid:114)(cid:1) The Committee reviewed the Terms of Reference of the
sub-committee established to deal with the administration
of its share plans and agreed to the proposed amendments.
(cid:114)(cid:1) The Committee reviewed its membership and confirmed that
it complied with the Code.
March
The Chairman updated the Committee on the conclusion of
Shareholder Consultation in respect of the Remuneration Policy.
The Committee assessed the measurement and the achievement
of the performance targets set for the 2010 bonus scheme and
approved the recommendation for the 2010 bonus payments.
The Committee approved the remuneration packages of the
Executive Committee for 2011. No executive was present when
the Committee discussed his remuneration.
50
Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Governance
Directors’ report on remuneration
Compliance
The Report complies with Regulation 11 and Schedule 8
of the Large and Medium–Sized Companies and Groups
(Accounts and Reports) Regulations 2008 and other relevant
requirements of the FSA Listing Rules. The Remuneration
Committee (Committee) believes that the Company has
complied with the provisions regarding remuneration matters
contained within the Code.
Details of the Non-Executive Directors who served on the
Committee, and their attendance at meetings during the
year, can be found on page 50.
Remuneration consultants
Kepler, appointed in 2010, acted as the independent
remuneration advisor to the Committee during the year.
Kepler attends Committee meetings and provides advice
on remuneration for executives, analysis on all elements of
the remuneration policy and regular market and best practice
updates. Kepler reports directly to the Committee Chairman
and complies with the Code of Conduct for Remuneration
Consultants (which can be found at
www.remunerationconsultantsgroup.com).
Kepler provides no other services to the Company.
Remuneration policy
2011 saw the introduction of the new remuneration policy
which was set out in our 2010 Annual Report. The policy design
is based on the following objectives:
(cid:114)(cid:1) align with and support the Group’s business strategy;
(cid:114)(cid:1) enable the Company to attract, retain and motivate
executive management;
(cid:114)(cid:1) encourage the right behaviours, drive performance and
reward results by delivering upper quartile pay for upper
quartile performance; and
(cid:114)(cid:1) align executive management and shareholders’ interests.
In addition, the Committee considers performance on
environmental, social and governance issues when setting
the remuneration policy and believes that the policy does not
raise risks in these areas by motivating irresponsible behaviour.
The elements of the remuneration policy for Executive Directors
are set out below.
Element
Objective
Structure
To pay competitive salary
to attract, retain and
motivate talent.
Comparison to organisations
of a similar size, complexity and
type, taking into account pay
and conditions elsewhere in
the Group.
Award level in 2011
The Group Chief
Executive and Group
Finance Director
received a salary
increase of 3% after
two years of zero
salary increases.
Base
salary
Annual
bonus
Co-investment
plan
Performance
share plan
Incentivise growth and a return
to peak earnings;
Motivate outstanding
performance; specifically,
reward sustainable growth in
profits, i.e. growth that comes
from the top line as well as
from improving margins;
Reward profitable growth whilst
maintaining exceptional levels
of customer service.
Encourage executive
share ownership;
Ensure balance between
growth and returns.
Ensure that remuneration
is robust to market downturns
and volatility;
Deliver median pay for median
performance; upper quartile pay
for upper quartile performance;
and upper decile pay for upper
decile performance;
Strengthen alignment
with shareholders.
Matrix structure rewarding growth
in revenue and operating profit,
heavily weighted towards delivery
of profit growth;
Any bonus above 100% of salary
in shares which are automatically
invested in the co-investment plan;
60% of salary payable
for target performance;
150% of salary
maximum payable
for achieving stretch
performance against
all measures.
Net Promoter Score (NPS)
that falls below target levels
of performance reduces
bonus earned.
Offers Executive Directors a
voluntary investment opportunity
in return for a performance
based match;
Vesting based on three year EPS
and ROCE performance.
Normal awards linked to
stretching performance targets
and enhanced awards linked to
exceptional performance;
Vesting based on three year EPS
and ROCE performance.
Maximum match of
2:1, threshold of 0.5:1;
Executive Directors
may invest up to an
overall maximum of
50% of salary after tax.
Group Chief Executive:
150% of salary in
normal awards
and 50% of salary in
enhanced awards;
Group Finance
Director: 125% of salary
in normal awards
and 25% of salary in
enhanced awards.
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Directors’ Report: Governance
Directors’ report on remuneration continued
The UK Corporate Governance Code
The Committee considered the UK Corporate Governance
Code requirement regarding the remuneration incentives
being compatible with the Group’s risk policies and systems.
The Committee is satisfied that the approach to setting the
structure of remuneration packages for senior executives
underpins the effective and proper management of risk by
rewarding executives fairly for sustainable profit growth and
long term returns to shareholders and delivering a significant
portion of senior executive remuneration in shares.
Pay mix chart
The chart below shows the relative importance of each
element of the package for Executive Directors.
Proportion of package delivered through fixed
and performance related reward
Illustration of bonus structure for Executive Directors
Financial performance matrix (% of salary)
Stretch
30%
90%
150%
Target
20%
60%
120%
e
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R
Threshold
15%
45%
90%
Threshold
Target
Stretch
Operating profit
NPS multiplier
X 0.8 -1.0
Note: In this way,
20% of total bonus
is based on NPS –
the customer measure
100
75
50
25
0
Salary
Pension
Annual bonus
COIP
'Normal' performance shares
'Enhanced' performance shares
CEO
CFO
CEO CFO
Target/
expected value
Maximum
value
Base salary
The Committee reviews base salary for the Executive Directors
and Executive Committee against organisations of similar size,
complexity and type, and also taking into account pay and
conditions elsewhere in the Group. Salaries are reviewed
annually and typically take effect from 1 April of each year.
The salaries for 2011 and 2012 are set out in the table below.
In 2012, the average salary increases across the UK were
between 1.5% and 2%.
Name
André
Lacroix
John
McConnell
1 April 2010
1 April 2011
1 April 2012
£756,000
(0% increase)
£390,000
(0% increase)
£778,680
(3% increase)
£401,700
(3% increase)
£794,254
(2% increase)
£409,734
(2% increase)
has determined that both the Group Chief Executive and the
Group Finance Director receive a bonus of 78% of salary for 2011.
The Committee continues to believe that revenue, operating
profit and NPS are core strategic priorities for the Group,
and therefore remain appropriate performance measures
for the 2012 bonus scheme. The target and maximum bonus
opportunities for Executive Directors will remain at 60% and 150%
of salary respectively, with any bonus in excess of 100% of salary
invested in Company shares through the co-investment plan.
Performance share plan
The performance share plan (PSP) was approved by
shareholders at the 2011 AGM. The award levels for the
Executive Directors for 2011 are shown in the table on page 57.
As disclosed last year, the award levels for 2012 will be expressed
as a number of shares. The Committee feels that fixing the award
sizes as a number of shares provides strong alignment with
shareholders, as the face value of awards will fall if the share
price falls and vice versa. In order to provide flexibility to follow
this policy, while recognising our shareholders’ desire for a cap
on potential awards, the PSP rules contain an individual limit of
300% of salary. However, the Committee will review award sizes
prior to each grant to ensure that they are appropriate in light
of market data and individual and Group performance.
Key features of the plan are:
(cid:114)(cid:1) annual awards of ‘normal’ performance shares, vesting
75% on three year EPS growth, and 25% on three year
average ROCE.
Annual bonus
In 2011, the Committee introduced a financial performance
matrix for annual bonus assessment. This matrix was designed to
reward stretching targets of revenue and operating profit, whilst
maintaining exceptional levels of customer service. In addition,
the Committee agreed that any bonus earned above 100% of
salary would automatically be invested in Company shares
through the co-investment plan.
During the year, the Group delivered revenue around threshold
and operating profit between target and maximum. The Group
met the NPS targets.
The Committee reviewed performance against the targets and
rules of the scheme and taking into account all relevant factors
Targets are as follows:
3 year EPS growth p.a.
Less than 7%
7%
15%
Between 7% and 15%
3 year average ROCE
Less than 18%
18%
21%
Between 18% and 21%
Vesting Percentage
0%
25%
100%
Straight line basis
Vesting Percentage
0%
25%
100%
Straight line basis
52
Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Governance
Directors’ report on remuneration continued
(cid:114)(cid:1) annual awards of ‘enhanced’ performance shares, vesting
on stretching EPS targets, over and above those attached to
‘normal’ performance shares.
Targets are as follows:
3 year EPS growth p.a.
Less than 15%
20%
Between 15% and 20%
Vesting Percentage
0%
100%
Straight line basis
(cid:114)(cid:1) Any dividends paid would accrue over the vesting period
and would be paid only on those shares that vest.
(cid:114)(cid:1) For good leavers, or on a change of control, awards would
be pro-rated for time and performance subject to
Committee discretion.
(cid:114)(cid:1) The Committee can reduce or prevent vesting in the event
of a material restatement of the Group Financial statements
or gross misconduct.
The Committee continues to believe that EPS is the best measure
of long term performance for the Group and should therefore
remain the primary long term incentive measure. It provides
strong line of sight for executives, who are familiar with the
existing basis of EPS performance measurement and is consistent
with the Group’s long term strategy focusing on sustainable
growth. ROCE, combined with EPS, provides a balance
between growth and returns.
Targets have been set taking into account a range of reference
points including the Group’s strategic plan and broker forecasts
for both the Group and other sector peers. The Committee
believes that these targets are very stretching, and that the
maximum overall award of 300% of salary is appropriate given
that it will only be available for truly outstanding performance.
Co-investment plan
The renewal of the co-investment plan was approved by
shareholders in 2011. The award levels for Executive Directors
in 2011 are shown in the summary table on page 57.
For 2012, the maximum investment opportunity will remain at
50% of post-tax salary for the Group Chief Executive and the
Group Finance Director and the maximum matching opportunity
will remain at 2:1 based on performance over three years.
Key features of the plan are:
(cid:114)(cid:1) Any bonus over 100% of salary will be paid in shares which
will be automatically invested in the plan. If this amount is less
than the 50% salary limit, Executive Directors may make
a further investment to reach the maximum.
(cid:114)(cid:1) Invested shares can be withdrawn at any time but the
entitlement to a match would be lost if the invested shares
are withdrawn before the end of the relevant three year
vesting period.
For simplicity and alignment, the performance targets and
measures for the co-investment plan awards are the same as
the normal performance share plan award vesting on 75% on
three year EPS growth and 25% on three year average ROCE.
3 year EPS growth p.a.
Less than 7%
7%
15%
Between 7% and 15%
Matching shares: Invested shares
0:1
0.5:1
2:1
Straight line basis
3 year average ROCE
Matching shares: Invested shares
Less than 18%
18%
21%
Between 18% and 21%
0:1
0.5:1
2:1
Straight line basis
Executive share options
The final grant of share options under this scheme was made in
2010. The grant level for these options was half the normal levels
to reflect the fall in the Group’s share price as well as the strategy
to reduce operating costs. These options vest on three year EPS
growth as follows:
EPS growth p.a.
Less than RPI+3%
RPI+3%
RPI+8%
Between RPI+3% and RPI+8%
There will be no retesting.
Vesting Percentage
0%
25%
100%
Straight line basis
The executive share options granted in 2009 had a performance
measure of cash flow from operating activities (CFOA). The
cumulative CFOA for 2009, 2010 and 2011 was £990.3m. This
figure is 61.5% above the cumulative three year target. Therefore,
the 2009 options will vest in full.
André Lacroix has 755,999 options and John McConnell has
222,772 options granted under the executive share option plan
in 2009. The exercise price is £2.00. Details of all options granted
to Executive Directors are shown in the table on page 56.
SAYE
Executive Directors are eligible to participate in the Company’s
save as you earn scheme (SAYE) on the same terms as other
employees. Participants make monthly savings, up to a
maximum of £250 per month, over a three year period. At the
end of the savings period the funds are used to purchase shares
under option. The acquisition of shares under this scheme is not
subject to the satisfaction of a performance target.
Dilution limits
Options granted under the executive share option scheme,
the SAYE scheme and awards granted under the performance
share plan are met by the issue of new shares or treasury shares.
All other plans are satisfied on exercise by market purchase
shares. Dilution limits are monitored throughout the year by the
Remuneration Committee and the Company complies with the
limits set by the Association of British Insurers.
Issued share capital as at 31 December 2011
All schemes – 10% over 10 year rolling period
Remaining headroom
Executive schemes – 5% over a 10 year rolling period
Remaining headroom
463m
46m
20m
23m
4m
Executive share ownership
To emphasise the importance the Committee places on
executive share ownership, Executive Directors are required to
hold a fixed number of shares equivalent to 200% of base salary.
Each Executive Director has five years from 2007, or date of
appointment if later, to reach this shareholding target.
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53
Directors’ Report: Governance
Directors’ report on remuneration continued
As at 31 December 2011, the Executive Directors held the
following shares:
Name
Number of shares held
Percentage of salary
Within legal constraints, the Committee tailors its approach,
in the event of early termination, to the circumstances of each
individual case.
André Lacroix
John McConnell
507,214
181,038
191%
132%
Name
André
Lacroix
1 September
2005
The share price as at 31 December 2011 was 293.4p.
Retirement benefits
Our policy is to provide market competitive pension benefits
where it is cost effective and tax efficient to do so.
John
McConnell
1 October
2009
12 months from
Director or
Company
12 months from
Director or
Company
To retirement
age
To retirement
age
Date of contract
Notice period
Unexpired term
The Group offers defined benefit pensions for Executive Directors
and senior executives at the normal retirement age of 65.
The maximum pension benefit is two thirds of a scheme specific
ceiling of £129,600 in the 2011/12 tax year, subject to completion
of between 20 and 40 years’ service. Members who join after
March 2005 contribute 7% of pensionable salary.
The Non-Executive Directors receive a letter of appointment
and are normally appointed for an initial three year period,
subject to their re-appointment by shareholders at the AGM.
No Non-Executive Director is engaged on a service contract
with the Company.
Name
Date of appointment
Expiry of current term
Executive Directors, whose base salary is higher than £129,600,
are paid a monthly cash supplement to enable them to make
additional pension arrangements. John McConnell received
such supplements in 2011. André Lacroix received a cash
supplement of 40% of his base salary in lieu of a formal pension
provision. He is not a member of the pension scheme except
in respect of the life assurance benefit for death in service.
Details of the amounts paid are shown on page 55.
A lump sum life assurance benefit of four times full base salary
is provided on death in service. For pension scheme members,
a spouse’s pension of one half of the prospective member’s
pension may also be payable. Children’s pensions may also
be payable in accordance with the rules of the scheme.
Taxable and other benefits
These include items such as company cars, medical care
and life assurance premiums. These benefits are in line with
the remuneration policy framework outlined in this report.
These benefits are non-pensionable.
Total shareholder return (TSR)
The following graph illustrates the Group’s TSR over a five year
period, relative to the performance of the total return index of the
FTSE mid-250 group of companies (excluding investment trusts). TSR
is essentially share price growth plus re-invested dividends. The FTSE
mid-250 has been chosen as the most suitable comparator group
as it is the general market index in which the Company appears.
Historical TSR performance
200
150
100
50
0
Vicky Bindra
Simon Borrows
Alison Cooper
Nigel Northridge
David Scotland
Will Samuel
Till Vestring
1 July 2011
30 June 2014
1 October 2010 30 September 2013
30 June 2012
30 June 2012
24 February 2014
25 January 2014
31 August 2014
1 July 2009
1 July 2009
25 February 2005
26 January 2005
1 September 2011
Non-Executive Directors’ fees
As stated in the Chairman’s letter, the Board approved a new
fee structure for the Non-Executive Directors.
Previously, fees for Non-Executive Directors were based on
three components, an annual fee of £36,000, a Committee
membership fee of £4,000 per Committee and a Committee
Chairmanship fee of £10,000. The Deputy Chairman is paid a
single fee per annum.
The new policy simplifies the structure by having one
Non-Executive Director fee of £50,000 and an additional fee for
a Chairmanship of £10,000. The Deputy Chairman continues to
be paid a single fee. The new structure better reflects the time
commitment and responsibilities of the roles.
The change to the fee structure is set out below.
Name
Will Samuel
Simon Borrows
Alison Cooper
Nigel Northridge
David Scotland
Vicky Binda
Till Vestring
Previous Fee £
New Fee £
70,000
56,000
40,000
50,000
58,000
–
–
76,000
60,000
50,000
60,000
60,000
50,000
50,000
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Inchcape
FTSE mid 250 excluding investment trust
By order of the Board
Source: Datastream
Growth in the value of a hypothetical £100 holding over five years
FTSE 250 (excluding investment companies) comparisons based
on 30 trading day average values.
Service contracts
The Company’s policy is for Executive Directors’ service contract
notice periods to be no longer than 12 months, except in
exceptional circumstances. All current contracts contain notice
periods of 12 months. In the event of termination, the Company
will seek fair mitigation of contractual rights.
54
Inchcape plc ¦ Annual Report and Accounts 2011
Nigel Northridge,
Chairman of the Remuneration Committee
12 March 2012
Directors’ Report: Governance
Notes to the Directors’ report on remuneration (audited)
1. Individual emoluments for the year
Base salary/fees
Bonus
Taxable and other
benefits (e)
Company
contributions paid in
year in respect of
pension arrangements
Termination payment
Total remuneration
2011
£’000
2010
£’000
2011
£’000
2010
£’000
2011
£’000
2010
£’000
2011
£’000
2010
£’000
2011
£’000
2010
£’000
2011
£’000
2010
£’000
Chairman
Ken Hanna
Peter Johnson (left
14 May 2009) (a)
Executive Directors
André Lacroix (b)
John McConnell (c)
Non–Executive
Directors (d)
Vicky Bindra
(appointed 1 July 2011)
Simon Borrows
Alison Cooper
Nigel Northridge
Graham Pimlott
(left 31 October 2010)
Will Samuel
David Scotland
Till Vestring
(appointed
1 September 2011)
Michael Wemms
(left 11 May 2011)
Total
275.0
275.0
–
–
–
–
–
–
22.1
11.8
0.6
1.4
–
–
–
–
773.0
398.8
756.0
390.0
607.4
313.3
907.2
468.0
18.4
49.4
18.4
51.0
309.2
81.2
302.4
79.9
25.0
55.3
46.7
56.7
–
74.0
59.3
–
11.0
40.0
44.0
38.3
70.0
56.2
16.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
19.0
57.3
1,799.5 1,737.8
–
–
920.7 1,375.2
–
90.5
–
82.6
–
390.4
–
382.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
297.1
286.8
0.6
1.4
– 1,708.0 1,984.0
988.9
–
842.7
–
–
–
–
–
–
–
–
25.0
55.3
46.7
56.7
–
74.0
59.3
–
11.0
40.0
44.0
38.3
70.0
56.2
16.7
–
19.0
–
57.3
– 3,201.1 3,577.9
Notes on Directors’ emoluments
(a) The Company agreed to extend post retirement medical expenses for Peter Johnson and his wife until 13 May 2011.
(b) The payment of £309,204 (2010 – £302,400) was paid directly to André Lacroix to allow him to make his own pension
arrangements outside of the Company’s pension plan. This payment was subject to tax.
(c) The payment of £81,202 (2010 – £79,920) was paid to John McConnell to allow him to make his own pension arrangements
outside the Company’s pension plan. This payment was subject to tax.
(d) The Non-Executive Directors fees were reviewed in May 2011. Details of the new fees are shown on page 54.
(e) Taxable and other benefits comprise such items as company car, medical care, life assurance premiums, petrol allowance
and relocation expenses. All Executive Directors are entitled to such benefits.
No Directors waived emoluments in respect of the year ended 31 December 2011 (2010 – none).
2. Directors’ pension entitlements
Increase in
accrued pension
during the year
£'000
Increase in
accrued pension
during the year
(net of inflation)
£’000
Accumulated
total of accrued
pension at
31.12.10
£’000
Accumulated
total of accrued
pension at
31.12.11
£’000
Transfer value
(less Director's
contributions) of
the increase in
accrued benefit
net of inflation
£’000
Transfer value of
accrued benefits
at 31.12.11
£’000
Transfer value of
accrued benefits
at 01.01.11
£’000
Difference in
transfer value less
any contributions
made in the year
£’000
John McConnell
4.4
4.2
5.2
9.6
81.3
194.7
71.5
114.2
The transfer value has been calculated in accordance with the Retirement Benefits Transfer Values (GN 11), 6 April 2002.
The transfer values of the accrued benefits represent the value of assets that the pension scheme would need to transfer to another
pension provider on transferring the scheme’s liability in respect of the Directors’ pension benefits. The transfer values do not
represent sums payable or due to the individual Directors and therefore cannot be added meaningfully to annual remuneration.
John McConnell made a contribution to his pension of 7% of capped salary via salary sacrifice during the year.
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55
Directors’ Report: Governance
Notes to the Directors’ report on remuneration continued (audited)
3. Directors’ share options
André Lacroix
John McConnell
Held at 31.12.11
205,468 (a)
–
755,999 (a)
243,870 (a)
4,390 (b)
17,746 (a)
28,428 (a)
21,644 (a)
–
222,772 (a)
46,875 (a)
125,806 (a)
3,703 (b)
Lapsed during
year
Exercised during
the year
Granted
during the
year
Held at 01.01.11
Exercise price (c)
Exercise period
–
209,567 (a)
–
–
–
–
–
–
48,952 (a)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 3,703 (b)
205,468 (a)
209,567 (a)
755,999 (a)
243,870 (a)
4,390 (b)
17,746 (a)
28,428 (a)
21,644 (a)
48,952 (a)
222,772 (a)
46,875 (a)
125,806 (a)
–
£6.034
£7.214
Sept 2008 – Sept 2015
Apr 2011 –Apr 2018
£2.00 May 2012 – May 2019
Apr 2013 – Apr 2020
£3.10
Nov 2013 – Apr 2014
£2.05
£2.140
Mar 2006 – Mar 2013
£4.416 May 2007 – May 2014
Mar 2008 – Mar 2015
£5.776
£7.214
Apr 2011 – Apr 2018
£2.00 May 2012 – May 2019
Nov 2012 – Nov 2019
£3.20
Apr 2013 – Apr 2020
£3.10
Nov 2014 – Apr 2015
£2.43
Notes on share options
(a) Under the Inchcape 1999 Share Option Plan.
(cid:114)(cid:1) The options granted in 2008 did not meet the performance targets set at the time of grant and lapsed in full.
(cid:114)(cid:1) Options under the Inchcape 1999 Share Option Plan are granted on a discretionary basis to certain full time senior
executives based within and outside the UK including Executive Directors of the Company.
(cid:114)(cid:1) Such options are normally exercisable between three and ten years of grant.
(cid:114)(cid:1) Details of performance targets are given on page 53.
(b) Under the Inchcape SAYE Share Option Scheme.
(cid:114)(cid:1) There were no option exercises by Executive Directors during 2011.
(cid:114)(cid:1) The Inchcape SAYE Share Option Scheme is open to employees in the UK with at least three months’ service.
(cid:114)(cid:1) Participants make monthly savings for a three year period. At the end of the savings period options become exercisable
within a six month period.
(c) Exercise prices are determined in accordance with the rules of the relevant share option scheme.
(cid:114)(cid:1) All options were granted for nil consideration.
(cid:114)(cid:1) The table shows Executive Directors’ options over ordinary shares of 10.0p at 1 January 2011 and 31 December 2011.
(cid:114)(cid:1) The mid market price for shares at the close of business on 31 December 2011 was 293.4p. The price range during 2011
was 268.6p to 425.4p.
56
Inchcape plc ¦ Annual Report and Accounts 2011
Directors’ Report: Governance
Notes to the Directors’ report on remuneration continued (audited)
4. Performance share plan
André Lacroix
John McConnell
Share awards as
at 31.12.11
304,171 (a)
101,390 (b)
130,761 (a)
26,152 (b)
Share awards
lapsed during
the year
Share awards
exercised during
the year
Share awards
granted during
the year
Share awards as
at 01.01.11
–
–
–
–
– 304,171 (a)
– 101,390 (b)
– 130,761 (a)
26,152 (b)
–
–
–
–
–
Date of grant
23 May 11
23 May 11
Exercise Period
May 2014 – May 2015
May 2014 – May 2015
23 May 11
23 May 11
May 2014 – May 2015
May 2014 – May 2015
Notes on the performance share plan
(cid:114)(cid:1) Awards under the performance share plan are granted on a discretionary basis to certain full time senior executives
based within and outside the UK including Executive Directors of the Company.
(a) Normal awards vest 75% on three year EPS growth and 25% on three year average ROCE.
(b) Enhanced awards vest 100% on stretch EPS performance over three years above those attached to normal awards.
(cid:114)(cid:1) Details of the performance targets are given on page 52 and 53.
(cid:114)(cid:1) All awards were granted as nil cost awards.
(cid:114)(cid:1) The table shows Executive Directors’ awards over ordinary shares of 10.0p at 1 January 2011 and 31 December 2011.
(cid:114)(cid:1) The share price on the date of grant was 379.9p.
5. Co-investment plan
Awarded
ordinary shares
31.12.11
Ordinary shares
lapsed during
the year
Ordinary shares
exercised during
the year
Ordinary shares
awarded during
the year
Awarded ordinary
shares 01.01.11
André Lacroix
John McConnell
–
195,322
190,524
–
–
103,238
29,669
–
–
–
–
–
–
195,322
–
103,238
190,524
–
Date of grant
1 Jan 08
2 Jun 11
Exercise Period
Jan 2011 – Jun 2011
Jun 2014 – Dec 2014
29,669
–
1 Jan 08
2 Jun 11
Jan 2011 – Jun 2011
Jun 2014 – Dec 2014
Notes on co-investment plan
(cid:114)(cid:1) The Awards granted on 1 January 2008 did not meet the performance target set at grant and lapsed in full.
(cid:114)(cid:1) Executive Directors will be entitled to matching shares if they remain employed by the Company for three years and retain
the shares they have purchased under the Plan throughout that period and the performance targets are met.
(cid:114)(cid:1) Awards vest 75% on three year EPS growth and 25% on three year average ROCE.
(cid:114)(cid:1) The share price on the date of grant was 389.7p.
(cid:114)(cid:1) Details of the performance targets are given on page 53.
By order of the Board
Nigel Northridge,
Chairman of the Remuneration Committee
12 March 2012
www.inchcape.com
57
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Directors’ Report: Governance
Other statutory information
Business review
The information that fulfils the requirements of the business review
can be found in the Operating Review on pages 23 to 30, which
are incorporated into this Report by reference. Information on
the environment, employees, community and social issues is
given in the Corporate Responsibility Report on pages 34 to 37.
Directors
The names of the Directors, plus brief biographical details are
given on page 38. Each Director held office throughout the
year except Vicky Bindra who was appointed on 1 July 2011,
Till Vestring who was appointed on 1 September 2011 and
Michael Wemms who retired from the Board on 11 May 2011.
In accordance with the UK Corporate Governance Code
all of the Directors will stand for election or re-election at the
AGM on 10 May 2012.
Directors’ responsibilities
The Directors are responsible for preparing the Annual Report,
the directors’ report on remuneration and the Financial statements
in accordance with applicable law and regulations. Company
law requires the Directors to prepare Financial statements for
each financial year. Under that law the Directors have prepared
the Group Financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the
European Union, and the parent Company Financial statements
in accordance with applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted
Accounting Practice). Under company law the Directors must not
approve the Financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group for that period. In
preparing these Financial statements, the Directors are required to:
Principal activities
A description of the principal activities of the Group and likely future
developments and important events occurring since the end of the
year are given in the Operating Review on pages 23 to 30.
(cid:114)(cid:1) select suitable accounting policies and then apply
them consistently;
(cid:114)(cid:1) make judgements and accounting estimates that are
reasonable and prudent;
Results and dividends
The Group’s audited Financial statements for the year ended
31 December 2011 are shown on pages 62 to 130. The Board
recommends a final ordinary dividend of 7.4p per ordinary share.
If approved at the 2012 AGM, the final ordinary dividend will be
paid on 12 June 2012 to shareholders registered in the books of
the Company at the close of business on 18 May 2012. Together
with the interim dividend of 3.6p per ordinary share paid on
5 September 2011, this makes a total ordinary dividend for
the year of 11.0p per ordinary share (2010 – 6.6p).
Auditors and disclosure of information to auditors
So far as the Directors are aware, there is no relevant audit
information of which the Company’s auditors are unaware. The
Directors have taken all the steps that they ought to have taken
as Directors in order to make themselves aware of any relevant
audit information and to establish that the Company’s auditors
are aware of that information.
Directors’ indemnity
A qualifying third party indemnity (QTPI), as permitted by the
Company’s Articles of Association and sections 232 and 234
of the Companies Act 2006, has been granted by the Company
to each of the Directors of the Company. Under the provisions of
the QTPI the Company undertakes to indemnify each Director
against liability to third parties (excluding criminal and regulatory
penalties) and to pay Directors’ costs as incurred, provided that
they are reimbursed to the Company if the Director is found guilty
or, in an action brought by the Company, judgement is given
against the Director.
Going concern
A full description of the Group’s business activities, financial
position, cash flows, liquidity position, committed facilities and
borrowing position, together with the factors likely to affect its
future development and performance, is set out in the Operating
and Financial Reviews on pages 23 to 31 and in the notes to the
accounts on pages 74 to 130.
The Group has significant financial resources and the Directors,
having reviewed the Group’s operating budgets, investment
plans and financing arrangements, have assessed the future
funding requirements of the Group and compared this to the
level of committed facilities and cash resources.
The Directors have a reasonable expectation that the Company
and the Group have adequate resources to continue in operation
for the foreseeable future. Accordingly, the Directors are satisfied
that it is appropriate to adopt the going concern basis in preparing
the Annual Report and Accounts.
58
Inchcape plc ¦ Annual Report and Accounts 2011
(cid:114)(cid:1) state whether IFRSs as adopted by the European Union and
applicable United Kingdom Accounting Standards have
been followed, subject to any material departures disclosed
and explained in the Group and parent Company Financial
statements respectively;
(cid:114)(cid:1) prepare the Financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and the Group and enable
them to ensure that the Financial statements and the directors’
report on remuneration comply with the Companies Act 2006
and, as regards the Group Financial statements, Article 4 of the
IAS Regulation. 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. Legislation in the United Kingdom
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:
(cid:114)(cid:1) 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
(cid:114)(cid:1) the Operating Review contained on pages 23 to 30 includes 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.
Charitable and political donations
The Company made a charitable donation to Chase Shooting
Star Children’s Hospice of £19,290 during 2011. In 2010, the
Company donated £11,769 to Havens Hospice.
No political donations were made during 2011.
Principal financial risk factors
These risks are shown on pages 32 to 33.
Events after the balance sheet date
There have been no events after the balance sheet date.
Directors’ Report: Governance
Other statutory information continued
Creditor payment policy
The Company has no trade creditors (2010 – nil). The Group
is responsible for agreeing the terms and conditions including
terms of payment under which business transactions with the
Group’s suppliers are conducted. Whilst the Group does not
follow any single external code or standard, in line with Group
policy, payments to suppliers are made in accordance with
agreed terms and conditions.
Employees
The Company is committed to a policy of treating all its colleagues
and job applicants equally and to increasing the involvement
of colleagues through engagement activities. Full details can be
found in the Corporate Responsibility Report on pages 34 to 37.
We are committed to the employment of people with disabilities
and will interview those candidates who meet the minimum
selection criteria. We provide training and career development
for our employees, tailored where appropriate to their specific
needs, to ensure they achieve their potential. If an individual
becomes disabled while in our employment, we will do our best
to ensure continued development in their role, including consulting
them about their requirements, making appropriate adjustments
and providing suitable alternative positions.
Directors’ interests
The table shows the beneficial interests, other than share options,
including family interests, in the ordinary shares of the Company
of the persons who were Directors at 31 December 2011.
Ken Hanna
André Lacroix
John McConnell
Simon Borrows
Alison Cooper
Nigel Northridge
Will Samuel
David Scotland
Till Vestring
31 Dec 2011
70,000
507,214
181,038
1,000,000
2,500
25,000
12,000
11,298
30,000
1 Jan 2011
70,000
459,158
155,368
500,000
2,500
10,000
12,000
11,298
–
There have been no changes to the number of shares held by Directors between
31 December 2011 and 12 March 2012.
Employee benefit trust
The Executive Directors of the Company, together with other
employees of the Group, are potential beneficiaries of the
Inchcape Employee Trust (Trust) and, as such, are deemed to be
interested in any ordinary shares held by the Trust. At 31 December
2011, the Trust’s shareholding totalled 1,370,916 ordinary shares.
Between 1 January 2012 and 12 March 2012 the Trust transferred
33,964 ordinary shares to satisfy the exercise of awards under
employee share plans.
Share capital
As at 31 December 2011, the Company’s issued share capital
of £46,347,321.60 comprised 463,473,216 ordinary shares of 10.0p.
Holders of ordinary shares are entitled to receive the Company’s
Report and Accounts; to attend and speak at General Meetings
and to appoint proxies and exercise voting rights. The shares do
not carry any special rights with regard to control of the Company.
The rights are set out in the Articles of Association of the Company.
There are no restrictions or limitations on the holding of ordinary
shares and no requirements for prior approval of any transfers.
There are no known arrangements under which financial rights
are held by a person other than the holder of the shares.
Shares acquired through the Company share schemes rank
pari passu with the shares in issue and have no special rights.
Authority to purchase shares
At the Company’s AGM on Thursday 12 May 2011, the Company
was authorised to make market purchases of up to 46,057,393
ordinary shares (representing approximately 10.0% of its issued
share capital). No such purchases were made during 2011.
Articles of Association
The appointment and replacement of Directors are governed
by the Company’s Articles of Association. Any changes to the
Articles of Association must be approved by the shareholders
in accordance with the legislation in force from time to time.
The Directors have authority to issue and allot ordinary shares
pursuant to article 10 of the Articles of Association and shareholder
authority is requested at each AGM. The Directors have authority to
make market purchases of ordinary shares and this authority is also
renewed annually at the AGM.
Conflicts of interest
The Articles of Association permit the Board to authorise any
matter which would otherwise involve a Director breaching his duty
under the Companies Act 2006 to avoid conflicts of interest. When
authorising a conflict of interest the Board must do so without the
conflicting Director counting as part of the quorum. In the event
that the Board consider it appropriate, the conflicted Director may
be permitted to participate in the debate, but will neither be
permitted to vote nor count in the quorum when the decision
is being agreed. The Directors are aware that it is their responsibility
to inform the Board of any potential conflicts as soon as possible
and procedures are in place to facilitate disclosure.
Change of control
The Company is not party to any significant agreements that
would take effect, alter or terminate upon a change of control
of the Company following a takeover bid. However, certain of the
Group’s third party funding arrangements would terminate upon
a change of control of the Company. The Group’s relationships
with its brand partners are managed at Group level, however the
relevant contracts are entered into at a local level with day to day
management being led by each operating business. Certain of the
contracts may terminate on a change of control of the local
contracting company.
The Company does not have agreements with any Director or
employee providing compensation for loss of office or employment
that occurs because of a takeover bid, except for provisions in the
rules of the Company’s share schemes which may result in options
or awards granted to employees to vest on a takeover.
Transactions with Directors
No transaction, arrangement or agreement required to be
disclosed in terms of the Companies Act 2006 and IAS 24 ‘Related
Parties’ was outstanding at 31 December 2011, or was entered
into during the year for any Director and/or connected person
(2010 – none).
Annual General Meeting
The AGM will be held at 11.00 a.m. on Thursday 10 May 2012 at
Investec Bank plc, 2 Gresham Street, London EC2V 7QP. The notice
convening the meeting and the resolutions to be put to the
meeting, together with the explanatory notes, are given in the
Circular to all shareholders.
The auditors, PricewaterhouseCoopers LLP, have indicated their
willingness to continue in office. A resolution to reappoint them
as auditors will be proposed at the AGM.
By order of the Board
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General Counsel & Group Company Secretary
www.inchcape.com
59
Directors’ Report: Governance
Investor relations
Shareholder profile
As at 31 December 2011 the Company had 7,282 holdings on
its register of ordinary shareholders (2010: 7,830). 68% of the total
share register was held on behalf of investment institutions such
as pension funds, mutual funds, insurance funds and funds
managed for private individuals (2010: 71%). The majority of
funds are managed from the UK, with the USA representing 21%.
Total shareholder return (TSR)
The following graph illustrates the Group’s TSR over a five year
period, relative to the performance of the total return index of the
FTSE mid-250 group of companies (excluding investment trusts). TSR
is essentially share price growth plus re-invested dividends. The FTSE
mid-250 has been chosen as the most suitable comparator group
as it is the general market index in which the Company appears.
Register analysis by holder
Register analysis by geography
Historical TSR performance
Unit trusts &
mutual funds
Pension funds
Insurance
companies
Private investors
Other
UK
USA
Israel
Europe
Other
200
150
100
50
0
Significant shareholdings
As at 12 March 2012, the Company had been notified of the
following significant interests:
Holding
Prudential plc
Mr George Horesh
Legal & General
Black Rock Inc
AXA Investment
percentage notified
12.03%
7.99%
5.02%
5.02%
4.81%
Source: TR-1 notifications. These are updated on the Company’s website
Communication with shareholders
Executive Directors, Non-Executive Directors and senior
management meet with existing and prospective institutional
investors on a regular basis. The meetings cover a wide range
of issues including strategy, performance and governance. During
the year, close to 170 existing or prospective shareholders or their
representatives attended meetings, roadshows or conferences
held by the Company.
Shareholders are also kept informed through regular press releases.
These are made available to the London Stock Exchange and our
website. Presentations were held for analysts for our annual and half
year results. Recorded conference calls are also held on the release
of Interim Management Statements for analysts. These presentations
and calls are recorded and published on our website so that
all investors may access them.
Investor Relations calendar
We believe our Investor Relations programme is an important part
of investor interaction providing perspective and feedback on
strategy, results and governance matters.
In the past year the proactive programme has included site visits,
roadshows and regular financial calendar linked conference
calls and presentations.
Dec 06
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Inchcape
FTSE mid 250 excluding investment trust
Source: Datastream
Growth in the value of a hypothetical £100 holding over five years
FTSE 250 (excluding investment companies) comparisons based
on 30 trading day average values.
Dealing in Inchcape shares
The Company’s ordinary shares are listed on the London Stock
Exchange. Prices are reported daily in the Financial Times and
on our website. For further information please call Computershare
Investor Services on +44 (0) 870 707 1076.
The share price by volume graph shows the movement in the
share price, closing at 293.4p as at 31 December 2011. The
Company’s shares trade within the FTSE 250 index and at the year
end it was ranked no. 152 by market capitalisation in the FTSE 350
(2010: 143). The Company’s market capitalisation at 31 December
2011 was £1,351.9m (2010: £1,642.1m). The average daily number
of shares traded on the London Stock Exchange was 1.47m
(2010: 1.97m). This represents an average of 0.32% of the
Company’s shares traded each day (2010: 0.43%).
Share price by volume during 2011
60
50
40
30
20
10
0
400
350
300
250
200
150
100
50
0
)
m
l
l
(
e
m
u
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v
y
h
t
n
o
m
a
t
o
T
l
Jan
11
Feb
11
Mar
11
Apr
11
May
11
Jun
11
Jul
11
Aug
11
Sep
11
Oct
11
Nov
11
Dec
11
Inchcape share price
Volume
Source: Datastream
)
p
(
e
c
i
r
p
d
n
e
h
t
n
o
M
Investor Relations
calendar
Annual
results
Interim Management
Statement
Interim
results
Interim Management
Statement
Audiocast
& presentation
Audiocast
Audiocast
& presentation
Audiocast
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Retail Conference
Roadshow
Retail Conference
Roadshow
Retail Conference
Roadshow
Broker &
Retail Conferences
Investor
Seminar
Throughout the year 1:1 meetings and Inchcape Advantage site visits held
60
Inchcape plc ¦ Annual Report and Accounts 2011
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Accounting policies
Notes to the accounts
Five year record
Report of the auditors – Group
Financial statements
62
63
64
65
66
67
74
121
122
123 Company balance sheet
124 Accounting policies
125 Notes to the accounts
131
Report of the auditors – Company
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Financial statements
Consolidated income statement
For the year ended 31 December 2011
Revenue
Cost of sales
Gross profit
Net operating expenses
Operating profit
Share of loss after tax of joint ventures and associates
Profit before finance and tax
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Profit attributable to:
– Owners of the parent
– Non controlling interests
Basic earnings per share (pence)
Diluted earnings per share (pence)
Notes
1, 3
3
13
6
7
8
9
9
Before
exceptional
items
2011
£m
Exceptional
items
(note 2)
2011
£m
Before
exceptional
items
2010
£m
Exceptional
items
(note 2)
2010
£m
Total
2011
£m
5,826.3
(4,970.2)
856.1
(611.7)
244.4
(3.0)
241.4
57.3
(71.0)
227.7
(59.2)
168.5
–
–
–
(13.4)
(13.4)
–
(13.4)
–
(10.9)
(24.3)
3.6
(20.7)
5,826.3
5,885.4
(4,970.2) (5,004.5)
880.9
(655.4)
225.5
(1.7)
223.8
58.6
(68.4)
214.0
(62.2)
151.8
856.1
(625.1)
231.0
(3.0)
228.0
57.3
(81.9)
203.4
(55.6)
147.8
–
–
–
(21.9)
(21.9)
–
(21.9)
–
–
(21.9)
3.1
(18.8)
142.2
5.6
147.8
31.0p
30.5p
Total
2010
£m
5,885.4
(5,004.5)
880.9
(677.3)
203.6
(1.7)
201.9
58.6
(68.4)
192.1
(59.1)
133.0
127.9
5.1
133.0
27.9p
27.6p
62
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
Consolidated statement of comprehensive income
For the year ended 31 December 2011
Profit for the year
Other comprehensive income:
Cash flow hedges
Fair value losses on available for sale financial assets
Impairment losses on available for sale financial assets transferred to consolidated
income statement
Effect of foreign exchange rate changes
Net actuarial gains on defined benefit pension schemes
Irrecoverable element of pension surplus
Current tax recognised directly in shareholders’ equity
Deferred tax recognised directly in shareholders’ equity
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
– Owners of the parent
– Non controlling interests
Total comprehensive income for the year
Notes
2011
£m
2010
£m
147.8
133.0
14
7
5
5
16
5.7
(6.5)
10.9
(26.5)
18.0
(36.7)
7.0
(8.4)
(36.5)
111.3
105.7
5.6
111.3
0.3
(3.6)
–
37.2
64.9
(36.3)
14.7
(15.2)
62.0
195.0
188.7
6.3
195.0
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Financial statements
Consolidated statement of financial position
As at 31 December 2011
Non-current assets
Intangible assets
Property, plant and equipment
Investments in joint ventures and associates
Available for sale financial assets
Trade and other receivables
Deferred tax assets
Retirement benefit asset
Current assets
Inventories
Trade and other receivables
Available for sale financial assets
Derivative financial instruments
Current tax assets
Cash and cash equivalents
Assets held for sale and disposal group
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Current tax liabilities
Provisions
Borrowings
Non-current liabilities
Trade and other payables
Provisions
Deferred tax liabilities
Borrowings
Retirement benefit liability
Liabilities directly associated with the disposal group
Total liabilities
Net assets
Shareholders’ equity
Share capital
Share premium
Capital redemption reserve
Other reserves
Retained earnings
Equity attributable to owners of the parent
Non controlling interests
Total shareholders’ equity
Notes
2011
£m
2010
£m
11
12
13
14
15
16
5
17
15
14
23
18
19
20
23
21
22
20
21
16
22
5
19
24
25
26
542.6
647.6
29.5
5.6
34.4
43.0
47.3
1,350.0
905.5
251.5
0.5
139.7
2.2
558.9
1,858.3
5.7
1,864.0
3,214.0
551.2
632.3
33.1
12.4
28.8
31.4
22.0
1,311.2
844.1
232.7
1.7
122.1
5.1
561.6
1,767.3
23.4
1,790.7
3,101.9
(1,140.6)
(7.4)
(45.1)
(36.8)
(101.9)
(1,331.8)
(29.6)
(54.1)
(40.2)
(338.6)
(62.2)
(524.7)
–
(1,856.5)
(1,080.9)
(9.0)
(46.6)
(36.1)
(144.2)
(1,316.8)
(34.6)
(58.8)
(18.1)
(320.5)
(44.2)
(476.2)
(19.6)
(1,812.6)
1,357.5
1,289.3
46.4
126.9
133.3
126.8
895.7
1,329.1
28.4
1,357.5
46.4
126.3
133.3
145.2
811.9
1,263.1
26.2
1,289.3
The consolidated Financial statements on pages 62 to 120 were approved by the Board of Directors on 12 March 2012 and were
signed on its behalf by:
André Lacroix, Group Chief Executive
John McConnell, Group Finance Director
64
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
Consolidated statement of changes in equity
For the year ended 31 December 2011
Notes
4,16
24b
Share
capital
£m
163.3
–
–
–
(116.9)
–
–
–
–
–
0.2
–
–
46.4
–
–
126.3
–
–
–
–
–
–
–
0.6
At 1 January 2010
Total comprehensive income for the year
Share-based payments, net of tax
Net purchase of own shares by ESOP Trust
Share Consolidation
Issue of ordinary share capital
Dividends:
– Non controlling interests
Acquisition of businesses
At 1 January 2011
Total comprehensive income for the year
26
Share-based payments, net of tax
Net purchase of own shares by ESOP Trust
Issue of ordinary share capital
Dividends:
– Owners of the parent
– Non controlling interests
At 31 December 2011
4,16
10
Share
premium
£m
126.1
Capital
redemption
reserve
£m
16.4
Other
reserves
£m
112.4
Equity
attributable
to owners of
the parent
£m
Retained
earnings
£m
Non
controlling
interests
£m
Total
shareholders’
equity
£m
649.5
1,067.7
22.0
1,089.7
–
32.8
155.9
188.7
6.3
195.0
–
–
116.9
–
–
–
133.3
–
–
–
–
–
–
–
–
7.2
(0.6)
(0.1)
–
7.2
(0.6)
(0.1)
0.2
–
–
–
–
7.2
(0.6)
(0.1)
0.2
–
–
145.2
–
–
–
–
811.9 1,263.1
(2.5)
0.4
26.2
(2.5)
0.4
1,289.3
(18.4)
124.1
105.7
5.6
111.3
–
–
–
6.7
(0.2)
–
6.7
(0.2)
0.6
–
–
–
6.7
(0.2)
0.6
–
–
46.4
–
–
126.9
–
–
133.3
–
–
126.8
(46.8)
–
(46.8)
–
895.7 1,329.1
–
(3.4)
28.4
(46.8)
(3.4)
1,357.5
Share-based payments have been stated net of a tax charge of £0.6m (2010 – credit of £0.7m).
Cumulative goodwill of £108.1m (2010 – £108.1m) has been written off against the Retained earnings reserve. In addition, the
Retained earnings reserve includes non-distributable reserves of £5.5m (2010 – £5.5m).
www.inchcape.com
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Notes
27a
28a
28b
27b
18
18
22
2011
£m
2010
£m
244.7
(45.2)
10.9
(20.4)
190.0
(20.2)
5.5
(80.7)
(14.3)
6.5
2.4
–
(100.8)
0.6
(0.2)
1.5
(0.8)
0.3
4.7
(46.8)
(3.4)
(44.1)
45.1
419.6
(3.4)
461.3
385.6
173.3
(97.6)
461.3
274.3
(49.2)
10.6
(20.8)
214.9
(12.9)
1.6
(36.9)
(7.4)
24.8
0.3
1.5
(29.0)
0.2
(0.6)
(39.4)
(1.3)
(3.8)
17.8
–
(2.5)
(29.6)
156.3
257.2
6.1
419.6
376.5
185.1
(142.0)
419.6
Financial statements
Consolidated statement of cash flows
For the year ended 31 December 2011
Cash flows from operating activities
Cash generated from operations
Tax paid
Interest received
Interest paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of businesses, net of cash and overdrafts acquired
Net cash inflow from sale of businesses
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of property, plant and equipment
Net disposal of available for sale financial assets
Dividends received from joint ventures and associates
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Net purchase of own shares by ESOP Trust
Net cash inflow / (outflow) from borrowings
Payment of capital element of finance leases
Loans received / (granted) to joint ventures
Settlement of derivatives
Equity dividends paid
Dividends paid to non controlling interests
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
Cash and cash equivalents consist of:
– Cash at bank and cash equivalents
– Short-term deposits
– Bank overdrafts
66
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
Accounting policies
The consolidated Financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union, and International Financial Reporting Interpretation Committee (IFRIC) interpretations and with
those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
Accounting convention
The consolidated Financial statements have been prepared under the historical cost convention, except for certain balances,
including financial instruments, that have been measured at fair value as disclosed in the accounting policies below.
Going concern
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation
for the foreseeable future. Accordingly, the Directors are satisfied that it is appropriate to adopt the going concern basis in preparing
the Annual Report and Accounts.
Changes in accounting policy and disclosures
The accounting policies have been applied consistently throughout the reporting period, other than where new policies have been
adopted as presented below.
The following new standards are effective for accounting periods beginning 1 January 2011 but have not had a material impact on
the results or financial position of the Group:
– IAS 24 (revised), ‘Related party disclosures’
– Amendment to IAS 32, ‘Classification of rights issue’
– Amendment to IFRIC 14, ‘Prepayments of minimum funding requirement’
– IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’.
The following standards were in issue but were not yet effective at the balance sheet date. These standards have not yet been early
adopted by the Group and will be applied for the Group’s financial years commencing on or after 1 January 2012:
– IAS 1, ‘Amendments to IAS 1, Presentation of financial statements: Other comprehensive income’
– IAS 12, ‘Amendments to IAS 12, Income Taxes: Deferred taxes’
– IAS 19, ‘Amendments to IAS 19, Employee benefits’
– IAS 27 (revised), ‘Separate financial statements’
– IAS 28 (revised), ‘Associates and joint ventures’
– IFRS 7, ‘Amendments to IFRS 7, Financial Instruments: Disclosure’
– IFRS 9, ‘Financial instruments’
– IFRS 10, ‘Consolidated financial statements’
– IFRS 11, ‘Joint arrangements’
– IFRS 12, ‘Disclosure of interests in other entities’
– IFRS 13, ‘Fair value measurement’.
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67
Financial statements
Accounting policies continued
Basis of consolidation
The consolidated Financial statements comprise the Financial statements of the parent Company (Inchcape plc) and all of its
subsidiary undertakings (defined as those where the Group has control), together with the Group’s share of the results of its joint
ventures (defined as those where the Group has joint control) and associates (defined as those where the Group has significant
influence but not control). The results of subsidiaries, joint ventures and associates are consolidated as of the same reporting date as
the parent Company, using consistent accounting policies.
The results of subsidiaries are consolidated using the acquisition method of accounting from the date on which control of the net
assets and operations of the acquired company are effectively transferred to the Group. Similarly, the results of subsidiaries disposed
of cease to be consolidated from the date on which control of the net assets and operations are transferred out of the Group.
The Group treats transactions with non controlling interests as transactions with equity owners of the Group. For purchases from non
controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net
assets of the subsidiary is recorded in equity. Gains or losses on disposals to non controlling interests are also recorded in equity.
Where the Group acquires a controlling interest in a subsidiary with a contractual obligation to purchase the remaining non
controlling interest, the acquired company is accounted for as a 100% subsidiary, with the liability for the purchase of the remaining
non controlling interest recorded as deferred consideration. Subsequent changes to estimates of the deferred consideration are
recorded as additions / reductions to the amount of goodwill arising on acquisition.
Investments in joint ventures and associates are accounted for using the equity method, whereby the Group’s share of post-
acquisition profits or losses is recognised in the consolidated income statement, and its share of post-acquisition movements in
shareholders’ equity is recognised in shareholders’ equity. If the Group’s share of losses in a joint venture or associate equals or
exceeds its investment in the joint venture or associate, the Group does not recognise further losses, unless it has contractual
obligations or made payments on behalf of the joint venture or associate.
Intercompany balances and transactions and any unrealised profits arising from intercompany transactions are eliminated in
preparing the consolidated Financial statements.
Foreign currency translation
Transactions included in the results of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The consolidated Financial statements are presented in Sterling,
which is the functional currency of the parent company, Inchcape plc, and the presentational currency of the Group.
In the individual entities, transactions in foreign currencies are translated into the functional currency at the rates of exchange
prevailing at the dates of the individual transactions. Monetary assets and liabilities denominated in foreign currencies are
subsequently retranslated at the rate of exchange ruling at the end of the reporting period. All differences are taken to the
consolidated income statement, except those arising on long-term foreign currency borrowings used to finance or hedge foreign
currency investments which on consolidation are taken directly to other comprehensive income.
The assets and liabilities of foreign operations are translated into Sterling at the rate of exchange ruling at the end of the reporting
period. The income statements of foreign operations are translated into Sterling at the average rates of exchange for the period.
Exchange differences arising from 1 January 2004 are recognised as a separate component of shareholders’ equity. On disposal
of a foreign operation, any cumulative exchange differences held in shareholders’ equity are transferred to the consolidated
income statement.
Revenue, other income and cost of sales
Revenue from the sale of goods and services is measured at the fair value of consideration receivable, net of rebates and any
discounts, and includes lease rentals and finance and insurance commission. It excludes sales related taxes and intra-group
transactions. Where the Group acts as an agent on behalf of a principal, the commission earned is recorded within revenue.
Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably
measured. In practice this means that revenue is recognised when vehicles or parts are invoiced and physically dispatched or when
the service has been undertaken. Revenue from commission is recognised when receipt of payment can be assured.
Where a vehicle is sold to a leasing company and a Group company retains a residual value commitment to buy back the vehicle
for a specified value at a specified date, the sale is not recognised on the basis that the value of the asset will be realised over the
lease period and from the disposal of the vehicle at the end of the lease period. These vehicles are retained within ‘property, plant
and equipment’ on the consolidated statement of financial position at cost, and are depreciated to their residual value over the life
of the lease. Total revenue on a leased vehicle comprises the difference between consideration received and residual value. This sits
as deferred revenue on the consolidated statement of financial position and is released to the consolidated income statement on a
straight line basis over the life of the lease. The residual value commitment, which reflects the price at which the vehicle will be bought
back, is held within ‘trade and other payables’, according to the date of the commitment.
Dividend income is recognised when the right to receive payment is established.
Finance income is recognised when it is probable that the economic benefits will flow to the Group and the amount of income
can be measured reliably. It is accrued on a time basis, by reference to the principal outstanding and at the effective interest
rate applicable.
Cost of sales includes the expense relating to the estimated cost of self-insured warranties offered to customers. These warranties form
part of the package of goods and services provided to the customer when purchasing a vehicle and are not a separable product.
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Financial statements
Share-based payments
The Group operates various share-based award schemes. The fair value at the date at which the share-based awards are granted
is recognised in the consolidated income statement (together with a corresponding increase in shareholders’ equity) on a straight
line basis over the vesting period, based on an estimate of the number of shares that will eventually vest. At the end of each reporting
period, the Group revises its estimates of the number of awards that are expected to vest. The impact of any revision is recognised
in the consolidated income statement with a corresponding adjustment to equity.
For equity-settled share-based awards, the services received from employees are measured by reference to the fair value of the
awards granted. With the exception of the Group ‘Save as you earn’ scheme, the vesting of all share-based awards under all
schemes is solely reliant upon non-market conditions, therefore no expense is recognised for awards that do not ultimately vest.
Where an employee or the Company cancels an award, the charge for that award is recognised as an expense immediately,
even though the award does not vest.
Finance costs
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 from the first date on which the expenditure is incurred for the asset and until such time as the asset
is ready 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.
All other borrowing costs are recognised as an expense in the period in which they are incurred.
Income tax
The charge for current income tax is based on the results for the period as adjusted for items which are not taxed or disallowed.
It is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred income tax is accounted for using the liability method in respect of temporary differences arising from differences between
the tax bases of assets and liabilities and their carrying amounts in the consolidated Financial statements.
In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to
the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference is due to goodwill arising on a business combination,
or to an asset or liability, the initial recognition of which does not affect either taxable or accounting income.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, joint ventures and
associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled
using rates enacted at the end of the reporting period. Deferred tax is charged or credited in the consolidated income statement,
except when it relates to items credited or charged directly to shareholders’ equity, in which case the deferred tax is also dealt with
in shareholders’ equity.
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle
balances net.
Exceptional items
Items which are both material and non-recurring are presented as exceptional items within their relevant consolidated income
statement category. The separate reporting of exceptional items helps provide additional useful information regarding the Group’s
underlying business performance. Examples of events which may give rise to the classification of items as exceptional include gains
or losses on the disposal of businesses, restructuring of businesses, litigation, asset impairments and exceptional tax related matters.
Goodwill
Goodwill represents the excess of the cost of acquisition of a business combination over the Group’s share of the fair value of
identifiable net assets of the business acquired at the date of acquisition. Goodwill is initially recognised at cost and is held in the
currency of the acquired entity and revalued at the closing exchange rate at the end of each reporting period.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. At the date of acquisition, the goodwill
is allocated to cash generating units for the purpose of impairment testing and is tested at least annually for impairment.
Gains and losses on disposal of a business include the carrying amount of goodwill relating to the business sold except for goodwill
arising on business combinations on or before 31 December 1997 which has been deducted from shareholders’ equity and remains
indefinitely in shareholders’ equity.
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Financial statements
Accounting policies continued
Other intangible assets
Intangible assets, when acquired separately from a business (including computer software), are carried at cost less accumulated
amortisation and impairment losses. Costs comprise purchase price from third parties as well as internally generated development
costs where relevant. Amortisation is provided on a straight line basis to allocate the cost of the asset over its estimated useful life,
which in the case of computer software is three to seven years. Amortisation is recognised in the consolidated income statement
within ‘net operating expenses’.
Intangible assets acquired as part of a business combination (including back orders and customer contracts) are capitalised
separately from goodwill if the fair value can be measured reliably on initial recognition. These intangible assets are amortised
over their estimated useful life, which is generally less than a year.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost comprises the purchase
price and directly attributable costs of the asset and includes, where relevant, capitalised borrowing costs. Depreciation is based on
cost less estimated residual value and is provided, except for freehold land which is not depreciated, on a straight line basis over the
estimated useful life of the asset. For the following categories, the annual rates used are:
Freehold buildings and long leasehold buildings
Short leasehold buildings
Plant, machinery and equipment
Interest in leased vehicles
2.0%
shorter of lease term or useful life
5.0% – 33.3%
over the lease term
The residual values and useful lives of all assets are reviewed at least at the end of each reporting period.
Impairment
Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or circumstances indicate that
the carrying amount may not be recoverable.
In addition, goodwill is not subject to amortisation but is tested at least annually for impairment. An impairment loss is recognised for
the amount by which the asset’s carrying amount exceeds its recoverable amount, the latter being the higher of the asset’s fair value
less costs to sell and value in use. Value in use calculations are performed using cash flow projections, discounted at a pre-tax rate
which reflects the asset specific risks and the time value of money.
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of the receivables. The carrying amount of the asset is reduced through the
use of an allowance account, and the amount of the loss is recognised in the consolidated income statement within ‘net operating
expenses’. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent
recoveries of amounts previously written off are credited against ‘net operating expenses’ in the consolidated income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises expenditure incurred in bringing inventories to their
present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and
costs to be incurred in marketing, selling and distribution. Used vehicles are carried at the lower of cost or fair value less costs to sell,
generally based on external market data available for used vehicles.
Vehicles held on consignment which are deemed in substance to be assets of the Group are included within ‘inventories’ with the
corresponding liability included within ‘trade and other payables’.
Inventory can be held on deferred payment terms. All costs associated with this deferral are expensed in the period in which they
are incurred.
Pensions and other post-retirement benefits
The Group operates a number of retirement benefit schemes.
The major schemes are defined benefit pension funds with assets held separately from the Group. The cost of providing benefits
under the plans is determined separately for each plan using the projected unit credit actuarial valuation method.
The current service cost and gains and losses on settlements and curtailments are included in ‘cost of sales’ or ‘net operating
expenses’ in the consolidated income statement. Past service costs are similarly included where the benefits have vested, otherwise
they are amortised on a straight line basis over the vesting period. The expected return on assets of funded defined benefit pension
plans and the imputed interest on pension plan liabilities comprise the post-retirement benefit element of finance costs and finance
income in the consolidated income statement.
Differences between the actual and expected return on assets, changes in the retirement benefit obligation due to experience and
changes in actuarial assumptions are included in the consolidated statement of comprehensive income, as actuarial gains and
losses, in full in the period in which they arise.
70
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Financial statements
Where scheme assets exceed the defined benefit obligation, a net asset is only recognised to the extent that an economic benefit
is available to the Group, in accordance with the terms of the scheme and, where relevant, statutory requirements.
The Group’s contributions to defined contribution plans are charged to the consolidated income statement in the period to which
the contributions relate.
The Group also has a liability in respect of past employees under post-retirement healthcare schemes which have been closed to
new entrants. These schemes are accounted for on a similar basis to that for defined benefit pension plans in accordance with the
advice of independent qualified actuaries.
Provisions
Provisions are recognised when the Group has a present obligation in respect of a past event, when it is more likely than not that
an outflow of resources will be required to settle the obligation and where the amount can be reliably estimated. Provisions are
discounted when the time value of money is considered to be material, using an appropriate risk free rate on government bonds.
Disposal group and assets held for sale
Where the Group is actively marketing a business and disposal is expected within one year of the end of the reporting period, the
assets and liabilities of the associated businesses are separately disclosed on the consolidated statement of financial position as
a disposal group. Assets are classified as assets held for sale if their carrying amount is to be recovered principally through a sale
transaction rather than through continuing use. Both disposal groups and assets held for sale are stated at the lower of their carrying
amount and fair value less costs to sell.
Segmental reporting
Segment information is reported in accordance with IFRS 8, ‘Operating segments’, which requires segmental reporting to be
presented on the same basis as the internal management reporting. The Group has identified operating segments, corresponding to
the six main regions in which it operates. These segments are then categorised into the Group’s two distinctive market channels,
distribution and retail.
Financial instruments
The Group classifies its financial instruments in the following categories: loans and receivables; held at fair value; amortised cost;
and available for sale. The classification is determined at initial recognition and depends on the purpose for which the financial
instruments are required.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are included in current assets, except where the maturity date is more than 12 months after the end of the reporting
period. They are initially recorded at fair value and subsequently recorded at amortised cost.
Held at fair value includes derivative financial assets and liabilities, which are further explained below. They are classified according
to maturity date, within current and non-current assets and liabilities respectively.
Amortised cost includes non-derivative financial assets and liabilities which are held at original cost, less amortisation
or provision raised.
Available for sale financial assets are the residual category and include non-derivative financial assets, such as bonds and equity
investments. They are classified as non-current assets unless management intends to dispose of them within 12 months of the end
of the reporting period and are held at fair value.
Cash and cash equivalents
Cash and cash equivalents in the consolidated statement of financial position comprise cash at bank and in hand, short-term bank
deposits and money market funds.
In the consolidated statement of cash flows, cash and cash equivalents comprise cash and cash equivalents, as defined above,
net of bank overdrafts.
Leases
Finance leases, which transfer to the Group substantially all the risks and rewards of ownership of the leased item, are capitalised
at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments.
Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate
of interest on the remaining balance of the liability. Finance charges are charged to the consolidated income statement. Capitalised
leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
Leases where the Group does not retain substantially all the risks and rewards of ownership of the asset are classified as operating
leases. Operating lease rental payments are recognised as an expense in the consolidated income statement on a straight line basis
over the lease term.
Offsetting
Netting in the consolidated statement of financial position only occurs to the extent that there is the legal ability and intention to settle
net. As such, bank overdrafts are presented in current liabilities to the extent that there is no intention to offset with the cash balance.
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Financial statements
Accounting policies continued
Derivative financial instruments
An outline of the objectives, policies and strategies pursued by the Group in relation to its financial instruments is set out in note 23 to
the consolidated Financial statements.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured
at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as:
(cid:2)(cid:3) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or
(cid:2)(cid:3) hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction
(cash flow hedge); or
(cid:2)(cid:3) hedges of a net investment in a foreign operation (net investment hedge).
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the consolidated
income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
The Group only applies fair value hedge accounting for hedging fixed interest risk on borrowings and future fixed amount currency
liabilities (on its cross currency interest rate swaps). The gain or loss relating to the effective portion of interest rate swaps hedging
fixed rate borrowings and changes in the fair value of those borrowings are recognised in the consolidated income statement within
‘finance costs’. The gain or loss relating to the ineffective portion is also recognised in the consolidated income statement within
‘finance costs’.
Cash flow hedge
For cash flow hedges that meet the conditions for hedge accounting, the portion of the gains or losses on the hedging instrument
that is determined to be an effective hedge is recognised directly in other comprehensive income and the ineffective portion is
recognised in the consolidated income statement. When the hedged forecast transaction results in the recognition of a non-financial
asset or liability then, at the time the asset or liability is recognised, the associated gains or losses that had previously been recognised
in other comprehensive income are included in the initial measurement of the acquisition cost or other carrying amount of the asset
or liability. For all other cash flow hedges, the gains or losses that are recognised in other comprehensive income are transferred
to the consolidated income statement in the same period in which the hedged forecast transaction affects the consolidated
income statement.
Net investment hedge
The Group uses borrowings denominated in foreign currency to hedge net investments in foreign operations. These are accounted
for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is
recognised in other comprehensive income; the gain or loss relating to any ineffective portion is recognised immediately in the
consolidated income statement in ‘net operating expenses’. Gains and losses accumulated in equity are included in the
consolidated income statement when the foreign operation is disposed of.
Hedge accounting is discontinued when the hedging instrument expires, is sold, terminated, exercised or no longer qualifies for
hedge accounting. At that point in time any cumulative gains or losses on the hedging instrument which have been recognised in
other comprehensive income are kept in other comprehensive income until the forecast transaction occurs. If a hedged transaction
is no longer expected to occur, the cumulative gains or losses that have been recognised in other comprehensive income are
transferred to the consolidated income statement for the period.
For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly
to the consolidated income statement.
Investments
The Group’s investments are classified as available for sale or held to maturity (where management has a positive intention and
ability to hold the asset to maturity).
Gains and losses on available for sale financial assets are recognised in other comprehensive income, until the investment is sold
or is considered to be impaired, at which time the cumulative gain or loss previously reported in other comprehensive income is
included in the consolidated income statement as part of ‘finance costs’.
Held to maturity financial assets are carried at amortised cost.
Share capital
Ordinary shares are classified as equity. Where the Group purchases the Group’s equity share capital (treasury shares), the
consideration paid is deducted from shareholders’ equity until the shares are cancelled, reissued or disposed of. Where such
shares are subsequently sold or reissued, any consideration received is included in shareholders’ equity.
Dividends
Final dividends proposed by the Board of Directors and unpaid at the year end are not recognised in the consolidated Financial
statements until they have been approved by the shareholders at the Annual General Meeting. Interim dividends are recognised
when they are paid.
72
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
Significant accounting judgements and estimates
Judgements
In the process of applying the Group’s accounting policies, the Directors have made the following judgements which have the most
significant effect on the amounts recognised in the consolidated Financial statements.
Revenue recognition on vehicles subject to residual value commitments
Where the Group sells vehicles sourced from within the Group to a finance provider for the purpose of leasing the vehicles to a third
party, and retains a residual value commitment, the sale is not recognised on the basis that the value of these assets will be realised
over the lease period and from the disposal of the vehicles at the end of the lease period.
Consignment stock
Vehicles held on consignment have been included in ‘finished goods’ within ‘inventories’ on the basis that the Group has determined
that it holds the significant risks and rewards attached to these vehicles.
Estimates
The key assumptions concerning the future and other sources of estimation uncertainty at the end of the reporting period, that have
a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are
discussed below:
Product warranty provision
The product warranty provision requires an estimation of the number of expected warranty claims, and the expected cost of labour
and parts necessary to satisfy these warranty claims.
Pensions and other post-retirement benefits
The net retirement benefit asset or liability is calculated based on a number of actuarial assumptions as detailed in note 5. A number
of these assumptions involve a considerable degree of estimation, including the rate of inflation, discount rate and expected
mortality rates.
Tax
The Group is subject to income taxes in a number of jurisdictions. Some degree of estimation is required in determining the worldwide
provision for income taxes. There are a number of transactions and calculations for which the ultimate tax determination is uncertain
during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded,
such differences will impact the current tax and deferred tax provisions in the period in which such determination is made.
In addition, the recognition of deferred tax assets is dependent upon an estimation of future taxable profits that will be available
against which deductible temporary differences can be utilised. In the event that actual taxable profits are different, such differences
may impact the carrying value of such deferred tax assets in future periods.
Goodwill
Goodwill is tested at least annually for impairment in accordance with the accounting policy set out above. The recoverable amount
of cash generating units is determined based on value in use calculations. These calculations require the use of estimates including
projected future cash flows (see note 11).
Property, plant and equipment and intangible assets
Property, plant and equipment and intangibles are reviewed for impairment if events or circumstances indicate that the carrying
value may not be recoverable. When an impairment review is carried out, the recoverable value is determined based on value in use
calculations which require estimates to be made of future cash flows.
Residual value commitments
The Group has residual value commitments on certain leased vehicles. These commitments are an estimate of future market value
at a specified point in time. The actual market value of vehicles bought back may vary from the committed purchase value.
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Financial statements
Notes to the accounts
1 Segmental analysis
The Group has determined that the chief operating decision maker is the Executive Committee.
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 that prior to the global downturn, had entered the growth phase of their development cycle and are expected
to return to that growth phase in the medium term. These currently comprise China, the Balkans, the Baltics, Poland, South America
and Africa.
The Group’s reported segments are based on the location of the Group’s assets. Revenue earned from sales is disclosed by origin
and is not materially different from revenue by destination.
Transfer prices between segments are set on an arm’s length basis.
Distribution comprises Vertically Integrated Retail businesses as well as Financial Services and other businesses.
Australasia
£m
Europe
£m
North Asia
£m
South Asia
£m
801.6
(180.2)
621.4
766.7
(108.2)
658.5
433.4
(0.1)
433.3
42.7
(0.3)
42.4
–
42.4
24.3
(2.7)
21.6
(1.3)
20.3
42.0
(0.1)
41.9
–
41.9
296.2
–
296.2
26.0
–
26.0
–
26.0
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Distribution
Total
Distribution
£m
36.1
–
36.1
6.9
–
6.9
0.1
7.0
336.0
(24.1)
311.9
2,670.0
(312.6)
2,357.4
30.1
(0.3)
29.8
–
29.8
172.0
(3.4)
168.6
(1.2)
167.4
2011
Revenue
Total revenue
Inter-segment revenue
Revenue from third parties
Results
Segment result
Operating exceptional items
Operating profit after exceptional items
Share of (loss) / profit after tax of joint
ventures and associates
Profit before finance and tax
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
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Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
1 Segmental analysis continued
2011
Revenue
Total revenue
Inter-segment revenue
Revenue from third parties
Results
Segment result
Operating exceptional items
Operating profit after exceptional items
Share of (loss) / profit after tax of joint
ventures and associates
Profit before finance and tax
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Australasia
£m
Europe
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Retail
Total
Retail
£m
Total pre
Central
£m
Central
£m
Total
£m
389.6
–
389.6
147.5
–
147.5
2,023.2
–
2,023.2
908.6
–
908.6
3,468.9
–
3,468.9
6,138.9
(312.6)
5,826.3
–
–
–
6,138.9
(312.6)
5,826.3
12.6
(0.4)
12.2
–
12.2
(0.3)
–
(0.3)
–
(0.3)
53.5
(7.9)
45.6
(0.4)
45.2
24.0
(0.1)
23.9
(1.4)
22.5
89.8
(8.4)
81.4
(1.8)
79.6
261.8
(11.8)
250.0
(3.0)
247.0
(17.4)
(1.6)
(19.0)
–
(19.0)
244.4
(13.4)
231.0
(3.0)
228.0
57.3
(81.9)
203.4
(55.6)
147.8
Central costs include a post-retirement settlement gain of £6.1m.
Net finance costs of £24.6m are not allocated to individual segments and include an exceptional charge of £10.9m relating to the
impairment losses on Greek Government Bonds (see note 2).
B
U
S
I
N
E
S
S
R
E
V
I
E
W
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
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75
Financial statements
Notes to the accounts continued
1 Segmental analysis continued
2011
Segment assets and liabilities
Segment assets
Other current assets
Non-current assets
Segment liabilities
Other liabilities
Net assets
Australasia
£m
Europe
£m
North Asia
£m
South Asia
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Distribution
Total
Distribution
£m
110.4
142.5
94.6
50.1
27.1
103.7
528.4
(237.8)
(182.8)
(67.0)
(37.6)
(48.4)
(78.3)
(651.9)
Segment assets include net inventory, trade receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
2011
Other segment items
Capital expenditure:
– Property, plant and equipment
– Interest in leased vehicles
– Intangible assets
Depreciation:
– Property, plant and equipment
– Interest in leased vehicles
Amortisation of intangible assets
Impairment of intangible assets
Net provisions charged / (released)
to the consolidated income statement
Australasia
£m
Europe
£m
North Asia
£m
South Asia
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Distribution
Total
Distribution
£m
1.4
7.3
1.1
3.0
1.6
0.3
–
7.2
0.7
3.5
0.4
1.2
3.2
0.1
–
17.9
3.1
2.8
0.2
1.5
1.6
–
–
1.6
2.6
–
0.9
2.2
–
–
–
4.2
0.3
23.7
0.1
0.1
8.6
0.2
–
(1.1)
6.4
0.9
–
2.2
1.1
0.1
–
1.1
14.5
38.2
2.7
10.2
16.1
0.7
–
30.9
Net provisions include inventory, trade receivables impairment and other liability provisions.
76
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
1 Segmental analysis continued
2011
Segment assets and liabilities
Segment assets
Other current assets
Non-current assets
Segment liabilities
Other liabilities
Net assets
Australasia
£m
Europe
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Retail
Total
Retail
£m
Total
£m
61.3
23.9
394.8
184.7
664.7
1,193.1
(62.7)
(9.5)
(405.7)
(101.2)
(579.1)
705.1
1,315.8
(1,231.0)
(625.5)
1,357.5
Segment assets include net inventory, trade receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
2011
Other segment items
Capital expenditure:
– Property, plant and equipment
– Interest in leased vehicles
– Intangible assets
Depreciation:
– Property, plant and equipment
– Interest in leased vehicles
Amortisation of intangible assets
Impairment of intangible assets
Net provisions charged / (released)
to the consolidated income statement
Australasia
£m
Europe
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Total
Retail
£m
Total pre
Central
£m
Central
£m
Total
£m
Retail
1.2
–
–
0.6
–
–
–
3.9
0.4
0.4
–
1.0
0.1
–
–
1.0
22.0
–
3.3
9.4
–
2.3
7.1
21.6
42.6
0.3
1.8
7.3
0.1
1.3
–
0.8
66.2
0.7
5.1
18.3
0.2
3.6
7.1
80.7
38.9
7.8
28.5
16.3
4.3
7.1
27.3
58.2
0.5
–
5.3
0.5
–
0.2
–
–
81.2
38.9
13.1
29.0
16.3
4.5
7.1
58.2
Net provisions include inventory, trade receivables impairment and other liability provisions.
B
U
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I
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E
S
S
R
E
V
I
E
W
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
www.inchcape.com
77
Financial statements
Notes to the accounts continued
Australasia
£m
Europe
£m
North Asia
£m
South Asia
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Distribution
Total
Distribution
£m
846.5
(189.1)
657.4
809.0
(107.7)
701.3
47.9
(0.3)
47.6
–
47.6
26.9
(3.8)
23.1
(1.3)
21.8
430.6
–
430.6
34.0
–
34.0
–
34.0
371.8
–
371.8
36.1
(0.9)
35.2
–
35.2
36.9
–
36.9
6.5
–
6.5
–
6.5
286.9
(29.0)
257.9
2,781.7
(325.8)
2,455.9
19.1
(2.9)
16.2
–
16.2
170.5
(7.9)
162.6
(1.3)
161.3
1 Segmental analysis continued
2010
Revenue
Total revenue
Inter-segment revenue
Revenue from third parties
Results
Segment result
Exceptional items
Operating profit after exceptional items
Share of (loss) / profit after tax of joint
ventures and associates
Profit before finance and tax
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
The segment result for Distribution includes a profit of £7.3m related to the sale of a property in Australasia and an impairment charge
of £7.5m for land in Russia and Emerging Markets.
78
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
1 Segmental analysis continued
2010
Revenue
Total revenue
Inter-segment revenue
Revenue from third parties
Results
Segment result
Exceptional items
Operating profit after exceptional items
Share of (loss) / profit after tax of joint
ventures and associates
Profit before finance and tax
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Australasia
£m
Europe
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Total
Retail
£m
Total pre
Central
£m
Central
£m
Total
£m
Retail
372.9
–
372.9
169.6
–
169.6
2,088.9
–
2,088.9
798.1
–
798.1
3,429.5
–
3,429.5
6,211.2
(325.8)
5,885.4
–
–
–
6,211.2
(325.8)
5,885.4
14.6
(3.8)
10.8
–
10.8
0.9
(0.9)
–
–
–
49.4
(8.4)
41.0
0.2
41.2
12.7
(0.8)
11.9
(0.6)
11.3
77.6
(13.9)
63.7
(0.4)
63.3
248.1
(21.8)
226.3
(1.7)
224.6
(22.6)
(0.1)
(22.7)
–
(22.7)
225.5
(21.9)
203.6
(1.7)
201.9
58.6
(68.4)
192.1
(59.1)
133.0
Net finance costs of £9.8m are not allocated to individual segments.
B
U
S
I
N
E
S
S
R
E
V
I
E
W
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
www.inchcape.com
79
Financial statements
Notes to the accounts continued
1 Segmental analysis continued
2010
Segment assets and liabilities
Segment assets
Other current assets
Non-current assets
Segment liabilities
Other liabilities
Net assets
Australasia
£m
Europe
£m
North Asia
£m
South Asia
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Distribution
Total
Distribution
£m
126.1
163.8
78.2
56.7
22.6
80.9
528.3
(248.9)
(180.5)
(60.2)
(36.8)
(48.7)
(72.0)
(647.1)
Segment assets include net inventory, trade receivables and derivative assets. Segment liabilities include payables, provisions
and derivative liabilities.
2010
Other segment items
Capital expenditure:
– Property, plant and equipment
– Interest in leased vehicles
– Intangible assets
Depreciation:
– Property, plant and equipment
– Interest in leased vehicles
Amortisation of intangible assets
Impairment of goodwill
Impairment of property, plant and equipment
Net provisions charged / (released) to the
consolidated income statement
Australasia
£m
Europe
£m
North Asia
£m
South Asia
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Distribution
Total
Distribution
£m
1.4
10.5
0.2
2.9
0.9
0.2
–
–
8.5
0.5
6.6
0.4
1.2
4.6
0.5
–
–
18.5
0.8
2.8
–
1.4
1.8
–
–
–
4.8
3.3
–
–
2.0
–
–
–
–
3.6
0.1
14.9
0.2
0.1
10.8
0.3
–
–
(1.1)
2.5
1.0
–
2.6
2.3
0.1
–
7.5
1.6
8.6
35.8
0.8
10.2
20.4
1.1
–
7.5
35.9
Net provisions include inventory, trade receivables impairment and other liability provisions.
80
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
1 Segmental analysis continued
2010
Segment assets and liabilities
Segment assets
Other current assets
Non-current assets
Segment liabilities
Other liabilities
Net assets
Australasia
£m
Europe
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Retail
Total
Retail
£m
Total
£m
46.3
20.2
381.2
150.1
597.8
1,126.1
(48.0)
(10.7)
(378.1)
(99.5)
(536.3)
693.4
1,282.4
(1,183.4)
(629.2)
1,289.3
Segment assets include net inventory, trade receivables and derivative assets. Segment liabilities include payables, provisions
and derivative liabilities.
2010
Other segment items
Capital expenditure:
– Property, plant and equipment
– Interest in leased vehicles
– Intangible assets
Depreciation:
– Property, plant and equipment
– Interest in leased vehicles
Amortisation of intangible assets
Impairment of goodwill
Impairment of property, plant and equipment
Net provisions charged / (released) to the
consolidated income statement
Australasia
£m
Europe
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Total
Retail
£m
Total pre
Central
£m
Central
£m
Total
£m
Retail
1.2
–
–
0.6
–
–
3.0
–
4.3
0.6
0.3
–
1.2
0.2
–
–
–
1.7
10.7
–
3.1
9.4
–
3.3
2.3
5.0
13.6
1.2
1.5
6.0
0.2
0.4
0.2
0.2
26.1
1.5
4.6
17.2
0.4
3.7
5.5
5.2
34.7
37.3
5.4
27.4
20.8
4.8
5.5
12.7
0.4
–
3.0
0.4
–
0.2
–
–
35.1
37.3
8.4
27.8
20.8
5.0
5.5
12.7
20.4
–
26.4
62.3
(3.5)
58.8
Net provisions include inventory, trade receivables impairment and other liability provisions.
B
U
S
I
N
E
S
S
R
E
V
I
E
W
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
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M
A
T
I
O
N
www.inchcape.com
81
Financial statements
Notes to the accounts continued
2 Exceptional items
Restructuring costs
Goodwill impairment (note 11)
Impairment of property, plant and equipment
Operating exceptional items
Impairment of available for sale financial assets (note 7)
Finance exceptional items
Total exceptional items before tax
Exceptional tax credit
Total exceptional items
2011
£m
(13.4)
–
–
(13.4)
(10.9)
(10.9)
(24.3)
3.6
(20.7)
2010
£m
(12.4)
(5.5)
(4.0)
(21.9)
–
–
(21.9)
3.1
(18.8)
The restructuring costs of £13.4m represent the cost of a global restructuring exercise conducted in the fourth quarter of 2011. The
restructuring was carried out to ensure that we continue to maintain an organisational structure and cost base that reflect trading
conditions across the Group, as well as improving the cost effectiveness of our global IT strategy. Included within the restructuring
costs is a £7.1m impairment of computer software costs in the UK.
The £10.9m charge on the impairment of available for sale financial assets relates to the impairment losses on Greek Government
Bonds to reflect current market conditions.
The exceptional tax credit of £3.6m represents relief on restructuring costs and impairment of software costs. No relief is available for
the impairment of available for sale financial assets.
In 2010, the charge for restructuring costs of £12.4m represented the cost of headcount reduction across the Group and the closure
of less profitable sites in the UK, Belgium, South America and Australia. Impairment charges for goodwill (£5.5m) and property, plant
and equipment (£4.0m) related to the closure of the same sites.
The 2010 exceptional tax credit of £3.1m represented relief on restructuring costs. In 2010, no relief was available for the impairment
of goodwill and property, plant and equipment.
82
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
3 Revenue and expenses
a. Revenue
An analysis of the Group’s revenue for the year is as follows:
Sale of goods
Provision of services
b. Analysis of net operating expenses
Distribution costs
Administrative expenses
Other operating (income) / expense
2011
£m
5,317.1
509.2
5,826.3
2010
£m
5,274.6
610.8
5,885.4
Net operating
expenses
before
exceptional
items
2011
£m
329.7
291.0
(9.0)
611.7
Exceptional
items
2011
£m
0.4
13.0
–
13.4
Net operating
expenses
before
exceptional
items
2010
£m
Net
operating
expenses
2011
£m
330.1
304.0
(9.0)
625.1
358.8
291.0
5.6
655.4
Exceptional
items
2010
£m
3.0
14.9
4.0
21.9
Net
operating
expenses
2010
£m
361.8
305.9
9.6
677.3
Other operating (income) / expense includes a £6.1m gain in relation to post-retirement settlements (2010 – £12.7m property
impairment charge).
c. Profit before tax is stated after the following charges / (credits):
Depreciation of tangible fixed assets:
– Property, plant and equipment
– Interest in leased vehicles
Amortisation of intangible assets
Impairment of intangible assets
Impairment of goodwill
Impairment of property, plant and equipment
Bad debt provision
Profit on sale of property, plant and equipment
Operating lease rentals
2011
£m
29.0
16.3
4.5
7.1
–
–
1.2
(0.1)
48.3
2010
£m
27.8
20.8
5.0
–
5.5
12.7
2.0
(7.5)
45.7
www.inchcape.com
83
B
U
S
I
N
E
S
S
R
E
V
I
E
W
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
R
M
A
T
I
O
N
Financial statements
Notes to the accounts continued
3 Revenue and expenses continued
d. Auditors’ remuneration
During the year the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditors at costs
as detailed below:
Audit services:
– Fees payable for the audit of the parent Company and the consolidated Financial statements
Fees payable to the Company’s auditors and its associates for other services:
– The audit of the Company’s subsidiaries pursuant to legislation
– Other services supplied pursuant to such legislation
– Services relating to taxation
– All other services
Total fees payable to PricewaterhouseCoopers LLP
Audit fees – firms other than PricewaterhouseCoopers LLP
e. Staff costs
Wages and salaries
Social security costs
Other pension costs
Share-based payment charge
2011
£m
2010
£m
0.4
1.6
0.1
1.1
0.2
3.0
3.4
0.2
0.4
1.6
0.1
1.3
0.2
3.2
3.6
0.1
2011
£m
370.5
43.2
12.2
7.3
433.2
2010
£m
384.3
40.4
12.1
6.9
443.7
Information on Directors’ emoluments and interests which forms part of these audited consolidated Financial statements, is given
in the Directors’ report on remuneration which can be found on pages 50 – 57 of this document. Information on compensation
of key management personnel is set out in note 31c.
f. Average number of employees
Australasia
Europe
North Asia
South Asia
United Kingdom
Russia and Emerging Markets
Total operational
Central
2011
Number
455
321
1,398
842
166
1,346
4,528
Distribution
2010
Number
493
351
1,377
929
167
1,315
4,632
2011
Number
679
391
–
–
4,819
3,290
9,179
Retail
2010
Number
660
414
–
–
4,939
3,275
9,288
2011
Number
1,134
712
1,398
842
4,985
4,636
13,707
147
13,854
Total
2010
Number
1,153
765
1,377
929
5,106
4,590
13,920
148
14,068
84
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
4 Share-based payments
The terms and conditions of the Group’s share-based payment plans are detailed in the Directors’ report on remuneration.
The charge arising from share-based payment transactions during the year is £7.3m (2010 – £6.9m), of which £7.3m
(2010 – £6.5m) is equity-settled and £nil (2010 – £0.4m) is cash-settled.
The Other Share Plans disclosures below include other share-based incentive plans for senior executives and employees.
The following table sets out the movements in the number of share options and awards during the year:
2011
Outstanding at 1 January
Granted
Exercised
Lapsed
Outstanding at 31 December
Exercisable at 31 December
2010
Outstanding at 1 January
Granted
Exercised
Lapsed
Outstanding at 13 May
Outstanding following Share Consolidation
Granted
Exercised
Lapsed
Outstanding at 31 December
Exercisable at 31 December
Weighted average
exercise price*
£3.01
£2.43
£2.06
£5.29
£2.52
£4.94
Performance
Share Plan
–
2,670,797
(930)
(116,214)
2,553,653
Executive Share
Option Plan
11,711,713
–
(229,198)
(2,055,990)
9,426,525
Save As You
Earn Plan
3,721,983
758,105
(52,690)
(690,910)
3,736,488
–
1,084,758
97,598
Weighted average
exercise price*
Performance
Share Plan
Executive Share
Option Plan
£0.35
£0.31
£0.20
£0.59
£0.31
£3.03
£2.06
£1.93
£2.75
£3.01
£5.04
–
–
–
–
–
–
–
–
–
–
–
129,459,199
26,185,622
(179,960)
(19,653,492)
135,811,369
13,580,518
20,532
(101,500)
(1,787,837)
11,711,713
1,204,957
Save As You
Earn Plan
35,716,267
–
–
(2,921,677)
32,794,590
3,277,730
1,293,370
(1,304)
(847,813)
3,721,983
63,945
Other Share Plans
1,101,278
936,460
(153,347)
(574,814)
1,309,577
–
Other Share Plans
12,588,698
–
(2,110,760)
(1,160,715)
9,317,223
931,722
210,897
–
(41,341)
1,101,278
–
* The weighted average exercise price excludes awards made under the Performance Share Plan and Other Share Plans as there is no exercise price attached to these
share awards.
Included in the table above are 18,171 (2010 – 60,021) share options outstanding at 31 December granted before 7 November 2002
which have been excluded from the share-based payments charge in accordance with the IFRS 2 transitional provisions.
The weighted average remaining contractual life for the share options outstanding at 31 December 2011 is 5.0 years (2010 – 6.3 years).
The range of exercise prices for options outstanding at the end of the year was £1.93 to £7.43 (2010 – £1.08 to £7.43). See note 24
for further details.
B
U
S
I
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E
S
S
R
E
V
I
E
W
G
O
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E
R
N
A
N
C
E
F
I
N
A
N
C
A
L
I
S
T
A
T
E
M
E
N
T
S
S
H
A
R
E
H
O
L
D
E
R
I
N
F
O
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Financial statements
Notes to the accounts continued
4 Share-based payments continued
The fair value of equity-settled share options granted is estimated as at the date of grant using a Black-Scholes option pricing model
(2010 – binomial model), taking into account the terms and conditions upon which the options were granted. The following table
lists the main inputs to the model for shares granted during the years ended 31 December 2011 and 31 December 2010:
Weighted average share
price at grant date
Weighted average
exercise price
Vesting period
Expected volatility
Expected life of option
Weighted average risk
free rate
Expected dividend yield
Weighted average fair
value per option
Performance Share Plan
Executive Share Option Plan
Save As You Earn Plan
Other Share Plans
2011
2010
2011
2010
2011
2010
2011
2010
£3.84
n/a
n/a
3.0 years
n/a
3.0 years
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
£3.84
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
£3.12
£2.96
£2.56
£3.74
£3.08
£3.12
3.0 years
50.0%
3.5 years
£2.43
3.0 years
48.5%
3.2 years
£2.05
3.0 years
50.0%
3.2 years
n/a
3.0 years
n/a
3.0 years
n/a
3.0 years
n/a
3.0 years
1.8%
2.0%
1.0%
3.5%
0.9%
3.0%
n/a
n/a
n/a
n/a
£1.05
£0.99
£1.21
£3.74
£3.08
The expected life and volatility of the options are based upon historical data.
The social security contributions payable in connection with the grant of the share options are considered an integral part of the grant
itself and the charge will be treated as a cash-settled transaction.
86
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
5 Pensions and other post-retirements benefits
The Group operates a number of pension and post-retirement benefit schemes for its employees in a number of its subsidiaries.
The principal schemes are held in the UK and are final salary defined benefit pension schemes. Most of the schemes have assets
held in trust in separately administered funds although there are some minor unfunded arrangements relating to post-retirement
health and medical plans in respect of past employees. There are no material defined contribution schemes in the UK.
The majority of the overseas defined benefit schemes are final salary schemes which provide a lump sum on retirement, some of
which have assets held in trust in separately administered funds and others which are unfunded. The overseas defined contribution
schemes are principally linked to local statutory arrangements.
a. UK schemes
The UK has four main defined benefit schemes, namely the Inchcape Group (UK) Pension Scheme, the Inchcape Motors Pension
Scheme, the Inchcape Overseas Pension Scheme and the TKM Group Pension Scheme. These schemes are considered below:
Open schemes
Inchcape Group (UK) Pension Scheme
The latest triennial actuarial valuation for this scheme was carried out as at 31 March 2009 on a market related basis and determined
in accordance with the advice of independent professionally qualified actuaries based on the projected unit method. The majority of
the scheme’s liabilities are for pensioners and deferred pensioners, and the investment strategy is to hold a broadly balanced portfolio
of equities and gilts.
Inchcape Motors Pension Scheme
The latest triennial actuarial valuation for this scheme was carried out as at 5 April 2009 on a market related basis and determined in
accordance with the advice of independent professionally qualified actuaries based on the projected unit method. Whilst a majority
of the scheme’s members are pensioners and deferred pensioners, a sizeable portion of the membership is still accruing benefits and
the investment strategy reflects this with the majority of the assets invested in equities and bonds.
Inchcape Overseas Pension Scheme
This scheme is managed from Guernsey and is therefore reported in the United Kingdom segment in this note. The latest triennial
actuarial valuation for this scheme was carried out as at 31 March 2009 and determined in accordance with the advice of
independent professionally qualified actuaries based on the projected unit method. A significant majority of the scheme’s members
are pensioners and deferred pensioners and therefore the majority of the assets are invested in bonds.
Closed scheme
TKM Group Pension Scheme
The latest triennial actuarial valuation for this closed scheme was carried out at 5 April 2010 on a market related basis and
determined in accordance with the advice of independent professionally qualified actuaries based on the projected unit method.
The scheme has a prudent investment strategy and the majority of the assets are invested in bonds, cash or gilts. Approximately half
the members are pensioners and half are deferred pensioners and as such no further pension accrual arises.
b. Overseas schemes
There are a number of smaller defined benefit schemes overseas, the most significant being the Inchcape Motors Limited Retirement
Scheme in Hong Kong. In general these schemes offer a lump sum on retirement with no further obligation to the employee. These
schemes are typically subject to triennial valuations.
c. Defined contribution plans
The total expense recognised in the consolidated income statement is £5.0m (2010 – £4.8m). There are no outstanding contributions
to the defined contribution schemes at the year end (2010 – £nil).
d. Defined benefit plans
As the Group’s principal defined benefit schemes are in the UK, these have been reported separately to the overseas schemes.
For the purposes of reporting, actuarial updates have been obtained for the Group’s material schemes and these updates are
reflected in the amounts reported below.
The principal weighted average assumptions used by the actuaries were:
Rate of increase in salaries
Rate of increase in pensions
Discount rate
Rate of inflation:
– Retail price index
– Consumer price index
Expected return on plan assets
United Kingdom
Overseas
2011
%
4.5
3.0
4.7
3.0
2.3
5.2
2010
%
4.9
3.4
5.4
3.4
n/a
6.1
2011
%
4.9
–
2.7
0.4
n/a
7.0
2010
%
4.5
–
3.2
0.2
n/a
6.1
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87
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Financial statements
Notes to the accounts continued
5 Pensions and other post-retirements benefits continued
The rate of increase in healthcare cost is 5.2% (2010 – 6.0%) per annum.
Assumptions regarding future mortality experience are set based on published statistics and experience. For the UK schemes,
the average life expectancy of a pensioner retiring at age 65 is 22.9 years (2010 – 22.6 years) for current pensioners and 25.3 years
(2010 – 25.0 years) for current non pensioners. Most of the overseas schemes only offer a lump sum on retirement and therefore
mortality assumptions are not applicable.
The expected return on plan assets is based on the weighted average expected return on each type of asset (principally equities,
bonds and diversified growth funds). The overall expected return on plan assets is determined based on the expected real rates
of return on equities, expected yields on bonds and expected returns on the diversified growth funds applicable to the period over
which the obligation is to be settled.
The asset / (liability) recognised in the consolidated statement of financial position is determined as follows:
Present value of funded obligations
Fair value of plan assets
Surplus / (deficit) in funded obligations
Irrecoverable element of pension surplus
Net (deficit) / surplus in funded obligations
Present value of unfunded obligations
The net pension asset / (liability) is analysed as follows:
Schemes in surplus
Schemes in deficit
United Kingdom
Overseas
2011
£m
(837.3)
906.5
69.2
(72.9)
(3.7)
(1.2)
(4.9)
2010
£m
(824.8)
841.6
16.8
(36.2)
(19.4)
(1.3)
(20.7)
47.0
(51.9)
(4.9)
21.2
(41.9)
(20.7)
2011
£m
(44.0)
35.9
(8.1)
(0.4)
(8.5)
(1.5)
(10.0)
0.3
(10.3)
(10.0)
2010
£m
(37.1)
38.1
1.0
(0.4)
0.6
(2.1)
(1.5)
2011
£m
(881.3)
942.4
61.1
(73.3)
(12.2)
(2.7)
(14.9)
0.8
(2.3)
(1.5)
47.3
(62.2)
(14.9)
The amounts recognised in the consolidated income statement are as follows:
Current service cost
Interest expense on plan liabilities
Expected return on plan assets
Plan settlements
United Kingdom
Overseas
2011
£m
(5.1)
(42.5)
42.8
6.1
1.3
2010
£m
(5.2)
(45.2)
44.5
–
(5.9)
2011
£m
(2.1)
(1.2)
2.3
–
(1.0)
2010
£m
(2.1)
(1.0)
2.4
–
(0.7)
The actual gain on plan assets amounts to £94.1m (2010 – £119.7m).
The totals in the previous table are analysed as follows:
Cost of sales
Distribution costs
Administrative expenses
2011
£m
(0.4)
2010
£m
(0.5)
2011
£m
(1.1)
2010
£m
(1.5)
2011
£m
(5.7)
2010
£m
(5.3)
Current service cost
Interest expense on plan liabilities
Expected return on plan assets
Plan settlements
2011
£m
(7.2)
(43.7)
45.1
6.1
0.3
2011
£m
(7.2)
(43.7)
45.1
6.1
0.3
Total
2010
£m
(861.9)
879.7
17.8
(36.6)
(18.8)
(3.4)
(22.2)
22.0
(44.2)
(22.2)
Total
2010
£m
(7.3)
(46.2)
46.9
–
(6.6)
Total
2010
£m
(7.3)
(46.2)
46.9
–
(6.6)
88
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
5 Pensions and other post-retirements benefits continued
The amounts recognised in the consolidated statement of comprehensive income are as follows:
Actuarial gains / (losses) on liabilities:
– Experience gains and losses
– Changes in assumptions
Actuarial gains / (losses) on assets:
– Experience gains and losses
Irrecoverable element of pension surplus
Analysis of the movement in the net asset / (liability):
United Kingdom
2011
£m
2010
£m
(0.4)
(25.5)
53.0
(36.7)
(9.6)
5.2
(12.0)
73.4
(36.2)
30.4
2011
£m
(0.6)
(4.5)
(4.0)
–
(9.1)
Overseas
2010
£m
(0.9)
(0.2)
(0.6)
(0.1)
(1.8)
United Kingdom
Overseas
At 1 January
Amount recognised in the consolidated income statement
Contributions by employer
Actuarial gains / (losses) recognised in the year
Irrecoverable surplus recognised in the year
Effect of foreign exchange rates
At 31 December
2011
£m
(20.7)
1.3
24.1
27.1
(36.7)
–
(4.9)
2010
£m
(73.6)
(5.9)
28.4
66.6
(36.2)
–
(20.7)
Changes in the present value of the defined benefit obligation are as follows:
United Kingdom
At 1 January
Current service cost
Interest expense on plan liabilities
Actuarial gains / (losses):
– Experience gains and losses
– Changes in assumptions
Contributions by employees
Benefits paid
Plan settlements
Effect of foreign exchange rate changes
At 31 December
2011
£m
(826.1)
(5.1)
(42.5)
(0.4)
(25.5)
(0.3)
39.6
21.8
–
(838.5)
2010
£m
(809.7)
(5.2)
(45.2)
5.2
(12.0)
(0.6)
41.4
–
–
(826.1)
2011
£m
(1.5)
(1.0)
1.9
(9.1)
–
(0.3)
(10.0)
2011
£m
(39.2)
(2.1)
(1.2)
(0.6)
(4.5)
(0.1)
2.6
–
(0.4)
(45.5)
2010
£m
(1.2)
(0.7)
1.8
(1.7)
(0.1)
0.4
(1.5)
Overseas
2010
£m
(35.6)
(2.1)
(1.0)
(0.9)
(0.2)
(0.1)
2.0
–
(1.3)
(39.2)
2011
£m
(1.0)
(30.0)
49.0
(36.7)
(18.7)
2011
£m
(22.2)
0.3
26.0
18.0
(36.7)
(0.3)
(14.9)
2011
£m
(865.3)
(7.2)
(43.7)
(1.0)
(30.0)
(0.4)
42.2
21.8
(0.4)
(884.0)
Total
2010
£m
4.3
(12.2)
72.8
(36.3)
28.6
Total
2010
£m
(74.8)
(6.6)
30.2
64.9
(36.3)
0.4
(22.2)
Total
2010
£m
(845.3)
(7.3)
(46.2)
4.3
(12.2)
(0.7)
43.4
–
(1.3)
(865.3)
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89
Financial statements
Notes to the accounts continued
5 Pensions and other post-retirements benefits continued
Changes in the fair value of the defined benefit asset are as follows:
At 1 January
Expected return on plan assets
Actuarial gains / (losses):
– Experience gains and losses
Contributions by employer
Contributions by employees
Benefits paid
Plan settlements
Effect of foreign exchange rate changes
At 31 December
Irrecoverable element of pension surplus
Revised value at 31 December
United Kingdom
Overseas
2011
£m
841.6
42.8
53.0
24.1
0.3
(39.6)
(15.7)
–
906.5
(72.9)
833.6
2010
£m
736.1
44.5
73.4
28.4
0.6
(41.4)
–
–
841.6
(36.2)
805.4
2011
£m
38.1
2.3
(4.0)
1.9
0.1
(2.6)
–
0.1
35.9
(0.4)
35.5
2010
£m
34.7
2.4
(0.6)
1.8
0.1
(2.0)
–
1.7
38.1
(0.4)
37.7
2011
£m
879.7
45.1
49.0
26.0
0.4
(42.2)
(15.7)
0.1
942.4
(73.3)
869.1
At the end of the reporting period, the percentage of the plan assets by category had been invested as follows:
Equities
Corporate bonds
Government bonds
Diversified growth funds
Other
United Kingdom
Overseas
2011
2010
2011
2010
2011
8.4%
32.3%
26.3%
24.5%
8.5%
100.0%
10.7%
27.4%
29.3%
23.9%
8.7%
100.0%
65.5%
25.5%
–
–
9.0%
100.0%
67.7%
23.0%
–
–
9.3%
100.0%
10.6%
32.0%
25.3%
23.5%
8.6%
100.0%
The history of the plans for the current and previous years is as follows:
Present value of defined benefit obligation
Fair value of plan assets
Surplus / (deficit)
Irrecoverable element of pension surplus
Revised (deficit) / surplus
Experience adjustments on plan liabilities
Experience adjustments on plan assets
2011
£m
(884.0)
942.4
58.4
(73.3)
(14.9)
(1.0)
49.0
2010
£m
(865.3)
879.7
14.4
(36.6)
(22.2)
4.3
72.8
2009
£m
(845.3)
770.8
(74.5)
(0.3)
(74.8)
5.2
4.3
2008
£m
(677.4)
727.3
49.9
(43.9)
6.0
16.7
(117.0)
Total
2010
£m
770.8
46.9
72.8
30.2
0.7
(43.4)
–
1.7
879.7
(36.6)
843.1
Total
2010
13.1%
27.2%
28.0%
22.9%
8.8%
100.0%
2007
£m
(770.5)
799.3
28.8
(0.3)
28.5
0.1
1.3
The cumulative actuarial gains and losses arising since 1 January 2004 recognised in shareholders’ equity amounted to a £139.0m
loss at 31 December 2011 (2010 – £120.3m loss).
The Group has agreed to pay approximately £28.2m to its defined benefit plans in 2012.
90
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
6 Finance income
Bank and other interest receivable
Expected return on post-retirement plan assets
Other finance income
Total finance income
7 Finance costs
Interest payable on bank borrowings
Interest payable on Private Placement
Interest payable on other borrowings
Fair value adjustment on Private Placement
Fair value gain on cross currency interest rate swaps
Stock holding interest
Interest expense on post-retirement plan liabilities
Other finance costs
Capitalised borrowing costs
Total finance costs before exceptional items
Exceptional items:
– Impairment of available for sale financial assets (note 2)
Total finance costs
2011
£m
5.6
45.1
6.6
57.3
2011
£m
2.0
3.9
0.3
18.5
(16.1)
13.6
43.7
5.8
(0.7)
71.0
10.9
81.9
2010
£m
4.5
46.9
7.2
58.6
2010
£m
2.8
3.7
0.6
22.2
(24.2)
13.2
46.2
5.0
(1.1)
68.4
–
68.4
The Group capitalisation rate used for general borrowing costs in accordance with IAS 23 was a weighted average rate for the year
of 2.0% (2010 – 2.0%).
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Financial statements
Notes to the accounts continued
8 Tax
Current tax:
– UK corporation tax
Overseas tax
Adjustments to prior year liabilities:
– UK
– Overseas
Current tax
Deferred tax (note 16)
Tax before exceptional tax
Exceptional tax – current tax
Exceptional tax – deferred tax
Exceptional tax (note 2)
Total tax charge
2011
£m
7.0
7.0
49.0
56.0
(0.3)
(0.9)
54.8
4.4
59.2
(1.0)
(2.6)
(3.6)
55.6
2010
£m
19.2
19.2
46.6
65.8
–
(0.2)
65.6
(3.4)
62.2
(2.5)
(0.6)
(3.1)
59.1
The effective tax rate for the year, before exceptional items, of 26% (2010 – 29%) is higher than the standard blended rate of tax of
23.8% (2010 – 23.6%) as explained below. The standard rate comprises the average statutory rates across the Group, weighted in
proportion to accounting profits.
Profit before tax
Profit before tax multiplied by the standard rate of tax of 23.8% (2010 – 23.6%)
Effects of:
– Amortisation and impairment
– Non-tax deductible items
– Unrecognised tax losses
– Overseas tax levies and austerity taxes
– Prior year items
– Withholding tax on overseas dividends
– Disallowed interest due to UK debt cap
– Other items
Total tax charge
2011
£m
203.4
48.4
2.9
4.5
(0.8)
2.1
(2.0)
–
–
0.5
55.6
2010
£m
192.1
45.4
5.0
3.1
(3.7)
5.6
0.9
1.1
1.1
0.6
59.1
92
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
9 Earnings per share
Profit for the year
Non controlling interests
Basic earnings
Exceptional items
Adjusted earnings
Basic earnings per share
Diluted earnings per share
Basic Adjusted earnings per share
Diluted Adjusted earnings per share
2011
£m
147.8
(5.6)
142.2
20.7
162.9
31.0p
30.5p
35.5p
34.9p
2010
£m
133.0
(5.1)
127.9
18.8
146.7
27.9p
27.6p
32.0p
31.7p
2010
number
2011
number
Weighted average number of fully paid ordinary shares in issue during the year
Weighted average number of fully paid ordinary shares in issue during the year:
– Held by the ESOP Trust
– Repurchased as part of the share buy back programme
Weighted average number of fully paid ordinary shares for the purposes of basic EPS
Dilutive effect of potential ordinary shares
Adjusted weighted average number of fully paid ordinary shares in issue during the
year for the purposes of diluted EPS
463,324,543
463,111,916
(1,372,654)
(2,687,560)
459,264,329
7,193,499
(1,365,559)
(2,687,560)
459,058,797
3,800,689
466,457,828
462,859,486
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 other share-based 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 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 Adjusted earnings per share is calculated on the same basis as the basic Adjusted earnings per share with a further
adjustment to the weighted average number of fully paid ordinary shares to reflect the effect of all dilutive potential ordinary shares.
Dilutive potential ordinary shares comprise share options and other share-based awards.
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Financial statements
Notes to the accounts continued
10 Dividends
The following dividends were paid by the Group:
Interim dividend for the six months ended 30 June 2011 of 3.6p per share (2010 – nil per share)
Final dividend for the year ended 31 December 2010 of 6.6p per share (2009 – nil per share)
2011
£m
16.5
30.3
46.8
2010
£m
–
–
–
A final proposed dividend for the year ending 31 December 2011 of 7.4p per share amounting to £34.1m is subject to approval by
shareholders at the Annual General Meeting and has not been included as a liability as at 31 December 2011.
11 Intangible assets
Cost
At 1 January 2010
Additions
Disposals
Effect of foreign exchange rate changes
At 1 January 2011
Businesses sold
Additions
Retirement of fully amortised assets not in use
Effect of foreign exchange rate changes
At 31 December 2011
Accumulated amortisation and impairment
At 1 January 2010
Amortisation charge for the year
Impairment charge for the year
Disposals
Effect of foreign exchange rate changes
At 1 January 2011
Businesses sold
Amortisation charge for the year
Impairment charge for the year
Retirement of fully amortised assets not in use
Effect of foreign exchange rate changes
At 31 December 2011
Net book value at 31 December 2011
Net book value at 31 December 2010
Goodwill
£m
Computer
software
£m
Other
intangible
assets
£m
571.2
–
–
5.5
576.7
(2.3)
0.2
–
(10.6)
564.0
(61.2)
–
(5.5)
–
2.1
(64.6)
2.3
–
–
–
0.6
(61.7)
502.3
512.1
64.1
8.4
(4.4)
0.2
68.3
–
13.1
(3.9)
(0.9)
76.6
(28.5)
(5.0)
–
4.4
(0.1)
(29.2)
–
(4.5)
(7.1)
3.9
0.6
(36.3)
40.3
39.1
7.0
–
–
0.1
7.1
–
–
(7.1)
–
–
(7.0)
–
–
–
(0.1)
(7.1)
–
–
–
7.1
–
–
–
–
Total
£m
642.3
8.4
(4.4)
5.8
652.1
(2.3)
13.3
(11.0)
(11.5)
640.6
(96.7)
(5.0)
(5.5)
4.4
1.9
(100.9)
2.3
(4.5)
(7.1)
11.0
1.2
(98.0)
542.6
551.2
As at 31 December 2011, capitalised borrowing costs of £1.5m (2010 – £1.5m) were included within ‘computer software’, £nil of which
was capitalised in 2011 (2010 – £0.4m).
94
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
11 Intangible assets continued
a. Goodwill
Goodwill acquired in a business combination is allocated to the cash generating units (CGUs) that are expected to benefit from
that business combination. These are independent sources of income streams and represent the lowest level within the Group at
which the associated goodwill is monitored for management purposes. This may be at country, regional or brand level.
The carrying amount of goodwill has been allocated to the following operating segments:
United Kingdom
Russia and Emerging Markets
South Asia
Australasia
2011
£m
262.3
210.0
20.2
9.8
502.3
2010
£m
262.3
219.8
20.3
9.7
512.1
Goodwill is subject to impairment testing annually, or more frequently where there are indications that the goodwill may be impaired.
Impairment tests were performed for all CGUs during the year ended 31 December 2011.
The recoverable amounts of all CGUs were determined based on value in use calculations. These calculations use cash flow
projections based on five year financial forecasts prepared by management. The key assumptions for these forecasts are those
relating to revenue growth / decline, operating margins and the level of working capital required to support trading, which have
been based on past experience, recent trading and expectations of future changes in the relevant markets. They also reflect
expectations about continuing relationships with key brand partners.
Cash flows after the five year period are extrapolated at an estimated average long-term growth rate for each market. These growth
rates reflect the long-term growth prospects of the markets in which the CGUs operate. The growth rates used vary between 1% and
5% and are consistent with appropriate external sources for the relevant markets.
Cash flows are discounted back to present value using a risk adjusted discount rate. The discount rate assumptions are based on
an estimate of the Group’s weighted average cost of capital adjusted for a risk premium attributable to the relevant CGU. The pre-tax
discount rates used vary between 10% and 12%, and reflect long-term country risk.
The assumptions used with regards to pre-tax discount rates and long-term growth rates in those segments with material goodwill
balances were as follows:
United Kingdom
Russia and Emerging Markets
South Asia
Australasia
Discount rate
Long-term growth rate
10%
11% to 12%
10%
12%
2%
5%
1%
1%
Impairment
An impairment charge of £5.5m was recognised in the year ended 31 December 2010 in relation to sites in the UK and Australia
that were sold or closed.
Sensitivities
The Group’s value in use calculations are sensitive to a change in the key assumptions used, most notably the discount rates and
the long-term growth rates. With the exception of the Musa Motors group in Russia and the Group’s business in Lithuania, a
reasonably possible change in a key assumption will not cause a material impairment of goodwill in any of the other CGUs.
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Financial statements
Notes to the accounts continued
11 Intangible assets continued
The Group’s goodwill in the Russia and Emerging Markets segment at 31 December 2011 is allocated as follows:
Musa Motors group (Russia)
Inchcape Olimp (Russia)
Latvia
Lithuania
Other
At 31 December 2011
Cost
£m
123.5
62.3
44.2
21.8
2.6
254.4
Impairment
provision
£m
Net book
value
£m
–
–
(44.2)
–
(0.2)
(44.4)
123.5
62.3
–
21.8
2.4
210.0
The value in use calculations for the Musa Motors group currently exceed the carrying value by approximately 20%. A 0.5% increase
in the discount rate or a 0.5% reduction in the long-term growth rate would reduce the headroom available to approximately 10%
of the carrying value. The value in use calculations for the Group’s business in Lithuania currently exceed the carrying value by
approximately 5%. A 0.5% increase in the discount rate or a 0.5% reduction in the long-term growth rate would eliminate the
headroom available.
96
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
12 Property, plant and equipment
Cost
At 1 January 2010
Businesses sold
Additions
Disposals
Transferred to inventory
Reclassified within disposal group / assets held for sale (note 19)
Effect of foreign exchange rate changes
At 1 January 2011
Additions
Disposals
Transferred to inventory
Retirement of fully depreciated assets not in use
Reclassified to assets held for sale (note 19)
Effect of foreign exchange rate changes
At 31 December 2011
Accumulated depreciation and impairment
At 1 January 2010
Businesses sold
Depreciation charge for the year
Impairment losses recognised during the year
Disposals
Transferred to inventory
Reclassified within disposal group / assets held for sale (note 19)
Effect of foreign exchange rate changes
At 1 January 2011
Depreciation charge for the year
Disposals
Transferred to inventory
Retirement of fully depreciated assets not in use
Reclassified to assets held for sale (note 19)
Effect of foreign exchange rate changes
At 31 December 2011
Net book value at 31 December 2011
Net book value at 31 December 2010
Plant,
machinery
and
equipment
£m
Land and
buildings
£m
577.1
–
19.0
(10.2)
–
(4.0)
9.6
591.5
51.2
(3.1)
–
(0.6)
(3.6)
(7.7)
627.7
(77.9)
–
(10.8)
(12.7)
1.8
–
1.2
(1.8)
(100.2)
(10.4)
1.5
–
0.6
0.7
0.9
(106.9)
520.8
491.3
176.0
(0.2)
16.1
(8.1)
–
(2.5)
6.8
188.1
30.0
(9.9)
(2.4)
(18.3)
–
(2.3)
185.2
(112.5)
0.1
(17.0)
–
5.8
–
1.9
(4.1)
(125.8)
(18.6)
5.1
0.8
18.3
–
1.4
(118.8)
66.4
62.3
Subtotal
£m
753.1
(0.2)
35.1
(18.3)
–
(6.5)
16.4
779.6
81.2
(13.0)
(2.4)
(18.9)
(3.6)
(10.0)
812.9
(190.4)
0.1
(27.8)
(12.7)
7.6
–
3.1
(5.9)
(226.0)
(29.0)
6.6
0.8
18.9
0.7
2.3
(225.7)
587.2
553.6
Interest
in leased
vehicles
£m
141.3
–
37.3
–
(56.9)
–
(0.8)
120.9
38.9
(0.1)
(64.2)
–
–
(0.6)
94.9
(47.4)
–
(20.8)
–
–
25.4
–
0.6
(42.2)
(16.3)
0.1
23.6
–
–
0.3
(34.5)
60.4
78.7
Total
£m
894.4
(0.2)
72.4
(18.3)
(56.9)
(6.5)
15.6
900.5
120.1
(13.1)
(66.6)
(18.9)
(3.6)
(10.6)
907.8
(237.8)
0.1
(48.6)
(12.7)
7.6
25.4
3.1
(5.3)
(268.2)
(45.3)
6.7
24.4
18.9
0.7
2.6
(260.2)
647.6
632.3
Certain subsidiaries have an obligation to repurchase, at a guaranteed residual value, vehicles which have been legally sold for
leasing contracts. These assets are included in ‘interest in leased vehicles’ in the table above.
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Financial statements
Notes to the accounts continued
12 Property, plant and equipment continued
Assets held under finance leases have the following net book values:
Leasehold buildings
Plant, machinery and equipment
The book value of land and buildings is analysed between:
Freehold
Leasehold with over fifty years unexpired
Short leasehold
2011
£m
2.3
1.2
3.5
2011
£m
384.3
35.5
101.0
520.8
2010
£m
2.1
1.7
3.8
2010
£m
376.4
25.3
89.6
491.3
As at 31 December 2011, £4.0m (2010 – £3.6m) of capitalised borrowing costs were included within ‘land and buildings’, £0.7m
of which was capitalised in 2011 (2010 – £0.7m).
13 Investments in joint ventures and associates
At 1 January
Additions
Share of loss after tax of joint ventures and associates
Dividends received
Loan (repayment) / advances
Effect of foreign exchange rate changes
At 31 December
Group’s share of net assets of joint ventures and associates
Non-current assets
Current assets
Group’s share of gross assets
Current liabilities
Non-current liabilities
Group’s share of gross liabilities
Group’s share of net assets
Group’s share of results of joint ventures and associates
Revenue
Expenses
(Loss) / profit before tax
Tax
Share of (loss) / profit after tax of joint ventures
and associates
2011
£m
33.1
0.1
(3.0)
–
(0.3)
(0.4)
29.5
2011
£m
26.8
46.8
73.6
(35.3)
(8.8)
(44.1)
29.5
6.0
(8.6)
(2.6)
(0.4)
2010
£m
22.3
10.7
(1.7)
(1.5)
3.8
(0.5)
33.1
Total
2010
£m
21.3
64.5
85.8
(40.7)
(12.0)
(52.7)
33.1
9.5
(10.4)
(0.9)
(0.8)
Joint ventures
Associates
2011
£m
26.7
12.4
39.1
(11.0)
(6.9)
(17.9)
21.2
3.6
(6.6)
(3.0)
(0.3)
2010
£m
21.2
24.8
46.0
(16.8)
(4.2)
(21.0)
25.0
6.6
(7.9)
(1.3)
(0.3)
2011
£m
0.1
34.4
34.5
(24.3)
(1.9)
(26.2)
8.3
2.4
(2.0)
0.4
(0.1)
2010
£m
0.1
39.7
39.8
(23.9)
(7.8)
(31.7)
8.1
2.9
(2.5)
0.4
(0.5)
(3.3)
(1.6)
0.3
(0.1)
(3.0)
(1.7)
As at 31 December 2011, no guarantees were provided in respect of joint ventures and associates borrowings (2010 – £nil).
Principal joint ventures and associates are disclosed in note 31 of this report.
98
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
14 Available for sale financial assets
At 1 January
Disposals
Fair value movement transferred to shareholders’ equity
Effect of foreign exchange rate changes
At 31 December
Analysed as:
Non-current
Current
Assets held are analysed as follows:
Equity securities
Bonds
Other
2011
£m
14.1
(1.5)
(6.5)
–
6.1
2011
£m
5.6
0.5
6.1
2011
£m
0.2
3.7
2.2
6.1
2010
£m
18.5
(0.3)
(3.6)
(0.5)
14.1
2010
£m
12.4
1.7
14.1
2010
£m
0.2
11.3
2.6
14.1
During the year the Group recycled impairment losses relating to Greek Government Bonds of £10.9m (2010 – £nil) from equity
into the consolidated income statement. The impairment loss represents the difference between the fair value of the bonds at
31 December 2011 and historical cost. The charge has been recognised as exceptional finance costs (see note 7).
At 31 December 2011, the bonds attracted a weighted average fixed interest rate of 5.1% (2010 – 5.2%). The bonds are traded on
active markets with coupons generally paid on an annual basis.
Other includes debentures that are not subject to interest rates and do not have fixed maturity dates. They are valued by reference
to traded market values.
Available for sale financial assets, which are valued based on active markets’ prices, are reported under Level 1 in note 23 on
financial instruments.
Available for sale financial assets subject to fixed interest rates are aged by maturity date as follows:
2011
2010
Less than
1 year
£m
0.4
1.4
Between
1 and
2 years
£m
0.5
0.8
Between
2 and
3 years
£m
0.3
1.4
Between
3 and
4 years
£m
0.8
1.3
Between
4 and
5 years
£m
–
2.6
Greater
than 5
years
£m
1.7
3.8
Total
interest
bearing
£m
3.7
11.3
In certain jurisdictions management holds bonds to offset future vehicle warranty obligations. To meet this requirement, management
purchases and sells bonds regularly and does not usually hold the bonds to maturity. Accordingly, the maturity profile of the bonds is
not necessarily an indication of when management intends to realise the associated future cash flows.
The maximum exposure to credit risk at the reporting date is the fair value of the bonds classified as available for sale.
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Financial statements
Notes to the accounts continued
15 Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Net trade receivables
Amounts receivable from related parties
Prepayments and accrued income
Other receivables
Movements in the provision for impairment of receivables were as follows:
At 1 January
Charge for the year
Amounts written off
Unused amounts reversed
Effect of foreign exchange rate changes
At 31 December
At 31 December, the analysis of trade receivables is as follows:
2011
£m
152.7
(7.7)
145.0
0.4
70.2
35.9
251.5
Current
2010
£m
140.6
(7.8)
132.8
0.4
63.4
36.1
232.7
Non-current
2010
£m
0.6
–
0.6
–
13.9
14.3
28.8
2010
£m
(8.0)
(2.0)
1.0
1.1
0.1
(7.8)
2011
£m
0.2
–
0.2
–
14.3
19.9
34.4
2011
£m
(7.8)
(1.2)
0.6
0.5
0.2
(7.7)
2011
2010
Neither past
due nor
impaired
£m
111.0
104.9
Total
£m
152.9
141.2
Past due but not impaired
0 < 30 days
£m
30 – 90 days
£m
> 90 days
£m
Impaired
£m
19.3
16.3
8.2
5.8
6.7
6.4
7.7
7.8
Trade receivables are non-interest bearing and are generally on credit terms of 30 to 60 days.
Management considers the carrying amount of trade and other receivables to approximate to their fair value. Long-term receivables
have been discounted where the time value of money is considered to be material.
Concentration of credit risk with respect to trade receivables is very limited due to the Group’s broad customer base across a number
of geographic regions.
100
Inchcape plc ¦ Annual Report and Accounts 2011
16 Deferred tax
Net deferred tax asset / (liability)
At 1 January 2011
(Charged) / credited to the consolidated
income statement
Charged to shareholders’ equity
Effect of foreign exchange rate changes
At 31 December 2011
Analysed as:
Deferred tax assets
Deferred tax liabilities
Financial statements
Pension and
other post-
retirement
benefits
£m
Cash flow
hedges
£m
Share-based
payments
£m
Tax losses
£m
Accelerated
tax
depreciation
£m
3.5
1.9
3.1
(0.6)
(6.4)
–
(3.5)
(0.7)
(2.0)
–
(0.8)
0.2
(0.6)
–
2.7
7.3
1.2
–
–
8.5
6.5
2.1
–
–
8.6
Provisions
and other
timing
differences
£m
(9.0)
(4.0)
–
0.3
(12.7)
2011
£m
43.0
(40.2)
2.8
Total
£m
13.3
(1.8)
(9.0)
0.3
2.8
2010
£m
31.4
(18.1)
13.3
The Group has unrecognised deferred tax assets of £34m (2010 – £32m) relating to tax relief on trading losses. The asset represents
£144m (2010 – £136m) of losses at the standard blended rate of 23.8%. The asset is not recognised, as £144m (2010 – £132m)
relates to losses which exist within legal entities that are not forecast to generate taxable income with reasonable certainty in the
foreseeable future.
The deferred tax asset of £8.5m (2010 – £7.3m) relates to trading losses in Russia (£4.6m), Belgium (£2.9m) and other territories (£1.0m)
where future profits are anticipated with reasonable certainty.
The Group has unrecognised deferred tax assets of £33m (2010 – £36m) relating to capital losses. The asset represents £131m
(2010 – £134m) of losses at the UK standard rate of 25.0%. The key territory holding the losses is the UK.
No deferred tax is recognised on unremitted earnings of overseas subsidiaries and joint ventures. The vast majority of overseas
reserves can now be repatriated to the UK with no tax cost. There are a small number of territories that do not qualify for this treatment
but the annual profits for these territories are self assessed for UK current tax each year and hence no deferred tax accrues. If all
overseas earnings were repatriated with immediate effect, no tax charge (2010 – £nil) would be payable.
The £12.7m (2010 – £9.0m) deferred tax liability for ‘provisions and other timing differences’ consists of a £32.0m (2010 – £31.0m)
liability in respect of the net book value of property, plant and equipment that do not qualify for tax allowances and property
revaluations, and a £19.3m (2010 – £22.0m) deferred tax asset in respect of provisions and other temporary differences between
the accounts base and the tax base. The key temporary differences are £14.0m for Australia, £3.0m in the UK and £2.3m in other
territories (2010 – £16.0m for Australia, £3.0m for Greece and £3.0m in the UK).
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Financial statements
Notes to the accounts continued
17 Inventories
Raw materials and work in progress
Finished goods and merchandise
2011
£m
13.2
892.3
905.5
2010*
£m
14.2
829.9
844.1
* The basis of allocation has been revised and prior year figures have been amended accordingly (2010 balances previously reported: raw materials and work in progress - £3.6m;
finished goods and merchandise - £840.5m).
Vehicles held on consignment which are in substance assets of the Group amount to £124.5m (2010 – £109.4m). These have been
included in ‘finished goods and merchandise’ with the corresponding liability included within ‘trade and other payables’. Payment
becomes due when title passes to the Group, which is generally the earlier of six months from delivery or the date of sale.
An amount of £33.0m (2010 – £37.0m) has been provided against the gross cost of inventory at the year end. The cost of inventories
recognised as an expense in the year is £4,271.0m (2010 – £4,282.9m). The write down of inventory to net realisable value recognised
as an expense during the year was £34.6m (2010 – £33.5m). All of these items have been included within ‘cost of sales’ in the
consolidated income statement.
18 Cash and cash equivalents
Cash at bank and cash equivalents
Short-term deposits
2011
£m
385.6
173.3
558.9
2010
£m
376.5
185.1
561.6
Cash and cash equivalents are generally subject to floating interest rates determined by reference to short-term benchmark rates
applicable in the relevant currency or market (primarily LIBOR or the local equivalent). At 31 December 2011, the weighted average
floating rate was 1.5% (2010 – 0.8%).
£20.3m (2010 – £19.0m) of cash and cash equivalents are held in countries where prior approval is required to transfer funds abroad.
If the Group complies with the required procedures, such liquid funds are at its disposition within a reasonable period of time.
At 31 December 2011, short-term deposits have a weighted average period to maturity of 45 days (2010 – 44 days).
102
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
19 Assets held for sale and disposal group
Assets directly associated with the disposal group
Assets held for sale
Assets held for sale and disposal group
Liabilities directly associated with the disposal group
The assets and liabilities in the disposal group comprise the following:
Property, plant and equipment
Inventories
Trade and other receivables
Assets directly associated with the disposal group
Trade and other payables
Liabilities directly associated with the disposal group
2011
£m
2.8
2.9
5.7
–
2011
£m
2.8
–
–
2.8
–
–
2010
£m
23.4
–
23.4
(19.6)
2010
£m
3.4
16.6
3.4
23.4
(19.6)
(19.6)
Assets held for sale relate to surplus properties being actively marketed with a view to sale.
In October 2010, the Group announced its intention to dispose of certain non-core franchises. These businesses were actively
marketed with a view to sale and the corresponding assets and liabilities have been disclosed as a disposal group in the
consolidated statement of financial position in 2010. During the year, the majority of these assets and liabilities were disposed of.
20 Trade and other payables
Trade payables: payments received on account
vehicle funding agreements
other trade payables
Other taxation and social security payable
Accruals and deferred income
Amounts payable to related parties
Other payables
2011
£m
55.8
144.9
722.4
25.8
175.4
0.2
16.1
1,140.6
Current
2010
£m
79.7
109.7
638.2
16.7
202.1
0.2
34.3
1,080.9
Non-current
2010
£m
0.1
–
17.7
–
16.8
–
–
34.6
2011
£m
0.2
–
14.8
–
14.6
–
–
29.6
The Group entered into vehicle funding agreements whereby the Group is able to refinance interest bearing amounts due to suppliers
on similar terms. Amounts outstanding under these agreements are included within vehicle funding agreements above and interest
charged under this agreement is included within stock holding interest.
At 31 December 2011 current other trade payables includes £386.8m (2010 – £370.7m) of creditors where payment is made on
deferred terms and is subject to a weighted average floating interest rate of 2.0% (2010 – 1.9%). Interest charged on these balances
is included within stock holding interest.
Management considers the carrying amount of trade and other payables to approximate to their fair value. Long-term payables
have been discounted where the time value of money is considered to be material.
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Financial statements
Notes to the accounts continued
21 Provisions
At 1 January 2011
Charged to the consolidated income statement
Released to the consolidated income statement
Effect of unwinding of discount factor
Utilised during the year
Effect of foreign exchange rate changes
At 31 December 2011
Analysed as:
Current
Non-current
Product
warranty
£m
Vacant
leasehold
£m
Litigation
£m
61.8
24.4
(3.7)
1.1
(21.7)
(0.8)
61.1
8.9
0.6
(0.3)
0.5
(1.6)
–
8.1
12.2
1.5
(1.0)
–
(2.0)
(0.2)
10.5
Other
£m
12.0
3.4
(1.9)
–
(2.1)
(0.2)
11.2
2011
£m
36.8
54.1
90.9
Total
£m
94.9
29.9
(6.9)
1.6
(27.4)
(1.2)
90.9
2010
£m
36.1
58.8
94.9
Product warranty
Certain Group companies provide self-insured extended warranties beyond those provided by the manufacturer, as part of the
sale of a vehicle. These are not separable products. The warranty periods covered are up to six years and / or specific mileage limits.
Provision is made for the expected cost of labour and parts based on historical claims experience and expected future trends.
These assumptions are reviewed regularly.
Vacant leasehold
The Group is committed to certain leasehold premises for which it no longer has a commercial use. These are principally located in
the UK. Provision has been made to the extent of the estimated future net cost. This includes taking into account existing subtenant
arrangements. The expected utilisation period of these provisions is generally over the next 10 years.
Litigation
This includes a number of litigation provisions in respect of the exit of certain motors and non-motors businesses. The majority of these
relate to the exit of our former South American bottling business and shipping business. The cases are largely historical claims and are
generally expected to be concluded within the next three to five years.
Other
This category principally includes provisions relating to residual values on leased vehicles, which are expected to be settled within
three years.
104
Inchcape plc ¦ Annual Report and Accounts 2011
22 Borrowings
2011
Current
Bank overdrafts
Bank loans
Other loans
Finance leases
Non-current
Private Placement
Finance leases
Total borrowings
2010
Current
Bank overdrafts
Bank loans
Other loans
Finance leases
Non-current
Bank loans
Private Placement
Finance leases
Total borrowings
Financial statements
Floating rate
Weighted
average
effective
interest rate
%
0.1
7.1
0.1
3.3
0.3
2.2
–
2.2
1.8
Floating rate
Weighted
average
effective
interest rate
%
0.1
8.8
0.1
2.6
0.2
–
1.9
2.6
1.9
1.4
£m
97.5
2.3
0.3
0.2
100.3
335.8
–
335.8
436.1
£m
135.3
1.0
0.6
0.4
137.3
–
317.2
0.4
317.6
454.9
Fixed rate
Weighted
average
effective
interest rate
%
Total interest
bearing
£m
On which
no interest
is paid
£m
–
4.2
–
7.1
5.2
–
7.1
7.1
6.4
97.5
3.3
0.3
0.7
101.8
335.8
2.8
338.6
440.4
0.1
–
–
–
0.1
–
–
–
0.1
Fixed rate
Weighted
average
effective
interest rate
%
Total interest
bearing
£m
On which
no interest
is paid
£m
–
–
1.7
8.6
5.2
–
–
7.1
7.1
7.0
135.3
1.0
0.7
0.5
137.5
–
317.2
2.9
320.1
457.6
6.7
–
–
–
6.7
0.4
–
–
0.4
7.1
£m
–
1.0
–
0.5
1.5
–
2.8
2.8
4.3
£m
–
–
0.1
0.1
0.2
–
–
2.5
2.5
2.7
2011
Total
£m
97.6
3.3
0.3
0.7
101.9
335.8
2.8
338.6
440.5
2010
Total
£m
142.0
1.0
0.7
0.5
144.2
0.4
317.2
2.9
320.5
464.7
Interest payments on floating rate financial liabilities are determined by reference to short-term benchmark rates applicable in
the relevant currency or market (primarily LIBOR or the local equivalent).
The fair values of the Group’s borrowings are not considered to be materially different from their book value, with the exception
of the Private Placement which includes a fair value basis adjustment of £54.9m (2010 – £38.2m).
The Group’s borrowings are unsecured.
At 31 December 2011, the committed funding facilities of the Group comprised bank facilities of £500m and Private Placement loan
notes totalling US$436m.
At 31 December 2011, none (2010 – none) of the £500m syndicated credit facility that expires in April 2013 was drawn down.
All US$436m of the Group’s Private Placement loan notes is swapped into Sterling. US$275m is repayable in six years, and US$161m
in eight years.
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Financial statements
Notes to the accounts continued
22 Borrowings continued
The table below sets out the maturity profile of the Group’s borrowings that are exposed to interest rate risk. This analysis is presented
after taking account of the cross currency fixed to floating interest rate swap on US$436m of the Private Placement.
2011
Fixed rate
Bank loans
Finance leases
Floating rate
Bank overdrafts
Bank loans
Other loans
Private Placement
Finance leases
2010
Fixed rate
Other loans
Finance leases
Floating rate
Bank overdrafts
Bank loans
Other loans
Private Placement
Finance leases
Less than
1 year
£m
Between 1
and 2 years
£m
Between 2
and 3 years
£m
Between 3
and 4 years
£m
Between 4
and 5 years
£m
Greater than
5 years
£m
Total interest
bearing
£m
1.0
0.5
97.5
2.3
0.3
–
0.2
–
0.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.4
–
–
–
335.8
–
1.0
3.3
97.5
2.3
0.3
335.8
0.2
Less than
1 year
£m
Between 1
and 2 years
£m
Between 2
and 3 years
£m
Between 3
and 4 years
£m
Between 4
and 5 years
£m
Greater than
5 years
£m
Total interest
bearing
£m
0.1
0.1
135.3
1.0
0.6
–
0.4
–
0.1
–
–
–
–
0.4
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.3
–
–
–
317.2
–
0.1
2.6
135.3
1.0
0.6
317.2
0.8
23 Financial instruments
The Group’s financial liabilities, other than derivatives, comprise bank loans and overdrafts, loan notes, finance leases and trade
and other payables. The main purpose of these instruments is to raise finance for the Group’s operations. The Group also has various
financial assets such as trade and other receivables, cash and short-term deposits which arise from its trading operations.
The Group’s primary derivative transactions are forward and swap currency contracts, and cross currency interest rate swaps. The
purpose is to manage the currency and interest rate risks arising from the Group’s trading operations and its sources of finance.
The main risks arising from the Group’s financial instruments are interest rate risk, currency risk, credit risk and liquidity risk.
a. Classes of financial instruments
2011
Financial assets
Available for sale financial assets
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total financial assets
Financial liabilities
Trade and other payables
Derivative financial instruments
Borrowings
Total financial liabilities
106
Inchcape plc ¦ Annual Report and Accounts 2011
Loans and
receivables
£m
Available for
sale
£m
Held at fair
value
£m
Amortised
cost
£m
–
213.1
–
–
213.1
–
–
–
–
213.1
6.1
–
–
–
6.1
–
–
–
–
6.1
–
–
139.7
–
139.7
–
–
–
558.9
558.9
Total
£m
6.1
213.1
139.7
558.9
917.8
–
(7.4)
–
(7.4)
132.3
(1,038.7)
–
(440.5)
(1,479.2)
(920.3)
(1,038.7)
(7.4)
(440.5)
(1,486.6)
(568.8)
23 Financial instruments continued
2010
Financial assets
Available for sale financial assets
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total financial assets
Financial liabilities
Trade and other payables
Derivative financial instruments
Borrowings
Total financial liabilities
Financial statements
Loans and
receivables
£m
Available for
sale
£m
Held at fair
value
£m
Amortised
cost
£m
–
180.9
–
–
180.9
–
–
–
–
180.9
14.1
–
–
–
14.1
–
–
–
–
14.1
–
–
122.1
–
122.1
–
–
–
561.6
561.6
Total
£m
14.1
180.9
122.1
561.6
878.7
–
(9.0)
–
(9.0)
113.1
(955.6)
–
(464.7)
(1,420.3)
(858.7)
(955.6)
(9.0)
(464.7)
(1,429.3)
(550.6)
b. Market risk and sensitivity analysis
Financial instruments affected by market risk include borrowings, deposits and derivative financial instruments. The Group is not
exposed to commodity price risk. The following analysis, required by IFRS 7, is intended to illustrate the sensitivity to changes in market
variables, being primarily UK interest rates and the Australian Dollar to Japanese Yen exchange rate.
The following assumptions were made in calculating the sensitivity analysis:
(cid:2)(cid:3) changes in the carrying value of derivative financial instruments designated as cash flow hedges from movements in interest rates
are assumed to be recorded fully in equity;
(cid:2)(cid:3) changes in the carrying value of derivative financial instruments designated as fair value hedges from movements in interest rates
have an immaterial effect on the consolidated income statement and equity due to compensating adjustments in the carrying
value of debt;
(cid:2)(cid:3) changes in the carrying value of financial instruments designated as net investment hedges from movements in the US Dollar to
Sterling exchange rate are recorded directly in equity;
(cid:2)(cid:3) changes in the carrying value of financial instruments not in hedging relationships only affect the consolidated income statement;
(cid:2)(cid:3) all other changes in the carrying value of derivative financial instruments designated as hedges are fully effective with no impact
on the consolidated income statement.
c. Interest rate risk and sensitivity analysis
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 2011 the Group has borrowed at floating rates only (after taking into account existing interest
rate hedging activities). This approach maximises the Group’s exposure to the current low interest rate environment. If hedging is
deemed appropriate by management in the future, the Board has approved the fixing of up to 30% of gross borrowings. Instruments
approved for this purpose include interest rate swaps, forward rate agreements and options. The Group’s exposure to the risk of
changes in market interest rates arises primarily from the floating rate interest payable on the Group’s 10 and 12 year loan notes,
bank borrowings, supplier related finance and the returns available on surplus cash.
Interest rate risk table
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant,
of the Group’s profit before tax through the impact of floating rate borrowings.
2011
Sterling
Euro
Australian Dollar
2010
Sterling
Euro
Australian Dollar
Increase
in basis
points
Effect on profit
before tax
£m
75
50
100
75
50
100
3.9
(0.1)
(1.1)
3.0
–
(1.6)
www.inchcape.com
107
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Financial statements
Notes to the accounts continued
23 Financial instruments continued
d. Foreign currency risk
The Group publishes its consolidated Financial statements in Sterling and faces currency risk on the translation of its earnings
and net assets, a significant proportion of which are in currencies other than Sterling.
Transaction exposure hedging
The Group has transactional currency exposures, where sales or purchases by an operating unit are in currencies other than
that unit’s reporting currency. For a significant proportion of the Group these exposures are removed as trading is denominated in
the relevant local currency. In particular, local billing arrangements are in place for many of our businesses with our brand partners.
The principal exception is for our business in Australia which purchases vehicles in Japanese Yen.
In this instance, the Group seeks to hedge forecast transactional foreign exchange rate risk using forward foreign currency exchange
contracts. The effective portion of the gain or loss on the hedge is recognised in the consolidated statement of comprehensive
income to the extent it is effective and recycled into the consolidated income statement at the same time as the underlying hedged
transaction affects the consolidated income statement. Under IAS 39 hedges are documented and tested for hedge effectiveness on
an ongoing basis.
Hedge of foreign currency debt
The Group uses cross currency interest rate swaps to hedge the forward foreign currency risk associated with the US$436m Private
Placement. The effective portion of the gain or loss on the hedge is recognised in the consolidated income statement at the same
time as the underlying hedged transaction affects the consolidated income statement.
Net investment hedging
Consideration is given to the currency mix of debt with the primary objective that interest on such borrowings acts as a hedge on
foreign currency earnings.
Foreign currency risk table
The following table shows the Group sensitivity to a reasonably possible change in foreign exchange rates on its Japanese Yen
financial instruments. In this table, financial instruments are only considered sensitive to foreign exchange rates when they are not
in the functional currency of the entity that holds them.
2011
Yen
Yen
2010
Yen
Yen
Increase/
(decrease) in
exchange
rate
Effect on
equity
£m
+10%
-10%
+10%
-10%
1.1
(1.0)
–
–
108
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
23 Financial instruments continued
e. Credit risk
The amount due from counterparties arising from cash deposits and the use of financial instruments creates credit risk. The Group
monitors its credit exposure to its counterparties via their credit ratings (where applicable) and through its policy of limiting its
exposure to any one party to ensure that they are within Board approved limits and that there are no significant concentrations
of credit risk.
Group policy is to deposit cash and use financial instruments with counterparties with a long-term credit rating of A or better, where
available. The notional amounts of financial instruments used in interest rate and foreign exchange management do not represent
the credit risk arising through the use of these instruments. The immediate credit risk of these instruments is generally estimated by
the fair value of contracts with a positive value. Credit limits are reviewed regularly.
The table below analyses the Group’s short-term deposits and derivative assets by credit exposure excluding bank balances and
cash in hand:
Credit rating of counterparty1
AA
AA-
A+
A
A-
BB2
CCC2
No rating3
Derivative
assets
£m
–
2.7
73.8
–
63.2
–
–
–
139.7
2011
Short-term
deposits
£m
–
72.9
21.6
38.0
14.9
–
9.0
16.9
173.3
Derivative
assets
£m
2010
Short-term
deposits
£m
61.5
–
58.5
2.1
–
–
–
–
122.1
63.9
1.8
95.0
1.4
2.0
5.3
–
15.7
185.1
1 Standard & Poor’s equivalent rating shown as a reference for the lowest credit rating of the counterparty from either Standard & Poor’s or Moody’s.
2 Exposure to a counterparty approved as an exception to Group policy.
3 Counterparties in certain markets in which the Group operates do not have a credit rating.
No credit limits were exceeded during the reporting period and management does not expect any losses from non-performance
by these counterparties.
The maximum exposure to credit risk for cash at bank, receivables and other financial assets is represented by their carrying amount.
Total cash at bank of £385.6m (2010 – £376.5m) includes cash in the Group’s regional pooling arrangements which are offset against
borrowings for interest purposes. Netting of cash and overdraft balances in the consolidated statement of financial position only
occurs to the extent that there is the legal ability and intention to settle net. As such, overdrafts are presented in current liabilities
to the extent that there is no intention to offset with the cash balance.
Concentration of credit risk with respect to trade receivables is very limited due to the Group’s broad customer base. Trade
receivables include amounts due from a number of finance houses in respect of vehicles sold to customers on finance arranged
through the Group. An independent credit rating agency is used to assess the credit standing of each finance house. Limits for the
maximum outstanding with each finance house are set accordingly. Title to the vehicles sold on finance resides with the Group until
cleared funds are received from the finance house in respect of a given vehicle.
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109
Financial statements
Notes to the accounts continued
23 Financial instruments continued
f. Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through
an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the
underlying businesses, Group Treasury aims to maintain flexibility in funding by keeping committed credit lines available. Refer to the
Business Review on page 32 for discussion of liquidity risks to the Group.
The table below summarises the maturity profile of the Group’s financial assets and liabilities at 31 December 2011 and 2010 based
on expected contractual undiscounted cash flows:
2011
Financial assets
Cash and cash equivalents
Trade and other receivables
Available for sale financial assets
Derivative financial instruments
Financial liabilities
Interest bearing loans and borrowings
Trade and other payables
Derivative financial instruments
Net outflows
2010
Financial assets
Cash and cash equivalents
Trade and other receivables
Available for sale financial assets
Derivative financial instruments
Financial liabilities
Interest bearing loans and borrowings
Trade and other payables
Derivative financial instruments
Net outflows
Less than
3 months
£m
Between
3 to 12
months
£m
Between
1 to 5 years
£m
More than
5 years
£m
Total
£m
516.6
193.3
0.3
10.9
721.1
(100.8)
(990.3)
(6.5)
(1,097.6)
(376.5)
Less than
3 months
£m
543.6
162.1
0.4
12.5
718.6
(142.9)
(788.1)
(4.7)
(935.7)
(217.1)
42.3
13.5
0.4
22.8
79.0
(18.1)
(28.0)
(7.8)
(53.9)
25.1
Between
3 to 12
months
£m
18.0
16.8
1.4
19.7
55.9
–
5.8
1.6
76.8
84.2
–
0.5
3.8
358.7
363.0
558.9
213.1
6.1
469.2
1,247.3
(68.6)
(20.4)
(27.1)
(116.1)
(31.9)
(305.9)
–
(275.4)
(581.3)
(218.3)
(493.4)
(1,038.7)
(316.8)
(1,848.9)
(601.6)
Between
1 to 5 years
£m
More than
5 years
£m
Total
£m
–
1.4
6.1
76.1
83.6
–
0.6
6.2
375.4
382.2
561.6
180.9
14.1
483.7
1,240.3
(18.3)
(144.8)
(10.4)
(173.5)
(117.6)
(85.4)
(22.7)
(24.3)
(132.4)
(48.8)
(304.2)
–
(280.4)
(584.6)
(202.4)
(550.8)
(955.6)
(319.8)
(1,826.2)
(585.9)
110
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
23 Financial instruments continued
g. Hedging activities
In accordance with IFRS 7 disclosure is required for financial instruments that are measured in the consolidated statement of financial
position at fair value. This requires disclosure of fair value measurements by level for the following fair value measurement hierarchy:
(cid:2)(cid:3) quoted prices in active markets (level 1);
(cid:2)(cid:3) inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly (level 2); or
(cid:2)(cid:3) inputs for the asset or liability that are not based on observable market data (level 3).
The following table presents the Group’s assets and liabilities that are measured at fair value:
Assets
Derivatives used for hedging
Available for sale financial assets
Liabilities
Derivatives used for hedging
Level 1
£m
Level 2
£m
–
6.1
6.1
139.7
–
139.7
2011
Total
£m
139.7
6.1
145.8
Level 1
£m
Level 2
£m
–
14.1
14.1
122.1
–
122.1
2010
Total
£m
122.1
14.1
136.2
–
(7.4)
(7.4)
–
(9.0)
(9.0)
Level 1 represents the fair value of financial instruments that are traded in active markets and is based on quoted market prices
at the end of the reporting period.
The fair value of financial instruments that are not traded in an active market (level 2) is determined by using valuation techniques
which include the present value of estimated future cash flows. These valuation techniques maximise the use of observable market
data where it is available and rely as little as possible on entity specific estimates.
Derivative financial instruments are carried at their fair values. The fair value of forward foreign exchange contracts and foreign
exchange swaps represents the difference between the value of the outstanding contracts at their contracted rates and a valuation
calculated using the spot rates of exchange prevailing at 31 December 2011.
The Group’s derivative financial instruments comprise the following:
Cross currency interest rate swap
Forward foreign exchange contracts
2011
£m
125.1
14.6
139.7
Assets
2010
£m
108.9
13.2
122.1
2011
£m
–
(7.4)
(7.4)
Liabilities
2010
£m
–
(9.0)
(9.0)
The ineffective portion recognised in the consolidated income statement that arises from fair value hedges amounts to a loss of £2.4m
(2010 – gain of £2.0m). The ineffective portion recognised in the consolidated income statement that arises from cash flow hedges
amounts to a gain of £nil (2010 – £nil).
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Financial statements
Notes to the accounts continued
23 Financial instruments continued
Cash flow hedges
The Group principally uses forward foreign exchange contracts to hedge purchases in a non-functional currency against movements
in exchange rates. The cash flows relating to these contracts are generally expected to occur within 12 months of the end of the
reporting period.
The nominal principal amounts of the outstanding forward foreign exchange contracts relating to transactional exposures at
31 December 2011 was £520.1m (2010 – £637.5m).
Net fair value gains and losses recognised in the hedging reserve in shareholders’ equity (see note 25) on forward foreign exchange
contracts as at 31 December 2011 are expected to be released to the consolidated income statement within 12 months of the end
of the reporting period.
Fair value hedge
At 31 December 2011, the Group had in place five cross currency interest rate swaps. Four of these total US$475m which hedge
changes in the fair value of the Group’s 10 and 12 year loan notes. Under these swaps the Group receives fixed rate US Dollar interest
of 5.94% on US$275m and 6.04% on US$200m and pays LIBOR +85bps and LIBOR +90bps for the 10 and 12 year notes respectively. An
additional US$39.2m cross currency interest rate swap was put in place after debt reduction in 2009 to offset the non-required portion
of the original US$475m swaps. Under this swap the Group pays US Dollar interest of 6.04% on US$39.2m and receives LIBOR +214bps
for the 12 year notes only. The loan notes and cross currency interest rate swaps have the same critical terms.
h. Capital management
The primary objective of the Group’s management of debt and equity is to ensure that it maintains a strong credit rating and healthy
capital ratios in order to support its business and maximise shareholder value.
The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain
or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue
new shares.
The committed bank facilities and Private Placement borrowings are subject to the same interest cover covenant based on an
adjusted EBITA measure to interest on consolidated borrowings. The Group is required to maintain a ratio of not less than three to
one and was compliant with this covenant throughout the year.
The Group monitors group leverage by reference to three tests: Adjusted EBITA interest cover, the ratio of net debt to EBITDA and
the ratio of net debt to market capitalisation.
Adjusted EBITA interest cover (times)*
Net debt to EBITDA (times)**
Net debt / market capitalisation (percentage)***
* Calculated as Adjusted EBITA / interest on consolidated borrowings
** Calculated as net debt / earnings before exceptional items, interest, tax, depreciation and amortisation
*** Calculated as net debt / market capitalisation as at 31 December
2011
227.2
n/a
n/a
2010
83.7
n/a
n/a
112
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
24 Share capital
a. Allotted, called up and fully paid up
Ordinary shares (nominal value of 10.0p each)
At 1 January
Allotted under share option schemes prior to Share Consolidation
Share Consolidation
Allotted under share option schemes post Share Consolidation
At 31 December
Deferred shares
At 1 January
Share capital re-organisation
At 31 December
2011
Number
2010
Number
2011
£m
4,630,714,974
463,192,297
–
179,960
– (4,167,805,441)
102,804
463,192,297
280,919
463,473,216
–
–
–
487,244,106
(487,244,106)
–
46.4
–
–
–
46.4
–
–
–
46.4
2010
£m
46.4
–
–
–
46.4
116.9
(116.9)
–
46.4
b. Share Consolidation
On 13 May 2010, shareholders approved a consolidation of the Company’s shares in issue or held in treasury, whereby shareholders
received one new ordinary share of 10p each for every 10 existing ordinary shares of 1p each held at the close of business on
14 May 2010. Trading in the new ordinary shares of 10p commenced on 17 May 2010.
c. Deferred shares
On 30 June 2010, the Company completed the transfer and subsequent cancellation of 487,244,106 deferred shares. These shares,
which were created in connection with the Rights Issue in 2009, had very limited rights, were not listed and were not freely
transferrable, and were effectively worthless. An amount of £116.9m, equivalent to the nominal value of the cancelled deferred
shares, was transferred to the capital redemption reserve.
d. Share buy back programme
At 31 December 2011, the Company held 2,687,560 treasury shares (2010 – 2,687,560) with a total book value of £99.4m
(2010 – £99.4m). These shares may be either cancelled or used to satisfy share options at a later date. The Group did not
repurchase any of its own shares during the period ended 31 December 2011 (2010 – nil). The market value of treasury shares
at 31 December 2011 was £7.9m (2010 – £9.7m).
e. Substantial shareholdings
Details of substantial interests in the Company’s issued ordinary share capital received by the Company at 12 March 2012 under
the provisions of the Companies Act 2006 have been disclosed in the significant shareholdings section, in the Investor relations section
on page 60.
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Financial statements
Notes to the accounts continued
24 Share capital continued
f. Share options
At 31 December 2011, options to acquire ordinary shares of 10.0p each in the Company up to the following numbers under the
schemes below were outstanding as follows:
Number of ordinary
shares of 10.0p each
Exercisable until Option price (£)
Number of ordinary
shares of 10.0p each
Exercisable until Option price (£)
17 March 2012
19 March 2013
31 August 2013
20 May 2014
29 September 2014
6 March 2015
11 September 2015
19 May 2019
22 November 2019
7 April 2020
The Inchcape 1999 Share Option Plan
– approved (Part II – UK)
5,188
4,668
17,348
43,056
16,017
52,735
19,866
731,854
9,375
164,779
– unapproved (Part I – UK)
8,670
83,915
2,288
140,446
218,727
2,964,654
37,500
1,046,717
– unapproved overseas (Part I – Overseas)
12,983
68,857
164,552
225,308
2,474,301
892,189
20,532
31 August 2013
20 May 2014
29 September 2014
6 March 2015
11 September 2015
19 May 2019
22 November 2019
7 April 2020
17 March 2012
19 March 2013
20 May 2014
6 March 2015
19 May 2019
7 April 2020
14 June 2020
The Inchcape SAYE Share Option Scheme
– approved
84
3,015
94,499
1,882,219
1,010,414
746,257
1 December 2010
1 December 2011
1 May 2012
1 May 2013
1 May 2014
1 May 2015
7.43
5.31
3.42
2.30
2.05
2.43
1.93
2.14
3.46
4.42
4.37
5.78
6.03
2.00
3.20
3.10
3.46
4.42
4.37
5.78
6.03
2.00
3.20
3.10
1.93
2.14
4.42
5.78
2.00
3.10
2.63
Included within the retained earnings reserve are 1,370,916 (2010 – 1,448,052) own ordinary shares held by the ESOP Trust, a general
discretionary trust whose beneficiaries include current and former employees of the Group and their dependants. The book value of
these shares at 31 December 2011 was £2.5m (2010 – £2.5m). The market values of these shares at 31 December 2011 and at
12 March 2012 were £4.0m and £5.2m respectively (31 December 2010 – £5.2m, 7 March 2011 – £5.7m).
114
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
25 Other reserves
At 1 January 2010
Cash flow hedges:
– Fair value movements
– Reclassified and reported in inventories
– Tax on cash flow hedges
Movement on available for sale financial assets
Effect of foreign exchange rate changes
At 1 January 2011
Cash flow hedges:
– Fair value movements
– Reclassified and reported in inventories
– Tax on cash flow hedges
Transfer of impairment losses to consolidated income statement (note 7)
Fair value movement transferred from available for sale financial assets
Effect of foreign exchange rate changes
At 31 December 2011
Available for
sale reserve
£m
Translation
reserve
£m
–
121.8
Hedging
reserve
£m
(9.4)
Total other
reserves
£m
112.4
–
–
–
(3.6)
–
(3.6)
–
–
–
10.9
(6.5)
–
0.8
–
–
–
–
36.0
157.8
–
–
–
–
–
(26.2)
131.6
11.3
(11.0)
0.1
–
–
(9.0)
7.1
(1.7)
(2.0)
–
–
–
(5.6)
11.3
(11.0)
0.1
(3.6)
36.0
145.2
7.1
(1.7)
(2.0)
10.9
(6.5)
(26.2)
126.8
Available for sale reserve
Gains and losses on available for sale financial assets are recognised in the ‘available for sale reserve’ until the asset is sold or is
considered to be impaired, at which time the cumulative gain or loss is included in the consolidated income statement. In 2011,
impairment losses of £10.9m on Greek Government Bonds have been recognised in the consolidated income statement.
Translation reserve
The translation reserve is used to record foreign exchange rate changes relating to the translation of the results of foreign subsidiaries
arising after 1 January 2004. It is also used to record foreign exchange differences arising on long-term foreign currency borrowings
used to finance or hedge foreign currency investments.
Hedging reserve
For cash flow hedges that meet the conditions for hedge accounting, the portion of the gains or losses on the hedging instrument
that are determined to be an effective hedge are recognised directly in shareholders’ equity. When the hedged firm commitment
results in the recognition of a non-financial asset or liability then, at the time the asset or liability is recognised, the associated gains
or losses that had previously been recognised in shareholders’ equity are included in the initial measurement of the acquisition cost
or other carrying amount of the asset or liability.
26 Retained earnings
At 1 January
Total comprehensive income attributable to owners of the parent for the year:
– Profit for the year
– Actuarial (losses) / gains on defined pension benefits (note 5)
– Tax charged / (credited) to reserves
Total comprehensive income for the year
Share-based payments, net of tax
Net purchase of own shares by ESOP Trust
Dividends paid (note 10)
Share Consolidation
At 31 December
2011
£m
811.9
142.2
(18.7)
0.6
124.1
6.7
(0.2)
(46.8)
–
895.7
2010
£m
649.5
127.9
28.6
(0.6)
155.9
7.2
(0.6)
–
(0.1)
811.9
www.inchcape.com
115
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Financial statements
Notes to the accounts continued
27 Notes to the consolidated statement of cash flows
a. Reconciliation of cash generated from operations
Cash flows from operating activities
Operating profit
Operating exceptional items
Amortisation of intangible assets
Depreciation of property, plant and equipment
Profit on disposal of property, plant and equipment
Share-based payments charge
Increase in inventories
(Increase) / decrease in trade and other receivables
Increase in trade and other payables
Decrease in provisions
Pension contributions in excess of the pension charge for the year*
Increase in interest in leased vehicles
Payment in respect of operating exceptional items
Other items
Cash generated from operations
* The decrease in post-retirement defined benefits includes additional payments of £19.2m (2010 – £23.3m).
b. Reconciliation of net cash flow to movement in net funds
Net increase in cash and cash equivalents
Net cash (inflow) / outflow from borrowings and finance leases
Change in net cash and debt resulting from cash flows
Effect of foreign exchange rate changes on net cash and debt
New finance leases
Net movement in fair value
Movement in net funds
Opening net funds
Closing net funds
Net funds is analysed as follows:
Cash at bank and cash equivalents
Short-term deposits
Bank overdrafts
Cash and cash equivalents
Bank loans
Other loans
Finance leases
Fair value of cross currency interest rate swap
Net funds
116
Inchcape plc ¦ Annual Report and Accounts 2011
2011
£m
2010
£m
231.0
13.4
4.5
29.0
(0.1)
7.3
(61.0)
(24.0)
79.0
(1.1)
(24.8)
(1.1)
(6.5)
(0.9)
244.7
2011
£m
45.1
(0.7)
44.4
(3.5)
(0.8)
(2.4)
37.7
205.8
243.5
2011
£m
385.6
173.3
(97.6)
461.3
(339.1)
(0.3)
(3.5)
118.4
125.1
243.5
203.6
21.9
5.0
36.5
(7.5)
6.5
(64.0)
16.7
85.9
(1.0)
(22.9)
(1.4)
(5.0)
–
274.3
2010
£m
156.3
40.7
197.0
6.0
–
2.0
205.0
0.8
205.8
2010
£m
376.5
185.1
(142.0)
419.6
(318.6)
(0.7)
(3.4)
96.9
108.9
205.8
Financial statements
28 Acquisitions and disposals
a. Acquisitions
The Group acquired its interest in the Musa Motors group in July 2008. Under the terms of the original acquisition agreement,
contingent deferred consideration dependent on 2010 EBITA was due in respect of 24.9% of the Group. In the first half of 2011, the
amount of the deferred consideration was determined and a payment of US$32m (£19.6m) was made to the vendor to complete
the Group’s purchase.
In addition, a further US$1m (£0.6m) was paid which relates to the consideration agreed upon in October 2009, relating to the
acquisition of the initial 75.1% shareholding.
b. Disposals
During the year, the Group disposed of a small number of dealerships at net book value generating disposal proceeds of £5.5m
(2010 – proceeds of £1.0m).
29 Guarantees and contingencies
Guarantees, performance bonds and contingent liabilities
2011
£m
19.5
2010
£m
13.4
Guarantees and contingencies largely comprise letters of credit issued on behalf of the Group in the ordinary course of business.
The Group also has, in the ordinary course of business, commitments under foreign exchange instruments relating to the hedging
of transactional exposures (see note 23).
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Financial statements
Notes to the accounts continued
30 Commitments
a. Capital commitments
Contracts placed for future capital expenditure at the balance sheet date but not yet incurred are as follows:
Property, plant and equipment
Vehicles subject to residual value commitments*
2011
£m
24.8
75.7
2010
£m
3.5
82.3
* Residual value commitments comprise the total repurchase liability on all vehicles sold subject to a residual value commitment, of which £29.8m (2010 – £44.7m) has been
included within ‘trade and other payables’. These commitments are largely expected to be settled within the next 12 months, with a minority to be settled within three years.
b. Lease commitments
Operating lease commitments – Group as lessee
The Group has entered into non-cancellable operating leases for various offices, warehouses and dealerships. These leases have
varying terms, escalation clauses and renewal rights.
Future minimum lease payments under non-cancellable operating leases are as follows:
Within one year
Between one and five years
After five years
2011
£m
43.3
107.2
156.4
306.9
2010
£m
40.4
100.4
121.3
262.1
Operating lease commitments – Group as lessor
The Group has entered into non-cancellable operating leases on a number of its vehicles. These leases have varying terms,
escalation clauses and renewal rights and are not individually significant to the Group.
Future minimum lease payments receivable under non-cancellable operating leases are as follows:
Within one year
Between one and five years
After five years
2011
£m
4.3
6.0
8.3
18.6
2010
£m
3.7
5.5
4.0
13.2
Finance leases and hire purchase contracts
The Group has finance leases and hire purchase contracts for various items of property, plant and equipment. These leases have
varying terms, escalation clauses and renewal rights. Future minimum lease payments under finance leases and hire purchase
contracts, together with the present value of the net minimum lease payments (included within borrowings), are as follows:
Minimum lease payments:
– Within one year
– Between one and five years
– After five years
Total minimum lease payments
Less: future finance charges
Present value of finance lease liabilities
2011
£m
0.8
1.4
3.8
6.0
(2.5)
3.5
2010
£m
0.8
1.4
3.9
6.1
(2.7)
3.4
118
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
31 Related party disclosures
a. Principal subsidiaries and joint ventures
The consolidated Financial statements include the principal subsidiaries and joint ventures listed below:
Country of incorporation
Shareholding
Description
Subsidiaries
Australia
Subaru (Australia) Pty Limited
Belgium
Toyota Belgium NV/SA
The Motor & Engineering Company of Ethiopia Ltd S.C. Ethiopia
Finland
Inchcape Motors Finland OY
Greece
Toyota Hellas SA
Hong Kong
Crown Motors Limited
Russia
Inchcape Olimp OOO
Netherlands
Inchcape Moscow Motors BV
Singapore
Borneo Motors (Singapore) Pte Ltd
United Kingdom
Inchcape Finance plc
United Kingdom
Inchcape Fleet Solutions Limited
United Kingdom
Inchcape International Holdings Limited
United Kingdom
Inchcape Retail Limited
United Kingdom
The Cooper Group Limited
United Kingdom
Gerard Mann Limited
Joint ventures
Unitfin SA
Tefin SA
Inchcape Independence LLC
Associates
Excelease SA
Greece
Greece
Russia
Belgium
(1) Holding company of the Musa Motors businesses in Moscow
(2) Included within distribution in the business segmental analysis (see note 1)
90.0%
100.0%
94.1%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
60.0%
50.0%
51.0%
Distribution
Distribution
Distribution
Distribution
Distribution
Distribution
Retail
Intermediate holding company(1)
Distribution
Central treasury company
Financial services(2)
Intermediate holding company
Retail
Retail
Retail
Financial services
Financial services
Retail
49.0%
Financial services
www.inchcape.com
119
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Financial statements
Notes to the accounts continued
31 Related party disclosures continued
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:
Vehicles purchased from joint ventures and associates
Vehicles sold to joint ventures and associates
Other income paid to joint ventures and associates
Other income received from joint ventures and associates
Transactions
Amounts outstanding
2011
£m
0.1
315.2
1.3
0.4
2010
£m
0.1
299.5
2.5
1.7
2011
£m
–
–
0.2
0.4
2010
£m
–
0.1
0.2
0.3
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 (2010 – £nil).
c. Compensation of key management personnel
The remuneration of the Board of Directors and the Executive Committee was as follows:
Wages and salaries
Post-retirement benefits
Share-based payments
Compensation for loss of office
2011
£m
8.0
1.1
1.9
0.7
11.7
2010
£m
8.6
1.0
1.1
0.3
11.0
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. Further details of emoluments paid to the Directors are included in the Directors’ report
on remuneration.
32 Foreign currency translation
The main exchange rates used for translation purposes are as follows:
Australian Dollar
Euro
Hong Kong Dollar
Singapore Dollar
Russian Ruble
Average rates
Year end rates
2011
1.54
1.15
12.53
2.02
47.11
2010
1.69
1.17
12.00
2.11
47.05
2011
1.52
1.20
12.07
2.01
49.88
2010
1.53
1.17
12.14
2.00
47.61
120
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
Five year record
The information presented in the table below is prepared in accordance with IFRS, as in issue and effective at that year end date.
Consolidated income statement
Revenue
2011
£m
2010
£m
2009
£m
2008
£m
2007
£m
5,826.3
5,885.4
5,583.7
6,259.8
6,056.8
Operating profit before exceptional items
Operating exceptional items
Operating profit
Share of (loss) / profit after tax of joint ventures and associates
Profit before finance and tax
Net finance costs before exceptional items
Finance costs exceptional items
Profit before tax
Tax before exceptional tax
Exceptional tax
Profit after tax
Non controlling interests
Profit for the year
Basic:
– Profit before tax
– Earnings per share (pence)
Adjusted (before exceptional items):
– Profit before tax
– Earnings per share (pence)
Dividends per share – interim paid and final proposed (pence)
Consolidated statement of financial position
Non-current assets
Other assets less (liabilities) excluding net funds / (debt)
Net funds / (debt)
Net assets
Equity attributable to owners of the parent
Non controlling interests
Total shareholders’ equity
.
244.4
(13.4)
231.0
(3.0)
228.0
(13.7)
(10.9)
203.4
(59.2)
3.6
147.8
(5.6)
142.2
203.4
31.0p
227.7
35.5p
11.0p
225.5
(21.9)
203.6
(1.7)
201.9
(9.8)
–
192.1
(62.2)
3.1
133.0
(5.1)
127.9
192.1
27.9p
214.0
32.0p
6.6p
175.2
(18.4)
156.8
0.7
157.5
(20.8)
–
136.7
(43.5)
1.8
95.0
(3.0)
92.0
240.5
(82.5)
158.0
2.2
160.2
(52.0)
–
108.2
(49.3)
(3.6)
55.3
(3.9)
51.4
136.7
22.9p
108.2
18.9p
155.1
27.1p
–
190.7
50.5p
5.5p
265.0
4.9
269.9
3.5
273.4
(33.4)
–
240.0
(57.9)
–
182.1
(5.7)
176.4
240.0
64.1p
235.1
62.4p
15.8p
1,350.0
(236.0)
1,114.0
243.5
1,357.5
1,311.2
(227.7)
1,083.5
205.8
1,289.3
1,306.1
(217.2)
1,088.9
0.8
1,089.7
1,372.1
55.3
1,427.4
(407.8)
1,019.6
1,037.0
14.3
1,051.3
(213.5)
837.8
1,329.1
28.4
1,357.5
1,263.1
26.2
1,289.3
1,067.7
22.0
1,089.7
995.5
24.1
1,019.6
813.6
24.2
837.8
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Report of the independent auditors to the members of Inchcape plc
Financial statements
Opinion on other matter prescribed by the
Companies Act 2006
In our opinion:
(cid:2)(cid:3) the information given in the Directors’ report for the financial
year for which the Group Financial statements are prepared
is consistent with the Group Financial statements.
Matters on which we are required to report
by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
(cid:2)(cid:3) certain disclosures of Directors’ remuneration specified by law
are not made; or
(cid:2)(cid:3) we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
(cid:2)(cid:3) the Directors’ statement, in relation to going concern;
(cid:2)(cid:3) the part of the Corporate Governance Statement relating to
the Company’s compliance with the nine provisions of the UK
Corporate Governance Code specified for our review; and
(cid:2)(cid:3) certain elements of the report to shareholders by the Board
on Directors’ remuneration.
Other matter
We have reported separately on the parent Company Financial
statements of Inchcape plc for the year ended 31 December
2011 and on the information in the Directors’ Remuneration
Report that is described as having been audited.
Mark Gill,
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
12 March 2012
We have audited the Group Financial statements of Inchcape
plc for the year ended 31 December 2011 which comprise the
consolidated income statement, the consolidated statement of
comprehensive income, the consolidated statement of financial
position, the consolidated statement of changes in equity, the
consolidated statement of cash flows, the accounting policies
and the related notes. The financial reporting framework that
has been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
Respective responsibilities of Directors and auditors
As explained more fully in the statement of the Directors’
responsibilities, the Directors are responsible for the preparation
of the Group Financial statements and for being satisfied that
they give a true and fair view. Our responsibility is to audit and
express an opinion on the Group Financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Scope of the audit of the Financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the Financial statements sufficient to give
reasonable assurance that the Financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies
are appropriate to the Group’s circumstances and have been
consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by
the Directors; and the overall presentation of the Financial
statements. In addition, we read all the financial and
non-financial information in the Annual Report to identify
material inconsistencies with the audited Financial statements.
If we become aware of any apparent material misstatements
or inconsistencies we consider the implications for our report.
Opinion on Financial statements
In our opinion the Group Financial statements:
(cid:2)(cid:3) give a true and fair view of the state of the Group’s affairs as
at 31 December 2011 and of its profit and cash flows for the
year then ended;
(cid:2)(cid:3) have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
(cid:2)(cid:3) have been prepared in accordance with the requirements
of the Companies Act 2006 and Article 4 of the lAS Regulation.
122
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
Company balance sheet
As at 31 December 2011
Fixed assets
Investment in subsidiaries
Current assets
Debtors:
– Amounts due within one year
– Amounts due after more than one year
Cash at bank and in hand
Creditors – amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Provisions for liabilities and charges
Net assets
Capital and reserves
Share capital
Share premium
Capital redemption reserve
Profit and loss account
Total shareholders’ funds
Notes
2011
£m
2010
£m
3
1,622.0
1,608.0
4
4
5
6
347.0
916.1
16.7
1,279.8
301.7
840.1
16.1
1,157.9
(24.5)
1,255.3
(31.3)
1,126.6
2,877.3
2,734.6
7
(1,811.0)
(1,955.8)
9
(4.6)
1,061.7
(4.6)
774.2
11, 13
13
13
13
46.4
126.9
133.3
755.1
1,061.7
46.4
126.3
133.3
468.2
774.2
The Financial statements on pages 123 to 130 were approved by the Board of Directors on 12 March 2012 and were signed on its
behalf by:
André Lacroix, Group Chief Executive
John McConnell, Group Finance Director
Registered Number: 609782
Inchcape plc
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123
Financial statements
Accounting policies
Basis of preparation
These Financial statements are prepared for Inchcape plc (the Company) for the year ended 31 December 2011. The Company
is the ultimate parent entity of the Inchcape Group (the Group).
Accounting convention
These Financial statements have been prepared on the historical cost basis modified for fair values in accordance with the
Companies Act 2006 and applicable UK accounting standards. As permitted by Section 408 of the Companies Act 2006, no separate
profit and loss account is presented for the Company. In addition, the Company is not required to prepare a cash flow statement
under the terms of FRS 1 (revised), ‘Cash Flow Statements’.
Going concern
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operation
for the foreseeable future. Accordingly, the Directors are satisfied that it is appropriate to adopt the going concern basis in preparing
the Annual Report and Accounts.
Foreign currencies
Monetary assets and liabilities in foreign currencies are translated into Sterling at closing rates of exchange and are taken to the
profit and loss account.
Investments
Investments in subsidiaries are stated at cost, less provisions for impairment.
Deferred tax
Deferred tax is provided in full (without discounting) based on current tax rates and law, on timing differences that result in an
obligation at the balance sheet date to pay more tax, or a right to pay less tax in the future except as otherwise required by
FRS 19, ‘Deferred Tax’. Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there
is no binding commitment to sell the asset.
Provisions
Provisions are recognised when the Company has a present obligation in respect of a past event, it is more likely than not that
an outflow of resources will be required to settle the obligation and where the amount can be reliably estimated. Provisions are
discounted when the time value of money is considered material.
Share capital
Ordinary shares are classified as equity.
Where the Company purchases its own equity share capital (treasury shares), the consideration paid is deducted from shareholders’
funds until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration
received is included in shareholders’ funds.
Dividends
Final dividends proposed by the Board of Directors and unpaid at the year end are not recognised in the Financial statements until
they have been approved by the shareholders at the Annual General Meeting. Interim dividends are recognised when they are paid.
Share-based payments
The Company operates various share-based award schemes. The fair value at the date at which the share-based awards are
granted is recognised in the profit and loss account (together with a corresponding increase in shareholders’ equity) on a straight line
basis over the vesting period, based on an estimate of the number of shares that will eventually vest. For equity-settled share-based
awards, the services received from employees are measured by reference to the fair value of the awards granted. With the exception
of the ‘Save as you earn’ scheme, the vesting of all share-based awards under all schemes is solely reliant upon non-market
conditions, therefore no expense is recognised for awards that do not ultimately vest. Where an employee cancels a ‘Save as you
earn’ award, the charge for that award is recognised as an expense immediately, even though the award does not vest. In
accordance with the transitional provisions of FRS 20, ‘Share-based payment’, no charge had been recognised for grants of equity
instruments made before 7 November 2002. The Company adopts Amendments to FRS 20 in line with the Group’s adoption of
Amendments to IFRS 2.
Financial instruments
The adoption by the Company of FRS 29, ‘Financial Instruments: Disclosures’ has had no impact as the Company has taken
advantage of the exemption not to apply FRS 29 in its own Financial statements. The Group’s policies on the recognition,
measurement and presentation of financial instruments under IFRS 7 are set out in the Group’s accounting policies on pages 67 to 73.
124
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
Notes to the accounts
1 Auditors’ remuneration
The Company incurred £0.1m (2010 – £0.1m) in relation to UK statutory audit fees for the year ended 31 December 2011.
2 Directors’ remuneration
Wages and salaries
Social security costs
Pension costs
2011
£m
2.8
0.4
0.4
3.6
2010
£m
3.2
0.4
0.4
4.0
Further information on Executive Directors’ emoluments and interests is given in the Directors’ report on remuneration which can be
found on pages 50 to 57.
3 Investment in subsidiaries
Cost
At 1 January
Additions
Disposals
At 31 December
Provisions
At 1 January
Provisions for impairment
Reversal of provision for impairment
At 31 December
Net book value
2011
£m
2010
£m
1,632.2
40.8
(11.2)
1,661.8
1,632.2
–
–
1,632.2
(24.2)
(15.6)
–
(39.8)
(28.9)
–
4.7
(24.2)
1,622.0
1,608.0
During the year, the Company purchased St James Insurance from its subsidiary Inchcape Overseas Limited for £3.5m. The Company
also paid a capital injection of £37.3m to Inchcape Overseas Limited and subsequently sold 30% of Inchcape Overseas Limited to
Inchcape Australia Limited.
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125
Financial statements
Notes to the accounts continued
4 Debtors
Amounts due within one year
Amounts owed by Group undertakings
Amounts due after more than one year
Deferred tax asset (note 8)
Amounts owed by Group undertakings
Amounts owed by Group undertakings bear interest at rates linked to LIBOR.
5 Cash at bank and in hand
Cash at bank and in hand
6 Creditors – amounts falling due within one year
Amounts owed to Group undertakings
Other taxation and social security payable
Other loans
Other creditors
7 Creditors – amounts falling due after more than one year
Amounts owed to Group undertakings
Other loans
Private Placement
2011
£m
2010
£m
347.0
347.0
2.4
913.7
916.1
2011
£m
16.7
2011
£m
20.3
0.8
0.4
3.0
24.5
301.7
301.7
1.8
838.3
840.1
2010
£m
16.1
2010
£m
28.0
–
–
3.3
31.3
2011
£m
2010
£m
1,530.2
–
280.8
1,811.0
1,676.3
0.6
278.9
1,955.8
The Company has US$435.8m outstanding under the Private Placement borrowing: US$235.8m is repayable in 2017 and bears interest
at a fixed rate of 5.94% per annum; and US$200m is repayable in 2019 and bears interest at a fixed rate of 6.04% per annum.
Other loans are loan notes issued in connection with the acquisition of European Motor Holdings plc and bear interest at rates
linked to LIBOR.
Amounts owed to Group undertakings bear interest at rates linked to LIBOR.
126
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
8 Deferred tax
At 1 January 2011
Credited / (charged) to the profit and loss account
At 31 December 2011
9 Provisions for liabilities and charges
At 1 January
Released to the profit and loss account
At 31 December
Share-based
payments
£m
Other timing
differences
£m
0.5
0.8
1.3
1.3
(0.2)
1.1
2011
£m
4.6
–
4.6
Total
£m
1.8
0.6
2.4
2010
£m
8.1
(3.5)
4.6
Provision has been made for warranties, indemnities and other litigation issues in relation to motors and non-motors business exits,
based on expected outcomes. These provisions are expected to be settled within the next three to five years.
10 Guarantees and contingencies
Guarantees of various subsidiaries’ borrowings
(against which £nil has been drawn at 31 December 2011 (2010 – £nil))
2011
£m
2010
£m
500.0
500.0
The Company is party to composite cross guarantees between banks and its subsidiaries. The Company’s contingent liability under
these guarantees at 31 December 2011 was £16.7m (2010 – £16.1m).
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127
Financial statements
Notes to the accounts continued
11 Share capital
a. Allotted, called up and fully paid up
Ordinary shares
At 1 January
Allotted under share option schemes prior to Share Consolidation
Share Consolidation
Allotted under share option schemes post Share Consolidation
At 31 December
Deferred shares
At 1 January
Share capital re-organisation
At 31 December
2011
Number
2010
Number
2011
£m
2010
£m
4,630,714,974
463,192,297
–
179,960
– (4,167,805,441)
102,804
463,192,297
280,919
463,473,216
–
–
–
487,244,106
(487,244,106)
–
46.4
–
–
–
46.4
–
–
–
46.4
46.4
–
–
–
46.4
116.9
(116.9)
–
46.4
b. Share Consolidation
On 13 May 2010, shareholders approved a consolidation of the Company’s shares in issue or held in treasury, whereby shareholders
received one new ordinary share of 10p each for every 10 existing ordinary shares of 1p each held at the close of business on
14 May 2010. Trading in the new ordinary shares of 10p commenced on 17 May 2010.
c. Deferred shares
On 30 June 2010, the Company completed the transfer and subsequent cancellation of 487,244,106 deferred shares. These shares,
which were created in connection with the Rights Issue in 2009, had very limited rights, were not listed and were not freely transferrable
and were effectively worthless. An amount of £116.9m, equivalent to the nominal value of the cancelled deferred shares, has been
transferred to the capital redemption reserve.
d. Share buy back programme
At 31 December 2011, the Company held 2,687,560 treasury shares (2010 – 2,687,560) with a total book value of £99.4m
(2010 – £99.4m). These shares may be either cancelled or used to satisfy share options at a later date. The Group did not
repurchase any of its own shares during the period ended 31 December 2011 (2010 – nil). The market value of treasury shares at
31 December 2011 was £7.9m (2010 – £9.7m).
e. Substantial shareholdings
Details of substantial interests in the Company’s issued ordinary share capital received by the Company at 12 March 2012 under the
provisions of the Companies Act 2006 have been disclosed in the significant shareholdings section, in the Investor relations section
on page 60.
128
Inchcape plc ¦ Annual Report and Accounts 2011
Financial statements
11 Share capital continued
f. Share options
At 31 December 2011, options to acquire ordinary shares of 10.0p each in the Company up to the following numbers under the
schemes below were outstanding as follows:
Number of ordinary
shares of 10.0p each
Exercisable until
Option
price (£)
Number of ordinary
shares of 10.0p each
Exercisable until
Option
price (£)
The Inchcape 1999 Share Option Plan
– approved (Part II – UK)
The Inchcape SAYE Share Option Scheme
– approved
17 March 2012
1.93 84
19 March 2013
2.14 3,015
31 August 2013
3.46 94,499
20 May 2014
4.42 1,882,219
29 September 2014
4.37 1,010,414
6 March 2015
5.78 746,257
1 December 2010
1 December 2011
1 May 2012
1 May 2013
1 May 2014
1 May 2015
7.43
5.31
3.42
2.30
2.05
2.43
5,188
4,668
17,348
43,056
16,017
52,735
19,866
731,854
9,375
164,779
– unapproved (Part I – UK)
8,670
83,915
2,288
140,446
218,727
2,964,654
37,500
1,046,717
11 September 2015
19 May 2019
22 November 2019
7 April 2020
31 August 2013
20 May 2014
29 September 2014
6 March 2015
11 September 2015
19 May 2019
22 November 2019
7 April 2020
– unapproved overseas (Part I – Overseas)
12,983
68,857
164,552
225,308
2,474,301
892,189
20,532
17 March 2012
19 March 2013
20 May 2014
6 March 2015
19 May 2019
7 April 2020
14 June 2020
6.03
2.00
3.20
3.10
3.46
4.42
4.37
5.78
6.03
2.00
3.20
3.10
1.93
2.14
4.42
5.78
2.00
3.10
2.63
Included within the Retained earnings reserve are 1,370,916 (2010 – 1,370,916) own ordinary shares held by the ESOP Trust, a general
discretionary trust whose beneficiaries include current and former employees of the Group and their dependants. The book value
of these shares at 31 December 2011 was £2.5m (2010 – £2.5m). The market values of these shares at 31 December 2011 and at
12 March 2012 were £4.0m and £5.2m respectively (31 December 2010 – £5.2m, 7 March 2011 – £5.7m).
www.inchcape.com
129
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Financial statements
Notes to the accounts continued
12 Dividends
The following dividends were paid by the Company:
Interim dividend for the six months ended 30 June 2011 of 3.6p per share (2010 – nil per share)
Final dividend for the year ended 31 December 2010 of 6.6p per share (2009 – nil per share)
2011
£m
16.5
30.3
46.8
2010
£m
–
–
–
A final proposed dividend for the year ending 31 December 2011 of 7.4p per share amounting to £34.1m is subject to approval by
shareholders at the Annual General Meeting and has not been included as a liability as at 31 December 2011.
13 Reserves
At 1 January 2010
Profit for the financial year
Issue of ordinary share capital
Share Consolidation and cancellation
Net purchase of own shares by ESOP Trust
Share-based payments charge (net of tax)
At 1 January 2011
Profit for the financial year
Dividends
Issue of ordinary share capital
Net purchase of own shares by ESOP Trust
Share-based payments charge (net of tax)
At 31 December 2011
Share
capital
£m
163.3
–
–
(116.9)
–
–
46.4
–
–
–
–
–
46.4
Share
premium
£m
Capital
redemption
reserve
£m
Profit
and loss
account
£m
126.1
–
0.2
–
–
–
126.3
–
–
0.6
–
–
126.9
16.4
–
–
116.9
–
–
133.3
–
–
–
–
–
133.3
405.7
56.7
–
(0.1)
(0.6)
6.5
468.2
326.6
(46.8)
–
(0.2)
7.3
755.1
Total
£m
711.5
56.7
0.2
(0.1)
(0.6)
6.5
774.2
326.6
(46.8)
0.6
(0.2)
7.3
1,061.7
14 Principal subsidiaries at 31 December 2011
The Company is a limited company incorporated in England and Wales whose shares are publicly traded on the London Stock
Exchange. The principal subsidiaries in which the Company holds an investment are as follows:
Inchcape Finance plc
Inchcape International Holdings Limited
Inchcape Overseas Limited
United Kingdom
United Kingdom
United Kingdom
100.0%
100.0%
70.0%
Central treasury company
Intermediate holding company
Intermediate holding company
Country of incorporation
Shareholding
Description
130
Inchcape plc ¦ Annual Report and Accounts 2011
Report of the independent auditors to the members of Inchcape plc
Financial statements
Matters on which we are required to report by
exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
(cid:2)(cid:3) adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
(cid:2)(cid:3) the parent company Financial statements and the part of the
Directors’ report on remuneration to be audited are not in
agreement with the accounting records and returns; or
(cid:2)(cid:3) certain disclosures of Directors’ remuneration specified by law
are not made; or
(cid:2)(cid:3) we have not received all the information and explanations we
require for our audit.
Other matter
We have reported separately on the Group Financial statements
of Inchcape plc for the year ended 31 December 2011.
Mark Gill,
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
12 March 2012
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O
N
We have audited the parent company Financial statements
of Inchcape plc for the year ended 31 December 2011 which
comprise the Company balance sheet, the accounting policies
and the related notes. The financial reporting framework that has
been applied in their preparation is applicable law and United
Kingdom Accounting Standards (United Kingdom Generally
Accepted Accounting Practice).
Respective responsibilities of Directors and auditors
As explained more fully in the statement of Directors’
responsibilities, the Directors are responsible for the preparation
of the parent company Financial statements and for being
satisfied that they give a true and fair view. Our responsibility is to
audit and express an opinion on the parent company Financial
statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require
us to comply with the Auditing Practices Board’s Ethical
Standards for Auditors.
This report, including the opinions, has been prepared for and
only for the Company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other
purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to
whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
Scope of the audit of the Financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the Financial statements sufficient to give
reasonable assurance that the Financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the parent company’s circumstances and have
been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the
Directors; and the overall presentation of the Financial
statements. In addition, we read all the financial and
non-financial information in the Annual Report to identify material
inconsistencies with the audited Financial statements. If we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
Opinion on Financial statements
In our opinion the parent company Financial statements:
(cid:2)(cid:3) give a true and fair view of the state of the Company’s affairs
as at 31 December 2011;
(cid:2)(cid:3) have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
(cid:2)(cid:3) have been prepared in accordance with the requirements of
the Companies Act 2006.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
(cid:2)(cid:3) the part of the Directors’ report on remuneration to be audited
has been properly prepared in accordance with the
Companies Act 2006; and
(cid:2)(cid:3) the information given in the Directors’ Report for the financial
year for which the parent company Financial statements are
prepared is consistent with the parent company
Financial statements.
www.inchcape.com
131
Shareholder information
Shareholder information
Registered office
Inchcape plc
22a St James’s Square
London SW1Y 5LP
Tel: +44 (0) 20 7546 0022
Fax: +44 (0) 20 7546 0010
Registered number 609782
Advisors
Auditors
PricewaterhouseCoopers LLP
Chartered Accountants and
Registered Auditors
Share registrars
Computershare Investor Services PLC
Registrar’s Department, The Pavilions
Bridgwater Road
Bristol BS99 7NH
Tel: +44 (0) 870 707 1076
Solicitors
Slaughter and May
Corporate brokers
Investec
JP Morgan Cazenove
Inchcape PEPs
Individual Savings Accounts (ISAs) replaced Personal Equity
Plans (PEPs) as the vehicle for tax efficient savings. Existing PEPs
may be retained. Inchcape PEPs are managed by The Share
Centre Ltd, who can be contacted at PO Box 2000, Oxford
House, Oxford Road, Aylesbury, Buckinghamshire HP21 8ZB
Tel: +44 (0) 1296 414144
Inchcape ISA
Inchcape has established a Corporate Individual Savings
Account (ISA). This is managed by Equiniti Financial Services
Limited, Aspect House, Spencer Road, Lancing, West Sussex
BN99 6DA
Tel: 0870 300 0430
International callers:
Tel: +44 121 441 7560
More information is available at
www.shareview.com
Financial calendar
Annual General Meeting
10 May 2012
Announcement of 2012 interim results
July 2012
132
Inchcape plc ¦ Annual Report and Accounts 2011
Explore our new Reporting Centre for access
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Inchcape plc
22a St James’s Square
London SW1Y 5LP
T +44 (0) 20 7546 0022
F +44 (0) 20 7546 0010
www.inchcape.com
Registered number 609782