Annual Report and Accounts 2012
The premium choice
in the automotive industry
RIGHT MARKETS
RIGHT BRANDS
RIGHT CATEGORIES
RIGHT FINANCIALS
RIGHT GROWTH STRATEGY
The premium choice in the automotive industry
Central to everything we do is our focus on customer service, operational
excellence and world-class governance, which differentiates us in each
of our 26 markets globally. Our distinctive business model in the automotive
industry makes us the premium choice as we create sustainable, long-term
growth for all of our stakeholders.
KEY HIGHLIGHTS
SALES
£6.1bn
2011: £5.8bn
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CASH GENERATED
FROM OPERATIONS
£249.2m
2011: £244.7m
NET ASSETS
£1,507.4m
2011: £1,357.5m
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OPERATING PROFIT
(before exceptional items)
PROFIT BEFORE TAX
(before exceptional items)
£261.9m
2011: £244.4m
£250.3m
2011: £227.7m
ADJUSTED EARNINGS
PER SHARE*
(before exceptional items)
39.7p
2011: 35.5p
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OPERATING PROFIT
PROFIT BEFORE TAX
EARNINGS PER SHARE*
£263.1m
2011: £231.0m
£251.5m
2011: £203.4m
40.0p
2011: 31.0p
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* 2008/09 numbers restated to reflect the bonus element of the Rights Issue and the Share Consolidation
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
Strategic partnerships with the
world’s leading automotive brands
Inchcape is a global premium automotive group, operating
as a strategic partner to the world’s leading car brands in the
fast growing luxury and premium automotive sector. The
Group provides a professional and well fi nanced route to
market for vehicle and parts manufacturers across fi ve
continents. Working across the value chain with brand
partners, Inchcape operates as both a distributor and retailer.
MANUFACTURER
RETAILER
VEHICLES, F&I,*
PARTS & SERVICE
DISTRIBUTOR
VEHICLES & PARTS
CUSTOMER
* F&I: fi nance & insurance
INCHCAPE
OUR ROLE AS A DISTRIBUTOR
In 22 of our 26 markets, Inchcape is responsible for the fulfi lment of the entire
marketing, supply and sales programme for our brand partners’ vehicles and spare
parts. As the exclusive brand representative, we provide the local expertise, unrivalled
market understanding and scale to deploy market leading operational standards
and world class governance:
(cid:116)(cid:1)Product development – specifying the models and volumes for each market
(cid:116)(cid:1)Logistics – from factory gate to retail centre
(cid:116)(cid:1)National marketing and sales – all promotional and pricing activities to enhance
the brand
(cid:116)(cid:1)Retail network management – appointing, managing, training and supporting
franchised dealer networks
(cid:116)(cid:1)Operational excellence – delivering competitive advantage through unrivalled
levels of customer service.
In city-state markets (e.g. Hong Kong and Singapore) Inchcape operates as both
the exclusive distributor and the exclusive retailer for its brand partners, capitalising
on important margin opportunities.
OUR ROLE AS A RETAILER
In our four retail only markets (UK, Russia, China and Poland) where our
partners manage their brand themselves, Inchcape provides high quality brand
representation through large-scale retail facilities on a regional basis. Inchcape’s
competitive advantage is achieved through exceptional customer service standards
delivered globally through our unique Inchcape Advantage programme.
DIRECTORS’ REPORT:
BUSINESS REVIEW
The premium choice
Five performance differentiators
2
5
12 Chairman’s statement
14
Group Chief Executive’s
strategic review
19 Key performance indicators
22 Operating review
31 Finance review
32 Principal risks
34 Corporate Responsibility report
DIRECTORS’ REPORT:
GOVERNANCE
38 Board of Directors
40 Executive committee
42 Corporate governance report
50
62 Other statutory information
Directors’ report on remuneration
FINANCIAL STATEMENTS
68
70
69
66
67
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated statement
of fi nancial position
Consolidated statement
of changes in equity
Consolidated statement
of cash fl ows
71 Accounting policies
80 Notes to the accounts
125 Five year record
126 Auditors’ report – Group
127 Company balance sheet
128 Accounting policies
129 Notes to the accounts
135 Auditors’ report – Company
SHAREHOLDER INFORMATION
136 Company details
More information within Report
More information online
www.inchcape.com
1
The premium choice in the
automotive industry...
OUR SHAREHOLDERS
OUR CUSTOMERS
(cid:116)(cid:1)Distinct business model, disciplined performance management
(cid:116)(cid:1)Unwavering Customer 1st focus
and a clear strategy delivering profitable, sustainable growth
(cid:116)(cid:1)Strong earnings growth in the last three years and record profit
before tax and profit after tax in 2012
(cid:116)(cid:1)Leading presence in high-margin, high-growth Asia Pacific and
Emerging Markets – strategic partnerships with the world’s best
luxury and premium automotive brands
(cid:116)(cid:1)Low fixed cost, cash generative business with considerable
growth prospects, set to outperform in a dynamic market place
(cid:116)(cid:1)Insights gained through 14,000 interviews every
month with buyers and non-buyers enable on-going
refinement of customer-centric operating standards
and value-for-money propositions
(cid:116)(cid:1)Proprietary operating processes of our unique Inchcape
Advantage programme deliver consistently superior
customer service, every day, every time, everywhere
+52%
2012 total shareholder return
14,000
monthly customer interviews
2
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
...creating sustainable, long-
term value for all stakeholders
OUR BRAND PARTNERS
OUR PEOPLE
(cid:116)(cid:1)Focus on six leading premium manufacturer groups ensures
(cid:116)(cid:1)Every individual is encouraged to be a leader, empowered
deep business understanding, close relationships and a
matchless product portfolio
(cid:116)(cid:1)As their strategic partner, manufacturers value Inchcape as
a provider of a comprehensive, financially sound and trusted
route to market
(cid:116)(cid:1)World class retail operating standards, global scale and local
agility drive enhanced market share
(cid:116)(cid:1)Distribution model uniquely embraces the automotive
value chain from factory gate through the entire ownership
life-cycle
(cid:116)(cid:1)Expertise to create superior customer value and pricing power
for market leading margins
to make decisions that make a positive difference
(cid:116)(cid:1)Leadership teams are proactively developed through industry-
leading talent review and planning process
(cid:116)(cid:1)Reward and recognition is focused on differentiating high
performers and driving high performance
(cid:116)(cid:1)Global training and education programmes enable us to share
experience and best practices between teams across the world
(cid:116)(cid:1)We leverage our Group structure to provide our people with
outstanding growth opportunities
c.90%
of Group’s profit from six
core manufacturer relationships
14,400
employees globally
www.inchcape.com
3
Delivering sustainable growth...
Throughout the most challenging trading
conditions that our industry has ever known,
Inchcape has consistently outperformed the
market place – locally, regionally and globally.
Our performance in 2012 illustrates that we
operate in the right markets, work with the right
brands, trade in the right categories and deliver
the right financials – all driven by our Customer
1st growth strategy, which makes us the
premium choice for shareholders, customers,
partners and our people.
SALES
ADJUSTED EARNINGS PER SHARE
(before exceptional items)
£6.1bn
2011: £5.8bn
39.7p
2011: 35.5p
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* adjusted for the Share Consolidation
4
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
...through five
performance differentiators:
3
1
4
5
2
Right
Markets
Right
Brands
Right
Categories
Right
Financials
Right
Growth strategy
21 of our 26 markets
are in high-growth,
high-margin economies
of Asia Pacific and the
Emerging Markets
Focus on the premium
and luxury brands of
six world leading
vehicle manufacturers,
generating c.90%
of Group’s profits
Category range
provides a well
balanced profit
stream and
healthy margins
Low fixed costs and
operational discipline
deliver sustainable
revenue and
earnings growth
Unique customer
focus enables us
to capture growth
opportunities
in existing and
new markets
See page 6
See page 7
See page 8
See page 9
See page 10
www.inchcape.com
5
Markets1
Right
(cid:116)(cid:1)Growing population and increasing wealth will
drive car penetration growth in Asia Pacific and
Emerging Markets (APAC/EMs)
(cid:116)(cid:1)The structural premiumisation of demand for
new cars in APAC/EMs positions our premium
brand partners to outperform the industry
(cid:116)(cid:1)APAC/EMs value chain growth opportunities
for used cars, service and parts
(cid:116)(cid:1)Premium brand partners are well positioned to
gain share in developed markets with leading
fuel efficiency technology
GLOBAL FOOTPRINT UNIQUELY POSITIONS INCHCAPE FOR FUTURE GROWTH
Broad international
portfolio of scale
operations in 26 markets
26
Over
70%profits from APAC/EMs
94%APAC/EMs will represent
94% of global population
growth from 2012-17 and
69% of GDP growth
APAC/EMs will represent 67%
of global car sales by 2017
and 80% of car industry
growth from 2012-17
80%
Distribution in
22markets
Retail only in
4markets
See Chief Executive’s review for more information
6
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
Brands2
Right
(cid:116)(cid:1)Focused portfolio of leading premium and luxury
brands enabling deep brand knowledge and
strong manufacturer relationships
(cid:116)(cid:1)Inchcape brand partners have strong
R&D capability to lead powertrain and
segment innovation
(cid:116)(cid:1)c.90% of Group’s profi ts from six leading premium
(cid:116)(cid:1)Premium brands’ pricing power deliver
manufacturer groups
superior margins
(cid:116)(cid:1)Established relationships with brand partners
across multiple continents
(cid:116)(cid:1)Unparalleled depth of expertise
(cid:116)(cid:1)Inchcape delivers on market share and customer
service excellence – e.g. Toyota Triple Crown Award
in Hong Kong for 21 consecutive years
CREATING VALUE WITH THE WORLD’S LEADING AUTOMOTIVE BRANDS
Six core manufacturer
relationships deliver
c.90%
of Group’s profi t
INCHCAPE LENGTH OF BRAND RELATIONSHIPS
Deep and global understanding of our brand partners enables us to deliver best in class performance
Subaru
BMW
Volkswagen
Mercedes-Benz
Jaguar & Land Rover
Toyota
See Chief Executive’s review for more information
20years
23years
24years
25years
42years
45years
www.inchcape.com
7
3
Right
Categories
(cid:116)(cid:1)Five distinct revenue streams enable
(cid:116)(cid:1)Revenue stream diversity provides a balance
the Group to capture more of the value
chain: new vehicle sales, finance &
insurance, used vehicle sales, aftersales
service and spare parts
of growth and defensive value drivers
enabling the Group to deliver a resilient
performance across the economic cycle
(cid:116)(cid:1)Scale presence in new car markets with
market leadership in numerous markets
provides scale in aftersales
DIVERSITY OF REVENUE STREAMS
Our diversified revenue streams are balanced to deliver healthy margins during all economic cycles
GROWTH VALUE DRIVERS
Our ‘growth’ value drivers are sales of
new vehicles, alongside the finance &
insurance products that are associated
with them.
c.40% of gross profit
DEFENSIVE VALUE DRIVERS
Inchcape’s ‘defensive’ value drivers are used
vehicle sales, aftersales service and spare
parts, which deliver c.60% of our annual
gross profit.
c.60% of gross profit
NEW
VEHICLE
SALES
VEHICLE FINANCE
& INSURANCE
USED
VEHICLE
SALES
AFTERSALES
SERVICE
SPARE PARTS
NEW VEHICLE SALES
Inchcape provides high quality brand representation
through state of the art retail centres and outstanding levels
of customer service through world leading operating and
customer facing processes.
VEHICLE FINANCE & INSURANCE (F&I)
Our F&I specialists help customers to find the most efficient
way to finance their vehicle. Additionally, we offer motorists the
opportunity to purchase ancillary products, such as vehicle
service contracts or maintenance programmes, in conjunction
with the sale of a vehicle.
USED VEHICLE SALES
Used vehicle sales are significant for Inchcape in our advanced
markets like the UK and Australia, where they represent a powerful
profit stream. Resilient during a market downturn, this category
develops as a market matures and as such, provides a meaningful
growth opportunity for the Group in our Emerging Markets.
AFTERSALES SERVICE
The profit potential from this category is a function of the number
of cars on the road (car parc). Inchcape has built a strong
market share over a number of years in many territories and
consequently even small city-state markets like Hong Kong deliver
significant profits for us due to their high aftersales throughput,
where our well trained technicians and hi-tech facilities give us
a unique competitive advantage.
SPARE PARTS
Ensuring customers have immediate access to genuine spare
parts from our manufacturer brand partners strengthens our
relationship in the automotive value chain and provides a
resilient source of revenue.
See Chief Executive’s review for more information
8
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
4
Right
Financials
(cid:116)(cid:1)Record profit before tax (PBT) and profit after
(cid:116)(cid:1)The operational discipline and rigorous
tax (PAT) in 2012
(cid:116)(cid:1)The Group has delivered substantial earnings
growth in the last three years
performance management of the Group
deliver best in class profitability, cashflow and
return on capital
(cid:116)(cid:1)The Group has a robust balance sheet and is
strongly positioned for profitable growth
INCHCAPE MARGIN PROGRESS
4.6
4.0
3.4
2.8
2.2
09
10
11
12
CASH CONVERSION
(of statutory operating profit)
94.7%
See Chief Executive’s review for more information
4.3%
The 2012 operating
profit margin of 4.3%
is 1.2ppt ahead of
2009 and marks
another year of
improvement. This
strong margin
performance reflects
the operational focus
on cost efficiency
throughout the Group
and the operating
leverage driven by
revenue growth and
margin management.
Cash conversion
has been consistently
strong, reflecting the
Group’s operational
focus on cash
initiatives.
Management of
working capital has
been a key driver of
this performance.
ADJUSTED EARNINGS PER SHARE
(before exceptional items)
40
35
30
25
20
39.7p
2012 EPS growth
was strong at 11.8%.
The three year EPS
compound annual
growth rate is 13.6%
which, against a
backdrop of difficult
trading conditions
in some markets, is
testament to the
resilience of our
business model and
the action taken on
the Group’s cost base.
09*
10
11
12
* adjusted for Share Consolidation
HIGH ROCE BUSINESS MODEL
22.3%
Distribution, the
core of Inchcape
(69% of Group
trading profit), has
low capital intensity.
Inchcape ROCE
compares favourably
across industries.
www.inchcape.com
9
5
Right
Growth
strategy
(cid:116)(cid:1)Our Customer 1st strategy is to create
differentiation through consistently providing
a superior customer experience, which we
enable through our unique Inchcape
Advantage programme
(cid:116)(cid:1)This Customer 1st strategy strengthens the
performance of existing assets through
improved market share, and aftersales
service retention
(cid:116)(cid:1)Through the strong brand partner relationships
our Customer 1st strategy creates, Inchcape
gains access to expansion opportunities in
high margin, high growth areas of the world
GLOBAL AUTOMOTIVE MARKET POISED FOR GROWTH
Growth opportunities across all categories: new vehicle sales, used cars, aftersales service, spare parts
GLOBAL TIV +26%
GLOBAL CAR PARC +20%
m
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6
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17
The magnitude of the forecast automotive
industry growth is signifi cant. We operate
in an industry where global car sales are
forecast to grow by 26% over the next fi ve
years and the global car parc – the key driver
of used cars and aftersales – is expected to
grow by 20%.
Our broad geographic spread means
we are well positioned to seize these exciting
growth opportunities.
See Chief Executive’s review for more information
CLEAR VISION AND GROWTH STRATEGY DELIVERING CONSISTENT EARNINGS GROWTH
OUR VISION
Our Customer 1st journey will create
incredible growth for our people, our
brand partners and our shareholders
EXPAND
STRENGTHEN
CUSTOMER 1ST STRATEGY
Our differentiated Customer 1st strategy is to Strengthen the business through delivering a superior customer
value proposition, and Expand through selective investment in high margin, high growth areas
STRONG OPERATIONAL DISCIPLINE ON TOP FIVE PRIORITIES SUPPORTS INCHCAPE’S GROWTH STRATEGY
Balanced focus on two commercial initiatives (increasing market share and aftersales) to grow revenue ahead of our competitors
and three cash initiatives (improving margin, controlling working capital and being selective about capital expenditure) to grow
profi t and operating cash faster than revenue.
1 strategy
Commercial initiatives
to grow revenues ahead
of competitors
GROWING
MARKET SHARE
Strong revenue and market
share growth from new
vehicle sales driven by
differentiated Customer
1st strategy.
GROWING
AFTERSALES
Outperforming competitors
through effective customer
contact and retention
programmes during both
the warranty and
post-warranty period.
Cash initiatives
to grow profi t and
operating cash
faster than
revenues
IMPROVING
MARGIN
Tight cost discipline fi rmly in
place and continuous focus on
the pricing power of our brands.
CONTROLLING
WORKING CAPITAL
Robust daily discipline
on working capital and
inventory management.
SELECTIVE CAPITAL
EXPENDITURE
Disciplined capital investment
initiatives to increase capacity
in strategic markets.
10
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
INCHCAPE ADVANTAGE DRIVING REVENUE AHEAD OF COMPETITION
Delivering differentiated customer service is the over-arching strategic goal for the Group. Underpinned by customer insights
and cutting edge retail metrics, Inchcape Advantage, our programme to deliver consistently superior customer service in
every centre through our proprietary processes, is driving a sustained and continuous improvement in performance.
INCHCAPE ADVANTAGE IS OUR COMPETITIVE ADVANTAGE
Leading indicators captured in real time though the customer sales and aftersales journey
provide metrics for performance management. c14,000 customer satisfaction interviews
every month provide valuable insights to drive revenue ahead of our competitors.
PURCHASE
CUSTOMER DATA
OWNERSHIP
CUSTOMER TRAFFIC
CUSTOMER ENQUIRIES
SALES LEADS
SERVICE BOOKINGS
TEST DRIVES
SERVICE LEAD TIMES
CAPTURE RATE
IDENTIFY FOCUS
AREAS &
RECOGNISE PROGRESS
SUPERIOR
CUSTOMER
VALUE
RIGOROUS PERFORMANCE MANAGEMENT WITH INDUSTRY LEADING PROCESSES
The Group has a deeply ingrained performance management discipline, in breadth and in depth. Our approach combines
strong central governance alongside tools for knowledgeable local management to respond rapidly and effectively to changing
market conditions.
INCHCAPE PERFORMANCE MANAGEMENT CYCLE
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Board Governance
5 Year Strategy Plan
Annual Operating Plan
3+9 Forecast
9+3 Forecast
CAPEX Committee
iPOM Committee
IA Committee
Talent Performance Review
Customer Traffi c and Sales Volume Data
P&L, Cash Flow, Working Capital Reports
Balanced Scorecard by Site, Country, Region
Daily, Weekly, Monthly
Weekly, Monthly
Monthly
www.inchcape.com
11
I am delighted to report that the strength of Inchcape’s
differentiated business model, together with our global portfolio,
a clear strategy and passionate colleagues, enabled the Group
to deliver record results in 2012.
The Group also benefited from normalised supply conditions in
Australia and Singapore in 2012, following the disruption caused
by the Japanese earthquake and tsunami in March 2011.
In Australia, our Subaru distribution business achieved an
excellent performance, selling 18.2% more vehicles than in 2011.
In Singapore, where the new vehicle market declined 5.4% in
2012, our South Asia business significantly outperformed with
sales up 31.6%. Overall, year on year profit growth in four of our
six geographic segments more than offset challenging trading
conditions in Europe and the pressure on new vehicle margins
in our Russia and Emerging Markets segment.
The Group retains a strong balance sheet, ending the year
with net cash of £276.2m. The Group follows a disciplined
approach to capital allocation which ensures that the cash
which we generate is deployed to drive long-term shareholder
value creation. In February 2013, we announced the acquisition
of Trivett Automotive Group, Australia’s leading premium
automotive group.
PERFORMANCE
Group sales increased by 4.4% to £6.1bn for the full year to
31 December 2012. Sales growth was achieved in all of the
geographic segments, other than Europe which experienced
a decline of 23.5% as trading conditions, particularly those in
Greece, continued to be challenging. Many of the markets
delivered results ahead of our expectations, including the UK
which saw sales grow by 3.6%.
Our 4.6% Group trading margin is a 0.1ppt improvement on last
year. The highly focused approach by the Group to managing
the cost base has resulted in a reduction in overheads before
exceptional items as a percentage of sales to 10.1%, 0.4ppt
lower than 2011.
Profit before tax and exceptional items of £250.3m was 10%
higher than 2011 and a record for the business. On a statutory
basis, profit before tax was £251.5m, 24% above 2011. Adjusted
earnings per share rose by 12% to 39.7p, representing a three
year compound annual growth rate of 14%.
The three year earnings performance is best viewed in the
context of the corresponding three year compound annual
sales growth rate of 2.9%, which demonstrates the potential for
the Group to deliver significant operational leverage as we
continue to grow the top line. We are set to benefit from structural
growth in many of our markets and over the medium term will
start to see recovery in markets that have remained difficult over
the past three years.
Cash generated from operations during the year was £249.2m
which represents a 95% conversion of statutory operating profit.
Chairman’s statement
Inchcape has delivered a record
profit in 2012.
Ken Hanna
Chairman
PROFIT AFTER TAX
£190.4m +28.8%
2011: £147.8m
DIVIDEND
14.5pper share
2011: 11.0p
+32%
12
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
OUTLOOK
As a leading global premium automotive group, we are set
to benefit from the forecast growth in both the global new car
market and the global car parc, as we operate in the right
markets, represent the right brands, trade in the right categories,
deliver the right financials and we are pursuing the right growth
strategy. We therefore expect the Group to deliver a robust
performance in 2013, notwithstanding the increased competitive
pressure on vehicle margin.
Moreover, the Group is extremely well positioned to take
advantage of the exciting growth prospects in Asia Pacific
and Emerging Markets which are underpinned by population
growth, wealth creation, increasing car penetration and industry
premiumisation. We are confident that Inchcape will continue
to produce sustainable earnings growth and strong returns for
our shareholders.
Ken Hanna,
Chairman
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 the report
SEE ONLINE:
www.inchcape.com/reportingcentre2012
www.inchcape.com/yearinreview2012
CAPITAL EXPENDITURE
The Group continued to be selective on capital expenditure
in 2012, ensuring that cash was allocated to the right growth
prospects that meet our high return requirements. We are
expanding our capacity in Chile, Peru, Poland, Australia
and Russia. We have also made further strategic greenfield
investments in China, with our new Porsche site in Nanchang
set to open in 2013 and a Mercedes-Benz site in Jiujiang that
will be completed later in the year.
BOARD
Following seven years’ service, David Scotland retired from the
Board on 10 May 2012. Vicky Bindra has taken over the role of
Chairman of the Corporate Responsibility Committee from
David, who we thank for his tireless commitment to the Group.
DIVIDEND
The Board has decided to increase the dividend payout
ratio from 30% to 40% at this year’s final dividend and is
recommending a final dividend of 10.5p per share giving a
total dividend for the year of 14.5p per share (2011: 11.0p), up
32%. The increase on 2011 and in the payout ratio is a reflection of
the confidence the Board has in the business and is consistent
with our progressive dividend policy. Subject to approval at the
Company’s Annual General Meeting (AGM) on 16 May 2013, the
final dividend will be paid on 19 June 2013 to shareholders of the
Company on the register of members at the close of business on
24 May 2013.
APPROACH TO GOVERNANCE AND CORPORATE
RESPONSIBILITY (CR)
We view governance as a continually evolving set of principles
and the Annual Report gives the Board an opportunity to
communicate to our stakeholders how we have incorporated
these principles in order to underpin the delivery of the Group’s
strategy. The Corporate governance report on pages 42 to 49
aims to set out clearly 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 2012 the CR Board 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
On behalf of the Board, I wish to express my sincere thanks
to all our colleagues across the Group for their outstanding
commitment and support in 2012.
www.inchcape.com
13
Group Chief Executive’s strategic review
Importantly, our distinct business model is driven by the right
growth strategy, our differentiated Customer 1st strategy. Our five
differentiators of right markets, right brands, right categories, right
financials and right growth strategy make us the premium choice
in the automotive industry for our customers, our manufacturer
brand partners, our people and our shareholders. So, as I reflect
on the year, it is inevitable that I will describe those five strengths
that are unique to Inchcape – the strengths that continue to give
us a distinct and attractive business model in the global
automotive industry.
OUR STRATEGIC ROLE IN THE GLOBAL AUTOMOTIVE INDUSTRY
As the global industry leader, Inchcape provides a trusted,
highly professional and well financed route to market for the
world’s leading car brands, fulfilling an important role as vehicle
manufacturers’ strategic partner in the automotive value chain:
importing, distributing, marketing and retailing premium and
luxury vehicles and providing motorists with high-quality,
dedicated aftersales services.
We operate as a distributor for our manufacturer brand partners
in 22 of our 26 markets across the world. This involves the effective
fulfilment of a wide range of critical functions, including many
activities that in larger markets would be carried out by the
manufacturer themselves. Under a distribution contract, we have
the exclusive responsibility for every aspect of marketing and
selling their vehicles and spare parts in a particular country. This
ranges from specifying market-appropriate vehicles, ordering
and distributing vehicle and parts stock and setting prices, to
advertising and brand management, public relations and
customer database management across the entire national
market place.
Critically, it also includes managing the complete retail
network, covering all back-office functions and the
appointment and management of independent franchised
dealerships (although typically, we would also own some 10-20%
of the dealer network ourselves).
In city-state markets such as Hong Kong and Singapore,
we operate as both the exclusive distributor and the exclusive
retailer for our brand partners. Known as vertically integrated
retailing (VIR), this enables us to capitalise on important
margin opportunities.
In our four retail only markets – the UK, Russia, China and Poland
– our manufacturer partners operate as the national sales and
marketing company. Our role here is to provide quality brand
representation through our large-scale retail facilities. Our
competitive differentiation is that we provide exceptional
standards of customer service through the deployment of the
proprietary operating processes of our unique Inchcape
Advantage programme.
Therefore, our role as a strategic partner in the automotive value
chain across five continents makes us unique within the global
industry. We believe there are five key differentiators that enable
us to deliver sustainable growth for our shareholders.
Delivering sustainable earnings with
a high return on capital.
André Lacroix
Group Chief Executive
THE PREMIUM CHOICE IN THE AUTOMOTIVE INDUSTRY
Inchcape is a leading global premium automotive group.
Operating in 26 markets worldwide with a portfolio of the
world’s leading car brands in the fast-growing luxury and
premium segments, our differentiated Customer 1st strategy
is creating sustainable growth for our people, our brand
partners and our shareholders.
Amidst challenging trading conditions, we have delivered robust
earnings growth over the last three years and outperformed the
industry by growing share in most of our markets.
I am delighted to report that our 2012 profit before tax and
exceptional items of £250.3m was a record and up 10% on
last year.
Given that many Inchcape new car markets remain below their
previous peaks, this is a strong performance and I thank all my
colleagues across the Group for their incredible efforts that have
helped us achieve this outcome.
Our 2012 results demonstrate the value of our disciplined
approach to performance management and re-emphasise
that we operate in the right markets, representing the right
brands, trading in the right categories which deliver the
right financials.
14
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
THE RIGHT MARKETS
The fi rst of those fi ve differentiators that set us apart is that we
operate with a scale presence in the right markets – in fact, 21
of the 26 markets where we operate are in the fast-growing
economies of the Asia Pacifi c region and Emerging Markets. It is
fundamental to Inchcape’s success that we operate in so many
of the world’s most dynamic growth markets. Asia Pacifi c and
Emerging Markets together represent 94% of the forecast global
population growth and 69% of GDP growth over the next fi ve
years. So it is not surprising that these markets, with their
increasingly wealthy and urbanised populations, also represent
80% of projected global car industry growth from 2012 to 2017 – a
period during which these regions will also account for two-thirds
of global car sales. When you consider that global car sales are
set to grow by 26% over the same period and the global car parc
(the key driver of aftersales and used car revenue) by 20%, these
are clearly signifi cant fi gures.
We derive around half of Group revenue from these high growth,
high margin Asia Pacifi c and Emerging Market regions, which
deliver more than 70% of our profi ts. This means we are well
positioned to continue achieving margin and profi t improvement
moving forward. The importance of our established presence
in these markets cannot be overemphasised and, as such, we
continue to make disciplined capital investments to enhance
our presence in these regions. In 2012 this included:
(cid:116)(cid:1)Winning three new distribution contracts – Land Rover in Hong
Kong, Ford in Hong Kong and Rolls-Royce in Chile. All are now
fully operational, and in Hong Kong we have increased Land
Rover volume by 95% after taking responsibility for the brand
at the end of 2011;
(cid:116)(cid:1)Opening a new BMW facility in Wroclaw, south western Poland,
which has increased our capacity in the market;
(cid:116)(cid:1)Commencing construction work to increase car retail capacity
in Moscow, Lima and Santiago; and
(cid:116)(cid:1)Starting to build two new sites in China with Porsche and
Mercedes-Benz.
Our access to new distribution, VIR and retail opportunities
in high-growth, high-margin territories is the reward for our
reputation for professionalism, performance and integrity without
compromise. Manufacturers require well-fi nanced and highly
experienced partners whom they can trust to represent them
effectively and profi tably.
THE RIGHT BRAND PARTNERS
We focus on six leading premium vehicle manufacturer groups
as our core brand partners, which between them deliver around
90% of our profi t. These valued partnerships that form our portfolio
of the world’s leading premium automotive brands are with
Volkswagen/Audi/Porsche; BMW/MINI/Rolls-Royce; Subaru;
Mercedes-Benz; Toyota/Lexus; and Jaguar/Land Rover. This
focused core allows for a consistently robust product line-up
across the Group.
In short, rather than spread our focus, we choose to truly
understand the brands we work with and to deliver them in an
exceptional way. This is an important strategic decision, which
enables us to benefi t from ever-deeper relationships and to build
best-in-class market share and superior customer service. These
are key metrics used to judge an independent distributor and
retailer; increasingly, therefore, vehicle manufacturers turn to us
to provide a well-fi nanced and trusted route to market.
There are also sound business reasons for our chosen brand
focus. First, these are the premium brands that are growing
ahead of the global automotive market as a whole, due to their
luxury appeal to the burgeoning middle classes in emerging
THE INCHCAPE BUSINESS MODEL HAS FIVE DIFFERENTIATORS
Inchcape is distributor and retailer for the world’s leading premium and luxury automotive brands with a distinctive and attractive
business model.
RIGHT MARKETS
Over 70% profi ts
from Asia Pacifi c &
Emerging Markets
RIGHT BRANDS
90% of profi ts from six
leading premium
manufacturer groups
P
Servic e
D i s t r ibution
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s
Reta i
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n
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RIGHT CATEGORIES
Five distinct revenue streams
offering growth/defensive mix
RIGHT FINANCIALS
Attractive growth prospects, strong
cash generation and robust
balance sheet
RIGHT GROWTH STRATEGY
Customer 1st strategy to capture growth in
existing and new markets
www.inchcape.com
15
Group Chief Executive’s strategic review continued
markets. Second, these same manufacturers have the strength
to win share by investing ahead of their competition in fuel
efficient automotive technology that appeals to customers in
more developed markets. And third, the pricing power of these
brands helps us to secure and grow our margins, which enable
us to achieve strong returns.
make up just one of the five important automotive segments
that we address. In fact, for the average UK consumer for
example, vehicle purchase only represents around a third of
lifetime motoring costs, while repairs, servicing, spare parts,
accessories, insurance and taxation combined add up to
another third (with fuel taking the balance).
In those markets where we are the appointed distributor,
an important point of differentiation is our ability to have the
appropriate brand positioning in every country – it is our
marketing expertise that positions each brand to build a strong
pricing power and to grow market share.
We have worked with our core brand partners for many years –
in some cases across multiple continents – and have consistently
delivered for them. This is how we have retained and built upon
these deep and long-standing relationships, enabling
manufacturers to trust Inchcape with their brand stewardship
on which we build to create superior customer value and
outstanding levels of customer service.
A leading example of a key brand relationship is that with Toyota,
with whom we have now partnered for 45 years – on multiple
levels and across several continents. Of these, our Hong Kong-
based distribution business, Crown Motors, was the first company
in the world to be appointed distributor of all the Toyota Group’s
main brands. This is building on a performance that is
exceptional by any measurement, and which includes 21
consecutive years of market leadership. In 2012, we yet again
increased Toyota’s market share in the territory. This contributed
to Crown Motors being presented with the Toyota Triple Crown
Award for the 21st year in a row, which rewards being number
one in passenger cars, in commercial vehicles and in the market
as a whole.
THE RIGHT CATEGORIES
The range of categories in which we operate gives us a healthy
diversity of profit streams, which we classify into what we call
‘growth’ and ‘defensive’ value drivers. This approach means that,
no matter the state of health of an individual market place, we
have an appropriate balance of offerings to meet its needs and
generate profits.
Our two growth streams – which represent some 40% of our gross
profit – are new vehicle sales and finance and insurance
products (F&I). Clearly, new vehicle sales are the heart of our
business, but it is fundamental to our business model that these
Our three defensive value drivers, representing approximately
60% of our gross profit, are used vehicle sales, aftersales servicing
and the sale of spare parts.
Illustrating the role of defensive value drivers, demand for used
vehicles during the economic downturn proved more resilient
in the UK than for new vehicles. In addition, smaller new vehicle
volumes have meant that fewer cars have been reaching the
used vehicle market, which has driven up our margins in this
key category.
This is not to say that used vehicles are exclusively part of
a defensive strategy. The evolutionary stage of many of the
emerging states where we operate means that there is not yet a
scale market for used vehicles. Clearly, such markets will develop
and this presents us with a significant future growth opportunity,
which we intend to seize.
Another key defensive profit stream is aftersales servicing, which
delivers approximately half of the Group’s profits. The margins in
this area are very attractive, which makes territories where we
have built market share over a number of years particularly
profitable for us. In Hong Kong, for example, 33% of the existing
vehicles on the road are brands we distribute, amounting to
close to 140,000 units. This illustrates how a flourishing aftersales
business enables even relatively small markets to deliver large
profits for us.
It is for such reasons that our distribution marketing teams
continue to focus on customer contact and retention
programmes, both up to and beyond warranty expiry. And
in our retail operations, rigorous sales processes are constantly
enhancing our performance through the daily capture of
customer metrics including aftersales bookings, hours sold
and workshop productivity. In addition, we run innovative
aftersales initiatives and call centre programmes to capture
share of the servicing market that is ahead of our competitors,
consistently measuring their effectiveness so that we can focus
increasingly on the best means of maximising customer
retention. Such initiatives contribute strongly to the success
of our aftersales activities.
TRADING ACROSS THE RIGHT CATEGORIES PROVIDES WELL
DIVERSIFIED PROFIT STREAMS
UK MOTORING COSTS BREAKDOWN
Inchcape has a number of significant addressable automotive
segments beyond new vehicles. The diversity of our profit streams
coupled with a disciplined focus on costs has enabled the
Group to deliver sustainable earnings growth since 2009.
See online www.inchcape.com/yearinreview2012
£59.9bn*
(cid:3) Cars, vans and motorcycle
purchase 33%
(cid:3) Repairs, servicing, spare
parts and accessories 13%
(cid:3) Vehicle insurance and
taxation 18%
Petrol, diesel and other
oils 32%
Other motoring costs 4%
* ONS data 2009
16
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
THE RIGHT FINANCIALS
Inchcape’s strong financial success, which has seen consistent
and sustainable growth in all key metrics in the last three years,
owes much to the agility we gain thanks to our relatively low
fixed costs.
I have already referred to the record level of profit before tax
we achieved in 2012. This was partially due to several years of
strong discipline on costs, which has seen Inchcape maximise
the benefits of its flexible cost structure to strip out £124 million
in operating costs before inflation since 2008, which represents
a reduction of 18%. We have also built on our defensive profit
streams since 2007 to deliver a consistently strong operating profit
margin that at 4.3% in 2012 is 1.2ppt ahead of 2009, marking yet
another year of improvement.
Taking tough decisions early regarding under-performing sites
and headcount, along with a strong ongoing focus on day-to-
day cash discipline, has been an important part of the Inchcape
productivity strategy of recent years. These decisive actions have
enabled us to maintain our investment programme in strategic
initiatives, which ensures we are well placed to take advantage
of future opportunities.
We have also achieved a strong return on capital employed,
standing at more than 22%. This is largely due to the
comparatively low level of fixed capital tied up in our distribution
activities, which deliver around two-thirds of Group profits.
We have delivered strong earnings growth over the last three
years, a commendable performance during a time of enormous
challenge and turbulence in our market place. In 2012, our basic
adjusted earnings per share rose to 39.7p, up 12% on last year.
Importantly, our business model is highly cash-generative. Our
balance sheet is therefore very strong, with net cash of £276.2m.
At the end of 2012, our net cash position was better than
expected as we deferred some capital expenditure to 2013,
benefited from favourable phasing in our working capital and
maintained our strong controls on cash. Our strong financial
position gives us the opportunity to continue our investments
to support organic growth as well as consider opportunities
to maximise shareholder value creation.
THE RIGHT GROWTH STRATEGY
None of the various initiatives and successes I have outlined
here would have been possible without the underpinning
strength of our Group-wide Customer 1st strategy, which places
the customer right at the heart of our business worldwide, as we
both strengthen our existing operations and expand our Group
selectively in high margin, high growth areas.
The automotive industry is not widely recognised for the quality
of its customer service, so the fact that we are single-mindedly
focused on being the world’s most customer-centric automotive
group is our number one source of competitive advantage. The
key tool that we use to ensure that every customer receives
consistently superior customer service is our proprietary Inchcape
Advantage programme, first launched in 2007 and consistently
refined and enhanced every year since then.
In each of our sites worldwide, Inchcape Advantage continues
to drive all the performance management disciplines that are
vital to the constant year on year improvement that we continue
to deliver – unique insights into customer behaviour and trends,
for example, that enable us to carry the optimum amount of the
right stock at all times.
Inchcape Advantage is a core enabler of our Customer 1st
strategy. First, to strengthen the performance of our existing
assets by delivering a superior value proposition that helps us
constantly to improve market share in both vehicle sales and
aftersales. And second, to help us seize expansion opportunities
in the premium and luxury segments by leveraging our brand
partner relationships based on outstanding service and
satisfied customers.
Naturally, the implementation of this strategy is rigorously
controlled. To do so, we use the strong operational discipline
that results from our focus on what we call Inchcape’s Top Five
Priorities. We ensure that at all times we have a balanced focus
between commercial and cash initiatives.
Our two key commercial priorities are to increase market share
and aftersales, enabling us to grow our revenues at a rate that
is ahead of our competitors. Responsibility for these areas resides
chiefly at a local level, where our empowered teams use
innovative marketing to drive customers into our showrooms
and service centres and once there, to delight them with an
outstanding customer experience.
INCHCAPE DELIVERS FOR ITS BRAND PARTNERS
4.0%
Vehicle manufacturers trust Inchcape
with brand stewardship and we build upon
this to create superior customer value and
outstanding levels of customer service. One
such example of the strength of our brand
partner relationships is in Australia where
Inchcape has been the distributor for Subaru
vehicles since 1992. Our expert marketing
teams have positioned Subaru as a premium
vehicle brand in Australia and we have taken
market share from c.1% in 1992 to 3.9% in 2012.
3.0%
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9
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6
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4
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See online www.inchcape.com/yearinreview2012
92
97
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12
www.inchcape.com
17
Group Chief Executive’s strategic review continued
And our three cash initiatives, which aim to grow our profi t
and operating cash faster than our revenue, are to improve
our margins, to control our working capital and to be highly
selective on our capital expenditure investments. Our Top Five
Priorities are fully integrated in our Group-wide performance
management processes.
Our decentralised organisation plays an important role
as our managers across the world have high levels of
empowerment that they can wield at a local level. Under
this model, a clear set of policies are provided centrally and
implemented locally, in a way that takes advantage of high
levels of local market understanding paired with our deep
knowledge of our manufacturer partners’ brands. Our glo-cal
operating model provides global scale and local agility.
Our glo-cal organisational model is enabled on a daily basis
by our Group-wide focus on performance management with
rigorous monitoring across a range of operational and customer
metrics. This performance management discipline is deeply
ingrained both centrally and locally, in breadth and in depth,
and we consider this to be fundamental to the Group’s
operational effi ciency.
We drive performance management with industry leading
processes. This gives us the opportunity to make well informed
decisions quickly as we leverage both a comprehensive set of
performance management processes and the accuracy of
our performance management tools.
Against a challenging backdrop, the Group has delivered
profi table growth in the last three years, growing revenue ahead
of our competitors and growing profi t ahead of revenue. During
this period, our Group revenue has grown on average by c.3%
and operating profi t has grown on average by c.14% per annum.
Margins are up 1.2ppt over this same three year period.
I believe that this consistent performance demonstrates
the strength of our business model, the effectiveness of our
Customer 1st strategy and our operational discipline just
described. We are confi dent moving forward in the Group’s
earnings growth potential as Inchcape is uniquely positioned
to take advantage of the exciting growth prospects in the
global automotive market.
THE RIGHT FUTURE
Inchcape is a company that is focused on profi table growth
for its brand partners and shareholders.
We are uniquely placed to fully leverage the opportunities ahead
of us as a highly professional and well-fi nanced route to market
for the world’s best car brands in what I consider to be the world’s
most exciting and dynamic industry.
We operate with a distinctive and attractive business model
in an industry with considerable growth prospects. We have scale
operations in the right markets, with more than 70% of our trading
profi t coming from Asia Pacifi c and the Emerging Markets. We
operate in the right categories, with a healthy balance of fi ve
growth and defensive value drivers. We distribute and retail the
right brands in the premium and luxury sector, which continues
to outperform the industry. We have the right fi nancials with strong
cash generation, a robust balance sheet and high returns on
capital employed. We are convinced that we pursue the right
growth strategy based on a differentiated Customer 1st
approach combined with a strong operational discipline.
We therefore believe that Inchcape is indeed the premium
choice in the automotive industry – for our people for whom
we offer an exciting work environment; for our brand partners for
whom we provide trusted brand stewardship and growth; for our
customers for whom we provide a superior customer experience;
and for our shareholders for whom we provide sustainable
earnings growth.
André Lacroix,
Group Chief Executive
www.inchcape.com/reportingcentre
INCHCAPE ADVANTAGE – OUR COMPETITIVE ADVANTAGE
NET PROMOTER SCORE (NPS) SALES AND SERVICE*
Customer service is our number one competitive advantage.
Not only does it enable the strengthening of our existing assets
through improved market share and aftersales service retention,
it also facilitates expansion opportunities as we leverage our
global brand partner relationships. Inchcape Advantage, our
unique Group-wide programme to deliver a consistently superior
customer experience at every stage of the customer journey,
which is now in its sixth year, lies at the heart of our strategic
commitment to customer-centric operational excellence. Its
proprietary processes drive the organic growth of our business
and create strong relationships with our brand partners.
190
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150
130
110
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See online www.inchcape.com/yearinreview2012
Sales NPS (LHS)
Service NPS (RHS)
* Scores re-based to 100
18
Inchcape plc Annual Report and Accounts 2012
160
150
140
130
120
110
100
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BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
Key performance indicators (KPIs)
THESE KPIS ARE
HOW WE MEASURE OUR
BUSINESS PERFORMANCE
The Inchcape plc 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
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 2012
Sales grew by a robust 4.4% with
strong growth reported in the
entire Group with the exception of
Europe, which has continued to
experience challenging trading
conditions, most notably in Greece.
DEFINITION
Operating profit excluding the
impact of exceptional items
and unallocated central costs.
ACHIEVEMENTS IN 2012
A continued focus on cost control
and accretive margin growth
has meant that trading profit
has grown by 7.0% year on year.
DEFINITION
Calculated by dividing trading
profit by sales.
ACHIEVEMENTS IN 2012
The Group’s trading margin grew
to 4.6% (+0.1ppt).
£6.1bn
2011: £5.8bn
£280.1m
2011: £261.8m
4.6%
2011: 4.5%
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3
.
6
£
n
b
9
.
5
£
n
b
8
.
5
£
n
b
1
.
6
£
n
b
6
.
5
£
TRADING PROFIT CONTRIBUTION
Australasia
Europe
North Asia
South Asia
UK
24.0%
6.0%
18.9%
12.5%
23.3%
08
09
10
11
12
Russia and Emerging Markets 15.3%
5
4
3
2
1
0
%
5
.
4
%
6
.
4
%
2
.
4
%
0
.
4
%
5
.
3
08
09
10
11
12
PROFIT BEFORE TAX AND
EXCEPTIONAL ITEMS
DEFINITION
Represents the profit made after
operating and interest expense
excluding the impact of
exceptional items and before
tax is charged.
ACHIEVEMENTS IN 2012
Profit before tax and exceptional
items increased by 9.9%, to a
record £250.3m.
WORKING CAPITAL
DEFINITION
Inventory, receivables, payables,
and supplier related credit.
ACHIEVEMENTS IN 2012
Stock cover is 1.4 months and
working capital ended at £25.9m.
CASH GENERATED
FROM OPERATIONS
DEFINITION
Trading profit adjusted for
depreciation, amortisation
and other non-cash items
plus the change in working
capital, provisions and
pension contributions.
ACHIEVEMENTS IN 2012
The Group has generated an
operating cash flow of £249.2m.
£250.3m
2011: £227.7m
£25.9m
2011: £12.2m
£249.2m
2011: £244.7m
300
250
200
150
100
50
0
m
3
.
0
5
2
£
m
7
.
7
2
2
£
m
0
.
4
1
2
£
m
7
.
0
9
1
£
m
1
.
5
5
1
£
300
250
200
150
100
50
0
m
5
.
2
5
2
£
m
7
.
6
7
£
m
4
.
8
1
£
m
2
.
2
1
£
m
9
.
5
2
£
m
7
.
6
3
3
£
m
7
.
3
8
1
£
m
3
.
4
7
2
£
m
7
.
4
4
2
£
m
2
.
9
4
2
£
350
300
250
200
150
100
50
0
08
09
10
11
12
08
09
10
11
12
08
09
10
11
12
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 2012
Like for like sales increased by
6.0% while like for like trading
profit grew by 7.1% as the
focus on cost management
continued unabated.
+7.1%
Like for like trading profit
www.inchcape.com
19
Inchcape worldwide
Distribution and
Retail businesses
on a global scale
Australasia
Inchcape is the distributor for Subaru in Australia and New Zealand and operates a multi brand
retail strategy in Australia.
FINANCIAL HIGHLIGHTS
BRAND PARTNERS
MARKET CHANNELS
SALES
£1,168.7m
2011: £1,011.0m
TRADING PROFIT
£67.2m
2011: £55.3m
See page 25
Europe
Inchcape operates distribution and retail across four western European markets – Belgium, Greece,
Finland and Luxembourg.
FINANCIAL HIGHLIGHTS
BRAND PARTNERS
MARKET CHANNELS
SALES
£616.6m
2011: £806.0m
North Asia
TRADING PROFIT
£16.8m
2011: £24.0m
See page 26
Inchcape operates a multi brand VIR model in Hong Kong, Macau, Guam and Saipan.
FINANCIAL HIGHLIGHTS
BRAND PARTNERS
MARKET CHANNELS
SALES
£518.7m
2011: £433.3m
TRADING PROFIT
£52.8m
2011: £42.0m
20
Inchcape plc Annual Report and Accounts 2012
See page 27
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
Global footprint
uniquely positions
Inchcape for
future growth
KEY
Distribution
Retail
Vertically
integrated
retail (VIR)
See online
www.inchcape.com/yearinreview2012
South Asia
Inchcape operates a multi brand VIR model in Singapore and Brunei.
FINANCIAL HIGHLIGHTS
BRAND PARTNERS
MARKET CHANNELS
SALES
£385.1m
2011: £296.2m
TRADING PROFIT
£35.1m
2011: £26.0m
See page 28
United Kingdom Inchcape operates a scale retail business with premium brand partners in key regions
together with a fl eet leasing business.
FINANCIAL HIGHLIGHTS
BRAND PARTNERS
MARKET CHANNELS
SALES
£2,133.8m
2011: £2,059.3m
TRADING PROFIT
£65.2m
2011: £60.4m
See page 29
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.
FINANCIAL HIGHLIGHTS
BRAND PARTNERS
MARKET CHANNELS
SALES
£1,262.5m
2011: £1,220.5m
TRADING PROFIT
£43.0m
2011: £54.1m
See page 30
www.inchcape.com
21
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 Group has delivered record results, as we continue to benefit
from our broad geographic spread and our partnership with the
leading OEMs in the premium and luxury segment. The Group
strengthened its profitability, its balance sheet and its return on
capital employed while continuing to make progress on
customer service and market share around the world.
2012 saw a strong rebound in performance in South Asia and
Australasia following a challenging 2011. Europe remained
weak, with the Greek economy in particular facing continuing
challenging conditions while we saw improved customer
confidence in the UK. After a strong first quarter, we saw a
weakening of consumer demand in Russia and Emerging
Markets which, when combined with volume push activities
from manufacturers to offset trading weaknesses in Europe,
resulted in an over-supply and margin pressure on vehicles.
Group sales at £6.1bn were up 5.8% on last year – driven by
strong growth in key markets such as Singapore, Hong Kong
and Australia. The UK car market grew by over 5% on last year’s
levels with our luxury and premium brand partners continuing
to outperform the market as a whole.
Continued focus on growth, margins and disciplined cost control
enabled the Group to achieve an increase of 7.7% in trading
profit to £280.1m. Overheads as a percentage of sales have
decreased by 0.4ppt compared to 2011.
Working capital was tightly managed throughout the year
and resulted in a year end position of £25.9m, which was better
than expected as we benefited from favourable working capital
phasing. We had another year of strong cash generation from
our operations of £249.2m.
Net capital expenditure of £87.3m was slightly lower than
expected as some expenditure was deferred into 2013. We
continued to invest in capacity expansion and greenfield sites,
mainly in Asia Pacific, Russia and Emerging Markets.
Net cash at the end of the year was £276.2m, up by £32.7m
compared to the end of 2011.
Operating review
Our disciplined focus on the
Top Five Priorities has delivered
sustained margin growth and
cash generation.
John McConnell
Group Finance Director
SALES
£6.1bn
TRADING PROFIT
£280.1m
WORKING CAPITAL
£25.9m
SELECTIVE CAPITAL EXPENDITURE
£87.3m
22
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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
Australasia
Europe
North Asia
South Asia
United Kingdom
Russia and Emerging Markets
Central Costs
Operating Profit
Year ended
31.12.2012
£m
Year ended
31.12.2011
£m
6,085.4
280.1
4.6
5,951.5
277.2
4.6
6.4
250.3
25.9
249.2
276.2
5,826.3
261.8
4.5
5,690.4
260.5
0.1
5.3
227.7
12.2
244.7
243.5
% change
4.4
7.0
0.1ppt
4.6
6.4
4.5ppt
1.1ppt
9.9
112.3
1.8
13.4
% change
in constant
currency
5.8
7.7
0.1ppt
6.0
7.1
10.5
2012
Operating
profit
£m
2012
Exceptional
items
£m
2012
Trading
profit
£m
2011
Operating
profit
£m
2011
Exceptional
items
£m
2011
Trading
profit
£m
65.0
12.1
52.7
35.1
62.3
34.9
1.0
263.1
(2.2)
(4.7)
(0.1)
(2.9)
(8.1)
19.2
1.2
67.2
16.8
52.8
35.1
65.2
43.0
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
www.inchcape.com
23
In South Asia year on year sales grew by 27.4% and trading
profit by 32.4%. This was due to a number of successful product
launches and improved supply following the 2011 Japanese
earthquake and flooding in Thailand.
In North Asia sales grew by 17.9% and trading profit by 23.6%,
which was a record. This was driven by increased market
share in all markets in the North Asia region and a strong
aftersales performance.
Russia and Emerging Markets continued to grow in 2012 with
sales up by 10.4% and trading profit up by 2.3%. Our Ethiopian
business delivered another strong year while trading conditions
in Eastern Europe and South America were challenging.
Our European region saw a decline in sales of 20.9% mainly
due to Greece where challenging economic conditions remain.
In Belgium we saw an expected sales decline due to the end of
the Government CO2 incentives in December 2011.
REGIONAL ANALYSIS
The Group reports its regional analysis in line with IFRS 8
‘Operating Segments’. 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 these markets have started to grow
but have yet to reach a mature stage of development and
accordingly are in, or are expected to return to, the growth
phase of the development cycle.
Operating review continued
BUSINESS ANALYSIS
Year ended
31.12.2012
£m
Year ended
31.12.2011
£m
% change
in constant
currency
% change
Sales
Retail
Distribution
Like for like sales
Retail
Distribution
Trading profit
Retail
Distribution
Like for like trading profit
Retail
Distribution
3,573.9
2,511.5
3,468.9
2,357.4
3,514.8
2,436.7
3,384.3
2,306.1
86.1
194.0
88.6
188.6
89.8
172.0
90.4
170.1
3.0
6.5
3.9
5.7
(4.1)
12.8
(2.0)
10.9
4.3
8.1
5.1
7.3
(3.1)
13.2
(0.9)
11.3
RETAIL BUSINESS
Retail sales saw a 4.3% growth year on year at £3.6bn. Trading
profit saw a decline of 3.1% mainly due to challenging trading
conditions in Europe and Emerging Markets which were partially
offset by strong results in the UK and Australia.
The Group’s UK retail business grew sales by 3.6%. The UK new car
market reached a four year high and we increased our overall
market share. Continued focus on margins and overheads has
resulted in a year on year growth in trading profit of 8.4% and a
record return on sales of 2.8%.
The Australian retail business benefited from growth in the car
market as supply constraints following the 2011 Japanese
earthquake and flooding in Thailand were resolved. Year on
year sales grew by 7.3% and trading profit by 25.8% resulting
in a return on sales of 3.8%.
The European region experienced a decline in sales in 2012
but at a slower rate than 2011. Sales declined by 6.0% compared
to a decline of 14.5% in 2011. This was primarily due to the
continued market contraction in Greece which declined 40%
in the year.
The Russia and Emerging Markets region continued to grow
in 2012 with sales up by 6.0% to £926.9m. Trading profit was
down 45% year on year as we faced challenging trading
conditions in a number of markets with a slowing of market
growth and volume push activities from OEMs which
impacted new car margins.
DISTRIBUTION BUSINESS
Our distribution business grew year on year by 8.1% to £2.5bn
and 13.2% to £194.0m in terms of sales and trading profit
respectively. The distribution business has continued to perform
well in all regions except Europe where we were impacted by
the challenging market conditions in Belgium and Greece.
The Australasian business grew sales and trading profit by 19.4%,
delivering trading profit of £51.3m. We grew market share by
0.2ppt as we benefited from better supply and the launch of
new models.
24
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
Australasia
Strong revenue and profit growth
KEY FINANCIAL HIGHLIGHTS
Year ended
31.12.2012
£m
Year ended
31.12.2011
£m
% change
in constant
currency
% change
Sales
Retail
Distribution
Like for like sales
Retail
Distribution
Trading profit
Retail
Distribution
Like for like
trading profit
Retail
Distribution
Trading margin %
Retail
Distribution
1,168.7
420.9
747.8
1,168.5
420.7
747.8
67.2
15.9
51.3
67.4
16.1
51.3
5.7
3.8
6.9
1,011.0
389.6
621.4
1,005.9
384.5
621.4
55.3
12.6
42.7
55.9
13.2
42.7
5.5
3.2
6.9
CONTRIBUTION
TO GROUP SALES
CONTRIBUTION
TO GROUP PROFIT
19.2%
24.0%
15.6
8.0
20.3
16.2
9.4
20.3
21.5
26.2
20.1
20.6
22.0
20.1
0.2ppt
0.6ppt
-ppt
14.8
7.3
19.4
15.3
8.7
19.4
20.8
25.8
19.4
19.9
21.7
19.4
0.3ppt
0.6ppt
-ppt
SALES
£1,168.7m +15.6%
(2011: £1,011.0m)*
TRADING PROFIT
£67.2m + 21.5%
(2011: £55.3m)*
* at actual exchange rates
THE MARKET
The Australian economy has performed well in 2012, and the
car market continued to grow and was up by 10.3% to 1.1 million
units reflecting an improvement of the supply situation and the
underlying strengths of the Australian economy.
BUSINESS MODEL & STRATEGY
We are the distributor for Subaru in both Australia and New
Zealand. In addition we have multi-franchise retail operations
based in Sydney, Melbourne and Brisbane. These operations
hold franchises for Subaru, Volkswagen, Mitsubishi, Isuzu and Kia.
At the end of 2012, we owned 21 retail centres and managed
a network of 101 independently owned Subaru centres
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, 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 operational
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
We have delivered a strong revenue and operating profit
performance in Australasia. In a growing market, we were able
to gain share as we benefited from improved supply and the
successful launches of the new Subaru XV and Impreza.
Our gross margin in our distribution business was impacted, as
expected, by the unfavourable Yen exchange rate which was
partly mitigated by a strong performance of our parts business.
Nevertheless, our distribution trading profit of £51.3m was 19.4%
up on the previous year.
The retail business delivered a record trading profit of £15.9m,
up 25.8% on 2011. This was driven by increases in both new and
used car margins as well as a strong penetration of finance
and insurance sales.
ACQUISITION
In February 2013 we announced an important step in the
further development of our Asia Pacific presence, having
acquired Trivett Automotive Group, the leading premium
automotive group in Australia.
OUTLOOK FOR 2013
The Australian car market is expected to continue to grow over
2012 levels and in 2013 we will launch the new Subaru Forester
to capitalise on the growing SUV sector. VW is also expected to
continue its growth and we will leverage the new VW North
Shore showroom.
Our operational focus on our Top Five Priorities of growing market
share, improving margins, growing aftersales, controlling working
capital and selective capital expenditure remains firmly in place
and will further strengthen our business. We continue to expect
to deliver a strong performance in 2013.
George Ashford,
Chief Executive Officer, Inchcape Australasia
www.inchcape.com
25
Operating review continued
Europe
Resilient performance despite
challenging trading conditions
KEY FINANCIAL HIGHLIGHTS
Sales
Retail
Distribution
Like for like sales
Retail
Distribution
Trading profit
Retail
Distribution
Like for like
trading profit
Retail
Distribution
Trading margin %
Retail
Distribution
Year ended
31.12.2012
£m
Year ended
31.12.2011
£m
% change
in constant
currency
% change
616.6
129.7
486.9
614.4
127.5
486.9
16.8
(0.5)
17.3
17.0
(0.3)
17.3
2.7
(0.4)
3.6
806.0
147.5
658.5
802.4
143.9
658.5
24.0
(0.3)
24.3
(23.5)
(12.1)
(26.1)
(23.4)
(11.4)
(26.1)
(30.0)
(66.7)
(28.8)
(18.2)
(6.0)
(20.9)
(18.1)
(5.2)
(20.9)
(25.2)
(79.5)
(23.9)
24.2
(0.1)
24.3
3.0
(0.2)
3.7
(29.8)
(200.0)
(28.8)
(0.3)ppt
(0.2)ppt
(0.1)ppt
(24.7)
(170.8)
(23.9)
(0.3)ppt
(0.2)ppt
(0.1)ppt
CONTRIBUTION
TO GROUP SALES
CONTRIBUTION
TO GROUP PROFIT
10.1%
6.0%
SALES
£616.6m -23.5%
(2011: £806.0m)*
TRADING PROFIT
£16.8m -30.0%
(2011: £24.0m)*
* at actual exchange rates
THE MARKET
The Belgian private car market contracted by 14.9% in 2012 and
this was primarily driven by the end of the Government’s CO2
incentive scheme.
The Greek market declined by 40.2% year on year reflecting the
continued deep economic recession affecting the country.
BUSINESS MODEL & STRATEGY
In Belgium and Luxembourg we distribute Toyota and Lexus
and own 10 retail centres with a network of 100 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
five retail centres and overseeing a further 43 which are
independently owned.
In Finland we are the distributor for Jaguar, Land Rover and
Mazda, owning four retail centres and managing a network
of 48 independent retailers.
In distribution, growth will be 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.
OUR OPERATING PERFORMANCE
In challenging trading conditions we remained focused on
protecting the pricing power of our brands and on leveraging our
aftersales activities while reducing our cost base. Our European
businesses have delivered a resilient trading profit of £16.8m.
We saw a significant decline of new car volume in both
Greece and Belgium which triggered, as expected, an increase
of promotional activities from our competitors, affecting new
car margin.
OUTLOOK FOR 2013
We expect the trading conditions in Europe to remain
challenging in 2013 with a further industry decline given
the low level of consumer confidence and the uncertainties
in the Eurozone.
Our teams will continue to protect the pricing power of our
brands by not pushing volume at the expense of profitability
and by making sure we successfully launch the new Toyota Auris,
the new RAV4 and the new Lexus IS. We will continue to leverage
the strength of our profitable aftersales segments and our control
on costs will remain firmly in place.
While our European business will continue to face a challenging
trading environment in 2013, we continue to expect to deliver
a resilient financial performance.
Bertrand Mallet,
Chief Executive Officer, Toyota Belgium
Aris Aravanis,
Chairman & Managing Director, Toyota Hellas
Jean Van der Hasselt,
Chief Executive Officer, Russia and the Nordics
26
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
North Asia
Market leadership for 21 years
and record profitability
KEY FINANCIAL HIGHLIGHTS
Sales
Distribution
Like for like sales
Distribution
Trading profit
Distribution
Like for like
trading profit
Distribution
Trading margin %
Distribution
Year ended
31.12.2012
£m
Year ended
31.12.2011
£m
% change
in constant
currency
% change
518.7
433.3
19.7
17.9
445.7
384.9
15.8
14.0
52.8
42.0
25.7
23.6
47.5
39.8
19.3
17.3
10.2
9.7
0.5ppt
0.5ppt
CONTRIBUTION
TO GROUP SALES
CONTRIBUTION
TO GROUP PROFIT
8.5%
18.9%
SALES
£518.7m +19.7%
(2011: £433.3m)*
TRADING PROFIT
£52.8m +25.7%
(2011: £42.0m)*
* at actual exchange rates
THE MARKET
The Hong Kong market grew by 3.7% compared to 2011,
reflecting the underlying strengths of the Hong Kong economy.
BUSINESS MODEL & STRATEGY
In Hong Kong and Macau we are the exclusive distributor for
Toyota, Lexus, Land Rover, Jaguar, Ford, Daihatsu and Hino Trucks.
We also own and operate all 19 retail centres for these brand
partners in this market.
In Guam we are the exclusive distributor and retailer for Toyota,
Lexus, Chevrolet and Scion, owning all three retail centres.
In Saipan we are distributor and retailer for Toyota with one
further retail centre.
OUR OPERATING PERFORMANCE
We have delivered another strong performance, gaining
market share in all our North Asian markets having successfully
leveraged a number of new products such as the new Prius C,
new Camry and new Lexus GS.
Sales revenue and trading profit for North Asia grew by 17.9%
and 23.6% respectively and we have delivered a trading profit
of £52.8m, which was a record.
At the end of 2011, we won the distribution contract for Land
Rover in Hong Kong and in our first year, performance was ahead
of expectations as we increased Land Rover volume by 95%.
Trading margin increased 0.5ppt to 10.2% due to a stronger
product mix, the pricing power of our brands and a strong
aftersales performance.
In Hong Kong, we have been market leader in the overall market,
the passenger car market and the commercial vehicle market for
21 years in a row. Hong Kong is the only Toyota distributor in the
world to have received a Triple Crown award for 21 years.
OUTLOOK FOR 2013
We expect the Hong Kong economy to remain strong and the
new car market to continue to grow in 2013.
There are a number of product launches planned for in 2013
which we intend to fully leverage, including the Toyota Corolla,
RAV4 and Previa Hybrid, the Lexus LS 600h and IS, ES, GS 300h
and CT200h.
We continue to expect to deliver a strong performance in North
Asia in 2013.
Patrick S Lee,
Chief Executive Officer, Inchcape North Asia and China
www.inchcape.com
27
Operating review continued
South Asia
Strong revenue and operating
profit growth
KEY FINANCIAL HIGHLIGHTS
Sales
Distribution
Like for like sales
Distribution
Trading profit
Distribution
Like for like
trading profit
Distribution
Trading margin %
Distribution
Year ended
31.12.2012
£m
Year ended
31.12.2011
£m
% change
in constant
currency
% change
385.1
296.2
30.0
27.4
385.0
293.2
31.3
28.7
35.1
26.0
35.0
32.4
35.2
26.3
33.8
31.3
9.1
8.8
0.3ppt
0.3ppt
CONTRIBUTION
TO GROUP SALES
CONTRIBUTION
TO GROUP PROFIT
6.3%
12.5%
SALES
£385.1m +30.0%
(2011: £296.2m)*
TRADING PROFIT
£35.1m +35.0%
(2011: £26.0m)*
* at actual exchange rates
THE MARKET
The car market in Singapore continued to decline in 2012, as
expected, and ended the year 5.4% lower than 2011 due to a
reduction in the number of government-issued Certificates of
Entitlement (“COEs”) available.
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 five retail centres in the market.
In Brunei we are the distributor for both Toyota and Lexus, owning
and operating all four retail centres there.
OUR OPERATING PERFORMANCE
Our businesses in South Asia delivered a strong performance in
2012, where our sales have increased 27.4% to £385.1m as we
gained share with a number of successful product launches
and benefited from a return to our normal stock supplies
following the earthquake in Japan and the floods in Thailand.
South Asia delivered £35.1m trading profit, an increase of 32.4%
on 2011 with a higher trading margin of 9.1% up by 0.3ppt on
2011, as we continued to protect the pricing power of our brands
despite strong price competition.
Our aftersales operations also continued to perform well through
efficient customer contact programmes and high levels of
customer service.
OUTLOOK FOR 2013
Trading conditions will remain challenging in 2013 as we
expect the industry to decline further due to the reduction of
de-registrations in 2012. We will continue to protect the pricing
power of our brands by not pushing volume at the expense of
profitability and by continuing to leverage our strong aftersales
operation with innovative loyalty programmes. We will also
successfully launch exciting new models from Toyota, Lexus
and Suzuki.
We will continue to have tight control on costs and cash in
2013 and we continue to expect our South Asia business to
deliver a resilient performance in 2013.
Koh Ching Hong,
Managing Director, Inchcape South Asia
28
Inchcape plc Annual Report and Accounts 2012
Business Review
GoveRnance
Financial statements
shaReholdeR inFoRmation
United Kingdom
Record retail operating margin
Key Financial hiGhliGhts
year ended
31.12.2012
£m
Year ended
31.12.2011
£m
% change
in constant
currency
% change
sales
Retail
Distribution
like for like sales
Retail
Distribution
trading profit
Retail
Distribution
like for like
trading profit
Retail
Distribution
trading margin %
Retail
Distribution
2,133.8
2,096.4
37.4
2,084.8
2,047.4
37.4
65.2
58.0
7.2
66.1
58.9
7.2
3.1
2.8
19.3
2,059.3
2,023.2
36.1
1,984.7
1,948.6
36.1
60.4
53.5
6.9
60.0
53.1
6.9
2.9
2.6
19.1
CONTRIBUTION
TO GROUP SALES
CONTRIBUTION
TO GROUP PROFIT
35.1%
23.3%
3.6
3.6
3.6
5.0
5.1
3.6
7.9
8.4
4.3
3.6
3.6
3.6
5.0
5.1
3.6
7.9
8.4
4.3
10.2
10.9
4.3
0.2ppt
0.2ppt
0.2ppt
10.2
10.9
4.3
0.2ppt
0.2ppt
0.2ppt
SaleS
£2,133.8m +3.6%
(2011: £2,059.3m)
TRaDing pRofiT
£65.2m +7.9%
(2011: £60.4m)
the maRKet
The UK new car market reached a four year high of 2.045 million
units in 2012, some 5.3% up on 2011’s level. The recovery in the
retail market was the key driver of growth, rising by some 13% year
on year. Strong consumer demand was driven by increased
promotional activities as well as competitive financing.
Business model & stRateGy
We have scale operations in the core regions of the South east,
Midlands, north and north east of england with a streamlined
portfolio of 117 retail centres focused on luxury and premium
brands. We aim to create significant differentiation by delivering
a superior level of customer service through the bespoke
operating processes of our inchcape advantage programme
and to drive growth in aftersales and car finance penetration.
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 in the automotive
industry, ifS has a combined fleet size of approximately
41,000 vehicles.
ouR opeRatinG peRFoRmance
our Customer 1st strategy and portfolio of leading luxury and
premium brands continued to provide strong results. our share
of the total UK market increased and retail sales were up 3.6%
compared to 2011 with trading profit increasing by 8.4% to
£58.0m. Through a rigorous focus on costs, our retail trading
margin increased by 0.2ppt to reach a record 2.8% in 2012.
our ifS business delivered a strong £7.2m trading profit, up 4.3%
on 2011. The ifS trading margin increased to 19.3%, 0.2ppt ahead
of last year.
outlooK FoR 2013
in 2013, we believe the UK car industry will continue its gradual
recovery driven by affordable consumer finance and increased
level of promotional activities.
We are well positioned to outperform the industry as we stay
focused on delivering a superior customer service. We will
leverage the exciting pipeline of new models launched by our
brand partners, including the new Range Rover, Range Rover
Sport, Jaguar f Type, Mini paceman, Mercedes-Benz a-Class
and S-Class relaunches and the porsche Cayman.
We continue to expect to deliver a solid performance in the UK
in 2013.
connor mccormack,
Chief executive officer, inchcape UK
www.inchcape.com
29
Operating review continued
Russia and Emerging Markets
Resilient financial performance despite
challenging trading conditions
KEY FINANCIAL HIGHLIGHTS
Sales
Retail
Distribution
Like for like sales
Retail
Distribution
Trading profit
Retail
Distribution
Like for like
trading profit
Retail
Distribution
Trading margin %
Retail
Distribution
Year ended
31.12.2012
£m
Year ended
31.12.2011
£m
% change
in constant
currency
% change
1,262.5
926.9
335.6
1,253.1
919.2
333.9
43.0
12.7
30.3
44.0
13.9
30.1
3.4
1.4
9.0
1,220.5
908.6
311.9
1,219.3
907.4
312.0
54.1
24.0
30.1
3.4
2.0
7.6
2.8
1.3
7.0
(20.5)
(47.1)
0.7
7.1
6.0
10.4
6.5
5.3
9.9
(18.2)
(44.6)
2.3
54.3
24.2
30.1
4.4
2.6
9.7
(19.0)
(42.6)
–
(1.0)ppt
(1.2)ppt
(0.7)ppt
(16.6)
(40.1)
1.7
(1.1)ppt
(1.3)ppt
(0.7)ppt
CONTRIBUTION
TO GROUP SALES
CONTRIBUTION
TO GROUP PROFIT
20.8%
15.3%
SALES
£1,262.5m +3.4%
(2011: £1,220.5m)*
TRADING PROFIT
£43.0m -20.5%
(2011: £54.1m)*
* at actual exchange rates
THE MARKET
Since the second quarter of 2012, there has been a temporary
slowdown in demand for premium and luxury cars in all
Emerging Markets except Africa, as affluent buyers have been
increasingly concerned about the impact on their economies
of the Euro crisis and uncertainties in China and North America.
There has been an increased level of promotional activities
from manufacturers throughout 2012 as they try to offset weak
demand for their vehicles in Europe. This has created significant
pressure on margins as the level of supply has been greater
than the underlying level of demand.
BUSINESS MODEL & STRATEGY
In Russia we operate 22 scale retail centres in St Petersburg
and Moscow representing 12 brands. In November 2012 we
completed the buyout of the Independence Toyota joint venture
at Vnukovo in Eastern Moscow for a final payment of £17.3m.
In the Balkans we are the distributor for Toyota and Lexus,
operating five 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 centres across
the region.
In Ethiopia we operate VIR for Toyota and in South America as
distributor and retailer for BMW. We also distribute Rolls-Royce
in Chile.
In China we have four scale retail centres for Toyota, Lexus, Jaguar
Land Rover in Shanghai and Shaoxing and we will be opening
a new Porsche centre in Nanchang in early 2013.
OUR OPERATING PERFORMANCE
Russia and the Emerging Markets managed to grow sales by
7.1% over 2011, and trading profit declined by 18.2% to £43.0m.
Our Russian business delivered £678.8m of revenue in 2012, and
a trading profit of £13.3m,resulting in a return on sales of 2.0%.
Ethiopia performed well as we continued to benefit from a
strong aftersales market in an economy that remains robust.
Demand for new cars weakened in Eastern Europe,
impacting margins.
Demand for luxury vehicles was lower than expected in South
America where we saw an increase of competitive activities.
Our Chinese operations were adversely impacted as of the
second quarter by a general weakening in demand and
pressure on new car margins and by an anti-Japanese sentiment
in the fourth quarter.
OUTLOOK FOR 2013
We expect moderate industry growth in our Russia and Emerging
Markets segment in 2013, weighted towards the second half of
the year as it will take time for consumer confidence among
affluent buyers to return. We see these challenging trading
conditions in emerging markets as temporary, with attractive
structural growth prospects in the medium and long term given
the strong fundamentals of these economies.
Our businesses will remain focused on our Top 5 Priorities with firm
controls on cost and cash. We plan to continue to grow our
aftersales business with our proven marketing initiatives and we
will focus on profitable market share growth. We will benefit from
several new product launches from our brand partners and we
will continue to protect the pricing power of our brands despite
price competition due to over-supply in the market. Our control
on costs will remain firmly in place.
Overall, we continue to expect our Russia and Emerging Markets
segment to deliver a solid performance in 2013.
Louis Fallenstein,
Managing Director, Emerging Markets
Jean Van der Hasselt,
Chief Executive Officer, Russia and the Nordics
Patrick S Lee,
Chief Executive Officer, Inchape North Asia and China
30
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
Finance review
The Group has delivered a robust performance in 2012. In addition to the
segmental results, detailed below are the financial implications of our
operating activities.
schemes on a proposal that both schemes be closed to future
accrual with effect from 31 December 2012. The proposal was
confirmed by the Group on 21 December 2012 and active
members ceased to accrue benefits under the schemes with
effect from 31 December 2012. A revision of market and actuarial
assumptions for the UK defined benefit schemes, combined with
the closure of two schemes to future accrual and amendments
to scheme rules, has resulted in a closing surplus on Group
schemes of £72.7m, compared to a deficit of £14.9m in 2011.
ACQUISITIONS AND DISPOSALS
In November, the Group acquired the remaining 49% interest
which it did not already own in the Inchcape Independence
group, a retail business in Moscow, from Independence Holdings
Limited for a cash consideration of £17.3m.
During the year, the Group disposed of its interest in a retail centre
in Russia at book value, generating disposal proceeds of £2.9m.
Post the period end, we have announced an important step
in the further development of our Asia Pacific presence, having
acquired Trivett Automotive Group, a scale premium and luxury
automotive group in Australia, for a total expected cash
consideration of £78m. This transaction adds further scale to
our Australian business in the premium and luxury segments.
CAPITAL EXPENDITURE
During the year, the Group invested £87.3m (2011: £88.5m) of net
capital expenditure in the development of greenfield sites and
the enlargement of existing facilities, primarily in Asia Pacific and
the Emerging Markets.
CASHFLOW AND NET FUNDS
The Group’s operations have generated strong cashflow in 2012.
Working capital ended the year at £25.9m (2011: £12.2m)
primarily due to favourable phasing. At the end of 2012, the
Group had net funds of £276.2m (2011: £243.5m).
John McConnell,
Group Finance Director
CENTRAL COSTS
Unallocated central costs for the full year are £18.2m before
exceptional items (2011: £17.4m).
JOINT VENTURES AND ASSOCIATES
The share of profit after tax from joint ventures was a gain of
£0.2m (2011: loss of £3.0m) driven by an improvement in the
profitability of our operations in Greece and Russia.
OPERATING EXCEPTIONAL ITEMS
We have reported an exceptional operating income of £1.2m
for 2012 (2011: a cost of £13.4m). Included within this is a gain
of £19.7m arising from the closure to future accrual of some of
the Group’s UK final salary pension schemes and restructuring
costs of £17.3m (2011: £13.4m), which primarily relate to
restructuring initiatives conducted in the fourth quarter of 2012.
We also incurred a loss on the deemed disposal of our Russian
joint venture of £1.2m.
NET FINANCING COSTS
Net financing costs before exceptional items have decreased
from £13.7m in 2011 to £11.8m in 2012. Included within this is
a gain of £4.8m (2011: a loss of £2.4m) in our mark to market
reporting of the hedges for the US loan notes and interest
receivable on tax refunds.
Exceptional finance costs in 2011 of £10.9m represented 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
25% compared to 26% in 2011. This is due to the impact of
reducing tax rates in a number of our markets and the successful
conclusion of overseas territories audits. The rate is expected to
be similar for 2013.
NON CONTROLLING INTERESTS
Profits attributable to our non controlling interests were £5.9m,
compared to £5.6m in 2011. 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 2012, the Group derived no benefit (2011 benefit: £1.2m)
from the translation of its overseas profits before tax into sterling
at the 2012 average exchange rate.
DIVIDEND
The Board recommends a final ordinary dividend of 10.5p per
ordinary share which is subject to the approval of shareholders
at the 2013 Annual General Meeting. This gives a total dividend
for the year of 14.5p per ordinary share (2011: 11.0p).
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 £27.7m (2011: £24.1m).
In addition, the Group commenced a consultation process with
members and trustees of two of the UK defined benefit pension
www.inchcape.com
31
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 45 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:116)(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:116)(cid:1) The Group is investing in new ways of reaching its customers
including through the use of the internet and social media
(cid:116)(cid:1) Obtaining favourable credit terms and making improvements
in supply chain management
(cid:116)(cid:1) Group-wide focus on working capital (particularly aged
stock) reduction
(cid:116)(cid:1) Thorough reviews of all proposed capital expenditure to ensure
Group investment hurdles are met
BRAND PARTNERS, KEY RELATIONSHIPS AND REPUTATION
Description of risk
Impact
Mitigation
Inability to sustain current
high quality relationships
with brand partners
Impact on our ability to retain
existing businesses on contract
renewal and to take on new
opportunities for growth
(cid:116)(cid:1) Constant focus on performance and continuous improvement,
effective communication and ensuring that our objectives are
closely linked to those of our brand partners
(cid:116)(cid:1) Constant focus on improving governance practices and ‘the
right way of doing business’ to enhance and maintain our
market leading reputation
SYSTEMS AND TECHNOLOGY
Description of risk
Impact
Mitigation
Execution risk of delivery
to twin track SAP/ADP strategy
Inability to support key
business processes
(cid:116)(cid:1) Detailed global and local implementation plans in place, supported
by dedicated project management resource
(cid:116)(cid:1) Global and in-market steering committee (including all local
executive teams) to continuously monitor implementation
(cid:116)(cid:1) Post implementation reviews to identify future improvements
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
Failure to comply with
EH&S standards
Injury to customers/employees
(cid:116)(cid:1) Global annual performance review process
(cid:116)(cid:1) Talent review and planning process
(cid:116)(cid:1) Annual employee engagement survey and action planning
(cid:116)(cid:1) External benchmarking of remuneration
(cid:116)(cid:1) Succession plans in place for key positions
(cid:116)(cid:1) Local EH&S co-ordinators in place in all markets
(cid:116)(cid:1) Group and Regional EH&S steering committees in place with
defined reporting lines to iPOM Committees
(cid:116)(cid:1) Training for all staff
(cid:116)(cid:1) Specific EH&S audit plan
32
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
ECONOMIC, POLITICAL AND ENVIRONMENTAL
Description of risk
Impact
Mitigation
European economic
instability and failure to
recognise the potential
contagion risk from a
Greek exit from the Euro
Lower purchases of new vehicles
(cid:116)(cid:1) Review of strategic plans/joint development of asset and
Market uncertainty
dividend plans
(cid:116)(cid:1) The Group has a multi market strategy with presence in Asia
Pacific and Emerging Markets where the potential for strong growth
is forecast
(cid:116)(cid:1) The Group has a multi channel business model including
used cars and aftersales which reduce dependency on a
single revenue stream
Increased demand for
greener technologies
Consumers seek
alternative vehicles
(cid:116)(cid:1) The Group works closely with manufacturers who recognise their
environmental responsibility
LEGAL AND REGULATORY
Description of risk
Impact
Mitigation
Litigation and regulatory risk
in an environment of ever
increasing regulatory scrutiny
Litigation or breaching the
laws or regulations of the
countries in which we operate
could have a financial and/or
reputational impact
(cid:116)(cid:1) The Group ensures that it receives 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:116)(cid:1) Policies and procedures in place, including subsidiary governance
manual to emphasise compliance with proper process
(cid:116)(cid:1) The Group has a risk management programme (iPOM) in place
aimed at preventing issues from arising where possible and
responding to those which do crystallise
TAX, PENSIONS AND INSURANCE
Description of risk
Impact
Mitigation
Propensity of highly leveraged
governments to seek higher
tax from the Group
Increased tax liability
(cid:116)(cid:1) Ensure adequate tax compliance readiness carried out locally
(cid:116)(cid:1) Maintain accurate and robust tax records
(cid:116)(cid:1) Monitor tax audits
FINANCE AND TREASURY
Description of risk
Impact
Mitigation
Availability of debt funding
Unable to meet obligations with
existing committed facilities
(cid:116)(cid:1) The Group maintains adequate committed facilities to meet forecast
debt requirements
(cid:116)(cid:1) Effective cash forecasting
(cid:116)(cid:1) Regular reviews of cash position/location to ensure adequate
headroom maintained
Counterparty risk
Credit losses
(cid:116)(cid:1) Deposits concentrated with counterparties approved in advance
by Group Treasury
(cid:116)(cid:1) Cash deposits held locally in line with Group policy
(cid:116)(cid:1) Continuous review of ratings of major banking partners to ensure
they maintain investment grade status
Currency risk
Transactional foreign
exchange exposures
(cid:116)(cid:1) A significant proportion of Group trading is denominated
in local currency
(cid:116)(cid:1) Where possible, foreign exchange exposures are matched internally
before hedging externally
(cid:116)(cid:1) Where businesses are billed in a foreign currency, committed
transactional exposures are hedged back to the reporting currency
www.inchcape.com
33
Corporate Responsibility report
As a global industry leader, we seek to make a positive impact
on the lives of our people, our customers and the communities
in which we operate around the world. During the year, we
developed a clear Corporate Responsibility (CR) mission to
promote ‘Mobility with Passion and Care’ and we aim to achieve
our mission by adopting a global approach to embedding
responsible behaviour into the way we operate, growing a
sustainable business for the benefi t of all our stakeholders – our
Communities, Environment, Customers, People and Brand Partners.
It is the spirit and energy of our people that shapes and defi nes
how we bring CR to life and we celebrate local activities and
share CR best practices with the whole organisation through
our Green Baton programme. The baton passes from market to
market throughout the year, giving each of our businesses the
opportunity to showcase the inspirational CR activities they are
implementing in their communities. Our Green Baton initiatives
are shared with the Group on our intranet site, The Light.
In 2012 we launched ‘Incredible Inchcape’, our Group-wide
engagement programme designed to mobilise our colleagues
to take the Company to new heights, which gave us the
opportunity to refresh our core purpose and vision in line with
our Customer 1st strategy. Following a launch event in Scotland,
the programme was rolled out across the Group to engage our
colleagues in our Values and to give them new tools designed
to help them fulfi l their role in shaping the Group’s future growth.
We have effectively communicated our refreshed Values across
all our businesses through our ‘Living Inchcapeness’ programme.
Our Values act as a backdrop against which we make our
decisions on a day to day basis across the Group.
Inchcape Peace of Mind (iPOM), our Group-wide risk
management programme, helps to defi ne and encourage the
‘right way of doing business’ for our people across the globe, and
ensures we drive good behaviours across the Group. The iPOM
Committee remit covers all risk including non fi nancial risks and
is constructed with the Group’s Values at its heart. Further
information can be found in the Corporate Governance report
on page 46.
We believe that our colleagues’ spirit, passion and enthusiasm,
combined with our mission to promote ‘Mobility with Passion and
Care’, underpinned by our Values, means that we will continue to
make a positive bearing on the lives of our people, our customers
and the communities in which we operate, while managing our
impact on the environment.
Our Corporate Responsibility
mission is to promote ‘Mobility
with Passion and Care’.
André Lacroix
Group Chief Executive
WE CONTINUED TO DELIVER AGAINST OUR STATED GOALS
IN 2012. HIGHLIGHTS INCLUDE:
(cid:116)(cid:1)The successful global rollout of the ‘Green Baton’
programme, which highlights local CR activities from
across our markets globally
(cid:116)(cid:1)Creation of a Group EH&S Steering Committee
(cid:116)(cid:1)Refreshed our Values and Core Purpose
(cid:116)(cid:1)Strengthened our CR presence on our Group intranet site,
The Light
(cid:116)(cid:1)Developed a new mission for our CR activities to promote
‘Mobility with Passion and Care’
OUR FIVE CORE AREAS:
André Lacroix,
Group Chief Executive
Communities
We support our
local communities
to make positive
impacts where
we operate
Environment
We manage our
CO2 footprint by
understanding
our impact
Customers
We drive constantly
improving levels
of customer service
every day, every
time, everywhere
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
34
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
GOVERNANCE AND MANAGEMENT
The Board is responsible for the strategic direction of Corporate
Responsibility and ensuring that it is integrated into the Group’s
strategy. The CR Committee is responsible for setting the policy
within the framework established by the Board and ensuring that
our businesses respond to the opportunities and risks posed by
CR issues. The CR Committee report can be found on page 49.
CR working groups and local CR Champions are responsible
for the day to day implementation of the CR policy.
OUR VALUES
Our Values are living, shared beliefs within our business that
inform our day to day behaviours. These Values empower our
culture, drive our business and enable us to contribute
responsibly and sustainably to society.
PASSIONATE ABOUT MAKING A DIFFERENCE
We feel empowered to make a difference and have the
courage, determination and commitment to do so. We are
committed to giving growth opportunities to our people,
delivering performance for our brand partners and creating
magic moments for our customers as we take our Company
to new heights.
RESPECT AND CAMARADERIE
Our people are at the heart of who we are as a Company. We
celebrate diversity, learn from each other and are proud to be
working with the best. We rise to any challenge together; our
friendship, respect for each other and sense of ‘Inchcape family’
make us incredibly strong and we have fun along the way.
CORE AREAS AND THEIR RISKS
BEING ALWAYS AHEAD
A pioneering spirit is the very essence of the Company. We
liberate talent, prize bold innovation and are passionate about
seizing opportunities ahead of our competitors.
WINNING TOGETHER
We are strong as individuals but we’re even stronger when we
work together as a team. We are proud to be part of a rich global
network of incredible Inchcape people.
INTEGRITY WITHOUT COMPROMISE
We have an uncompromising commitment to transparency and
ethical principles. We believe in straight talking and taking
responsibility for what we say and do.
CARING FOR OUR SOCIETY
We are aware of our responsibilities as the global industry leader.
We seek to make a positive impact on the lives of our People, our
Customers and the Communities in which we operate around
the world. Our Corporate Responsibility mission is to promote
‘Mobility with Passion and Care’.
TREATING EVERY £ AS OUR OWN
Each one of us feels and acts like an owner of our Company.
We see cost as a good thing as long as it creates value. We
hate waste and therefore think before we spend. We leverage
our scale to achieve a cost and speed advantage over
our competitors.
Core Element
Description and risk
Mitigation
Communities
Lack of engagement with the communities in which we
operate leading to a poor reputation and lack
of understanding of our customer base
Encourage employees to support local charities and
initiatives that directly benefit their community
Environment
Energy can be a significant cost to the Group as
well as increasing our CO2 footprint
By finding ways to cut back on energy usage the
Group saves money and also significantly reduces its
CO2 emissions
Unnecessary business travel can increase the CO2
footprint of the Group
Manage travel by use of alternative communication tools
Unmanaged shipments of cars and parts can adversely
impact our CO2 footprint
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
Brand Partners
Unable to deliver on strategy through lack of
competitive products
Net Promoter Score to measure customer satisfaction
and identify areas for improvement
Differentiated service and customer feedback instills pride
and continuous engagement in the workforce. Expansion of
business creates good career opportunities
for employees
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
www.inchcape.com
35
Corporate Responsibility report continued
COMMUNITIES
Our people are core to driving our CR strategy by implementing
local programmes across our markets. This ensures that we create
CR programmes and activities which engage with and have an
impact within the communities in which we operate. The Mother
and Child Rehabilitation Centre supported by our colleagues in
Ethiopia, is just one of the incredible examples of the inspiring
work carried out by our employees in their communities, across
the Group.
In 2012 these activities were shared at a Group level with the
launch of the Green Baton programme. The Green Baton is
passed between markets every two weeks and the markets
are encouraged to share with colleagues the CR initiatives
implemented and the impact this is creating within their
communities. This can be found within the CR section of our
Group intranet The Light, and has proved highly successful in
showcasing specific market CR initiatives from around the Group,
providing inspiration and motivation amongst our employees.
Further detail of our CR initiatives can be found in the
Responsibilty section at www.inchcape.com.
ENVIRONMENT
During 2012, we reviewed our data collection process and
the KPIs measured in order to ascertain our CO2 usage. The
Committee agreed that the current KPIs, Energy, Transport and
Flights previously identified as the areas having the most impact,
remained relevant and will continue to be measured.
CO2 DATA CAPTURE & REPORTING SYSTEM
The Group is currently developing a secure Intranet based web
application that will allow each market to submit monthly CO2
data and provide the Company with the ability to review and
summarise the data. Following the Department for Environment,
Food and Rural Affairs (DEFRA) guidance, the system will utilise
the standard conversion factors to report environmental KPIs
and greenhouse gas emissions in a uniform and concise way,
showing trends with year on year variances.
The following measures will be reported for Group and
each market:
(cid:116)(cid:1)Energy consumption from utilities
(cid:116)(cid:1)Transportation of vehicles (distribution markets)
(cid:116)(cid:1)Transportation of parts (distribution markets)
(cid:116)(cid:1)Business travel (not commuting)
(cid:116)(cid:1)Number of and distance travelled during test drives
(cid:116)(cid:1)CO2 per £/revenue
CUSTOMERS
Our Customer 1st strategy is at the heart of everything we do and
creates incredible growth for our people, our brand partners and
our shareholders. Our strategy is to strengthen the business
through delivering a superior customer experience.
CUSTOMER 1ST IN 2012
(cid:116)(cid:1)We carried out 2,431 mystery shop exercises in 211 retail centre
showrooms across the Group
(cid:116)(cid:1)We carried out 2,284 mystery shop exercises in 200 service
centres across the Group
(cid:116)(cid:1)We talked to 85,400 customers for our vehicle sales
NPS programme
(cid:116)(cid:1)We talked to 85,634 service customers for our aftersales NPS
The Net Promoter Score (NPS) has improved again across the
Group in both Sales and Service.
PEOPLE
We know that it is our people that make all the difference and
throughout 2012 we continued to develop our people strategy
of ‘engaged people in winning teams’ by focusing on the Right
People, Right Learning, Right Reward and Right Culture. In 2012
we launched ‘Incredible Inchcape’; our Group-wide
engagement programme designed to mobilise our colleagues
to take the Company to new heights.
RIGHT PEOPLE
As a global company, we are able to leverage the benefits of a
diverse workforce. We have strong processes which are aimed at
constantly improving the quality of our hiring and our talent
planning and reviews. As a consequence we are able to offer
exciting development opportunities for our talent, including
international transfers.
RIGHT LEARNING
We aim to create and promote a rich environment of learning for
everyone. Through programmes such as ‘Grow with Inchcape’ we
ensure that internal development happens for everyone. This can
be on the job training or through a variety of development
options, including job rotation or stretching new roles. By doing
this, we are creating a pipeline of talent who have been internally
nurtured and developed. Our Executive Committee is a great
example of this, where most of the current Committee members
have been developed within the Group before being appointed
to their current role. Biographies of the Executive Committee can
be found on pages 40 to 41.
RIGHT REWARD
We have several schemes across the Group which are designed
to ensure that our people feel valued and are recognised for their
contribution to the business. Our recognition and rewards policy
is geared towards reinforcing the right behaviours in keeping with
our Values and the interests of our shareholders.
RIGHT CULTURE
We recognise that it is the engagement of our colleagues
around the world that brings our Customer 1st strategy to life.
We proactively develop employee engagement through a variety
of programmes, including workshops designed to align each
colleague with the strategic plan as well as give them toolkits
to help them unleash their own potential as well as the potential
of their colleagues.
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 to improve fuel efficiency.
36
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
NUMBER OF EMPLOYEES 2012
14,422
Australasia
Europe
North Asia
South Asia
UK
Russia and Emerging Markets
Our approach to safety aims to manage risks effectively by
ensuring that our employees are fully trained and workplaces
comply with safety regulations. We report and monitor accidents
to ensure that the safety of our employees and customers
remains at the top of our agenda.
NUMBER OF ACCIDENTS 2012
Location
Australasia
Europe
North Asia
South Asia
UK
Russia & Emerging Markets
2012
2011
16
19
26
4
82
8
7
9
32
2
74
5
We are committed to providing a safe environment for our
employees and in 2012 we created a Group EH&S Steering
Committee. The Committee will provide the leadership to deliver
a clear Policy Statement, maintain an effective organisational
structure and to provide systematic tools which will allow the
Group to significantly and consistently improve its focus and
delivery on EH&S.
The Committee is made up of regional EH&S co-ordinators and
external experts and will meet at least three times a year to review
progress against targets, develop tools and techniques which
address any process or capability gaps and to allocate resource
where required to support implementation of the required
standards across the Group.
PROGRESS AGAINST GOALS
THE EH&S ORGANISATIONAL STRUCTURE
Inchcape plc Board
Group iPOM Committee
EH&S Steering Committee
Market iPOM Committees
Local EH&S
Champions
Local EH&S
Champions
Local EH&S
Champions
Local EH&S
Champions
The Committee’s key tasks are:
(cid:116)(cid:1)Develop and maintain the Group EH&S Policy Statement
(cid:116)(cid:1)Identify and deliver priority areas for the development of
Group-wide minimum standards and the roll out plan for
these standards
(cid:116)(cid:1)Review EH&S Audit results / self audit reviews
(cid:116)(cid:1)Maintain EH&S organisational structure and allocate relevant
resource to markets to help with EH&S embedding
(cid:116)(cid:1)Develop and implement in-market EH&S Audits
(cid:116)(cid:1)Develop and conduct in-market training
(cid:116)(cid:1)Identify key issues / trends for senior management action
Objective
2012 progress
What we aim to do in 2013
Our intranet, The Light, has been rolled out in all
jurisdictions. The Green Baton was launched in the
summer and started in the UK. More information
about the Green Baton journey can be found at
www.inchcape.com/responsibility.
The Green Baton initiative will continue in 2013 and inspire
colleagues to develop new local initiatives.
Established a global EH&S Steering Committee.
The EH&S Committee will identify and roll out best practice
standards throughout the Group.
Raising awareness
of local CR activities
and employee
engagement
through the
Green Baton
Extending Health
& Safety best
practice to
our operations
worldwide
CO2 data collection The CO2 data collection process was reviewed during
the year.
Prepare and review data in accordance with DEFRA
standards in order to analyse global usage and trends.
www.inchcape.com
37
Board of Directors
KEN HANNA
Chairman
ANDRÉ LACROIX
Group Chief Executive
WILL SAMUEL
Deputy Chairman and
Senior Independent
Non-Executive Director
JOHN MCCONNELL
Group Finance Director
ALISON COOPER
Non-Executive Director
APPOINTMENT
TO BOARD:
September 2001
APPOINTMENT
TO BOARD:
September 2005
APPOINTMENT
TO BOARD:
January 2005
APPOINTMENT
TO BOARD:
October 2009
APPOINTMENT
TO BOARD:
July 2009
SKILLS AND EXPERIENCE
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.
SKILLS AND EXPERIENCE
Ken was appointed as
Chairman of Aggreko plc
in April 2012 and is also a
Non-Executive Director of
Tesco plc. 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.
COMMITTEE MEMBERSHIP
Ken is Chairman of the
Nominations Committee
and a member of the
Remuneration and CR
Committees.
COMMITTEE MEMBERSHIP
André is a member of the
Nominations and
CR Committees.
SKILLS AND EXPERIENCE
Will is Chairman of
Howden Joinery Group
plc and a Senior Advisor
to Lazard & Co Ltd. He
is also Chairman of
Ecclesiastical Insurance
Group plc. He was also
appointed a Senior
Advisor to the Financial
Services Authority (FSA)
in January 2012. Prior to
this he was a director of
Schroders plc, Co-Chief
Executive Officer at
Schroder Salomon Smith
Barney and Vice
Chairman, European
Investment Bank of
Citigroup Inc and
Chairman of H P Bulmer
plc. Will stepped down
from his position as
Non-Executive Director of
the Edinburgh Investment
Trust plc at the end of
2012 having served his
nine year term. Will is a
Chartered Accountant.
COMMITTEE MEMBERSHIP
Will is a member of
the Remuneration,
Audit and Nominations
Committees.
SKILLS AND EXPERIENCE
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.
SKILLS AND EXPERIENCE
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.
Alison is a Chartered
Accountant and was
previously with
Pricewaterhouse
Coopers LLP.
COMMITTEE MEMBERSHIP
Alison is a member of
the Audit Committee.
38
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
SIMON BORROWS
Non-Executive Director
NIGEL NORTHRIDGE
Non-Executive Director
VICKY BINDRA
Non-Executive Director
TILL VESTRING
Non-Executive Director
APPOINTMENT
TO BOARD:
October 2010
APPOINTMENT
TO BOARD:
July 2009
APPOINTMENT
TO BOARD:
July 2011
APPOINTMENT
TO BOARD:
September 2011
SKILLS AND EXPERIENCE
Simon was appointed
as Chief Executive
Officer of 3i Group plc
in May 2012. 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.
SKILLS AND EXPERIENCE
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.
SKILLS AND EXPERIENCE
Vicky is President of Asia/
Pacific, Middle East &
Africa (APMEA) for
MasterCard Worldwide.
Prior to joining
MasterCard in June 2009,
Vicky 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.
SKILLS AND EXPERIENCE
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.
COMMITTEE MEMBERSHIP
Simon is Chairman of
the Audit Committee
and a member of the
Nominations Committee.
COMMITTEE MEMBERSHIP
Nigel is Chairman
of the Remuneration
Committee.
COMMITTEE MEMBERSHIP
Vicky is Chairman
of the CR Committee.
COMMITTEE MEMBERSHIP
Till is a member of the
Remuneration
Committee.
www.inchcape.com
39
Executive committee
1
2
3
4
5
6
7
1 ANDRÉ LACROIX
Group Chief Executive
5 KOH CHING HONG
Managing Director, Inchcape South Asia
APPOINTMENT TO EXECUTIVE COMMITTEE: February 2006
APPOINTMENT TO EXECUTIVE COMMITTEE: August 2009
Please see page 38 for full biography.
2 JOHN MCCONNELL
Group Finance Director
APPOINTMENT TO EXECUTIVE COMMITTEE: February 2006
Please see page 38 for full biography.
3 ARIS ARAVANIS
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 a member of the Board of Directors.
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
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 the
Group 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.
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.
6 STÉPHANE CHATAL
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.
7 LOUIS FALLENSTEIN
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
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 for 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.
40
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
8
9
10
11
12
13
8 TONY GEORGE
Group HR and Business Development Director
11 BERTRAND MALLET
Chief Executive Officer, Toyota Belgium
APPOINTMENT TO THE EXECUTIVE COMMITTEE: February 2007
APPOINTMENT TO EXECUTIVE COMMITTEE: July 2008
SKILLS AND EXPERIENCE: In addition to his role as Group HR
Director, Tony took over responsibility for strategy and business
development in August 2012. He has over 25 years 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.
9 KEN LEE
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.
10 PATRICK S LEE
Chief Executive Officer, Inchcape North Asia and China
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 of ‘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.
SKILLS AND EXPERIENCE: Bertrand was appointed as Chief
Executive Officer, Toyota Belgium in January 2012. Prior to this
appointment he was 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, including as the
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.
12 CONNOR MCCORMACK
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.
13 JEAN VAN DER HASSELT
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
41
Corporate governance report
Governance is at the heart of
everything we do.
Ken Hanna
Chairman
IN THIS SECTION
47 Audit Committee Report
48 Nominations Committee Report
49 CR Committee Report
50 Directors' report on remuneration
62 Other statutory information
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 report
SEE ONLINE:
www.inchcape.com/reportingcentre2012
www.inchcape.com/annualreport2012
www.inchcape.com/yearinreview2012
42
Inchcape plc Annual Report and Accounts 2012
DEAR SHAREHOLDER
The Board is responsible for promoting the long-term success
of the Company and we meet regularly to discuss, debate
and review the Company's current and future strategy as well
as its financial performance and how to mitigate any risks the
Company may face. The decisions made by the Board aim to
strengthen the Group's position as the premium choice in the
automotive industry, located in the right markets, with the right
brands, in the right categories with the right financials and the
right growth strategy.
During the year the Board visited several of the Group's retail
and service centres to gain a deeper understanding of how the
business operates and to experience our unique Customer 1st
strategy around the world. In October we travelled to Hong Kong
and China. In Hong Kong we visited the Land Rover, Jaguar, Lexus
and Toyota retail centres and a large service centre. In Shanghai
we visited the Inchcape Lexus retail centre. The site visits included
an update from the management teams on performance to
date and achievements specific to their business as well as a
review of the Inchcape Advantage programme. In the UK, we
held a board meeting at the new Porsche retail centre in
Portsmouth where we discussed the market update presented
by the Chief Executive Officer of Inchcape UK and had a tour
of the centre. In addition to these visits, we also received market
updates during the year from the Chairman and Managing
Director of Greece and the Chief Executive Officer of Australasia.
We have continued our focus on the composition of the
Board to ensure that the Board has the right mix of members to
contribute effectively to the development of the Group's strategy
and business model. We will continue to review the composition
of the Board annually to ensure that it remains effective, and
through our succession planning process, this remains a key
priority in 2013.
I hope that the following information will give some clarity as to
how the Board and its Committees have discharged their duties
throughout the year. The Board and I are proud of the way the
Group has performed during the year and are looking forward
to serving your Company in 2013.
STATEMENT OF CODE COMPLIANCE
The Board has been fully compliant with the 2010 UK
Corporate Governance Code (the Code) during 2012.
The information required under DTR 7.2.6 is given on pages
62 to 64 and forms part of the Corporate Governance Report.
Ken Hanna,
Chairman
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
LEADERSHIP
THE BOARD
Inchcape plc Board
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
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
Simon Borrows
Alison Cooper
Nigel Northridge
David Scotland*
Till Vestring
* David Scotland left on 10 May 2012
Board Meetings
Scheduled
Attended
(cid:116)(cid:1)Risk – regularly reviewing the risk management programme
and internal control processes;
6
6
6
6
6
6
6
6
3
6
6
6
6
6
6
6
6
6
3
6
(cid:116)(cid:1)Performance of the Group – by regular updates throughout
the year;
(cid:116)(cid:1)Evaluation – reviewing the performance of the Board and its
Committees to ensure that they remain effective; and
(cid:116)(cid:1)Information, training and development – by ensuring the Board
has the right information, knowledge and skills to facilitate open,
transparent and constructive debate.
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 2012.
The Board delegates some decisions to its Committees and
further information on the decisions which 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.
Biographies of the Directors can be found on page 38 to 39.
DIVISION OF RESPONSIBILITIES
STATEMENT OF HOW THE BOARD OPERATES
The Board is collectively responsible for the long-term success
of the Group and aims to achieve this by developing strategy,
monitoring fi nancial performance, maintaining an effective
system of internal controls and establishing the Group's risk
appetite. To facilitate this, the Board regularly meets to discuss
and review:
(cid:116)(cid:1)Strategy – contributes to the development of the Group's
strategy by holding a two day strategy meeting and receiving
updates on progress to date throughout the year;
(cid:116)(cid:1)Composition – to ensure that the Board comprises competent
individuals with a breadth of knowledge and experience which
brings independent views to the decisions being made;
(cid:116)(cid:1)Senior Management – to ensure that the Executive Committee
have the skills to deliver the strategy and a suitable succession
plan is in place;
(cid:116)(cid:1)Internal Controls – to ensure that the systems of controls remain
sound and relevant;
ROLE OF THE CHAIRMAN
Leads the Board by setting
the agenda, agreeing
strategy and risk appetite of
the Group
Ensures that Non-Executive
Directors receive information
that is accurate, relevant
and timely to enable effective
and open discussion
Responsible for the
composition of the Board
by ensuring that it has the
right mix of skills, knowledge
and experience
Leads the Board
evaluation process
ROLE OF THE CHIEF EXECUTIVE
Leads the Executive
Committee, develops and
implements strategy, manages
risk and the internal
control framework
Responsible for the day to
day operations of the Group,
providing information to the
Board to aid the decision
making process
Reports to the Board on
performance, the
implementation of strategy
and signifi cant developments
Regularly engages with
shareholders on the Group's
activities and progress
www.inchcape.com
43
Corporate governance report continued
NON-EXECUTIVE DIRECTORS
The Non-Executive Directors, as members of the Board and
its Committees, are responsible for ensuring the Company
has sound systems of internal controls and an effective risk
management process. They are also responsible for monitoring
financial performance, the performance of the Executive
Committee and for determining suitable levels of remuneration.
They do this by attending Board and Committee meetings
throughout the year and using their collective knowledge, skills
and experience to contribute to the decisions being made.
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 meeting was held in May 2012, in which 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
The Board reviewed its effectiveness within the context of the
principles and provisions of section B of 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. No appointments were made in
2012. Further information on its activities can be found in the
Nominations Committee report on page 48.
COMPOSITION
THE GEOGRAPHIC MAKE-UP
OF THE BOARD
LENGTH OF SERVICE OF
NON-EXECUTIVE DIRECTORS
3
Asia 22%
UK 78%
INDUSTRY BACKGROUND
2
1
0
0-2
years
2-5
years
5-9
years
BALANCE OF NON-
EXECUTIVE DIRECTORS
Financial 56%
Retail 33%
Consultancy 11%
Non-Executive Directors 67%
Executive Directors 22%
Chairman 11%
All of the Non-Executive Directors are considered independent in
accordance with the Code.
44
Inchcape plc Annual Report and Accounts 2012
Will Samuel completed seven years service in 2012. His length
of service was taken into account when considering the
composition of the Board and it was felt that his knowledge
and understanding of the Group remained crucial to the
effectiveness of the Board during the year.
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
to 39. 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 a comprehensive understanding of the Values, operations
and strategy of the Group. The induction programme is split into
two parts: operational and head office. A typical operational
induction would consist of visits to retail centres and service
facilities and meetings with regional executives. The head office
induction would comprise meetings with functional heads to
cover all aspects of plc operations and Directors' duties under
the UK Governance and Compliance regulations. The induction
programme is reviewed prior to any new Directors joining the
Group and tailored to their specific needs.
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. All Directors
have access to the advice and services of the Group
Company Secretary.
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 2012 the Board carried out an internal evaluation facilitated by
the Chairman. The evaluation reviewed the results from the action
plan arising from the external evaluation in 2011 and each Board
member discussed any areas of concern in 2012. The evaluation
was carried out as a structured one on one interview with each
Board member. Overall the Board were happy with the progress
made during the year and felt the Board and its Committees
continue to function well.
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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
2012 ACHIEVEMENTS
Regular updates on
performance against strategic
objectives have been added
to the Board calendar.
A succession planning strategy
session facilitated by the
Group HR Director was carried
out in 2012.
David Scotland stepped down
from the Board after 7 years'
service. The subsequent
changes to the Committees
are set out in the Nominations
Committee Report on page 48.
The results of the evaluation were presented to the Board and
as a result of the evaluation there will be a continued focus on
Board composition and succession planning for the Board and
senior management during 2013.
Ken Hanna also discussed with each Board member his or her
performance during the year and identifi ed any training or
development areas which may be required.
Will Samuel also met with the Non-Executive Directors to evaluate
the performance of Ken Hanna.
RE-ELECTION
In accordance with the UK Corporate Governance Code
all Directors will stand for re-election at the 2013 Annual
General Meeting.
ACCOUNTABILITY
FINANCIAL & BUSINESS REPORTING
The Board is responsible for establishing and maintaining
adequate internal controls over regular fi nancial 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 fi nancial reporting gives a true and fair
refl ection of the fi nancial position of the Group.
Internal controls over this fi nancial reporting framework are
designed to provide reasonable assurance regarding the
reliability of regular internal fi nancial 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 fi nancial reporting
based on the framework contained in the Turnbull Guidance.
There have been no signifi cant changes in internal controls
over fi nancial reporting during 2012 that have, or are likely to
have, materially affected the Group's internal controls over
fi nancial reporting.
Based on these statements, the Board concludes that as at
31 December 2012, the Group's internal system of control over
fi nancial reporting was effective.
RISK MANAGEMENT
The Group has in place comprehensive processes to manage
risk across its businesses, which are regularly subject to audit 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 which has as its objective to drive
risk management and risk aware behaviours across the Group.
identify and
reduce our
risks
raise
awareness
through
education
and training
embed the
prevention
of risk within
our business
processes
RISK MANAGEMENT PROCESS
The Board
Overall
responsibility
for determining
the Group's risk
appetite, and
oversight of the
principal risks to
the Group's
strategic
objectives
Audit
Committee
Delegated
responsibility from
the Board for Risk
Management,
Compliance and
Internal Controls
Group iPOM
Committee
Key day to day
risk oversight
is managed
through the
Group iPOM
Committee
Internal Audit
In addition to reviews of fi nancial and operational
controls, Internal Audit monitor risk capture and
mitigating actions as part of their review
Market iPOM Committees
Sub-committees of the Executive Committee in each market
report into the Group iPOM Committee to ensure that risk
management oversight remains at the highest level in each market.
Meetings are co-ordinated to ensure that appropriate reviews are
performed in line with the Group iPOM Committee, Audit Committee
and Board meetings
ENABLERS
Functional Assurance
Providers
iPOM emphasises that
risk management is the
responsibility of each
and every function and
employee. Therefore
functional teams are
a key source of risk
management effort
Corporate Assurance
A new role created
in 2012 to drive
the embedding of
iPOM into Group-wide
business practice
and lead continuous
improvement in our risk
management practices
www.inchcape.com
45
Corporate governance report continued
iPOM emphasises 'the right way to do business' and is
constructed with the Company's Values at its heart to ensure
we drive the right behaviours across the business and embed
compliance and the principles of risk management in everything
that we do.
Whilst the ultimate accountability for risk oversight lies with
the Board, it has formally delegated the responsibility for risk
management to the Audit Committee under the terms of
reference and reporting framework. Through these, the Board is
advised of key risks facing the Group on a rolling basis over each
12 month period, with a formal review of the most significant risks
at least twice annually or more frequently if required.
GROUP iPOM COMMITTEE
Responsibility for the day to day management of risk
oversight is further delegated to the Group iPOM Committee.
The Committee is chaired by the Group Chief Executive and its
constituent members are the Group Finance Director, Group HR
Director, Group General Counsel, Group Audit Director and
Group Head of Corporate Assurance.
The Group iPOM Committee meets six times a year to manage
oversight of systemic and dynamic risk at Group level and
throughout the markets. It has a broad remit which ensures that:
(cid:116)(cid:1)The correct management focus is on key risks and actions to
mitigate or respond to identified and emerging risks;
(cid:116)(cid:1)A compliance programme is in place in all markets and head
offices which meets or exceeds external benchmarks, and is
appropriate in terms of the legal requirements, content, sector,
cost and resource requirement; and
(cid:116)(cid:1)Appropriate defences are in place to mitigate exposure to,
or effect a response to, any risk that may crystallise.
The Group iPOM Committee develops and manages the
Group's Principal Risk Register, which summarises the Group's
risk exposure and associated mitigation or response plan based
on risks identified at Group level and at market or regional level.
The Group uses an online risk management and reporting
solution, FlexEye, to record and monitor its risk profile and the
corresponding mitigation and response plans. The Group iPOM
Committee uses FlexEye reports as a key tool at each meeting to
formally review the risk profile at Group and market level to allow:
(cid:116)(cid:1)Better cross market or region trend analysis;
(cid:116)(cid:1)Better cross risk analysis; and
(cid:116)(cid:1)Full visibility of actions and mitigation plans progress.
Executive sub committees (Market iPOM Committees) exist
in each of the Group's markets and have a similar seniority of
membership. Each Market iPOM Committee operates through
a standard terms of reference to ensure a consistent approach
to identifying and managing systemic and dynamic risks.
Additionally, the meeting dates are co-ordinated throughout the
Group to ensure that appropriate risk reviews are performed in
alignment with the schedules of the Group iPOM Committee, the
Audit Committee and the Board.
To ensure consistency and transparency across risk reporting,
risks are reported under eight principal risk categories:
(cid:116)(cid:1)Strategic, including customer and consumer;
(cid:116)(cid:1)Brand Partners, key relationships and reputation;
(cid:116)(cid:1)Systems and Technology;
(cid:116)(cid:1)People, including EH&S;
(cid:116)(cid:1)Economic, Political and Environmental;
(cid:116)(cid:1)Legal and Regulatory;
(cid:116)(cid:1)Tax, Pensions and Insurance; and
(cid:116)(cid:1)Finance and Treasury.
Risks are further categorised as either;
(cid:116)(cid:1)systemic risks – known risks which are largely unchanging or
which apply Group-wide and can be managed through
standard policies and procedures; or
(cid:116)(cid:1)dynamic risks – forward looking risks which are specific to a
market, region or function, which change in nature constantly
and which must be managed through bespoke mitigation or
response plans.
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 47 to 48. A statement of the
Directors' responsibility for reporting the Financial Statements is
set out on page 63.
REMUNERATION
The Board has delegated responsibility for setting the level
and components of remuneration and for developing the
remuneration policy to the Remuneration Committee. Details
of the Committee's activities during the year can be found in
the Directors' report on remuneration on page 55.
RELATIONS WITH SHAREHOLDERS
The Group Chief Executive and Group Finance Director met with
institutional investors throughout the year. Three investor days were
held at the Cooper Croydon retail centre to which institutional
investors were invited to receive an update on strategy,
performance to date and future expectations. The Company's
Investor Relations programme is an important part of investor
interaction providing perspective and feedback from investors.
Further detail of the Investor Relations events held throughout the
year can be found on page 47.
In the past year the proactive programme has included site visits,
roadshows and regular financial calendar linked conference
calls and presentations. During the year approximately 250
existing or prospective shareholders or their representatives
attended such meetings.
The Board recognises that maintaining good communications
with all shareholders is essential to understanding 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.
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.
46
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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
Annual General
Meeting
Throughout the year 1:1 meetings and Inchcape Advantage site visits held
Audit Committee Report
Simon Borrows
Chairman
KEY RESPONSIBILITIES
(cid:116)(cid:1)Monitor the integrity of Financial Statements and formal
announcements
(cid:116)(cid:1)Review and approve the Annual Report and Accounts
(cid:116)(cid:1)Review Group accounting policies, disclosures in the Annual
Report and Accounts and significant financial reporting issues
(cid:116)(cid:1)Review internal controls and risk management
(cid:116)(cid:1)Internal and external audit function
(cid:116)(cid:1)Re-appointment of the external auditors
(cid:116)(cid:1)Whistleblowing
The terms of reference for the Audit Committee can be found on
the website www.inchcape.com/aboutus/governance.
COMMITTEE MEETINGS
Member
Simon Borrows
Alison Cooper
Will Samuel
Member
throughout 2012
Meetings
Held
Meetings
Attended
4
4
4
4
4
4
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 Audit Director and external auditors attend by invitation.
Membership and meetings held in 2012 are shown in the table.
COMMITTEE ACTIVITIES DURING THE YEAR:
(cid:116)(cid:1)Review and approval of the interim and year end results –
The Committee met with the external auditors to review the
interim and year end results. The Committee considered the
appropriate accounting treatment and disclosures of any
matters identified in the review process and recommended
the results be approved by the Board.
(cid:116)(cid:1)External auditors – PricewaterhouseCoopers LLP, as part of their
assurance process, confirmed that they are considered to be
independent and objective. The Committee agreed with their
assessment and no matters of concern were raised. During the
year the external auditors presented the plan for the interim
review and year end audit and the Committee approved the
scope of the work to be undertaken. PricewaterhouseCoopers
presented its report on Internal Controls to the Committee
during the year which provided a benchmark for additional
efficiencies improvement.
(cid:116)(cid:1)Effectiveness of external audit process – An assessment of
the 2011 audit process was carried out through completion
of a Client Satisfaction Survey, to obtain the views of senior
finance management globally along with Group Finance, Tax,
Legal and Audit. The results were presented to management
and the Committee to assist in the review of the effectiveness
of the audit process for the prior year. Based on the results of
this process the key areas for improvement were agreed for the
2012 audit process.
www.inchcape.com
47
Corporate governance report continued
(cid:116)(cid:1)Non-audit services – The Committee reviewed the level of audit
and non-audit services provided by PricewaterhouseCoopers
LLP during the year. A breakdown of the fees paid to the external
auditors can be found in note 3d on page 90 of the Financial
Statements. A policy is in place in respect of non-audit services
provided to the Group with a guideline of a 1:1 fee ratio. The
purpose of the policy is to ensure that the auditors remain
objective and independent, and as such the services are
limited to assignments that are closely related to the annual
audit or where work is of such a nature that detailed knowledge
of the Group's activities is necessary. The Audit Committee
is responsible for authorising any non-audit services before
they commence.
(cid:116)(cid:1)Internal Audit – The Committee reviewed progress against the
internal audit plan for 2012. Audits carried out covered a range
of operational, financial and IT processes in the Group's
businesses and were prioritised according to risk. The results
from the audits were reported to management and the Audit
Committee during the year and no significant issues were
identified as a result of risk management and internal control
reviews in 2012. The Committee reviewed and approved the
internal audit plan for 2013, and approved the updated Internal
Audit Charter. During the year the Group Audit Director and his
team met with the Audit Committee Chairman without the
presence of management to discuss the results of audits
carried out during the year.
(cid:116)(cid:1)Review of the whistleblowing arrangements – The Committee
considered the whistleblowing procedure which has been in
operation during the year to allow staff to confidentially raise
any concerns about business practices. The Committee agreed
the whistleblowing procedures are appropriate for the Group.
(cid:116)(cid:1)Tax update – The Committee received regular updates from the
Group Tax Director on tax matters including strategic tax risks.
(cid:116)(cid:1)Litigation update – The Committee received regular reports
on current litigation matters and any future litigation risks likely
to affect the Group.
(cid:116)(cid:1)The Committee discussed the performance and reviewed
the effectiveness of the external auditor without the auditor
being present.
GOVERNANCE:
(cid:116)(cid:1)The Committee recommended to the Board that a resolution be
put to shareholders at the Annual General Meeting to re-appoint
PricewaterhouseCoopers LLP as Auditors of the Company.
(cid:116)(cid:1)The Committee confirmed that it had complied with its terms
of reference throughout the year.
(cid:116)(cid:1)The Committee reviewed its membership and confirmed that
it complied with the Code and approved the recommendation
for Simon Borrows to continue as Chairman of the Committee.
(cid:116)(cid:1)The Committee confirmed that, in accordance with the
provisions of the Code, Will Samuel and Alison Cooper had
recent and relevant financial experience.
Nominations Committee Report
Ken Hanna
Chairman
KEY RESPONSIBILITIES
(cid:116)(cid:1)Evaluate the balance of skills, knowledge and experience
on the Board
(cid:116)(cid:1)Agree skills profile for candidates to fill vacant Board positions
(cid:116)(cid:1)Nominate suitable candidates to the Board for approval
(cid:116)(cid:1)Succession planning for Executive Directors and
Senior Management
(cid:116)(cid:1)Review size and structure of the Board
The terms of reference for the Nominations Committee
can be found on the website
www.inchcape.com/about us/governance.
COMMITTEE MEETINGS
Member
Ken Hanna
Will Samuel
André Lacroix
Simon Borrows
David Scotland
Member
throughout 2012
Meetings
Scheduled
Meetings
Attended
Joined May 2012
Left May 2012
3
3
3
1
2
3
3
3
1
2
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.
During 2012, David Scotland stepped down from the Committee
and was replaced by Simon Borrows. Membership and meetings
held in 2012 are shown in the table above.
ACTIVITIES DURING THE YEAR:
(cid:116)(cid:1)Composition of the Board and its Committees – The Committee
reviewed the composition of the Board, including gender and
geographic diversity, required by the Company to support its
strategy. As a result of the review it was recommended that after
seven years' service, David Scotland retire at the 2012 AGM. The
Committee reviewed the composition of the Board committees
and discussed the skills and experience needed on each,
particularly in light of David Scotland's retirement. It was
agreed to recommend to the Board that:
– Vicky Bindra become Chairman of the CR Committee;
– Ken Hanna become a member of the CR Committee;
48
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
– Till Vestring become a member of the Remuneration
Committee; and
– Simon Borrows become a member of the
Nominations Committee.
(cid:116)(cid:1)Renewal of Chairman's engagement letter – Ken Hanna's initial
term as Chairman expired on 1 May 2012. The Board reviewed
his tenure and the Directors supported the renewal of his tenure
for a further three year term. Ken Hanna was not involved in the
discussions regarding the renewal of his tenure.
(cid:116)(cid:1)Report to shareholders in the 2011 Annual Report – The
Committee reviewed the report to shareholders for the year
ended 31 December 2011 and recommended it for approval
by the Board.
(cid:116)(cid:1)Election/Re-election of Directors – In accordance with the UK
Corporate Governance Code, the Committee recommended
to the Board that all Directors stand for election or re-election
at the Annual General Meeting.
(cid:116)(cid:1)Review of time served on the Board – The Committee reviewed
the time served by the Non-Executive Directors and confirmed
that it was comfortable with the continued service of the
Non-Executive Directors.
(cid:116)(cid:1)Review of time commitments – The Committee reviewed the
time commitment required by the Non-Executive Directors and
confirmed that it was satisfied that all Directors had met or
exceeded the time commitment required.
(cid:116)(cid:1)Policy on multiple board appointments – The Committee
reviewed its policy on multiple board appointments and
confirmed that the Directors had complied with the policy
during the year.
GOVERNANCE:
(cid:116)(cid:1)The Committee reviewed the independence of the
Non-Executive Directors and agreed to recommend to the
Board that it should determine that they remain independent
in accordance with the UK Corporate Governance Code.
(cid:116)(cid:1)The Committee concluded that, in accordance with the UK
Corporate Governance Code, at least half the Board, excluding
the Chairman, comprised independent Non-Executive Directors.
(cid:116)(cid:1)The Committee reviewed its terms of reference and confirmed
that it had been fully compliant throughout the year.
(cid:116)(cid:1)The Committee reviewed the job description of the Senior
Independent Director and agreed that Will Samuel should
continue in this role.
(cid:116)(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.
CR Committee Report
Vicky Bindra
Chairman
KEY RESPONSIBILITIES
(cid:116)(cid:1)Develop Group's CR strategy and monitor
external developments
(cid:116)(cid:1)Review Group's CR Policy
(cid:116)(cid:1)Monitor Group's CR risk exposure
(cid:116)(cid:1)Review annual CR Report
The terms of reference for the CR Committee can be found
on the website www.inchcape.com/about us/governance.
COMMITTEE MEETINGS
Member
David Scotland
Vicky Bindra
André Lacroix
Ken Hanna
Tony George
Claire Chapman
Member
throughout 2012
Left May 2012
Joined May 2012
Left July 2012
Meetings
Scheduled
Meetings
Attended
2
3
3
2
3
1
2
3
3
2
3
1
Only members of the Committee have the right to attend
Committee meetings however other individuals such as the
Group Communications Director and external consultants attend
by invitation. During 2012, David Scotland stepped down as
Chairman of the Committee and was replaced by Vicky Bindra.
Ken Hanna also joined the Committee. Membership and
meetings held in 2012 are shown in the table above.
ACTIVITIES DURING THE YEAR:
(cid:116)(cid:1)2011 Corporate Responsibility Report – The Committee reviewed
and approved the Corporate Responsibility Report for the year
ended 31 December 2011.
(cid:116)(cid:1)CR strategy and communication – The Committee reviewed the
Green Baton initiative which was rolled out during the year and
assessed how employees were engaging with CR in their day to
day activities. The Committee agreed that a simple over-arching
statement should be developed which would unite the five core
CR areas and inspire employees. The statement was developed
during the year and is included in the 2012 Corporate
Responsibility Report on pages 34 to 37.
GOVERNANCE
(cid:116)(cid:1)The Committee reviewed its terms of reference and confirmed
that it had been compliant throughout the year.
www.inchcape.com
49
Directors’ report on remuneration
DEAR SHAREHOLDER
I am pleased to introduce the Directors’ report on remuneration
for the year ended 31 December 2012, which has been prepared
by the Remuneration Committee and approved by the Board.
The Group delivered a strong performance in 2012. Sales
increased by 4.4%, profit before tax and exceptional items
were up 9.9% to a record for the business of £250.3m.
Adjusted earnings per share rose by 11.8%.
The UK Government Department of Business Innovation & Skills
(BIS) is currently proposing changes to the structure and content
of the Directors’ report on remuneration. The Committee has
decided to adopt the majority of these changes early and as
such this report is divided into three sections. The first is the Policy
Report which details the Group’s remuneration policies and
links to strategy as well as projected pay outcomes under
various performance scenarios. The second section is the
Implementation Report, which focuses on the remuneration
arrangements and outcomes for the year under review including
the total actual remuneration paid to each Director and details
of performance against targets. There were no changes to the
remuneration policy during the year. The final section contains
any additional information required this year under the
existing regulations.
Other than the closure of our UK final salary pension plan to
future accrual, we are not proposing any changes to executive
remuneration in 2013. Details of the new pension scheme are
given on page 52.
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 Committee believes
that the Company has complied with the provisions regarding
remuneration matters contained within the UK Corporate
Governance Code. In particular, 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.
At such time as we are legally required to do so, we will be
putting the Policy Report to a binding shareholder vote. For the
time being though, and in compliance with our existing legal
obligations, the vote remains advisory only. A resolution will
therefore be put to shareholders at the Annual General Meeting
on Thursday 16 May 2013 asking them to approve this report.
Nigel Northridge,
Chairman of the Remuneration Committee
Our remuneration policy is designed
to ensure that it attracts, retains and
motivates our people whilst providing
an appropriate alignment between
reward and performance to protect
the long-term interests of the
Company’s stakeholders.
Nigel Northridge
Chairman
OUR REMUNERATION POLICY IS BASED ON THE
FOLLOWING OBJECTIVES:
(cid:116)(cid:1)Align with and support the Group’s business strategy;
(cid:116)(cid:1)Enable the Company to attract, retain and motivate
executive management;
(cid:116)(cid:1)Encourage the right behaviours, drive performance and reward
results by delivering upper quartile pay for upper quartile
performance; and
(cid:116)(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.
50
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
PART 1 – POLICY REPORT
EXECUTIVE REMUNERATION POLICY
The elements of the remuneration policy for Executive Directors for 2013 are set out below. There are no changes to the remuneration
policy compared to 2012 apart from the pension plan. The Group formally closed the UK final salary pension plan to future accrual on
31 December 2012. The Executive Directors will be offered membership of the Group’s new pension arrangement (on the same basis
as all other colleagues) from 1 January 2013 in line with auto-enrolment.
Element
Base salary
Objective and link to strategy
To pay competitive salary to
attract, retain and motivate talent
Annual bonus
Motivate outstanding
performance; specifically, reward
sustainable growth in profits, i.e.
growth that comes from the top
line as well as from improving
margins. The matrix is intended
to provide a balanced focus
between commercial and cash
initiatives; Net Promoter Score
(NPS) multiplier is applied to
the outcome to reinforce our
Customer 1st strategy and
maintain exceptional levels
of customer service
Co-investment
plan (CIP)
Encourage executive
share ownership
Ensure balance between
growth and returns
Reward performance against
EPS and ROCE targets; EPS
growth is a good measure of
profitable growth while ROCE
supports our cash initiatives
of controlling working capital
and capital expenditure
Opportunity
From 1 April 2013 salaries will be
£810,140 and £426,123 for the Group
Chief Executive and Group Finance
Director respectively. These represent
increases of 2% for the Group Chief
Executive and 4% for the Group
Finance Director on 2012 salaries,
compared to an average increase
across the Group of 2.84%
60% of salary payable for
target performance
150% of salary maximum payable
for achieving stretch performance
against all measures
Operation and performance metrics
Salaries are reviewed annually
and any increases typically take
effect from 1 April of each year
Reviews take account of:
(cid:116)(cid:1)scope of the role
(cid:116)(cid:1)experience of the individual
(cid:116)(cid:1)pay levels at organisations of a
similar size, complexity and type
(cid:116)(cid:1)pay and conditions elsewhere
in the Group
Matrix structure rewarding growth
in revenue and operating profit,
heavily weighted towards delivery
of profit growth
Any annual bonus earned above
100% of salary is paid in shares which
are automatically invested
in the co-investment plan
NPS that falls below target levels of
performance reduces bonus earned
by up to 20%
Offers Executive Directors a voluntary
share investment opportunity in return
for a performance based match
Executive Directors may invest up
to an overall maximum of 50% of
post-tax salary
Maximum match of 2:1, threshold
of 0.5:1
Maximum matching award is
therefore 100% of salary in any year
Any bonus over 100% of salary will
be paid in shares which will be
automatically invested in the plan.
Further voluntary investments may
be made up to the investment limit
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
Vesting of matching awards
based 75% on three year EPS
growth and 25% on three year
average ROCE performance
www.inchcape.com
51
Directors’ report on remuneration continued
Element
Objective and link to strategy
Operation and performance metrics
Opportunity
Performance
share plan (PSP)
Provide a meaningful reward
to senior executives linked to the
long-term success of the business
The mix of ‘normal’ and ‘enhanced’
performance shares enables the
delivery of median pay for median
performance; upper quartile pay
for upper quartile performance;
and upper decile pay for upper
decile performance
Ensure balance between
growth and returns as above
Strengthen alignment with
shareholders by defining award
sizes as a number of shares
Save as you earn
(SAYE)
To encourage share ownership
across the organisation
Share ownership
guidelines
To encourage share ownership
and ensure alignment of executive
interests with those of shareholders
Pension
To provide market competitive
pension benefits where it is cost
effective and tax efficient to do so
Other benefits
To provide market competitive
benefits where it is cost effective
and tax efficient to do so
Non-Executive
Directors fees
To provide fair remuneration,
reflecting the time commitment
and responsibilities of the roles
52
Inchcape plc Annual Report and Accounts 2012
Annual awards of ‘normal’
performance shares, vesting 75%
on three year EPS growth, and 25%
on three year average ROCE
Annual awards of ‘enhanced’
performance shares, vesting on
stretch EPS targets, over and above
those attached to ‘normal’
performance shares
Any dividends paid would accrue
over the vesting period and would
be paid only on those shares
that vest
The Committee can reduce or
prevent vesting in the event of
a material restatement of the
Group Financial Statements
or gross misconduct
Participants make monthly savings,
over a three year period. At the end
of the savings period the funds are
used to purchase shares under option
As this is an all-employee scheme
and Executive Directors participate
on the same terms as other
employees, the acquisition of shares
is not subject to the satisfaction of
a performance target
Requirement to hold a fixed
number of shares. Executives are
required to make progress in
achieving these targets with their
personal, after tax, funds regardless
of the extent to which long-term
incentives vest, if at all
The Group’s new pension scheme,
Cash+, is a career average cash
retirement scheme which accrues
16% of earnings (capped at £300,000
p.a.) paid as a lump sum at the age
of 65. Members are required to
contribute 7% of pensionable salary
Includes:
(cid:116)(cid:1)company cars
(cid:116)(cid:1)medical care
(cid:116)(cid:1)life assurance premiums
All benefits are non-pensionable
Non-Executive Directors receive
a fixed fee and do not participate
in any incentive schemes or receive
any other benefits
Award levels are expressed as a
number of shares, subject to 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
Subject to this review, and the
individual salary limit, for 2013 the
Group Chief Executive will receive
304,170 normal awards and 101,390
enhanced awards, and the Group
Finance Director will receive 130,760
normal awards and 26,150
enhanced awards
Maximum savings of £250 per month
Equivalent to 200% of base salary
for Executive Directors
Each Executive Director has five years
from 2007, or date of appointment if
later, to reach this shareholding target
André Lacroix receives a cash
supplement of 40% of his base
salary and is eligible to join the
Cash+ scheme
John McConnell receives a
supplement of 30% of base
salary and is eligible to join the
Cash+ scheme
André Lacroix: £18,400
John McConnell: £6,200
From 1 May 2013 the standard
Non-Executive Director fee is £55,000
with an additional fee for a
Chairmanship of a Committee of
£10,000. The Deputy Chairman is
paid a single fee of £76,000 and the
Chairman a single fee of £300,000
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
SELECTION OF LONG-TERM INCENTIVE PERFORMANCE MEASURES
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.
REMUNERATION POLICY FOR OTHER EMPLOYEES
Our approach to salary reviews is consistent across the Group,
with consideration given to the level of responsibility, experience,
individual performance, salary levels in comparable companies
and the Company’s ability to pay. Remuneration surveys are
used, where appropriate, to establish market rates.
Senior managers participate in an annual bonus scheme
which has similar performance targets to those of the
Executive Directors. Below this level, local incentive schemes
are in place for management and non-management
employees. Opportunities and performance conditions
vary by organisational level with business unit specific
metrics incorporated where appropriate. Commission
based arrangements are also operated for certain roles.
Senior managers (c.300 individuals) also receive normal PSP
awards, while enhanced PSP awards and participation in the
CIP is limited to Executive Directors, Executive Committee
members and the next level of executives (c.30 individuals).
Performance conditions are consistent for all participants,
while award sizes vary by organisational level. Share ownership
guidelines apply to Executive Directors.
All UK employees are eligible to participate in the SAYE scheme
on the same terms.
Pension and benefits arrangements are tailored to local market
conditions, and so various arrangements are in place for different
populations within the Group. Executive Directors participate in
the same scheme as other senior executives.
CONSIDERATION OF CONDITIONS ELSEWHERE IN THE GROUP
In 2013, the average salary increase across the Group was 2.84%
compared to 2% for the Group Chief Executive and 4% for the
Group Finance Director.
Prior to the annual salary review, the Committee receives an
update from the Group HR Director on the average salary
increases across the Group. This is considered by the Committee
when determining salary increases for the Executive Directors
and the Executive Committee. The Company has a diverse
international spread of business as well as a wide variety of roles
from petrol pump attendants and valeters through to Managing
Directors of our individual businesses and therefore pay levels
and structures vary to reflect local market conditions.
Although the Company has not carried out a formal employee
consultation regarding Board remuneration, it does comply with
local regulations and practices regarding employee consultation
more broadly.
CONSIDERATION OF SHAREHOLDER VIEWS
When determining remuneration, the Committee takes into
account the guidelines of investor bodies and shareholder views.
In light of the high level of support for the 2011 Directors’ report
on remuneration, the extensive consultation that was carried out
in 2010/11 following the last remuneration review, and the fact
that no changes to remuneration policy are being proposed
for 2013, the Committee did not carry out a formal shareholder
consultation exercise in 2012. However, the Committee is always
open to feedback from shareholders on remuneration policy
and arrangements, and commits to undergoing shareholder
consultation in advance of any changes to remuneration policy.
The votes received on the 2011 Directors’ report on remuneration
are provided in the Implementation Report.
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below shows the percentage change in profit after tax,
dividends, and total employee compensation spend from the
financial year ended 31 December 2010 to the financial year
ended 31 December 2012.
PROFIT AFTER TAX
DIVIDEND
TOTAL EMPLOYEE
PAY EXPENDITURE
m
0
9
1
£
m
8
4
1
£
m
3
3
1
£
200
150
100
50
0
200
150
100
50
0
m
7
4
£
m
3
5
£
m
0
£
800
600
400
200
0
m
4
4
4
£
m
3
3
4
£
m
3
4
4
£
10
11
12
10
11
12
10
11
12
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.
Name
Date of contract
Notice period
Unexpired term
André Lacroix
John McConnell
1 September
2005
1 October
2009
12 months
from Director
or Company
12 months
from Director
or Company
To retirement
age
To retirement
age
The Company may terminate the contract by paying the
Executive Director a sum equal to his basic salary and, in certain
circumstances, benefits including pension and life assurance, car
and entitlement to holiday pay for the 12 month period. In the
event that an Executive Director is not required to work their full
notice period, the Company may also, in certain circumstances,
exercise discretion to pay the Executive Director a proportion
of the annual bonus that they would otherwise have received.
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
Ken Hanna
(Chairman)
Vicky Bindra
Simon Borrows
Alison Cooper
Nigel Northridge
Will Samuel
Till Vestring
14 May 2009
14 May 2015
1 July 2011
1 October 2010
1 July 2009
1 July 2009
26 January 2005
1 September 2011
20 June 2014
20 September 2013
30 June 2015
30 June 2015
25 January 2014
31 August 2014
www.inchcape.com
53
Directors’ report on remuneration continued
PERFORMANCE SCENARIOS
The charts below show the remuneration that Executive Directors could be expected to obtain based on varying
performance scenarios.
In order to achieve maximum vesting of all incentives, as illustrated in the ‘maximum’ scenario below, the Executive Directors
would need to deliver EPS growth in excess of 20% p.a. over the next three years. Illustrations are intended to provide further information
to shareholders regarding the pay for performance relationship. However, actual pay delivered will be influenced by changes in
share price and the vesting period of awards.
GROUP CHIEF EXECUTIVE
GROUP FINANCE DIRECTOR
)
s
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
t
a
o
T
5000
4000
3000
2000
1000
0
4,820
9%
26%
17%
25%
7%
17%
)
s
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
t
a
o
T
3000
2400
1800
1200
600
0
43%
2,266
5%
23%
19%
28%
6%
19%
17%
1,060
13%
10%
24%
13%
40%
565
25%
75%
2,149
14%
9%
23%
16%
38%
1,152
30%
70%
Fixed
On-plan
Maximum
Fixed
On-plan
Maximum
Key:
Enhanced PSP
Normal PSP
CIP
Bonus
Pension & bens
Salary
Key:
Enhanced PSP
Normal PSP
CIP
Bonus
Pension & bens
Salary
Annual base salary: £810k
40% of salary
Taxable value of annual benefits provided: £18k
Annual base salary: £426k
30% of salary
Taxable value of annual benefits provided: £6k
Base salary
Pension
Benefits
Annual
Bonus
CIP
No incentives
included
No incentives
included
Normal
PSP
No incentives
included
Enhanced
PSP
No incentives
included
60% of salary
150% of salary
25% of salary
100% of salary
i.e. 50% of salary
invested matched
2:1 vesting 25%
at threshold
i.e. 50% of salary
invested matched
2:1 vesting 100%
at max
£308k
£1,232k
i.e. 304.170 shares
at £4.05, vesting 25%
at threshold
i.e. 304.170 shares
at £4.05, vesting
100% at max
£0k
£411k
No vesting –
rewards superior
performance only
i.e. 101.390 shares
at £4.05, vesting
100% at max
Base salary
Pension
Benefits
Annual
Bonus
CIP
No incentives
included
No incentives
included
Normal
PSP
No incentives
included
Enhanced
PSP
No incentives
included
60% of salary
150% of salary
25% of salary
100% of salary
i.e. 50% of salary
invested matched
2:1 vesting 25%
at threshold
i.e. 50% of salary
invested matched
2:1 vesting 100%
at max
£132k
£530k
i.e. 130.760 shares
at £4.05, vesting
25% at threshold
i.e. 130.760 shares
at £4.05, vesting
100% at max
£0k
£106k
No vesting –
rewards superior
performance only
i.e. 26.150 shares
at £4.05, vesting
100% at max
Potential reward opportunities illustrated above are based on the policy which will apply in the forthcoming financial year, applied
to the base salary effective 1 April 2013.
For the annual bonus, the amounts illustrated are those potentially receivable in respect of performance for 2013. For the CIP,
the award opportunities assume full voluntary investment in Inchcape shares. It should be noted that any awards granted under
the CIP and PSP in a year do not normally vest until the third anniversary of the date of grant. The projected value of CIP and PSP
amounts excludes the impact of share price growth and dividend accrual. PSP values are based on the average share price
from 1 October 2012 to 31 December 2012 of £4.05.
54
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
EXIT PAYMENT POLICY
The Company’s policy is to limit severance payments on
termination to pre-established contractual arrangements. In the
event that the employment of an Executive Director is terminated,
any compensation payable will be determined in accordance
with the terms of the service contract between the Company
and the employee, as well as the rules of any incentive plans.
Bonus – The Committee reviewed and agreed the achievement
of the performance targets for the 2011 bonus (payable in 2012).
The Committee also discussed the performance targets for the
2012 bonus (payable in 2013) and agreed that these were both
relevant and satisfactory in light of the Group strategy. Details of
the 2012 bonus paid to the Executive Directors can be found
on page 59.
Executive Remuneration – The Committee reviewed the proposals
for Executive Directors and senior management, taking into
account pay and conditions of employees across the Group.
Details of the salaries paid to the Executive Directors can be
found on page 56.
Chairman’s fee – The Committee reviewed the Chairman’s fee
and agreed that it remained appropriate; therefore Ken Hanna
did not receive an increase in 2012. His fee has remained
unchanged since his appointment in 2009. The Chairman’s
fee was reviewed in March 2013. Details are given on page 52.
Share plans – The Committee agreed the vesting level of the
2009 Executive Share Option Plan, reviewed the performance
targets of the 2010 Executive Share Option Plan and the 2011
Performance Share Plan and reviewed and approved the
performance targets and grant level of the 2012 Performance
Share Plan, the 2012 Share Matching Plan and the 2012 SAYE
grant. Details of the awards made to Executive Directors can
be found on pages 60 to 61. The Committee also monitored
headroom limits in accordance with ABI guidelines.
Remuneration update – The Committee received an annual
update from its advisors, Kepler, on the current remuneration
trends, industry best practice and external developments
including the BIS proposals.
GOVERNANCE
(cid:116)(cid:1)The Committee reviewed its terms of reference and confirmed
that it had been fully compliant throughout the year.
(cid:116)(cid:1)The Committee reviewed its membership and confirmed
that it complied with the Code.
ADVISORS TO THE COMMITTEE
Kepler 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. Kepler’s
fees are charged at an hourly rate in accordance with the
terms & conditions set out in the Engagement Letter. They were
paid fees of £35,733 for their services during the year including
expenses and VAT.
Under normal circumstances, Executive Directors receive
termination payments in lieu of notice equal to pay and
benefits for the length of their contractual notice period.
In the event an Executive Director leaves for reasons of
death, ill-health, redundancy, retirement (CIP only), or any other
reason which the Remuneration Committee may, in its absolute
discretion, permit, any outstanding long-term incentive (LTI)
awards will be pro-rated for time and performance and will
either vest at the end of the performance period or immediately,
at the Committee’s discretion. Upon a change of control of the
Company, awards will be pro-rated for time and vest immediately
based on the extent to which the Committee determines that the
performance conditions have been met or are likely to be met.
For all other leavers, outstanding LTI awards will lapse.
The Committee retains discretion to alter these provisions on
a case-by-case basis following a review of circumstances and
to ensure fairness for both shareholders and participants.
PART 2 – IMPLEMENTATION REPORT
KEY RESPONSIBILITIES OF THE REMUNERATION COMMITTEE
(cid:116)(cid:1)Remuneration Policy
(cid:116)(cid:1)Annual bonus targets
(cid:116)(cid:1)Performance targets for share incentive plans
(cid:116)(cid:1)Executive Committee remuneration
The terms of reference for the Remuneration Committee can be
found on the website www.inchcape.com/aboutus/governance.
COMMITTEE MEETINGS
Member
Nigel Northridge
Ken Hanna
Will Samuel
Till Vestring
Member
throughout 2012
Meetings
Held
Meetings
Attended
Joined May 2012
2
2
2
1
2
2
2
1
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.
Membership and attendance at meetings are shown in the
table above. No Director takes part in any decision affecting
his own remuneration.
COMMITTEE ACTIVITIES DURING THE YEAR:
Directors’ report on remuneration – The Committee approved
the 2011 Directors’ report on remuneration and recommended
to the Board that the Report be approved by shareholders
at the AGM. Kepler Associates (Kepler) gave the Committee
an update on the Department of Business, Innovation & Skills
(‘BIS’) proposals to be adopted by companies from 2013. The
Committee reviewed each element and agreed to adopt the
majority of the proposals early.
www.inchcape.com
55
Directors’ report on remuneration continued
TOTAL ACTUAL REMUNERATION
To aid transparency for our shareholders, the table below sets out the total actual remuneration received by each Director for the year
to 31 December 2012.
Executive Director
André Lacroix
John McConnell
Director
Ken Hanna
Vicky Bindra
Simon Borrows
Alison Cooper
Nigel Northridge
Will Samuel
David Scotland
Till Vestring
1. Base salary
£’000
2. Benefi ts
£’000
3. Pension
£’000
4. Annual bonus
£’000
5. Long-term incentives
£’000
Total remuneration
£’000
790
408
1. Fee
£’000
275
57
60
50
60
76
23
50
18
10
311
168
815
420
232
120
2,166
1,126
2. Benefi ts
£’000
3. Pension
£’000
4. Annual bonus
£’000
5. Long-term incentives
£’000
Total remuneration
£’000
7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
282
57
60
50
60
76
23
50
The fi gures have been calculated as follows:
1. Base salary/fee: amount earned for the year. Non-Executive Directors received a fee of £50,000 p.a. plus an additional £10,000 for Committee Chair. The Deputy
Chairman received a fee of £76,000 p.a.
2. Benefi ts: the taxable value of annual benefi ts received in the year
3. Pension: the value of the Company’s contribution during the year
4. Annual bonus: the value at grant of the annual incentive payable for performance over 2012, including amounts paid in shares
5. Long-term incentives: Includes any CIP, PSP and options based on the value at vesting of shares or options vesting on performance over the three year period ending
31 December 2012. Value stated relates to the vesting of 2010 option grants, valued based on the average share price from 1 October to 31 December 2012 of £4.05.
BASE SALARY
Salaries are reviewed annually and typically take effect from
1 April of each year. The Committee reviews base salary for
the Executive Directors and Executive Committee against
organisations of similar size, complexity and type, and also
takes into account pay and conditions elsewhere in the Group.
During the year the quantum of executive total remuneration
was reviewed against four comparator groups: retailers,
distributors, companies of similar market cap and companies
with similar revenues.
The salaries for 2011, 2012 and 2013 are set out in the table below,
together with the average increases across the Group.
Name
André Lacroix
John McConnell
Average increase
across the Group
1 April 2011
1 April 2012
1 April 2013
£778,680
(3% increase)
£401,700
(3% increase)
£794,254
(2% increase)
£409,734
(2% increase)
3.16%
increase
£810,140
(2% increase)
£426,123
(4% increase)
2.84%
increase
ANNUAL BONUS
In 2012, as for 2011, the Executive Directors’ annual bonuses were
assessed against a fi nancial performance matrix. This matrix was
designed to reward stretching targets of revenue and operating
profi t, whilst maintaining exceptional levels of customer service.
During the year, the Group delivered revenue above target and
operating profi t 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, has determined that both the Group Chief
Executive and the Group Finance Director receive a bonus of
102.6% of salary for 2012.
As the 2012 bonuses were more than 100% of salary the
Executive Directors will have 2.6% of salary automatically invested
in Company shares through the co-investment plan. Executive
Directors will also be able to make voluntary investments up to
47.4% of salary into the scheme to make a maximum investment
of 50% of salary.
ILLUSTRATION OF BONUS STRUCTURE FOR EXECUTIVE DIRECTORS
Financial performance matrix (% of salary)
Stretch
30%
90%
150%
Target
20%
60%
120%
e
u
n
e
v
e
R
Threshold
15%
45%
90%
NPS multiplier
X 0.8 -1.0
Threshold
Target
Stretch
Operating profi t
Note: In this way,
20% of total bonus
is based on NPS –
the customer measure
56
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
PERFORMANCE SHARE PLAN
AWARDS MADE DURING THE YEAR
The performance share plan (PSP) was approved by shareholders at the 2011 AGM, and awards of normal and enhanced awards
were made to Executive Directors and other senior executives under this plan in 2011 and 2012. Awards in 2011 were based on a
percentage of salary, but were then fixed as a number of shares for 2012. 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.
Awards made in 2012 to Executive Directors are summarised below:
Type of award
Basis of award
Face value of awards made during 2012*
Performance period
Performance conditions
% vesting at threshold
‘Normal’ performance shares
Absolute number of shares calculated on the basis of shares granted in 2011
Group Chief Executive: £1,077,674
(304,170 shares)
Group Chief Executive: £359,225
(101,390 shares)
‘Enhanced’ performance shares
Group Finance Director: £463,283
(130,760 shares)
3 years (i.e. 1 January 2012 – 31 December 2014)
75% on EPS growth
100% on EPS growth
Group Finance Director: £92,649
(26,150 shares)
25% on average ROCE
25% of award
0% of award
* Calculated using the share price of £3.543 which was the closing price on date of grant 10 April 2012.
Performance conditions are as follows:
NORMAL AWARDS
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%
ENHANCED AWARDS
Vesting Percentage
3 year EPS growth p.a.
Less than 15%
20%
Between 15% and 20%
0%
25%
100%
Straight line basis
Vesting Percentage
0%
25%
100%
Straight line basis
Targets were 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 will only
be available for truly outstanding performance.
Vesting Percentage
0%
100%
Straight line basis
AWARDS VESTING DURING THE YEAR
No award under the PSP is due to vest for Executive Directors until 2014 (subject to performance).
CO-INVESTMENT PLAN
AWARDS MADE DURING THE YEAR
The renewal of the Co-investment plan (CIP) was approved by shareholders in 2011. During 2012, both Executive Directors made
investments, and therefore were granted matching awards as detailed below:
Type of award
Basis of award
Face value of awards made during 2012*
Matching award
2:1 match on invested amounts
Group Chief Executive: £398,357(117,164 shares)
Performance period
Performance conditions
% vesting at threshold
Group Finance Director: £408,051 (120,015 shares)
3 years (i.e. 1 January 2012 – 31 December 2014)
75% on EPS growth
25% on average ROCE
25% of award
* Calculated using the share price of £3.40 which was the closing price on date of grant 22 June 2012.
For simplicity and alignment, the performance targets for the CIP awards are the same as the normal PSP award made in 2012.
AWARDS VESTING DURING THE YEAR
No award under the CIP is due to vest for either individual until 2014 (subject to performance).
www.inchcape.com
57
Directors’ report on remuneration continued
ExEcutIvE shARE optIons
AwArds vesting during the yeAr
the final grant of share options under this scheme was made in 2010. the grant level for these options was half the normal level to
reflect the fall in the group’s share price at that time 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
these options will vest in full based on performance to 31 december 2012. details of awards vesting to executive directors are shown in
the table below.
Options held
exercise price
period
vesting date
ePs growth p.a.1
Performance
8 April 2013
rPi+9.35%
% vesting
100%
8 April 2013
rPi+9.35%
100%
André Lacroix
243,870
£3.10
John McConnell
125,806
£3.10
1 Jan 2010 –
31 dec 2012
1 Jan 2010 –
31 dec 2012
1. Based on 2012 ePs of 39.7p, 2009 ePs of 27.1p, and rPi growth of 4.22%.
2. Based on the average share price from 1 October 2012 – 31 december 2012.
ExEcutIvE shARE ownERshIp
As at 31 december 2012, the directors held the following shares:
share price at
vesting2
value (£000)
£4.05
£4.05
232
120
André Lacroix
John McConnell
shares held
guideline met
536,148
210,676
y
y
nil cost awards
Options held
subject to
performance
conditions
1,123,607
537,076
subject to
deferral
n
n
subject to
performance
conditions
243,870
125,806
vested but not
yet exercised
961,467
337,465
details of the shares held by the non-executive directors are given on page 62.
the executive directors are required to hold a fixed number of shares equivalent to 200% of base salary. the share price as at
31 december 2012 was 430.9p.
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 2012
All schemes – 10% over 10 year rolling period
remaining headroom for all schemes
executive schemes – 5% over a 10 year rolling period
remaining headroom for executive schemes
468m
46.8m
18.7m
23.4m
2.4m
shAREholDER contExt
the table below shows the advisory vote on the 2011 directors’
report on remuneration at the 2012 AgM. it is the policy of the
Committee to consult with major shareholders prior to any major
changes to the remuneration Policy.
ExIt pAymEnts mADE In yEAR
there were no exit payments made in 2012.
totAl shAREholDER REtuRns (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
Dec 07
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
votes
For
91.72%
Against
4.46%
Abstentions*
Inchcape
FTSE mid 250 excluding investment trust
3.82%
* Abstain votes are not included in the final proxy figures as they are not
recognised as a vote in law. the figures above are for illustration purposes,
consistent with what is required under the Bis recommendations.
58
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
PART 3 – ADDITIONAL INFORMATION [AUDITED]
This section contains information that is required under current regulations, but which will no longer be required for the 2013 Directors’
report on remuneration.
INDIVIDUAL EMOLUMENTS FOR THE YEAR ENDED 31 DECEMBER 2012
Base salary/fees
Bonus
Taxable and
other benefits (e)
Company contributions
paid in year in respect of
pension arrangements
Termination
payment
2012
£’000
2011
£’000
2012
2011
£’000
£’000
2012
£’000
2011
£’000
2012
£’000
2011
£’000
2012
2011
£’000
£’000
275.0
275.0
–
–
–
–
–
–
6.8
22.1
–
0.6
–
–
–
–
790.4
407.7
773.0
398.8
814.9 607.4
420.4 313.3
18.4
9.9
18.4
49.4
311.5
81.7
309.2
81.2
56.7
60.0
50.0
60.0
76.0
22.5
50.0
25.0
55.3
46.7
56.7
74.0
59.3
16.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,848.3 1,799.5 1,235.3 920.7
19.0
–
–
35.1
–
90.5
–
393.2
–
390.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total remuneration
2012
£’000
2011
£’000
281.8
297.1
–
0.6
1,935.2
919.7
1,708.0
842.7
56.7
60.0
50.0
60.0
76.0
22.5
50.0
25.0
55.3
46.7
56.7
74.0
59.3
16.7
–
3,511.9
19.0
3,201.1
Chairman
Ken Hanna
Peter Johnson
(left 14 May 2009) (a)
Executive Directors
André Lacroix (b)
John McConnell (c)
Non–Executive
Directors (d)
Vicky Bindra
Simon Borrows
Alison Cooper
Nigel Northridge
Will Samuel
David Scotland
(left 10 May 2012)
Till Vestring
Michael Wemms
(left 11 May 2010)
Total
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 £311,472 (2011 – £309,204) 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 £81,676 (2011 – £81,202) 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 receive a fee of £50,000 p.a. with an additional £10,000 for chairmanship of a committee. The Deputy Chairman receives a fee of £76,000.
(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 2012 (2011 – none).
www.inchcape.com
59
Directors’ report on remuneration continued
PENSION ENTITLEMENTS
The Group closed the UK final salary pension plan to future accrual on 31 December 2012. Under the scheme the Group offered
defined benefit pensions for Executive Directors and other senior executives at the normal retirement age of 65. The maximum pension
benefit was two-thirds of a scheme specific ceiling of £137,400 in the 2012/13 tax year, subject to completion of between 20 and 40
years’ service. Members who joined after March 2005 contributed 7% of pensionable salary. The Group Chief Executive did not
participate in the plan and received a cash supplement of 40% of base salary in lieu of a final pension provision. The Group
Finance Director received a cash supplement above the cap in 2012. Details are given in the emoluments table on page 59.
DIRECTORS’ PENSION ENTITLEMENTS
Increase in
accrued
pension during
the year £’000
Increase in
accrued
pension during
the year (net of
inflation)
Accumulated
total of accrued
pension at
31.12.11
Accumulated
total of accrued
pension at
31.12.12
Transfer value
(less Director’s
contributions) of
the increase in
accrued benefit
net of inflation
Transfer value of
accrued benefits
at 31.12.12
Transfer value
of accrued
benefits at
01.01.12
John McConnell
5.1
4.7
9.6
14.7
88.7
284.3
194.7
Difference in
transfer value
less any
contributions
made in
the year
80.1
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.
DIRECTORS’ SHARE OPTIONS
André Lacroix
John McConnell
Held at 31.12.12
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 01.01.12
Exercise price (c)
Exercise period
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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)
£6.034
£2.00
£3.10
£2.05
£2.140
£4.416
£5.776
£2.00
£3.20
£3.10
£2.43
Sept 2008 – Sept 2015
May 2012 – May 2019
Apr 2013 – Apr 2020
Nov 2013 – Apr 2014
Mar 2006 – Mar 2013
May 2007 – May 2014
Mar 2008 – Mar 2015
May 2012 – May 2019
Nov 2012 – Nov 2019
Apr 2013 – Apr 2020
Nov 2014 – Apr 2015
Notes on share options
(a) Under the Inchcape 1999 Share Option Plan.
(cid:116)(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:116)(cid:1)
Such options are normally exercisable between three and ten years of grant.
(cid:116)(cid:1) Details of performance targets are given on page 58.
(b) Under the Inchcape SAYE Share Option Scheme.
(cid:116)(cid:1)
(cid:116)(cid:1)
(cid:116)(cid:1)
There were no option exercises by Executive Directors during 2012.
The Inchcape SAYE Share Option Scheme is open to employees in the UK with at least three months’ service.
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:116)(cid:1) All options were granted for nil consideration
(cid:116)(cid:1)
(cid:116)(cid:1)
The table shows Executive Directors’ options over ordinary shares of 10.0p at 1 January 2012 and 31 December 2012.
The mid market price for shares at the close of business on 31 December 2012 was 430.9p. The price range during 2012 was 292.6p to 446.4p.
60
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
PERFORMANCE SHARE PLAN
André Lacroix
John McConnell
Share
awards as at
31.12.12
304,171 (a)
101,390 (b)
304,170 (a)
101,390 (b)
130,761 (a)
26,152 (b)
130,760 (a)
26, 150 (b)
Share awards
lapsed
during the
year
Share awards
exercised
during the
year
Share awards
granted during
the year
–
–
–
–
–
–
–
–
–
–
–
–
– 304,170 (a)
– 101,390 (b)
–
–
–
–
– 130,760 (a)
26, 150 (b)
–
Share
awards as at
01.01.12
304,171 (a)
101,390 (b)
–
–
130,761 (a)
26,152 (b)
–
–
Date of grant
23-May-11
23-May-11
10-Apr-12
10-Apr-12
23-May-11
23-May-11
10-Apr-12
10-Apr-12
Exercise Period
May 2014 – May 2015
May 2014 – May 2015
April 2015 – April 2016
April 2015 – April 2016
May 2014 – May 2015
May 2014 – May 2015
April 2015 – April 2016
April 2015 – April 2016
Notes on the Performance Share Plan
(cid:116)(cid:1) Awards under the Inchcape 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:116)(cid:1) Details of the performance targets are given on page 57.
(cid:116)(cid:1) All awards were granted for nil consideration.
(cid:116)(cid:1)
(cid:116)(cid:1)
The table shows Executive Directors’ awards over ordinary shares of 10.0p at 1 January 2012 and 31 December 2012.
The mid market price for shares at the close of business on 31 December 2012 was 430.9p. The price range during 2012 was 292.6p to 446.4p.
CO-INVESTMENT PLAN
Awarded
ordinary shares
31.12.12
Ordinary shares
lapsed
during the
year
Ordinary shares
exercised
during the
year
Ordinary shares
awarded during
the year
André Lacroix
John McConnell
195,322
117,164
103,238
120,015
Notes on Co-investment plan
–
–
–
–
–
–
–
–
–
117,164
–
120,015
Awarded
ordinary shares
01.01.12
Date of grant
Exercise Period
195,322
–
103,238
–
02-Jun-11
22-Jun-12
02-Jun-11
22-Jun-12
Jun 2014 – Dec 2014
Jun 2015 – Dec 2015
Jun 2014 – Dec 2014
Jun 2015 – Dec 2015
(cid:116)(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:116)(cid:1) Awards vest 75% on three year EPS growth and 25% on three year average ROCE.
(cid:116)(cid:1)
(cid:116)(cid:1)
The share price on the date of grant in 2011 was 389.7p.
The share price on the date of grant in 2012 was 340.3p.
(cid:116)(cid:1) Details of the performance targets are given on page 57.
www.inchcape.com
61
Other statutory information
The information that fulfils the requirements of the business review
can be found in the Operating Review on pages 22 to 30, which
is 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 to 39. Each Director held office throughout
the year except David Scotland who retired from the Board
on 10 May 2012.
In accordance with the UK Corporate Governance Code all
of the Directors will stand for re-election at the Annual General
Meeting (AGM) on 16 May 2013.
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
22 to 30.
RESULTS AND DIVIDENDS
The Group’s audited Financial Statements for the year ended
31 December 2012 are shown on pages 66 to 134. The Board
recommends a final ordinary dividend of 10.5p per ordinary
share. If approved at the 2013 AGM, the final ordinary dividend
will be paid on 19 June 2013 to shareholders registered in the
books of the Company at the close of business on 24 May 2013.
Together with the interim dividend of 4.0p per ordinary share paid
on 4 September 2012, this makes a total ordinary dividend for the
year of 14.5p per ordinary share (2011 – 11.0p).
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 2012.
Name
31 December 2012
1 January 2012
Ken Hanna
André Lacroix
John McConnell
Simon Borrows
Alison Cooper
Nigel Northridge
Will Samuel
Till Vestring
70,000
536,148
210,676
1,000,000
2,500
25,000
12,000
30,000
70,000
507,124
181,038
1,000,000
2,500
25,000
12,000
30,000
There have been no changes to the number of shares held by
Directors between 31 December 2012 and 11 March 2013.
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 2012, the Trust’s shareholding totalled 1,692,848
ordinary shares. Between 1 January 2013 and 11 March 2013
the Trust transferred 8,610 ordinary shares to satisfy the exercise
of awards under employee share plans.
SIGNIFICANT SHAREHOLDINGS
As at 11 March 2013, the Company had been notified of the
following significant interests:
Holding
percentage notified
Prudential plc
Mr George Horesh
Standard Life
Schroders plc
Legal & General
The Capital Group Companies, Inc
10.94%
7.99%
6.05%
5.07%
3.99%
3.12%
Source: TR-1 notifications. These are updated on the Company’s website
SHARE CAPITAL
As at 31 December 2012, the Company’s issued share capital of
£46,810,820.20 comprised 468,108,202 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 10 May 2012, the Company
was authorised to make market purchases of up to 46,139,276
ordinary shares (representing approximately 10.0% of its issued
share capital). No such purchases were made during 2012.
62
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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 22 to 31 and in the notes to the
accounts on pages 80 to 124.
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.
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:
(cid:116)(cid:1)select suitable accounting policies and then apply
them consistently;
(cid:116)(cid:1)make judgements and accounting estimates that are
reasonable and prudent;
(cid:116)(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:116)(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:116)(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:116)(cid:1)the Operating Review contained on pages 22 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.
www.inchcape.com
63
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 2012, or was
entered into during the year for any Director and/or connected
person (2011 – none).
ANNUAL GENERAL MEETING
The AGM will be held at 11.30 a.m. on Thursday 16 May 2013 at
MWB Business Exchange, 1st Floor, 55 Old Broad Street, London,
EC2M 1RX. 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
Tamsin Waterhouse
Group Company Secretary
Other statutory information continued
CHARITABLE AND POLITICAL DONATIONS
The Company made a charitable donation to Kids Company of
£13,616.39 during 2012. In 2011, the Company donated £19,290
to Chase Shooting Star Children’s Hospice. No political donations
were made during 2012.
PRINCIPAL FINANCIAL RISK FACTORS
These risks are shown on pages 32 to 33.
EVENTS AFTER THE BALANCE SHEET DATE
The Group acquired the Trivett Automotive Group on
1 March 2013.
CREDITOR PAYMENT POLICY
The Company has no trade creditors (2011 – 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.
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 considers 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.
64
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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
66
67
68
69
70
71
80
125
126
127 Company balance sheet
128 Accounting policies
129 Notes to the accounts
135
Report of the auditors – Company
www.inchcape.com
65
Total
2011
£m
5,826.3
(4,970.2)
856.1
(625.1)
231.0
(3.0)
228.0
57.3
(81.9)
203.4
(55.6)
147.8
142.2
5.6
147.8
31.0p
30.5p
Consolidated income statement
For the year ended 31 December 2012
Before
exceptional
items
2012
£m
Exceptional
items
(note 2)
2012
£m
Notes
Before
exceptional
items
2011
£m
Exceptional
items
(note 2)
2011
£m
Total
2012
£m
–
6,085.4
5,826.3
(0.4) (5,211.1) (4,970.2)
856.1
(0.4)
(611.7)
1.6
244.4
1.2
(3.0)
–
241.4
1.2
57.3
–
(71.0)
–
227.7
1.2
(59.2)
0.4
168.5
1.6
874.3
(611.2)
263.1
0.2
263.3
56.8
(68.6)
251.5
(61.1)
190.4
–
–
–
(13.4)
(13.4)
–
(13.4)
–
(10.9)
(24.3)
3.6
(20.7)
184.5
5.9
190.4
40.0p
39.4p
Revenue
Cost of sales
Gross profit
Net operating expenses
Operating profit
Share of profit / (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)
6,085.4
(5,210.7)
874.7
(612.8)
261.9
0.2
262.1
56.8
(68.6)
250.3
(61.5)
188.8
1, 3
3
13
6
7
8
9
9
66
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
Consolidated statement of comprehensive income
For the year ended 31 December 2012
Profit for the year
Notes
2012
£m
2011
£m
190.4
147.8
Other comprehensive income:
Cash flow hedges
Fair value gains / (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 (losses) / gains on defined benefit pension schemes
Recoverable / (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
14
5
5
16
Total comprehensive income attributable to:
– Owners of the parent
– Non controlling interests
Total comprehensive income for the year
(46.1)
0.1
1.0
(12.3)
(39.3)
72.9
–
22.6
(1.1)
189.3
186.8
2.5
189.3
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
www.inchcape.com
67
Consolidated statement of financial position
As at 31 December 2012
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
2012
£m
2011
£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
559.5
693.1
13.8
4.0
31.2
40.4
100.6
1,442.6
928.9
258.4
2.7
116.1
3.0
597.9
1,907.0
31.3
1,938.3
3,380.9
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
(1,150.7)
(62.6)
(47.5)
(41.9)
(113.5)
(1,416.2)
(22.4)
(43.0)
(24.9)
(320.0)
(27.9)
(438.2)
(19.1)
(1,873.5)
(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)
1,507.4
1,357.5
46.9
136.5
133.3
86.7
1,078.2
1,481.6
25.8
1,507.4
46.4
126.9
133.3
126.8
895.7
1,329.1
28.4
1,357.5
The consolidated Financial Statements on pages 66 to 124 were approved by the Board of Directors on 11 March 2013 and were
signed on its behalf by:
André Lacroix,
Group Chief Executive
John McConnell,
Group Finance Director
68
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
Consolidated statement of changes in equity
For the year ended 31 December 2012
At 1 January 2011
46.4
126.3
133.3
145.2
811.9
1,263.1
26.2
1,289.3
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Other
reserves
(note 25)
£m
Notes
Retained
earnings
(note 26)
£m
Equity
attributable
to owners of
the parent
£m
Non
controlling
interests
£m
Total
shareholders’
equity
£m
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
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 1 January 2012
4,16
10
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
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
Disposal of businesses
At 31 December 2012
4,16
10
–
–
–
–
–
–
–
–
–
–
–
0.6
–
–
–
–
–
–
–
(18.4)
(18.4)
142.2
(18.1)
124.1
142.2
(36.5)
105.7
–
–
–
6.7
(0.2)
–
6.7
(0.2)
0.6
–
–
46.4
–
–
126.9
–
–
133.3
–
–
126.8
(46.8)
–
(46.8)
–
895.7 1,329.1
–
–
–
–
–
9.6
–
–
–
–
–
–
–
(40.1)
(40.1)
184.5
42.4
226.9
184.5
2.3
186.8
–
–
–
10.4
(2.3)
–
10.4
(2.3)
10.1
5.6
–
5.6
–
–
–
–
(3.4)
28.4
5.9
(3.4)
2.5
–
–
–
147.8
(36.5)
111.3
6.7
(0.2)
0.6
(46.8)
(3.4)
1,357.5
190.4
(1.1)
189.3
10.4
(2.3)
10.1
–
–
–
136.5
–
–
–
133.3
–
–
–
86.7
(52.5)
–
–
(52.5)
–
–
1,078.2 1,481.6
–
(3.3)
(1.8)
25.8
(52.5)
(3.3)
(1.8)
1,507.4
–
–
–
–
–
0.5
–
–
–
46.9
Share-based payments have been stated net of a tax credit of £3.6m (2011 – charge of £0.6m).
Cumulative goodwill of £108.1m (2011 – £108.1m) has been written off against the retained earnings reserve.
www.inchcape.com
69
2012
£m
2011
£m
Notes
27a
28a
28b
13
10
27b
249.2
(47.2)
14.7
(32.3)
184.4
(15.8)
2.9
(83.8)
(13.9)
10.4
(0.8)
(101.0)
10.1
(2.3)
(3.5)
(0.4)
(3.2)
(0.8)
(52.5)
(3.3)
(55.9)
27.5
461.3
(3.9)
484.9
18
18
22
324.4
273.5
(113.0)
484.9
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
Consolidated statement of cash flows
For the year ended 31 December 2012
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 (purchase) / disposal of available for sale financial assets
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 (outflow) / inflow from borrowings
Payment of capital element of finance leases
Loans (granted to) / received from 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
70
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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 Financial Statements.
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 2012 but have not had a material impact
on the results or financial position of the Group:
–(cid:3) IAS 12, ‘Amendment to IAS 12, Income Taxes: Deferred taxes’
–(cid:3) IFRS 7, ‘Amendment to IFRS 7, Financial Instruments: Transfers of financial assets’.
At the reporting date, IAS 19 (revised), ‘Employee benefits’, was in issue but was not yet effective. It was amended in June 2011,
and will be applied for the financial year commencing on 1 January 2013. The revised standard is expected to impact the way
the Group accounts for pensions and other post-retirement benefits as follows:
–(cid:3) the interest cost and expected return on plan assets will be replaced with a net interest amount, calculated by applying the
discount rate to the net defined benefit liability. Under the existing standard, the expected return on plan assets represented
the weighted average expected return on the assets held by the pension schemes; and
–(cid:3) expenses, other than investment management expenses, should be recognised as a period cost when incurred. Under
the existing standard, expenses incurred in connection with running the pension schemes have formed part of the defined
benefit obligation.
Under the current accounting policy, the Group recognises actuarial gains and losses directly in other comprehensive income
as required by the new standard.
Had the revised standard been applied to these Financial Statements, the effect would have been a decrease in operating profit
for the year of approximately £2.1m, a decrease in profit before tax for the year of approximately £2.8m and an increase in net
assets as at the end of the year of approximately £20.7m.
The following standards were also 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 2013:
–(cid:3) IAS 1, ‘Amendment to IAS 1, Presentation of financial statements: Other comprehensive income’
–(cid:3) IAS 27 (revised), ‘Separate financial statements’
–(cid:3) IAS 28 (revised), ‘Associates and joint ventures’
–(cid:3) IAS 32, ‘Amendment to IAS 32, Financial Instruments: Presentation’
–(cid:3) IFRS 7, ‘Amendment to IFRS 7, Financial Instruments: Disclosures’
–(cid:3) IFRS 9, ‘Financial instruments’
–(cid:3) IFRS 10, ‘Consolidated financial statements’
–(cid:3) IFRS 11, ‘Joint arrangements’
–(cid:3) IFRS 12, ‘Disclosure of interests in other entities’
–(cid:3) IFRS 13, ‘Fair value measurement’.
The above standards are not expected to have a material impact on the Group’s reported position or performance.
www.inchcape.com
71
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 presentation 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.
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Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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.
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.
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73
Accounting policies continued
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.
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.
74
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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 included within ‘net operating expenses’ in the consolidated income
statement, with the exception of depreciation on ‘interest in leased vehicles’ which is charged to ‘cost of sales’. It is provided on
a straight line basis over the estimated useful life of the asset, except for freehold land which is not depreciated. 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 and adjusted if necessary.
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.
Non-financial assets, other than goodwill, which have previously been impaired, are reviewed for possible reversal of the
impairment at each reporting date.
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 are included within inventories as the Group is considered to have the risks and rewards of
ownership. The corresponding liability is 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.
An inventory provision is recognised in situations where net realisable value is likely to be less than cost (such as obsolescence,
deterioration, fall in selling price). When calculating the provision, management considers the nature and condition of the
inventory, as well as applying assumptions around anticipated saleability, determined on conditions that exist at the end of the
reporting period. With the exception of parts, generally net realisable value adjustments are applied on an item-by-item basis.
TRADE RECEIVABLES
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business.
These are recognised as current assets if collection is due in one year or less. If collection is due in over a year, they are presented
as non-current assets.
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest
method, less provision for impairment. A provision for impairment 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 amount of the provision is the
difference between the asset’s carrying amount and the present value of estimated future cash flows.
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75
Accounting policies continued
TRADE PAYABLES
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business. These
are classified as current liabilities if payment is due in one year or less. If payment is due at a later date, they are presented as
non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method.
Trade payables include the liability for vehicles held on consignment, with the corresponding asset included within inventories.
BORROWINGS
Borrowings are recognised initially at fair value, net of transaction costs incurred and are subsequently stated at amortised cost.
Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated
income statement over the period of the borrowings, using the effective interest method.
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.
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.
PRODUCT WARRANTY PROVISION
A product warranty provision corresponds to self-insured extended warranties beyond those provided by the manufacturer, as part
of the sale of a vehicle. Provision is made for the expected cost of labour and parts based on historical claims experience and
expected future trends.
VACANT LEASEHOLD PROVISION
A vacant leasehold provision is recognised when the Group is committed to certain leasehold premises for which it no longer has
a commercial use. It is made to the extent of the estimated future net cost, including existing subtenant arrangements if any.
LITIGATION PROVISION
A litigation provision is recognised when a litigation case is outstanding at the end of the reporting period and there is a likelihood
that the legal claim will be settled.
76
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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 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.
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:3)hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or
•(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:3)hedges of a net investment in a foreign operation (net investment hedge).
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77
Accounting policies continued
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 within ‘net operating expenses’ 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. Cumulative gains and losses on investments held for operational reasons are
included within ‘net operating expenses’. Cumulative gains and losses on investments held for financing purposes are included
within ‘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.
78
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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 (see note 21).
PENSIONS AND OTHER POST-RETIREMENT BENEFITS
The net retirement benefit asset or liability is calculated based on the actuarial assumptions 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 (see note 8). 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 (see note 16). 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 impairment 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 intangible assets 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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79
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 accordingly are in or are expected to return to the growth phase of their development cycle. 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
978.4
(230.6)
747.8
617.3
(130.4)
486.9
518.9
(0.2)
518.7
51.3
(0.8)
50.5
–
50.5
17.3
(3.6)
13.7
(0.1)
13.6
52.8
(0.1)
52.7
–
52.7
385.1
–
385.1
35.1
–
35.1
–
35.1
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Distribution
Total
Distribution
£m
37.4
–
37.4
7.2
–
7.2
–
7.2
364.3
(28.7)
335.6
2,901.4
(389.9)
2,511.5
30.3
(0.2)
30.1
–
30.1
194.0
(4.7)
189.3
(0.1)
189.2
2012
Revenue
Total revenue
Inter-segment revenue
Revenue from third parties
Results
Segment result
Operating exceptional items
Operating profit after exceptional items
Share of profit / (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
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Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
1 SEGMENTAL ANALYSIS CONTINUED
2012
Revenue
Total revenue
Inter-segment revenue
Revenue from third parties
Results
Segment result
Operating exceptional items
Operating profit after exceptional items
Share of profit / (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
Australasia
£m
Europe
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Retail
Total
Retail
£m
Total pre
Central
£m
Central
£m
Total
£m
420.9
–
420.9
129.7
–
129.7
2,096.4
–
2,096.4
926.9
–
926.9
3,573.9
–
3,573.9
6,475.3
(389.9)
6,085.4
–
–
–
6,475.3
(389.9)
6,085.4
15.9
(1.4)
14.5
–
14.5
(0.5)
(1.1)
(1.6)
–
(1.6)
58.0
(2.9)
55.1
–
55.1
12.7
(7.9)
4.8
0.3
5.1
86.1
(13.3)
72.8
0.3
73.1
280.1
(18.0)
262.1
0.2
262.3
(18.2)
19.2
1.0
–
1.0
261.9
1.2
263.1
0.2
263.3
56.8
(68.6)
251.5
(61.1)
190.4
Net finance costs of £11.8m are not allocated to individual segments.
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81
Notes to the accounts continued
1 SEGMENTAL ANALYSIS CONTINUED
2012
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
84.5
104.8
87.5
76.7
33.1
117.0
503.6
(250.5)
(117.8)
(76.7)
(57.0)
(54.3)
(94.9)
(651.2)
Segment assets include net inventory, trade receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
2012
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 intangible assets
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
5.3
11.2
0.5
3.0
1.7
0.5
–
–
–
3.9
1.7
0.2
0.4
1.0
1.4
0.2
–
–
–
6.4
2.8
2.9
0.4
2.0
1.6
–
–
–
–
2.5
6.7
–
1.6
2.0
–
0.1
–
–
–
2.3
0.2
25.2
0.2
0.1
7.4
0.1
–
–
–
13.7
2.1
0.3
2.5
1.5
0.1
–
–
–
30.4
41.6
3.4
10.6
13.6
1.0
–
–
–
(1.2)
4.7
18.6
Net provisions include inventory, trade receivables impairment and other liability provisions.
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Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
1 SEGMENTAL ANALYSIS CONTINUED
2012
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
85.0
18.5
389.2
218.0
710.7
1,214.3
(87.8)
(11.3)
(391.3)
(138.2)
(628.6)
755.4
1,411.2
(1,279.8)
(593.7)
1,507.4
Segment assets include net inventory, trade receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
2012
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 intangible assets
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
1.3
–
–
0.7
–
–
–
–
–
4.0
0.4
0.9
–
0.9
–
–
–
–
–
22.3
–
2.1
10.0
–
1.2
0.2
0.8
–
2.3
21.5
30.9
0.1
1.7
7.3
0.1
1.5
–
1.1
0.8
0.5
54.9
1.0
3.8
18.9
0.1
2.7
0.2
1.9
85.3
42.6
7.2
29.5
13.7
3.7
0.2
1.9
0.8
0.8
0.7
–
7.9
0.2
–
–
–
–
–
86.0
42.6
15.1
29.7
13.7
3.7
0.2
1.9
0.8
28.3
46.9
5.9
52.8
Net provisions include inventory, trade receivables impairment and other liability provisions.
www.inchcape.com
83
Notes to the accounts continued
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
North Asia
£m
South Asia
£m
801.6
(180.2)
621.4
766.7
(108.2)
658.5
42.7
(0.3)
42.4
–
42.4
24.3
(2.7)
21.6
(1.3)
20.3
433.4
(0.1)
433.3
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
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Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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).
www.inchcape.com
85
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.
86
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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.
www.inchcape.com
87
Notes to the accounts continued
2 EXCEPTIONAL ITEMS
Restructuring costs
Closure of defined benefit pension schemes to future accrual
Loss on deemed disposal of joint venture (note 28)
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
2012
£m
(17.3)
19.7
(1.2)
1.2
–
–
1.2
0.4
1.6
2011
£m
(13.4)
–
–
(13.4)
(10.9)
(10.9)
(24.3)
3.6
(20.7)
The restructuring costs of £17.3m represent the cost of headcount reduction across the Group together with the closure of less
profitable sites. The restructuring was carried out to ensure that the Group maintains an organisational structure and efficient cost
base across the Group. Included within this is an impairment charge of £0.8m in respect of property, plant and equipment
and £2.1m in respect of goodwill and other intangible assets.
During the year, the Group closed two of its UK defined benefit pension schemes to future accrual. The net gain to the
Group of £19.7m comprises a curtailment gain of £26.0m (see note 5) net of costs of £6.3m associated with implementing
the changes including the harmonisation of pension arrangements.
The Group has recognised a loss of £1.2m as a result of measuring at fair value its 51% equity interest in the Inchcape
Independence group prior to the acquisition of the remaining 49%.
The exceptional tax credit of £0.4m represents relief on restructuring and property costs (£3.1m credit), the use of brought
forward unprovided tax losses and other reliefs (£1.7m credit), offset by a charge arising on pension scheme curtailment
gains (£4.4m charge).
In 2011, the restructuring costs of £13.4m represented the cost of a global restructuring exercise to improve the efficiency of the
Group's operations as well as improving the cost effectiveness of the Group's global IT strategy. Included within the restructuring
costs was a £7.1m impairment of computer software costs in the UK.
The £10.9m charge on the impairment of available for sale financial assets related to the impairment losses on Greek Government
Bonds to reflect the difficult market conditions.
The exceptional tax credit of £3.6m represented relief on restructuring costs and impairment of software costs. No relief was
available for the impairment of available for sale financial assets.
88
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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 / (income)
Other operating (income) / expenses
Net operating
expenses before
exceptional
items
2012
£m
Exceptional
items
2012
£m
330.5
286.7
(4.4)
612.8
3.1
(5.9)
1.2
(1.6)
Net
operating
expenses
2012
£m
333.6
280.8
(3.2)
611.2
Net operating
expenses before
exceptional
items
2011
£m
Exceptional
items
2011
£m
329.7
291.0
(9.0)
611.7
In 2011, other operating (income) / expenses included a £6.1m gain in relation to post-retirement settlements.
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
Impairment of trade receivables
Profit on sale of property, plant and equipment
Operating lease rentals
2012
£m
5,579.7
505.7
6,085.4
2011
£m
5,317.1
509.2
5,826.3
Net
operating
expenses
2011
£m
330.1
304.0
(9.0)
625.1
2011
£m
29.0
16.3
4.5
7.1
–
–
1.2
(0.1)
48.3
0.4
13.0
–
13.4
2012
£m
29.7
13.7
3.7
1.9
0.2
0.8
2.1
(0.2)
47.8
www.inchcape.com
89
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 to the Company’s auditors and its associates 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
– Audit related assurance services
– Tax advisory services
– Tax compliance services
– 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
2012
£m
2011
£m
0.6
1.4
0.1
0.6
0.3
0.3
3.3
0.2
2012
£m
381.3
43.3
12.0
6.8
443.4
0.6
1.4
0.1
0.8
0.3
0.2
3.4
0.2
2011
£m
370.5
43.2
12.2
7.3
433.2
Other pension costs correspond to the current service charge and contributions to the defined contribution schemes.
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 to 61 of this document. Information on compensation of
key management personnel is set out in note 31c.
F. AVERAGE MONTHLY NUMBER OF EMPLOYEES
Australasia
Europe
North Asia
South Asia
United Kingdom
Russia and Emerging Markets
Total operational
Central
2012
Number
536
287
1,404
878
179
1,412
4,696
Distribution
2011
Number
455
321
1,398
842
166
1,346
4,528
2012
Number
699
359
–
–
4,805
3,421
9,284
Retail
2011
Number
679
391
–
–
4,819
3,290
9,179
2012
Number
1,235
646
1,404
878
4,984
4,833
13,980
140
14,120
Total
2011
Number
1,134
712
1,398
842
4,985
4,636
13,707
147
13,854
90
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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 £6.8m (2011 – £7.3m), of which £6.8m (2011 – £7.3m)
is equity-settled and £nil (2011 – £nil) 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:
2012
Outstanding at 1 January
Granted
Exercised
Lapsed
Outstanding at 31 December
Exercisable at 31 December
2011
Outstanding at 1 January
Granted
Exercised
Lapsed
Outstanding at 31 December
Exercisable at 31 December
Weighted average
exercise price*
Performance
Share Plan
Executive Share
Option Plan
Save As You
Earn Plan
2,553,653
2,673,542
(44,274)
(339,839)
4,843,082
9,426,525
–
(2,924,659)
(351,483)
6,150,383
3,736,488
1,129,041
(1,709,358)
(523,697)
2,632,474
Other
Share Plans
1,309,577
598,506
(232,300)
(129,860)
1,545,923
–
4,319,659
108,129
–
Weighted average
exercise price*
Performance
Share Plan
Executive Share
Option Plan
–
2,670,797
(930)
(116,214)
2,553,653
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
Other
Share Plans
1,101,278
936,460
(153,347)
(574,814)
1,309,577
–
1,084,758
97,598
–
£2.52
£3.07
£2.15
£3.17
£2.71
£2.63
£3.01
£2.43
£2.06
£5.29
£2.52
£4.94
*
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 nil (2011 – 18,171) share options outstanding at 31 December 2012 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 2012 is 3.7 years (2011 – 5.0 years).
The range of exercise prices for options outstanding at the end of the year was £2.00 to £6.03 (2011 – £1.93 to £7.43). See note 24
for further details.
The fair value of options granted under the Save As You Earn Plan is estimated as at the date of grant using a Black-Scholes
option pricing model, taking into account the terms and conditions upon which the options were granted. The fair value of awards
granted under the Performance Share Plan and Other Share Plan is the market value of the related shares at the time of grant.
The following table lists the main inputs to the model for awards granted during the years ended 31 December 2012 and
31 December 2011:
Weighted average share price at grant date
Weighted average exercise price
Vesting period
Expected volatility
Expected life of award
Weighted average risk free rate
Expected dividend yield
Weighted average fair value per option
Performance
Share Plan
Save As You
Earn Plan
Other
Share Plans
2012
2011
2012
2011
2012
2011
£3.55
n/a
3.0 years
n/a
3.0 years
n/a
n/a
£3.55
£3.84
n/a
3.0 years
n/a
3.0 years
n/a
n/a
£3.84
£3.70
£3.07
3.0 years
40.6%
3.2 years
0.4%
3.1%
£1.07
£2.96
£2.43
3.0 years
48.5%
3.2 years
1.0%
3.5%
£0.99
£3.62
n/a
3.0 years
n/a
3.0 years
n/a
n/a
£3.62
£3.74
n/a
3.0 years
n/a
3.0 years
n/a
n/a
£3.74
No options were granted under the Executive Share Option Plan in 2012 and 2011.
The expected life and volatility of the options are based upon historical data.
www.inchcape.com
91
Notes to the accounts continued
5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS
The Group operates a number of pension and post-retirement benefit schemes for its employees in a number of its businesses.
A. UK SCHEMES
The Group operates five main defined benefit pension schemes in the UK, namely the Inchcape Group (UK) Pension Scheme,
the Inchcape Motors Pension Scheme, the Inchcape Cash+ Pension Scheme, the Inchcape Overseas Pension Scheme and the
TKM Group Pension Scheme. These schemes, further details of which are provided below, have assets held in trust in separately
administered funds. The Group also has 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.
During the year, the Group commenced a consultation process with members and trustees of the Inchcape Group (UK) Pension
Scheme and the Inchcape Motors Pension Scheme on a proposal that both schemes be closed to future accrual with effect from
31 December 2012. The proposal was confirmed by the Group on 21 December 2012 and active members ceased to accrue
benefits under the schemes with effect from 31 December 2012. This change gave rise to an exceptional item in the Group’s
income statement for the year ended 31 December 2012 (see note 2).
At the same time, the Group introduced a new defined benefit pension scheme in the UK under which members accrue a
percentage of their earnings each year, a sum which then grows to provide a lump sum payment on retirement. Members
accrue benefits under this scheme with effect from 1 January 2013.
During the year, amendments were also made to certain scheme rules which clarified the Group’s right to any surplus. This resulted
in a previously unrecognised surplus of £72.9m being recognised in the year.
INCHCAPE GROUP (UK) PENSION SCHEME (CLOSED SCHEME)
The latest triennial actuarial valuation for this scheme was carried out as at 31 March 2012 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 was closed to future accrual with effect from 31 December 2012. The investment strategy is to hold a broadly balanced
portfolio of diversified growth funds and bonds.
INCHCAPE MOTORS PENSION SCHEME (CLOSED SCHEME)
The latest triennial actuarial valuation for this scheme was carried out as at 5 April 2012 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
was closed to future accrual with effect from 31 December 2012. The investment strategy is to hold a broadly balanced portfolio of
equities, diversified growth funds and bonds.
INCHCAPE CASH+ PENSION SCHEME
This scheme is a new defined benefit scheme under which members accrue benefits with effect from 1 January 2013.
INCHCAPE OVERSEAS PENSION SCHEME
This scheme is managed from Guernsey and is therefore reported under the United Kingdom in this note. The latest triennial
actuarial valuation for this scheme was carried out as at 31 March 2012 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. Investments are held in a balanced portfolio of equities and bonds.
TKM GROUP PENSION SCHEME (CLOSED 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 and assets held in trust in separately administered funds. These schemes are typically subject to triennial valuations.
The overseas defined contribution schemes are principally linked to local statutory arrangements.
C. DEFINED CONTRIBUTION PLANS
The total expense recognised in the consolidated income statement is £4.8m (2011 – £5.0m). There are no outstanding
contributions to the defined contribution schemes at the year end (2011 – £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 in the following tables.
92
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS CONTINUED
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
2012
%
4.5
3.0
4.3
3.0
2.3
4.3
2011
%
4.5
3.0
4.7
3.0
2.3
5.2
2012
%
3.6
0.2
1.3
0.4
n/a
6.7
2011
%
4.9
–
2.7
0.4
n/a
7.0
The rate of increase in healthcare costs is 6.1% (2011 – 5.2%) 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 23.0 years (2011 – 22.9 years) for current pensioners and 25.4 years
(2011 – 25.3 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 surplus / (deficit) in funded obligations
Present value of unfunded obligations
The net pension asset is analysed as follows:
Schemes in surplus
Schemes in deficit
United Kingdom
Overseas
2012
£m
(864.8)
947.0
82.2
–
82.2
(1.2)
81.0
2011
£m
(837.3)
906.5
69.2
(72.9)
(3.7)
(1.2)
(4.9)
2012
£m
(44.2)
37.5
(6.7)
(0.4)
(7.1)
(1.2)
(8.3)
2011
£m
(44.0)
35.9
(8.1)
(0.4)
(8.5)
(1.5)
(10.0)
2012
£m
(909.0)
984.5
75.5
(0.4)
75.1
(2.4)
72.7
100.4
(19.4)
81.0
47.0
(51.9)
(4.9)
0.2
(8.5)
(8.3)
0.3
(10.3)
(10.0)
100.6
(27.9)
72.7
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
Plan curtailments
United Kingdom
Overseas
2012
£m
(4.8)
(38.3)
39.1
3.0
26.0
25.0
2011
£m
(5.1)
(42.5)
42.8
6.1
–
1.3
2012
£m
(2.4)
(0.8)
2.1
–
0.1
(1.0)
2011
£m
(2.1)
(1.2)
2.3
–
–
(1.0)
2012
£m
(7.2)
(39.1)
41.2
3.0
26.1
24.0
The actual gain on plan assets amounts to £62.9m (2011 – £94.1m).
Total
2011
£m
(881.3)
942.4
61.1
(73.3)
(12.2)
(2.7)
(14.9)
47.3
(62.2)
(14.9)
Total
2011
£m
(7.2)
(43.7)
45.1
6.1
–
0.3
www.inchcape.com
93
Notes to the accounts continued
5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS CONTINUED
THE TOTALS IN THE PREVIOUS TABLE ARE ANALYSED AS FOLLOWS:
Cost of sales
Distribution costs
Administrative expenses
2012
£m
(0.5)
2011
£m
(0.4)
2012
£m
(2.3)
2011
£m
(1.1)
2012
£m
(4.4)
2011
£m
(5.7)
Current service cost
Interest expense on plan liabilities
Expected return on plan assets
Plan settlements
Plan curtailments
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
Recoverable / (irrecoverable) element of pension surplus
ANALYSIS OF THE MOVEMENT IN THE NET ASSET / (LIABILITY):
At 1 January
Amount recognised in the consolidated income statement
Contributions by employer
Actuarial (losses) / gains recognised in the year
Recoverable / (irrecoverable) surplus recognised in the year
Effect of foreign exchange rates
At 31 December
United Kingdom
2012
£m
2011
£m
2.8
(62.1)
19.6
72.9
33.2
(0.4)
(25.5)
53.0
(36.7)
(9.6)
Overseas
2011
£m
(0.6)
(4.5)
(4.0)
–
(9.1)
2012
£m
(2.0)
0.3
2.1
–
0.4
United Kingdom
Overseas
2012
£m
(4.9)
25.0
27.7
(39.7)
72.9
–
81.0
2011
£m
(20.7)
1.3
24.1
27.1
(36.7)
–
(4.9)
2012
£m
(10.0)
(1.0)
1.9
0.4
–
0.4
(8.3)
2011
£m
(1.5)
(1.0)
1.9
(9.1)
–
(0.3)
(10.0)
CHANGES IN THE PRESENT VALUE OF THE DEFINED BENEFIT OBLIGATION ARE AS FOLLOWS:
United Kingdom
Overseas
2012
£m
(838.5)
(4.8)
(38.3)
2.8
(62.1)
(0.4)
40.0
9.3
26.0
–
(866.0)
2011
£m
(826.1)
(5.1)
(42.5)
(0.4)
(25.5)
(0.3)
39.6
21.8
–
–
(838.5)
2012
£m
(45.5)
(2.4)
(0.8)
(2.0)
0.3
(0.1)
3.2
–
0.1
1.8
(45.4)
2011
£m
(39.2)
(2.1)
(1.2)
(0.6)
(4.5)
(0.1)
2.6
–
–
(0.4)
(45.5)
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
Plan curtailments
Effect of foreign exchange rate changes
At 31 December
94
Inchcape plc Annual Report and Accounts 2012
2012
£m
(7.2)
(39.1)
41.2
3.0
26.1
24.0
2012
£m
0.8
(61.8)
21.7
72.9
33.6
2012
£m
(14.9)
24.0
29.6
(39.3)
72.9
0.4
72.7
2012
£m
(884.0)
(7.2)
(39.1)
0.8
(61.8)
(0.5)
43.2
9.3
26.1
1.8
(911.4)
Total
2011
£m
(7.2)
(43.7)
45.1
6.1
–
0.3
Total
2011
£m
(1.0)
(30.0)
49.0
(36.7)
(18.7)
Total
2011
£m
(22.2)
0.3
26.0
18.0
(36.7)
(0.3)
(14.9)
Total
2011
£m
(865.3)
(7.2)
(43.7)
(1.0)
(30.0)
(0.4)
42.2
21.8
–
(0.4)
(884.0)
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
5 PENSIONS AND OTHER POST-RETIREMENT 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
2012
£m
906.5
39.1
19.6
27.7
0.4
(40.0)
(6.3)
–
947.0
–
947.0
2011
£m
841.6
42.8
53.0
24.1
0.3
(39.6)
(15.7)
–
906.5
(72.9)
833.6
2012
£m
35.9
2.1
2.1
1.9
0.1
(3.2)
–
(1.4)
37.5
(0.4)
37.1
2011
£m
38.1
2.3
(4.0)
1.9
0.1
(2.6)
–
0.1
35.9
(0.4)
35.5
2012
£m
942.4
41.2
21.7
29.6
0.5
(43.2)
(6.3)
(1.4)
984.5
(0.4)
984.1
Total
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
2012
2011
2012
2011
2012
6.4%
33.5%
29.8%
24.0%
6.3%
100.0%
8.4%
32.3%
26.3%
24.5%
8.5%
100.0%
65.9%
26.8%
–
–
7.3%
100.0%
65.5%
25.5%
–
–
9.0%
100.0%
8.6%
33.3%
28.7%
23.0%
6.4%
100.0%
THE HISTORY OF THE PLANS FOR THE CURRENT AND PREVIOUS YEARS IS AS FOLLOWS:
2012
£m
Present value of defined benefit obligation
Fair value of plan assets
Surplus / (deficit)
Irrecoverable element of pension surplus
Revised surplus / (deficit)
Experience adjustments on plan liabilities
Experience adjustments on plan assets
(911.4)
984.5
73.1
(0.4)
72.7
0.8
21.7
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
Total
2011
10.6%
32.0%
25.3%
23.5%
8.6%
100.0%
2008
£m
(677.4)
727.3
49.9
(43.9)
6.0
16.7
(117.0)
The cumulative actuarial gains and losses arising since 1 January 2004 recognised in shareholders’ equity amounted to a £105.4m loss
at 31 December 2012 (2011 – £139.0m loss).
The Group has agreed to pay approximately £32.5m to its defined benefit plans in 2013.
www.inchcape.com
95
Notes to the accounts continued
6 FINANCE INCOME
Bank and other interest receivable
Expected return on post-retirement plan assets
Other finance income
Total finance income
2012
£m
3.7
41.2
11.9
56.8
2011
£m
5.6
45.1
6.6
57.3
During the period, the Group recognised £3.7m of interest relating to tax refunds which is included within ‘other finance income’
(2011 – £nil).
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 loss / (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
2012
£m
0.6
4.4
0.2
(18.0)
13.2
18.0
39.1
11.7
(0.6)
68.6
–
68.6
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
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% (2011 – 2.0%).
96
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
8 INCOME 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 (note 16)
Exceptional tax (note 2)
Total tax charge
2012
£m
2.4
2.4
54.0
56.4
–
(0.9)
55.5
6.0
61.5
(4.6)
4.2
(0.4)
61.1
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
The UK corporation tax charge is calculated upon net UK profit and after taking account of all relevant prior year losses and other
deductions including pension contributions and capital allowances on plant and buildings.
The effective tax rate for the year, before exceptional items, of 24.6% (2011 – 26%) is higher than the standard blended rate of tax
of 23.4% (2011 – 23.8%) 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 23.4% (2011 – 23.8%)
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
– Profit on disposal of joint ventures
– Other items
Total tax charge
2012
£m
251.5
58.9
0.1
4.9
(0.3)
1.7
(6.1)
2.7
0.4
(1.2)
61.1
2011
£m
203.4
48.4
2.9
4.5
(0.8)
2.1
(2.0)
–
–
0.5
55.6
www.inchcape.com
97
Notes to the accounts continued
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
2012
£m
190.4
(5.9)
184.5
(1.6)
182.9
40.0p
39.4p
39.7p
39.1p
2011
£m
147.8
(5.6)
142.2
20.7
162.9
31.0p
30.5p
35.5p
34.9p
2011
number
2012
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
465,120,309
463,324,543
(1,552,107)
(2,687,560)
460,880,642
7,318,204
(1,372,654)
(2,687,560)
459,264,329
7,193,499
468,198,846
466,457,828
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.
98
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
10 DIVIDENDS
The following dividends were paid by the Group:
Interim dividend for the six months ended 30 June 2012 of 4.0p per share (2011 – 3.6p per share)
Final dividend for the year ended 31 December 2011 of 7.4p per share (2010 – 6.6p per share)
2012
£m
18.5
34.0
52.5
2011
£m
16.5
30.3
46.8
A final dividend for the year ended 31 December 2012 of 10.5p per share amounting to £48.9m is subject to approval by
shareholders at the Annual General Meeting and has not been included as a liability as at 31 December 2012.
11 INTANGIBLE ASSETS
Cost
At 1 January 2011
Businesses acquired
Businesses sold
Additions
Retirement of fully amortised assets not in use
Effect of foreign exchange rate changes
At 1 January 2012
Businesses acquired
Businesses sold
Additions
Retirement of fully amortised assets not in use
Effect of foreign exchange rate changes
At 31 December 2012
Accumulated amortisation and impairment
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 1 January 2012
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 2012
Net book value at 31 December 2012
Net book value at 31 December 2011
Goodwill
£m
Computer
software
£m
Other
intangible
assets
£m
576.7
0.2
(2.3)
–
–
(10.6)
564.0
8.3
(0.7)
–
–
(1.3)
570.3
(64.6)
2.3
–
–
–
0.6
(61.7)
–
(0.2)
–
1.3
(60.6)
509.7
502.3
68.3
–
–
13.1
(3.9)
(0.9)
76.6
–
–
15.1
(0.8)
(0.5)
90.4
(29.2)
–
(4.5)
(7.1)
3.9
0.6
(36.3)
(3.7)
(1.9)
0.8
0.4
(40.7)
49.7
40.3
7.1
–
–
–
(7.1)
–
–
0.1
–
–
–
–
0.1
(7.1)
–
–
–
7.1
–
–
–
–
–
–
–
0.1
–
Total
£m
652.1
0.2
(2.3)
13.1
(11.0)
(11.5)
640.6
8.4
(0.7)
15.1
(0.8)
(1.8)
660.8
(100.9)
2.3
(4.5)
(7.1)
11.0
1.2
(98.0)
(3.7)
(2.1)
0.8
1.7
(101.3)
559.5
542.6
As at 31 December 2012, capitalised borrowing costs of £1.5m (2011 – £1.5m) were included within ‘computer software’, £nil of which
was capitalised in 2012 (2011 – £nil).
www.inchcape.com
99
Notes to the accounts continued
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.
Following the acquisition of the non-controlling interest in the Musa Motors group in 2011, the Inchcape Olimp and Musa Motors
businesses have been integrated under a single management structure. As a consequence, the lowest level at which goodwill is
now monitored for management purposes is at the total Russia level.
The carrying amount of goodwill has been allocated to the following operating segments:
United Kingdom
Russia and Emerging Markets
South Asia
Australasia
2012
£m
262.1
217.6
20.5
9.5
509.7
2011
£m
262.3
210.0
20.2
9.8
502.3
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 2012.
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 2% 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 13%, and reflect long-term country risk.
100
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BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
11 INTANGIBLE ASSETS CONTINUED
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
10%
11% to 13%
10%
12%
Long-term
growth rate
2%
5%
2%
2%
IMPAIRMENT
An impairment charge of £0.2m has been recognised in the year ended 31 December 2012 (2011 – £nil) relating to sites that are
to be 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 Group’s businesses in Russia and Lithuania, a reasonably possible change in
a key assumption will not cause a material impairment of goodwill in any of the other CGUs.
The Group’s goodwill in the Russia and Emerging Markets segment at 31 December 2012 is allocated as follows:
Russia
Latvia
Lithuania
Other
At 31 December 2012
Cost
£m
194.1
43.2
21.0
2.7
261.0
Impairment
provision
£m
Net book
value
£m
–
(43.2)
–
(0.2)
(43.4)
194.1
–
21.0
2.5
217.6
The value in use calculations for the Group’s business in Russia 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 10%.
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 5% of the carrying value.
www.inchcape.com
101
Notes to the accounts continued
12 PROPERTY, PLANT AND EQUIPMENT
Cost
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 1 January 2012
Businesses acquired
Businesses sold
Additions
Disposals
Transferred to inventory
Retirement of fully depreciated assets not in use
Reclassified to assets held for sale and disposal group (note 19)
Effect of foreign exchange rate changes
At 31 December 2012
Accumulated depreciation and impairment
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 1 January 2012
Businesses sold
Depreciation charge for the year
Disposals
Impairment losses recognised during the year
Transferred to inventory
Retirement of fully depreciated assets not in use
Reclassified to assets held for sale and disposal group (note 19)
Effect of foreign exchange rate changes
At 31 December 2012
Net book value at 31 December 2012
Net book value at 31 December 2011
Plant,
machinery
and
equipment
£m
Land and
buildings
£m
Subtotal
£m
Interest
in leased
vehicles
£m
591.5
51.2
(3.1)
–
(0.6)
(3.6)
(7.7)
627.7
20.7
–
52.4
(5.6)
–
(0.1)
(14.6)
(4.8)
675.7
(100.2)
(10.4)
1.5
–
0.6
0.7
0.9
(106.9)
–
(11.6)
2.9
(0.8)
–
0.1
3.7
1.7
(110.9)
564.8
520.8
188.1
30.0
(9.9)
(2.4)
(18.3)
–
(2.3)
185.2
1.5
(0.2)
33.6
(10.7)
(5.5)
(5.2)
(1.5)
(2.9)
194.3
(125.8)
(18.6)
5.1
0.8
18.3
–
1.4
(118.8)
0.1
(18.1)
7.7
–
0.8
5.2
1.3
2.0
(119.8)
74.5
66.4
779.6
81.2
(13.0)
(2.4)
(18.9)
(3.6)
(10.0)
812.9
22.2
(0.2)
86.0
(16.3)
(5.5)
(5.3)
(16.1)
(7.7)
870.0
(226.0)
(29.0)
6.6
0.8
18.9
0.7
2.3
(225.7)
0.1
(29.7)
10.6
(0.8)
0.8
5.3
5.0
3.7
(230.7)
639.3
587.2
120.9
38.9
(0.1)
(64.2)
–
–
(0.6)
94.9
–
–
42.6
(0.7)
(51.5)
–
–
(1.4)
83.9
(42.2)
(16.3)
0.1
23.6
–
–
0.3
(34.5)
–
(13.7)
0.3
–
17.2
–
–
0.6
(30.1)
53.8
60.4
Total
£m
900.5
120.1
(13.1)
(66.6)
(18.9)
(3.6)
(10.6)
907.8
22.2
(0.2)
128.6
(17.0)
(57.0)
(5.3)
(16.1)
(9.1)
953.9
(268.2)
(45.3)
6.7
24.4
18.9
0.7
2.6
(260.2)
0.1
(43.4)
10.9
(0.8)
18.0
5.3
5.0
4.3
(260.8)
693.1
647.6
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.
102
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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
2012
£m
2.0
0.5
2.5
2012
£m
410.5
37.0
117.3
564.8
2011
£m
2.3
1.2
3.5
2011
£m
384.3
35.5
101.0
520.8
As at 31 December 2012, £4.4m (2011 – £4.0m) of capitalised borrowing costs were included within ‘land and buildings’, £0.6m of
which was capitalised in 2012 (2011 – £0.7m).
13 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
At 1 January
Additions
Disposals
Share of profit / (loss) after tax of joint ventures and associates
Loan advances / (repayment)
Effect of foreign exchange rate changes
At 31 December
GROUP’S SHARE OF NET ASSETS OF JOINT VENTURES AND ASSOCIATES
Joint ventures
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
2012
£m
–
6.4
6.4
(0.6)
–
(0.6)
5.8
GROUP’S SHARE OF RESULTS OF JOINT VENTURES AND ASSOCIATES
Revenue
Expenses
Profit / (loss) before tax
Tax
Share of profit / (loss) after tax of joint ventures
and associates
1.7
(1.6)
0.1
0.1
0.2
2011
£m
26.7
12.4
39.1
(11.0)
(6.9)
(17.9)
21.2
3.6
(6.6)
(3.0)
(0.3)
(3.3)
2012
£m
0.1
26.1
26.2
(11.6)
(6.6)
(18.2)
8.0
1.7
(1.7)
–
–
2011
£m
0.1
34.4
34.5
(24.3)
(1.9)
(26.2)
8.3
2.4
(2.0)
0.4
(0.1)
2012
£m
29.5
–
(18.7)
0.2
3.2
(0.4)
13.8
2012
£m
0.1
32.5
32.6
(12.2)
(6.6)
(18.8)
13.8
3.4
(3.3)
0.1
0.1
2011
£m
33.1
0.1
–
(3.0)
(0.3)
(0.4)
29.5
Total
2011
£m
26.8
46.8
73.6
(35.3)
(8.8)
(44.1)
29.5
6.0
(8.6)
(2.6)
(0.4)
(3.0)
–
0.3
0.2
As at 31 December 2012, no guarantees were provided in respect of joint ventures and associates borrowings (2011 – £nil).
Principal joint ventures and associates are disclosed in note 31 of this report.
www.inchcape.com
103
Notes to the accounts continued
14 AVAILABLE FOR SALE FINANCIAL ASSETS
At 1 January
Additions
Disposals
Fair value movement transferred to shareholders’ equity
Fair value movement charged to consolidated income statement
Effect of foreign exchange rate changes
At 31 December
Analysed as:
Non-current
Current
Assets held are analysed as follows:
Equity securities
Bonds
Other
2012
£m
6.1
1.9
(1.1)
0.1
(0.1)
(0.2)
6.7
2012
£m
4.0
2.7
6.7
2012
£m
0.2
3.6
2.9
6.7
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
In 2011, the Group recycled impairment losses relating to Greek Government Bonds of £10.9m from equity into the consolidated
income statement. The impairment loss represented the difference between the fair value of the bonds at 31 December 2011 and
historical cost. The charge was recognised as exceptional finance costs (see note 7).
At 31 December 2012, the bonds attracted a weighted average fixed interest rate of 0.4% (2011 – 5.1%). 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:
2012
2011
Less than
1 year
£m
2.6
0.4
Between
1 and
2 years
£m
1.0
0.5
Between
2 and
3 years
£m
–
0.3
Between
3 and
4 years
£m
–
0.8
Between
4 and
5 years
£m
–
–
Greater
than 5
years
£m
–
1.7
Total
interest
bearing
£m
3.6
3.7
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.
104
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BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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:
2012
£m
148.3
(8.5)
139.8
0.1
76.7
41.8
258.4
Current
2011
£m
152.7
(7.7)
145.0
0.4
70.2
35.9
251.5
Non-current
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)
2012
£m
0.1
–
0.1
–
14.3
16.8
31.2
2012
£m
(7.7)
(2.1)
0.6
0.5
0.2
(8.5)
2012
2011
Neither past
due nor
impaired
£m
101.9
111.0
Total
£m
148.4
152.9
Past due but not impaired
0 < 30 days
£m
30 – 90 days
£m
> 90 days
£m
Impaired
£m
22.3
19.3
9.3
8.2
6.4
6.7
8.5
7.7
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.
www.inchcape.com
105
Notes to the accounts continued
16 DEFERRED TAX
Net deferred tax asset / (liability)
At 1 January 2012
(Charged) / credited to the consolidated
income statement
Credited to shareholders’ equity
Businesses acquired
Effect of foreign exchange rate changes
At 31 December 2012
Pension and
other post-
retirement
benefits
£m
Cash flow
hedges
£m
Share-based
payments
£m
(3.5)
(0.8)
2.7
(9.0)
8.8
–
–
(3.7)
–
13.8
–
–
13.0
(0.5)
2.9
–
–
5.1
Tax
losses
£m
8.5
2.1
–
–
(0.1)
10.5
Analysed as:
Deferred tax assets
Deferred tax liabilities
Accelerated
tax
depreciation
£m
Provisions
and other
timing
differences
£m
8.6
(12.7)
(4.9)
–
–
–
3.7
2.1
–
(1.4)
(1.1)
(13.1)
2012
£m
40.4
(24.9)
15.5
Total
£m
2.8
(10.2)
25.5
(1.4)
(1.2)
15.5
2011
£m
43.0
(40.2)
2.8
The Group has unrecognised deferred tax assets of £27m (2011 – £34m) relating to tax relief on trading losses. The asset represents
£115m (2011 – £144m) of losses at the standard blended rate of 23.4%. The asset is not recognised, as £115m (2011 – £144m)
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 £10.5m (2011 – £8.5m) in respect of tax losses relates to trading losses in Russia (£5.5m), Belgium (£3.5m)
and other territories (£1.5m) where future profits are anticipated with reasonable certainty.
The Group has unrecognised deferred tax assets of £30m (2011 – £33m) relating to capital losses. The asset represents £133m
(2011 – £131m) of losses at the UK standard rate of 23.0%. 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 (2011 – £nil) would be payable.
The £13.1m (2011 – £12.7m) deferred tax liability for ‘provisions and other timing differences’ consists of a £31.1m (2011 – £32.0m)
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 £18.0m (2011 – £19.3m) deferred tax asset in respect of provisions and other temporary differences between
the accounts base and the tax base. The key temporary differences are £15.0m for Australia, £2.0m for South America and £1.0m in
other territories (2011 – £14.0m for Australia, £3.0m for the UK and £2.3m in other territories).
106
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
17 INVENTORIES
Raw materials and work in progress
Finished goods and merchandise
2012
£m
11.5
917.4
928.9
2011
£m
13.2
892.3
905.5
Vehicles held on consignment which are in substance assets of the Group amount to £128.1m (2011 – £124.5m). 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 £28.0m (2011 – £33.0m) 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 £4,926.6m (2011 restated* – £4,711.4m). The write down of inventory to net realisable value
recognised as an expense during the year was £30.5m (2011 – £34.6m). All of these items have been included within ‘cost of sales’
in the consolidated income statement.
*
The basis of allocation has been revised and the prior year figure has been amended accordingly (2011 previously reported: £4,271.0m).
18 CASH AND CASH EQUIVALENTS
Cash at bank and cash equivalents
Short-term deposits
2012
£m
324.4
273.5
597.9
2011
£m
385.6
173.3
558.9
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 2012, the weighted average
floating rate was 0.9% (2011 – 1.5%).
£20.9m (2011 – £20.3m) 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 2012, short-term deposits have a weighted average period to maturity of 19 days (2011 – 45 days).
www.inchcape.com
107
Notes to the accounts continued
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
2012
£m
22.7
8.6
31.3
(19.1)
2012
£m
3.6
17.1
2.0
22.7
(19.1)
(19.1)
2011
£m
2.8
2.9
5.7
–
2011
£m
2.8
–
–
2.8
–
–
Assets held for sale relate to surplus properties within the UK being actively marketed with a view to sale.
The disposal group corresponds to assets and liabilities of the Group’s Ford retail centres in the UK, which were disposed of
in February 2013.
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
2012
£m
57.7
157.4
722.9
19.0
176.1
0.2
17.4
1,150.7
Current
2011
£m
55.8
144.9
722.4
25.8
175.4
0.2
16.1
1,140.6
Non-current
2011
£m
0.2
–
14.8
–
14.6
–
–
29.6
2012
£m
0.2
–
9.4
–
12.8
–
–
22.4
The Group has 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 2012 current other trade payables includes £325.8m (2011 – £386.8m) of creditors where payment is made on
deferred terms and is subject to a weighted average floating interest rate of 2.6% (2011 – 2.0%). 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.
108
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
21 PROVISIONS
At 1 January 2012
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 2012
Analysed as:
Current
Non-current
Product
warranty
£m
Vacant
leasehold
£m
Litigation
£m
61.1
19.6
(9.8)
1.7
(20.4)
(1.2)
51.0
8.1
–
(1.0)
0.1
(1.5)
–
5.7
10.5
2.0
(1.3)
–
(3.2)
(0.1)
7.9
Other
£m
11.2
14.0
(2.8)
–
(1.9)
(0.2)
20.3
2012
£m
41.9
43.0
84.9
Total
£m
90.9
35.6
(14.9)
1.8
(27.0)
(1.5)
84.9
2011
£m
36.8
54.1
90.9
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 and provisions relating to restructuring
activities. These provisions are expected to be utilised within three years.
www.inchcape.com
109
Notes to the accounts continued
22 BORROWINGS
2012
Current
Bank overdrafts
Finance leases
Non-current
Private Placement
Finance leases
Total borrowings
2011
Current
Bank overdrafts
Bank loans
Other loans
Finance leases
Non-current
Private Placement
Finance leases
Total borrowings
Floating rate
Weighted
average
effective
interest rate
%
0.1
–
0.1
2.1
–
2.1
1.6
Floating rate
Weighted
average
effective
interest rate
%
0.1
7.1
0.1
3.3
0.3
2.2
–
2.2
1.8
£m
110.5
–
110.5
317.6
–
317.6
428.1
£m
97.5
2.3
0.3
0.2
100.3
335.8
–
335.8
436.1
Fixed rate
Weighted
average
effective
interest rate
%
Total interest
bearing
£m
On which
no interest
is paid
£m
–
7.3
7.3
–
7.0
7.0
7.1
110.5
0.5
111.0
317.6
2.4
320.0
431.0
2.5
–
2.5
–
–
–
2.5
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
£m
–
0.5
0.5
–
2.4
2.4
2.9
£m
–
1.0
–
0.5
1.5
–
2.8
2.8
4.3
2012
Total
£m
113.0
0.5
113.5
317.6
2.4
320.0
433.5
2011
Total
£m
97.6
3.3
0.3
0.7
101.9
335.8
2.8
338.6
440.5
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 £49.0 m (2011 – £54.9m).
The Group’s borrowings are unsecured.
At 31 December 2012, the committed funding facilities of the Group comprised syndicated bank facilities of £450m (2011 – £500m),
a bi-lateral facility of €65m (2011 – €nil) and Private Placement loan notes totalling US$436m (2011 – US$436m).
At 31 December 2012, none (2011 – none) of the £450m syndicated credit facility or the €65m bi-lateral facility was drawn down.
Both facilities expire in 2017.
All US$436m of the Group’s Private Placement loan notes is swapped into Sterling. US$275m is repayable in five years, and US$161m
in seven years.
110
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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.
2012
Fixed rate
Finance leases
Floating rate
Bank overdrafts
Private Placement
2011
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
0.5
0.1
0.1
0.1
0.1
2.0
2.9
110.5
–
–
–
–
–
–
–
–
200.4
–
117.2
110.5
317.6
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
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
2012
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
Loans and
receivables
£m
Available for
sale
£m
Held at fair
value
£m
Amortised
cost
£m
Cash and cash
equivalents
£m
–
209.6
–
–
209.6
–
–
–
–
209.6
6.7
–
–
–
6.7
–
–
–
–
6.7
–
–
116.1
–
116.1
–
(62.6)
–
(62.6)
53.5
–
–
–
–
–
(1,041.8)
–
(433.5)
(1,475.3)
(1,475.3)
–
–
–
597.9
597.9
–
–
–
–
597.9
Total
£m
6.7
209.6
116.1
597.9
930.3
(1,041.8)
(62.6)
(433.5)
(1,537.9)
(607.6)
www.inchcape.com
111
Notes to the accounts continued
23 FINANCIAL INSTRUMENTS CONTINUED
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
Loans and
receivables
£m
Available for
sale
£m
Held at fair
value
£m
Amortised
cost
£m
Cash and
cash
equivalents
£m
–
213.1
–
–
213.1
–
–
–
–
213.1
6.1
–
–
–
6.1
–
–
–
–
6.1
–
–
139.7
–
139.7
–
–
–
–
–
–
(7.4)
–
(7.4)
132.3
(1,038.7)
–
(440.5)
(1,479.2)
(1,479.2)
–
–
–
558.9
558.9
–
–
–
–
558.9
Total
£m
6.1
213.1
139.7
558.9
917.8
(1,038.7)
(7.4)
(440.5)
(1,486.6)
(568.8)
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: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: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: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:3)changes in the carrying value of financial instruments not in hedging relationships only affect the consolidated
income statement;
•(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 2012 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.
2012
Sterling
Euro
Russian Ruble
Australian Dollar
2011
Sterling
Euro
Russian Ruble
Australian Dollar
112
Inchcape plc Annual Report and Accounts 2012
Increase
in basis
points
Effect on profit
before tax
£m
75
50
50
100
75
50
50
100
(3.1)
0.1
(0.2)
(1.2)
(3.9)
0.1
(0.1)
(1.1)
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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.
2012
Yen
Yen
2011
Yen
Yen
Increase/
(decrease) in
exchange
rate
Effect on
equity
£m
+10%
-10%
+10%
-10%
0.9
(0.9)
1.1
(1.0)
www.inchcape.com
113
Notes to the accounts continued
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
AAA
AA-
A+
A
A-
BBB+2
CCC2
No rating3
Derivative
assets
£m
–
0.1
59.4
55.6
1.0
–
–
–
116.1
2012
Short-term
deposits
£m
68.4
54.6
47.3
35.9
41.2
8.5
0.2
17.4
273.5
Derivative
assets
£m
2011
Short-term
deposits
£m
–
2.7
73.8
–
63.2
–
–
–
139.7
–
72.9
21.6
38.0
14.9
–
9.0
16.9
173.3
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 £324.4m (2011 – £385.6m) 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.
114
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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 33 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 2012 and 2011 based
on expected contractual undiscounted cash flows:
2012
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
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
Less than
3 months
£m
Between
3 to 12
months
£m
Between
1 to 5 years
£m
Greater than
5 years
£m
Total
£m
580.7
184.6
1.4
4.3
771.0
(113.3)
(975.6)
(19.0)
(1,107.9)
(336.9)
Less than
3 months
£m
516.6
193.3
0.3
10.9
721.1
(100.8)
(990.3)
(6.5)
(1,097.6)
(376.5)
17.2
20.8
1.5
18.4
57.9
(16.5)
(53.4)
(43.5)
(113.4)
(55.5)
Between
3 to 12
months
£m
42.3
13.5
0.4
22.8
79.0
(18.1)
(28.0)
(7.8)
(53.9)
25.1
–
3.8
1.0
237.7
242.5
–
0.4
2.8
161.0
164.2
597.9
209.6
6.7
421.4
1,235.6
(260.6)
(12.3)
(163.9)
(436.8)
(194.3)
(130.1)
(0.5)
(129.5)
(260.1)
(95.9)
(520.5)
(1,041.8)
(355.9)
(1,918.2)
(682.6)
Between
1 to 5 years
£m
Greater than
5 years
£m
Total
£m
–
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)
www.inchcape.com
115
Notes to the accounts continued
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:3)quoted prices in active markets (level 1);
•(cid:3)inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly (level 2); or
•(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
–
6.7
6.7
116.1
–
116.1
2012
Total
£m
116.1
6.7
122.8
Level 1
£m
Level 2
£m
–
6.1
6.1
139.7
–
139.7
2011
Total
£m
139.7
6.1
145.8
–
(62.6)
(62.6)
–
(7.4)
(7.4)
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 2012.
The Group’s derivative financial instruments comprise the following:
Cross currency interest rate swap
Forward foreign exchange contracts
2012
£m
111.8
4.3
116.1
Assets
2011
£m
125.1
14.6
139.7
2012
£m
–
(62.6)
(62.6)
Liabilities
2011
£m
–
(7.4)
(7.4)
The ineffective portion recognised in the consolidated income statement that arises from fair value hedges amounts to a gain of
£4.8m (2011 – loss of £2.4m). The ineffective portion recognised in the consolidated income statement that arises from cash flow
hedges amounts to a gain of £nil (2011 – £nil).
116
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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 15 months
of the end of the reporting period (2011 – 12 months).
The nominal principal amounts of the outstanding forward foreign exchange contracts relating to transactional exposures
at 31 December 2012 was £955.9m (2011 – £520.1m).
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 2012 are expected to be released to the consolidated income statement within
15 months of the end of the reporting period (2011 – 12 months).
FAIR VALUE HEDGE
At 31 December 2012, 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 Group’s capital structure consists of equity and debt. Equity represents funds raised from shareholders and debt represents
funds raised from banks and other financial institutions. 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 finance the Group’s activities, both now and in
the future, and to 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 Directors consider the Group’s capital structure and dividend policy at least twice a year prior to the
announcement of results, taking into account the Group’s ability to continue as a going concern and the requirements of its
business plan.
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.
2012
2011
116.0
n/a
n/a
227.2
n/a
n/a
*** Calculated as net debt / market capitalisation as at 31 December.
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
At 31 December
2012
Number
2011
Number
463,473,216
4,634,986
468,108,202
463,192,297
280,919
463,473,216
2012
£m
46.4
0.5
46.9
2011
£m
46.4
–
46.4
B. SHARE BUY BACK PROGRAMME
At 31 December 2012, the Company held 2,687,560 treasury shares (2011 – 2,687,560) with a total book value of £99.4m
(2011 – £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 2012 (2011 – nil). The market value of treasury shares
at 31 December 2012 was £11.6m (2011 – £7.9m).
www.inchcape.com
117
Notes to the accounts continued
24 SHARE CAPITAL CONTINUED
C. SUBSTANTIAL SHAREHOLDINGS
Details of substantial interests in the Company’s issued ordinary share capital received by the Company at 11 March 2013 under
the provisions of the Companies Act 2006 have been disclosed in the significant shareholdings section, in the Other statutory
information section on page 62.
D. SHARE OPTIONS
At 31 December 2012, 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 (£)
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)
8,674
36,266
13,729
47,548
19,866
89,078
9,375
157,342
– unapproved (Part I – UK)
5,780
39,656
2,288
82,714
218,727
2,029,971
37,500
941,789
– unapproved overseas (Part I – Overseas)
29,549
126,397
182,199
1,340,342
711,061
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
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
1 May 2012
1 May 2013
1 May 2014
1 May 2015
1 May 2016
3.42
2.30
2.05
2.43
3.07
3.46 7,460
4.42 100,669
4.37 831,221
5.78 577,797
6.03 1,115,327
2.00
3.20
3.10
3.46
4.42
4.37
5.78
6.03
2.00
3.20
3.10
2.14
4.42
5.78
2.00
3.10
2.63
Included within the retained earnings reserve are 1,692,848 (2011 – 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 2012 was £4.0m (2011 – £2.5m). The market values of these shares at 31 December 2012 and
at 11 March 2013 were £7.3m and £9.0m respectively (31 December 2011 – £4.0m, 12 March 2012 – £5.2m).
118
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
25 OTHER RESERVES
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 1 January 2012
Cash flow hedges:
– Fair value movements
– Reclassified and reported in inventories
– Tax on cash flow hedges
Transfer of impairment losses to consolidated income statement
Fair value movement transferred from available for sale financial assets
Effect of foreign exchange rate changes
At 31 December 2012
Available for
sale reserve
£m
Translation
reserve
£m
Hedging
reserve
£m
Total other
reserves
£m
(3.6)
157.8
(9.0)
145.2
–
–
–
10.9
(6.5)
–
0.8
–
–
–
1.0
0.1
–
1.9
–
–
–
–
–
(26.2)
131.6
–
–
–
–
–
(12.1)
119.5
7.1
(1.7)
(2.0)
–
–
–
(5.6)
(54.0)
12.5
12.4
–
–
–
(34.7)
7.1
(1.7)
(2.0)
10.9
(6.5)
(26.2)
126.8
(54.0)
12.5
12.4
1.0
0.1
(12.1)
86.7
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 were 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 gains / (losses) on defined pension benefits (note 5)
– Tax charged 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)
At 31 December
2012
£m
895.7
184.5
33.6
8.8
226.9
10.4
(2.3)
(52.5)
1,078.2
2011
£m
811.9
142.2
(18.7)
0.6
124.1
6.7
(0.2)
(46.8)
895.7
www.inchcape.com
119
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 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 / (decrease) in interest in leased vehicles
Payment in respect of operating exceptional items
Other items
Cash generated from operations
*
Includes additional payments of £23.3m (2011 – £19.2m).
B. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Net increase in cash and cash equivalents
Net cash outflow / (inflow) 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
Net loans and finance leases relating to acquisitions and disposals
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
120
Inchcape plc Annual Report and Accounts 2012
2012
£m
2011
£m
263.1
(1.2)
3.7
29.7
(0.2)
6.8
(42.5)
(9.5)
47.3
(16.5)
(25.4)
2.1
(8.2)
–
249.2
2012
£m
27.5
3.9
31.4
(3.8)
–
4.8
0.3
32.7
243.5
276.2
2012
£m
324.4
273.5
(113.0)
484.9
(317.6)
–
(2.9)
164.4
111.8
276.2
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
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
28 ACQUISITIONS AND DISPOSALS
A. ACQUISITIONS
On 21 November 2012, the Group acquired the remaining 49% interest which it did not already own in the Inchcape Independence
group, a retail business in Moscow, from Independence Holdings Limited for a cash consideration of US$27m. Prior to this date, the
Group owned a 51% share in Inchcape Independence but did not have overall control and had therefore equity accounted for its
interest in the Inchcape Independence group. The acquisition took the Group’s interest in the Inchcape Independence group to
100% and the acquisition has been accounted for as a business combination following the change in control.
Details of the provisional fair values of the identifiable assets and liabilities as at the date of acquisition are set out below:
Assets and liabilities acquired, at fair value
Intangible assets (note 11)
Property, plant and equipment (note 12)
Tax assets
Inventory
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Tax liabilities
Net assets acquired
Provisional goodwill (note 11)
Consideration
Satisfied by
Cash paid
Fair value of existing interest in the Inchcape Independence group
Total purchase consideration
2012
£m
0.1
22.2
0.2
5.1
2.2
1.5
(3.1)
(1.4)
26.8
8.3
35.1
17.3
17.8
35.1
The provisional values of assets and liabilities recognised on acquisition are their estimated fair values at the date of acquisition.
The Group is in the process of finalising its review of the fair value of assets and liabilities recognised at the date of acquisition and
such reviews may include third party valuations where appropriate. Accounting standards permit up to 12 months for provisional
accounting to be finalised following the acquisition date if any subsequent information provides better evidence of the item’s fair
value at the acquisition date.
Goodwill of £8.3m represents, amongst other things, property, plant and equipment and intangible assets yet to be recognised
separately from goodwill as the fair value valuations are still in progress.
The Group has recognised a loss of £1.2m as a result of measuring at fair value its 51% equity interest in the Inchcape
Independence group held before the business combination. The loss is included within ‘Other operating expenses’ in the
Group’s consolidated income statement for the year ended 31 December 2012 and has been reported as an exceptional item
(see note 2).
In 2011, the Group completed the purchase of the Musa Motors group. 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.
B. DISPOSALS
During the year, the Group disposed of its interest in a dealership in Russia at book value, generating disposal proceeds of £2.9m.
In 2011, the Group disposed of a small number of dealerships and operations at book value, generating disposal proceeds
of £5.5m.
29 GUARANTEES AND CONTINGENCIES
Guarantees, performance bonds and contingent liabilities
2012
£m
15.6
2011
£m
19.5
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).
www.inchcape.com
121
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*
2012
£m
15.8
91.3
2011
£m
24.8
75.7
* Residual value commitments comprise the total repurchase liability on all vehicles sold subject to a residual value commitment, of which £27.0m (2011 – £29.8m) 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
2012
£m
43.8
104.2
154.0
302.0
2011
£m
43.3
107.2
156.4
306.9
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
2012
£m
3.7
6.1
7.3
17.1
2011
£m
4.3
6.0
8.3
18.6
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
2012
£m
0.7
0.9
3.9
5.5
(2.6)
2.9
2011
£m
0.8
1.4
3.8
6.0
(2.5)
3.5
122
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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
Directly held:
Inchcape Finance plc
Inchcape International Holdings Limited
Indirectly held:
Subaru (Australia) Pty Limited
Toyota Belgium NV/SA
The Motor & Engineering Company of Ethiopia Ltd S.C.
Inchcape Motors Finland OY
Toyota Hellas SA
Crown Motors Limited
Inchcape Olimp OOO
Inchcape Moscow Motors BV
Inchcape T BV
Borneo Motors (Singapore) Pte Ltd
Inchcape Fleet Solutions Limited
Inchcape Overseas Limited
Inchcape Retail Limited
The Cooper Group Limited
Gerard Mann Limited
Joint ventures
Unitfin SA
Tefin SA
Associates
Excelease SA
United Kingdom
United Kingdom
100.0%
100.0%
Central treasury company
Intermediate holding company
Australia
Belgium
Ethiopia
Finland
Greece
Hong Kong
Russia
Netherlands
Netherlands
Singapore
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Greece
Greece
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%
Distribution
Distribution
Distribution
Distribution
Distribution
Distribution
Retail
Intermediate holding company(1)
Intermediate holding company(2)
Distribution
Financial services(3)
Intermediate holding company
Retail
Retail
Retail
Financial services
Financial services
Belgium
49.0%
Financial services
(1) Holding company of the Musa Motors businesses in Moscow.
(2) Holding company of the Toyota Vnukovo business in Moscow.
(3) Included within distribution in the business segmental analysis (see note 1).
The full list of subsidiaries will be included in the Company’s annual return.
www.inchcape.com
123
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
2012
£m
0.1
61.2
0.9
0.1
2011
£m
0.1
315.2
1.3
0.4
2012
£m
–
0.1
0.2
–
2011
£m
–
–
0.2
0.4
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 (2011 – £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
2012
£m
8.9
1.1
2.1
0.2
12.3
2011
£m
8.0
1.1
1.9
0.7
11.7
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
2012
1.53
1.23
12.33
1.98
49.43
2011
1.54
1.15
12.53
2.02
47.11
2012
1.56
1.23
12.59
1.98
49.53
2011
1.52
1.20
12.07
2.01
49.88
33 EVENTS AFTER THE REPORTING PERIOD
The Group acquired the Trivett Automotive Group on 1 March 2013, to extend its presence in Australia. The total cash consideration
for the business is expected to be c. £78m.
124
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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
2012
£m
2011
£m
2010
£m
2009
£m
2008
£m
6,085.4
5,826.3
5,885.4
5,583.7
6,259.8
Operating profit before exceptional items
Operating exceptional items
Operating profit
Share of profit / (loss) 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
261.9
1.2
263.1
0.2
263.3
(11.8)
–
251.5
(61.5)
0.4
190.4
(5.9)
184.5
251.5
40.0p
250.3
39.7p
14.5p
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
136.7
22.9p
155.1
27.1p
–
240.5
(82.5)
158.0
2.2
160.2
(52.0)
–
108.2
(49.3)
(3.6)
55.3
(3.9)
51.4
108.2
18.9p
190.7
50.5p
5.5p
1,442.6
(211.4)
1,231.2
276.2
1,507.4
1,481.6
25.8
1,507.4
1,350.0
(236.0)
1,114.0
243.5
1,357.5
1,329.1
28.4
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
1,263.1
26.2
1,289.3
1,067.7
22.0
1,089.7
995.5
24.1
1,019.6
www.inchcape.com
125
Report of the independent auditors to the members
of Inchcape plc
OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES
ACT 2006
In our opinion:
•(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:3)certain disclosures of Directors’ remuneration specified by law
are not made; or
•(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:3)the Directors’ statement, in relation to going concern;
•(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: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
2012 and on the information in the Directors’ report on
remuneration 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
11 March 2013
We have audited the Group Financial Statements of Inchcape
plc for the year ended 31 December 2012 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 set out on page 63, 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:3)give a true and fair view of the state of the Group’s affairs as at
31 December 2012 and of its profit and cash flows for the year
then ended;
•(cid:3)have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
•(cid:3)have been prepared in accordance with the requirements of
the Companies Act 2006 and Article 4 of the lAS Regulation.
126
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
Company balance sheet
As at 31 December 2012
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
Net assets
Capital and reserves
Share capital
Share premium
Capital redemption reserve
Profit and loss account
Total shareholders’ funds
Notes
2012
£m
2011
£m
3
1,623.6
1,622.0
4
4
5
6
363.2
903.2
10.2
1,276.6
347.0
916.1
16.7
1,279.8
(4.5)
1,272.1
(24.5)
1,255.3
2,895.7
2,877.3
7
(1,770.7)
(1,811.0)
9
(4.6)
1,120.4
(4.6)
1,061.7
11, 13
13
13
13
46.9
136.5
133.3
803.7
1,120.4
46.4
126.9
133.3
755.1
1,061.7
The Financial Statements on pages 127 to 134 were approved by the Board of Directors on 11 March 2013 and were signed on its
behalf by:
André Lacroix,
Group Chief Executive
Registered Number: 609782
Inchcape plc
John McConnell,
Group Finance Director
www.inchcape.com
127
Accounting policies
BASIS OF PREPARATION
These Financial Statements are prepared for Inchcape plc (the Company) for the year ended 31 December 2012. The Company
is the ultimate parent entity of the Inchcape Group (the Group). Accounting policies have been applied consistently.
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.
FINANCE COSTS
Finance costs consist of interest payable on Private Placement borrowing. Costs are recognised as an expense in the period
in which they are incurred.
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 71 to 79.
128
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
Notes to the accounts
1 AUDITORS’ REMUNERATION
The Company incurred £0.1m (2011 – £0.1m) in relation to UK statutory audit fees for the year ended 31 December 2012.
2 DIRECTORS’ REMUNERATION
Wages and salaries
Social security costs
Pension costs
2012
£m
3.8
0.4
0.4
4.6
2011
£m
2.8
0.4
0.4
3.6
Further information on Executive Directors’ emoluments and interests is given in the Directors’ report on remuneration which can be
found on pages 50 to 61.
3 INVESTMENT IN SUBSIDIARIES
Cost
At 1 January
Additions
Disposals
At 31 December
Provisions
At 1 January
Provisions for impairment
At 31 December
Net book value
The Directors believe that the carrying value of the investments is supported by their underlying net assets.
In 2012, the Company paid a capital injection of £1.6m to Inchcape Financial Holdings Cooperatief W.A.
2012
£m
2011
£m
1,661.8
1.6
–
1,663.4
1,632.2
40.8
(11.2)
1,661.8
(39.8)
–
(39.8)
(24.2)
(15.6)
(39.8)
1,623.6
1,622.0
www.inchcape.com
129
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
Private Placement
2012
£m
2011
£m
363.2
363.2
2.5
900.7
903.2
2012
£m
10.2
2012
£m
–
1.5
–
3.0
4.5
2012
£m
1,502.1
268.6
1,770.7
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
2011
£m
1,530.2
280.8
1,811.0
The Company has US$435.8m outstanding under the Private Placement borrowing: US$275m is repayable in 2017 and bears interest
at a fixed rate of 5.94% per annum; and US$160.8m is repayable in 2019 and bears interest at a fixed rate of 6.04% per annum.
Amounts owed to Group undertakings are repayable in 2014 and bear interest at rates linked to LIBOR.
130
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
8 DEFERRED TAX
At 1 January 2012
Credited / (charged) to the profit and loss account
At 31 December 2012
9 PROVISIONS FOR LIABILITIES
At 1 January
Released to the profit and loss account
At 31 December
Share-based
payments
£m
Other timing
differences
£m
1.3
0.2
1.5
1.1
(0.1)
1.0
2012
£m
4.6
–
4.6
Total
£m
2.4
0.1
2.5
2011
£m
4.6
–
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 2012 (2011 – £nil))
2012
£m
2011
£m
502.8
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 2012 was £10.2m (2011 – £16.7m).
11 SHARE CAPITAL
A. ALLOTTED, CALLED UP AND FULLY PAID UP
Ordinary shares
At 1 January
Allotted under share option schemes
At 31 December
2012
Number
2011
Number
2012
£m
463,473,216 463,192,297
280,919
468,108,202 463,473,216
4,634,986
46.4
0.5
46.9
2011
£m
46.4
–
46.4
B. SHARE BUY BACK PROGRAMME
At 31 December 2012, the Company held 2,687,560 treasury shares (2011 – 2,687,560) with a total book value of £99.4m
(2011 – £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 2012 (2011 – nil). The market value of treasury shares
at 31 December 2012 was £11.6m (2011 – £7.9m).
C. SUBSTANTIAL SHAREHOLDINGS
Details of substantial interests in the Company’s issued ordinary share capital received by the Company at 11 March 2013 under
the provisions of the Companies Act 2006 have been disclosed in the significant shareholdings section, in the Other statutory
information section on page 62.
www.inchcape.com
131
Notes to the accounts continued
11 SHARE CAPITAL CONTINUED
D. SHARE OPTIONS
At 31 December 2012, 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
31 August 2013
3.46 7,460
20 May 2014
4.42 100,669
29 September 2014
4.37 831,221
6 March 2015
5.78 577,797
11 September 2015
6.03 1,115,327
1 May 2012
1 May 2013
1 May 2014
1 May 2015
1 May 2016
3.42
2.30
2.05
2.43
3.07
8,674
36,266
13,729
47,548
19,866
89,078
9,375
157,342
– unapproved (Part I – UK)
5,780
39,656
2,288
82,714
218,727
2,029,971
37,500
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
941,789
7 April 2020
– unapproved overseas (Part I – Overseas)
29,549
126,397
182,199
1,340,342
711,061
20,532
19 March 2013
20 May 2014
6 March 2015
19 May 2019
7 April 2020
14 June 2020
2.00
3.20
3.10
3.46
4.42
4.37
5.78
6.03
2.00
3.20
3.10
2.14
4.42
5.78
2.00
3.10
2.63
Included within the retained earnings reserve are 1,692,848 (2011 – 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 2012 was £4.0m (2011 – £2.5m). The market values of these shares at 31 December 2012 and
at 11 March 2013 were £7.3m and £9.0m respectively (31 December 2011 – £4.0m, 12 March 2012 – £5.2m).
132
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
11 SHARE CAPITAL CONTINUED
E. SHARE-BASED REMUNERATION
Inchcape plc has two employees, the Group Chief Executive and the Group Finance Director.
The charge arising from share-based transactions during the year is £1.4m (2011 – £0.7m), of which £1.4m (2011 – £0.7m) is equity-
settled and £nil (2011 – £nil) is cash-settled.
The following table sets out the movements in the number of share options and awards during the year:
2012
Share Option Plan
Executive Share Option Plan
Save As You Earn Plan
Performance Share Plan
Other Share Plans
Weighted Average
Exercise Price
2011
Share Option Plan
Executive Share Option Plan
Save As You Earn Plan
Performance Share Plan
Other Share Plans
Weighted Average
Exercise Price
Grant Date
20 March 2003
21 May 2004
07 March 2005
12 September 2005
20 May 2009
23 November 2009
08 April 2010
23 September 2010
01 November 2011
23 May 2011
10 April 2012
03 June 2011
22 June 2012
Grant Date
20 March 2003
21 May 2004
07 March 2005
12 September 2005
08 April 2008
20 May 2009
23 November 2009
08 April 2010
23 September 2010
01 November 2011
23 May 2011
01 January 2008
03 June 2011
Options
outstanding at
1 January
Granted
during
the year
Lapsed
during
the year
Exercised
during
the year
Options
outstanding at
31 December
Fair value
of one
award
17,746
28,428
21,644
205,468
978,771
46,875
369,676
4,390
3,703
562,474
–
298,560
–
–
–
–
–
–
–
–
–
–
–
562,470
–
237,179
£2.86
–
Options
outstanding at
1 January
Granted
during
the year
17,746
28,428
21,644
205,468
258,519
978,771
46,875
369,676
4,390
–
–
220,193
–
–
–
–
–
–
–
–
–
–
3,703
562,474
–
298,560
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Lapsed
during
the year
–
–
–
–
(258,519)
–
–
–
–
–
–
(220,193)
–
£3.45
£2.43
£7.21
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£0.50
£1.22
£1.56
£1.60
£1.07
£1.08
£1.05
£0.84
£0.81
£2.49
£2.08
£2.52
£2.00
17,746
28,428
21,644
205,468
978,771
46,875
369,676
4,390
3,703
562,474
562,470
298,560
237,179
£2.86
Exercised
during
the year
Options
outstanding at
31 December
Fair value
of one
award
–
–
–
–
–
–
–
–
–
–
–
–
–
–
£0.50
£1.22
£1.56
£1.60
£1.41
£1.07
£1.08
£1.05
£0.84
£0.81
£2.49
£1.25
£2.52
17,746
28,428
21,644
205,468
–
978,771
46,875
369,676
4,390
3,703
562,474
–
298,560
£2.86
The weighted average remaining contractual life for the share options outstanding at 31 December 2012 is 4.0 years
(2011 – 5.8 years) and the range of exercise prices for options outstanding at the end of the year was £2.00 to £6.03
(2011 – £2.00 to £6.03).
www.inchcape.com
133
Notes to the accounts continued
12 DIVIDENDS
The following dividends were paid by the Company:
Interim dividend for the six months ended 30 June 2012 of 4.0p per share (2011 – 3.6p per share)
Final dividend for the year ended 31 December 2011 of 7.4p per share (2010 – 6.6p per share)
2012
£m
18.5
34.0
52.5
2011
£m
16.5
30.3
46.8
A final proposed dividend for the year ended 31 December 2012 of 10.5p per share amounting to £48.9m is subject to approval by
shareholders at the Annual General Meeting and has not been included as a liability as at 31 December 2012.
13 RESERVES
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
At 1 January 2012
Profit for the financial year
Dividends
Issue of ordinary share capital
Net purchase of own shares by ESOP Trust
Share-based payments charge
At 31 December 2012
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Profit
and loss
account
£m
46.4
–
–
–
–
–
46.4
–
–
0.5
–
–
46.9
126.3
–
–
0.6
–
–
126.9
–
–
9.6
–
–
136.5
133.3
–
–
–
–
–
133.3
–
–
–
–
–
133.3
468.2
326.6
(46.8)
–
(0.2)
7.3
755.1
96.6
(52.5)
–
(2.3)
6.8
803.7
Total
£m
774.2
326.6
(46.8)
0.6
(0.2)
7.3
1,061.7
96.6
(52.5)
10.1
(2.3)
6.8
1,120.4
14 PRINCIPAL SUBSIDIARIES AT 31 DECEMBER 2012
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
A full list of subsidiaries will be included in the Company’s annual return.
134
Inchcape plc Annual Report and Accounts 2012
BUSINESS REVIEW
GOVERNANCE
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
Report of the independent auditors to the members
of Inchcape plc
OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES
ACT 2006
In our opinion:
•(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: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.
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: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: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:3)certain disclosures of Directors’ remuneration specified by law
are not made; or
•(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 2012.
MARK GILL,
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
11 March 2013
We have audited the parent company Financial Statements of
Inchcape plc for the year ended 31 December 2012 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 set out on page 63, 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:3)give a true and fair view of the state of the Company’s affairs
as at 31 December 2012;
•(cid:3)have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
•(cid:3)have been prepared in accordance with the requirements of
the Companies Act 2006.
www.inchcape.com
135
Shareholder information
SHAREHOLDER PROFILE
As at 31 December 2012, the Company had 6,979 holdings on
its register of ordinary shareholders (2011 – 7,282). 71% 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 (2011 – 68%). The majority of
funds are managed from the UK, with the USA representing 15%.
REGISTER ANALYSIS
BY HOLDER
REGISTER ANALYSIS
BY GEOGRAPHY
Unit trusts &
mutual funds
Pension funds
Insurance
companies
Private
investors
Other
UK
USA
Israel
Europe
Other
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 on the Company’s
shares please visit the shareholder section of our website at
www.inchcape.com/investors/shareholdercentre or call
Computershare Investor Services on +44 (0) 870 707 1076.
The Company’s shares trade within the FTSE 250 index and at
the year end it was ranked no. 130 by market capitalisation in
the FTSE 350 (2011 -152).
The Company’s market capitalisation at 31 December 2012
was £1,995.8m (2011 – £1,351.9m).
The average daily number of shares traded on the London
Stock Exchange was 1.16m (2011 – 1.47m). This represents an
average of 0.25% of the Company’s shares traded each day
(2011 – 0.32%).
The share price by volume graph shows the movement in the
share price, closing at 430.9p as at 31 December 2012.
SHARE PRICE BY VOLUME DURING 2012
)
m
l
l
(
e
m
u
o
v
y
h
n
o
m
a
o
T
t
t
l
60
50
40
30
20
10
0
400
350
300
250
200
150
100
50
0
Jan
12
Feb
12
Mar
12
Apr
12
May
12
Jun
12
Jul
12
Aug
12
Sep
12
Oct
12
Nov
12
Dec
12
Inchcape share price
Volume
)
p
(
e
c
i
r
p
d
n
e
h
n
o
M
t
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
16 May 2013
ANNOUNCEMENT OF 2013 INTERIM RESULTS
August 2013
136
Inchcape plc Annual Report and Accounts 2012
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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