Annual Report and Accounts 2013
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PREMIUM GROWTH
TRACK RECORD OF CONSISTENT EPS GROWTH
We are pleased to announce that during 2013 the Group has again delivered strong
results with a record profit before tax and good earnings growth.
SALES
£6.5bn
2012: £6.1bn
OPERATING MARGIN*
(before exceptional items)
4.4%
2012: 4.3%
ADJUSTED EARNINGS
PER SHARE*
(before exceptional items)
43.5p
2012: 39.1p
ROCE*
22%
2012: 22%
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* 2012 restated for the adoption of IAS 19 (revised).
OPERATIONAL AND STRATEGIC HIGHLIGHTS
• Partnership with leading premium and luxury brand partners delivered robust revenue
and profit growth
• Operating margin of 4.4%, up 10 bps year on year and back to peak
• Fourth consecutive year of double-digit earnings growth and over 20% ROCE
• Strong profit performance from Trivett Automotive group acquired in March 2013
• Returned £125m cash to shareholders through dividends and share buy backs in 2013
PROFIT BEFORE TAX*
£266.1m
2012: £247.7m
PROFIT BEFORE TAX*
(before exceptional items)
£274.6m
2012: £247.0m
OPERATING PROFIT*
£278.4m
2012: £260.5m
OPERATING PROFIT*
(before exceptional items)
£286.9m
2012: £259.8m
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TOTAL SHAREHOLDER RETURN
INCHCAPE HISTORICAL TSR
+125%
240
220
200
180
160
140
120
100
09
10
11
12
13
INCHCAPE 1 YEAR TSR
+47%
INCHCAPE IS A GLOBAL PREMIUM
AUTOMOTIVE GROUP WITH UNRIVALLED
EXPERTISE, OPERATING AS A STRATEGIC
PARTNER TO THE WORLD’S LEADING
CAR BRANDS IN THE GROWING LUXURY
AND PREMIUM AUTOMOTIVE SECTOR.
THE GROUP PROVIDES A PROFESSIONAL
AND WELL FINANCED ROUTE TO MARKET
FOR VEHICLE AND PARTS MANUFACTURERS
ACROSS FIVE CONTINENTS. WORKING
ACROSS THE VALUE CHAIN WITH BRAND
PARTNERS, INCHCAPE OPERATES
AS BOTH DISTRIBUTOR AND RETAILER.
IN THIS REPORT
STRATEGIC REPORT
Premium markets
Premium strategy
IFC Track record of consistent EPS growth
2
6
10 Premium operations
14 Premium growth
18 Chairman’s Statement
20
Chief Executive’s Statement
25 Key performance indicators
26 Operating Review
35 Finance Review
36 Principal Risks
38 Corporate Responsibility Report
GOVERNANCE
44 Board of Directors
46 Executive Committee
48 Corporate Governance Report
58
Directors’ Report on Remuneration
DIRECTORS’ REPORT
74 Directors’ Report
FINANCIAL STATEMENTS
81
82
80
78
79
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated statement
of financial position
Consolidated statement
of changes in equity
Consolidated statement
of cash flows
83 Accounting policies
90 Notes to the financial statements
138 Five year record
139 Report of the auditors – Group
142 Company balance sheet
143 Accounting policies
144 Notes to the financial statements
150 Report of the auditors – Company
PREMIUM GROWTH
SHAREHOLDER INFORMATION
152 Shareholder information
IBC Company details
SEE ONLINE:
www.inchcape.com/annualreport
INCHCAPE’S STRATEGIC FOCUS ON PREMIUM GROWTH
DRIVING PREMIUM RETURNS
PREMIUM MARKETS
We operate in the right markets and segments.
p2
PREMIUM STRATEGY
We differentiate ourselves from our competitors in every market
through our premium customer-focused strategy.
p6
PREMIUM OPERATIONS
Our matchless automotive experience in markets across the world
has helped us develop a unique proprietary approach.
p10
PREMIUM GROWTH
The premium growth we consistently deliver has driven
total shareholder return of 125% over the last four years.
p14
www.inchcape.com
1
A PREMIUM FIT IN AUSTRALIA
We significantly extended our premium market position in Australia in 2013 with
the acquisition of Trivett, the country’s largest premium and luxury automotive group.
A high quality operation that’s an excellent fit for us, Trivett represents many leading
premium brands, including BMW, Jaguar and Land Rover as well as super luxury
brands like Rolls-Royce, Bentley, Aston Martin and McLaren. Trivett greatly strengthens
our presence in one of the Southern Hemisphere’s leading marketplaces.
2
Inchcape plc Annual Report and Accounts 2013
WWW.TRIVETT.COM.AU
PREMIUM MARKETS
We operate in the right markets and segments. Not only do 73% of our
profits come from the world’s fastest growing economies in the Asia Pacific
and Emerging Markets – we also focus on the premium and luxury automotive
segments, driving 90% of our profits from deep and long-standing relationships
with six world-leading automotive manufacturer groups.
www.inchcape.com
3
PREMIUM MARKETS
We derive 90% of our profits from our close relationships with leading premium
and luxury automotive manufacturer groups in 26 markets across the world.
FINANCIAL HIGHLIGHTS
BRAND PARTNERS
MARKET CHANNELS
REGIONS
AUSTRALASIA
Inchcape is the distributor for
Subaru in Australia and New
Zealand and operates a multi
brand retail strategy in Australia in
the premium and luxury segments.
EUROPE
Inchcape operates distribution
and retail across four western
European markets – Belgium,
Greece, Finland and Luxembourg.
SALES
£1,365.9m
2012: £1,168.7m
TRADING PROFIT
£78.9m
2012: £67.2m
SALES
£629.5m
2012: £616.6m
TRADING PROFIT
£19.5m
2012: £16.8m
NORTH ASIA
Inchcape operates a multi brand
VIR model in Hong Kong, Macau,
Guam and Saipan.
SALES
£566.1m
2012: £518.7m
TRADING PROFIT
£59.2m
2012: £52.8m
SOUTH ASIA
Inchcape operates a multi brand
VIR model in Singapore and Brunei.
SALES
£369.3m
2012: £385.1m
TRADING PROFIT
£29.7m
2012: £35.1m
UNITED KINGDOM
Inchcape operates a scale retail
business with premium brand
partners in key regions together
with a fleet leasing business.
RUSSIA AND
EMERGING MARKETS
Inchcape operates a VIR model in
the Baltics, Africa and South America,
distribution and retail in the Balkans,
and retail in Russia, China and Poland.
SALES
£2,224.3m
2012: £2,133.8m
TRADING PROFIT
£63.3m
2012: £65.2m
SALES
£1,369.8m
2012: £1,262.5m
TRADING PROFIT
£55.2m
2012: £43.0m
KEY
Distribution
Retail
+
Vertically integrated retail (VIR)
4
Inchcape plc Annual Report and Accounts 2013
See page 29
See page 30
+
See page 31
+
See page 32
See page 33
+
See page 34
PREMIUM ROUTE TO MARKET
79% of trading profit derived from high margin distribution/VIR operations
and 21% from selective investment in high quality retail markets.
DISTRIBUTION AND VIR
As a distributor, Inchcape is appointed by the
manufacturer to be exclusively responsible for logistics,
marketing, retail network management and sales
programmes for a particular region. In Vertically
Integrated Retail (VIR) markets, Inchcape operates
as both the exclusive distributor and exclusive retailer.
RETAIL ONLY
In our four retail only markets, Inchcape provides
high quality brand representation through large
scale retail facilities on a regional basis.
+
TRADING PROFIT*
79%
TRADING PROFIT
21%
APAC AND
EMERGING
MARKETS
TRADING
PROFIT
73%
UK AND
EUROPE
TRADING
PROFIT
27%
Hong Kong (67), Guam (91), Macau (86), Saipan
(>100), Brunei (79), Singapore (68), Romania (54),
Bulgaria (74), Macedonia (97), Albania (>100), Estonia
(75), Lithuania (80), Latvia (85), Australia (14), New
Zealand (48), Ethiopia (>100), Chile (29), Peru (42)**
Russia
China
Poland
TRADING PROFIT
70%
Belgium
Luxembourg
Greece
Finland
United Kingdom (IFS)
TRADING PROFIT
9%
TRADING PROFIT
3%
United Kingdom
TRADING PROFIT
18%
• 79% of our trading profit is derived from our
high margin/capital light Distribution and
VIR operations in 23 of our 26 markets
• 90% of Distribution/VIR profit from high
growth and high margin Asia Pacific
and Emerging Markets regions
• Defensive profit streams from scale
aftersales businesses
• Robust growth prospects in all categories
• 21% of trading profit is derived from selective
investment in high quality large retail markets
• UK, China and Russia are amongst the largest
premium/luxury automotive markets in the world
• Operational best practice processes transferred
across the Group
• Six premium retail sites in China
• Strong footprint with world class facilities in Russia
positioned to leverage structural growth
• Established UK business acts as an important
source of expertise and strengthens Inchcape’s
brand partner relationships
* Where we act as Distributor, we typically operate 10-20% of the retail network. Trading Profit for these retail operations of 7% is included in Distribution
and VIR in the table above.
** (x) Global ranking of the country in new vehicle volumes – IHS Automotive.
www.inchcape.com
5
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
PREMIUM STRATEGY
We differentiate ourselves from our competitors in every market through
our premium customer-focused strategy, based on superior service driven
by our unique Inchcape Advantage programme. This enables us
to maintain strong margins and deliver consistent premium returns,
as evidenced by our return on capital employed of 22% and our
four year total shareholder returns of 125%.
PREMIUM CUSTOMER SERVICE IN SINGAPORE
Inchcape’s new luxury LEXUS BOUTIQUE in Singapore sets a new benchmark in customer
service, excellence and design. Borneo Motors, Inchcape’s subsidiary in Singapore, is the
sole distributor of Lexus in Singapore, and owns and operates all retail centres in the market.
The new LEXUS BOUTIQUE has been designed to showcase the Lexus brand’s exhilarating
automotive luxury, through its current and new product line up and ‘Omotenashi’ – the Lexus
way of bespoke hospitality. The Lexus premium service lounge provides white glove service
and maximum privacy with dedicated delivery suites for personalised hand-over of
vehicles to customers after servicing.
WWW.LEXUS.COM.SG
6
Inchcape plc Annual Report and Accounts 2013
PREMIUM STRATEGY
We differentiate ourselves from our competitors in every market through
our premium customer-focused strategy, based on superior service driven
by our unique Inchcape Advantage programme. This enables us
to maintain strong margins and deliver consistent premium returns,
as evidenced by our return on capital employed of 22% and our
four year total shareholder returns of 125%.
www.inchcape.com
7
PREMIUM STRATEGY
Premium growth strategy supported by strong operational discipline on our Top Five
Priorities with a balanced focus on commercial and cash initiatives delivers premium
growth for our brand partners and our shareholders.
OUR CORE PURPOSE:
To create an incredible customer experience
for the best car brands in the world
CUSTOMER 1ST STRATEGY
Our 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.
COMMERCIAL INITIATIVES
to grow revenues ahead
of competitors.
STRENGTHEN
Superior customer
value proposition
through Inchcape
Advantage.
strategy
EXPAND
Selective investment
in high growth/high
margin areas.
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 profit
and operating
cash faster
than revenues.
IMPROVING MARGIN
Tight cost discipline firmly
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.
8
Inchcape plc Annual Report and Accounts 2013
OUR VISION:
Our Customer 1st journey will create incredible growth for
our people, our brand partners and our shareholders
HOW WE MEASURE THE SUCCESS OF OUR
CUSTOMER 1ST STRATEGY
We conduct over 16,000 customer satisfaction
interviews every month to measure the effectiveness of
our Customer 1st strategy across the Group and track
our progress through Net Promoter Score (NPS).
NPS is a proven customer loyalty metric used to measure
the strength of the Company’s customer relationships.
HOW WE DRIVE OUR GROWTH STRATEGY
Delivering differentiated customer service is the overarching
strategic goal for the Group. Inchcape Advantage, our
unique programme to deliver a consistently superior customer
experience, underpinned by customer insights, proprietary
retail operating processes, and cutting edge retail metrics,
is enabling us to grow our market share and aftersales.
See page 12 for more information on our operational processes
GROWING MARKET SHARE
TOP 3 POSITION IN 12 MARKETS
ORGANIC INVESTMENT TO DRIVE FUTURE GROWTH
We follow a disciplined approach to capital allocation
with selective capital expenditure in high quality facilities
to support the growth of our premium brand partners.
See pages 25-34 for more information in our KPIs and Operating Review
CONTINUOUS NPS IMPROVEMENT (SALES AND AFTERSALES)
120
100
80
60
40
20
0
2010
2013
INCHCAPE ADVANTAGE DRIVING REVENUE
AHEAD OF 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
STAYING AHEAD OF THE COMPETITION WITH PREMIUM FACILITIES
New facilities in 2013
Facility upgrades in 2013
• BMW Chile – Santiago
• VW UK – Chester
• BMW Peru – Lima
• VW UK – Swindon
• Porsche China – Nanchang
• VW UK – Wirral
• Mercedes China – Jiujiang
• BMW/MINI UK – Sunderland
• Land Rover Russia – Moscow
• BMW UK – Norwich
• Jaguar Russia – Moscow
• Toyota Singapore –
• Volvo Russia – Moscow
• Rolls-Royce Russia –
St. Petersburg
Leng Kee Road
• Lexus Singapore –
Leng Kee Road
www.inchcape.com
9
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
OPERATIONAL EXCELLENCE SETS NEW RECORD IN HONG KONG
Our operational strength has now seen Crown Motors, our subsidiary in Hong Kong, win the
Toyota Triple Crown Award for the 22nd consecutive year. This fantastic accolade is based on
market-share figures placing Toyota as the number 1 brand in Hong Kong and Crown Motors
as leader in passenger cars, commercial vehicles and the market overall.
WWW.CROWN-MOTORS.COM
10
Inchcape plc Annual Report and Accounts 2013
PREMIUM OPERATIONS
Our matchless automotive experience in markets across the
world has helped us develop a unique approach to operational
management based on 12 proprietary processes. This
approach has helped us to systematise the quality of our
on-the-ground delivery, giving our brand partners a sustainable
competitive advantage in markets across the world.
www.inchcape.com
11
PREMIUM OPERATIONS
Leading the automotive industry with robust operational processes
giving Inchcape a competitive advantage in every market.
OUR ROLE IN THE VALUE CHAIN
Operating across each stage of the value chain, we provide a well-financed and professional route to market for our brand partners.
PRODUCT SPECIFICATION
We apply our local expertise
and unrivalled market
understanding to specify
models and volumes for
each market
IMPORT & LOGISTICS
We handle the distribution
process from factory gate
to retail centre
APPOINT & MANAGE
THE DEALER NETWORK
We appoint, manage, train
and support franchised
dealer networks
WHOLESALE OF
VEHICLES/PARTS
TO DEALER NETWORK
We support the
infrastructure of our
franchised dealer networks
VERTICALLY INTEGRATED
RETAIL (VIR)
+
VIR (Vertically Integrated Retail): we act as both the exclusive distributor and the
exclusive retailer. Being both the Distributor and Retailer gives us a higher margin.
DISTRIBUTION
RETAIL
Distribution: a single exclusive agreement for each brand in each particular market,
under which we manage the entire value chain past the factory gate, from importing
vehicles and parts to sales and marketing.
OUR 12 ROBUST OPERATIONAL PROCESSES DRIVE SUPERIOR PERFORMANCE
Our proprietary approach to management ensures
operational excellence in every market.
MARKET INTELLIGENCE
& FORECASTING
Our understanding and knowledge of the
markets where we operate has improved
over the years based on powerful retail
indicators and leading technology which
enables us to make accurate sales forecasts
and to spot trends even before they emerge
– providing strong competitive advantage in
good economic times and bad.
SUPPLY & WORKING
CAPITAL MANAGEMENT
We accurately synchronise supply with
demand thanks to the exceptional integration
of our management processes, our market
measures and our forecasting. Not only does
this approach enable us to control costs, it
also ensures we can satisfy our customers
more easily than the competition.
MARKETING & INNOVATION
Our in-depth knowledge of our markets and our
OEM partners enables us to bring unparalleled
insight and understanding to positioning and
promoting brands and models. Our StarPlus
model processes provide marketing excellence
in our 26 markets. This not only drives growth in
revenues and market share, it also further
strengthens the equity and image of our brands.
See case study on page 23
See Operating Review
See case study on page 23
DEALER NETWORK DEVELOPMENT
In our distribution markets, our route to
market is largely managed by third party
dealers and our network development
teams provide expertise in network
expansion, retail standards, operational
training and IT support which enables
us to deliver world class representation
for our brands.
WORLD CLASS RETAIL STANDARDS
We continually invest in the world’s most
advanced retail technologies, in infrastructure
and in our people to ensure that all customers
in every market have an outstanding experience
every time they interact with us.
CUSTOMER SERVICE
Our unique Inchcape Advantage programme,
which underpins our commitment to delivering
consistently superior customer service in every
outlet, continues to drive sustainable aftersales
retention and market share growth everywhere
we operate.
See Chief Executive’s Statement
See case study on page 23
See Chief Executive’s Statement
12
Inchcape plc Annual Report and Accounts 2013
NATIONAL
MARKETING &
PRICE POSITIONING
Our deep market
insight enables us to
build strong pricing
power into our brands
and grow market share
CUSTOMER
ENGAGEMENT
Our Customer 1st
strategy, enabled
by Inchcape
Advantage, ensures
we gain unique
customer insight
so we consistently
deliver superior
customer service
in every market
VEHICLE SALES
We provide high
quality brand
representation
through state of the
art retail centres and
outstanding levels
of customer service
VEHICLE FINANCE
& INSURANCE
Our F&I specialists
help customers find
the most efficient
way to finance
their vehicles; and
provide customers
the opportunity
to purchase
ancillary products
AFTERSALES
Our trained
technicians and
hi-tech facilities
give us a unique
competitive
advantage
Retail: In our four retail-only markets – UK, Russia, China and Poland, Inchcape provides high quality
brand representation through large scale retail facilities on a regional basis. Our competitive
advantage is achieved through exceptional customer service standards delivered globally through
our unique Inchcape Advantage programme.
PERFORMANCE MANAGEMENT
A key element of Inchcape’s way of working
is the careful balance between strong
central governance and local management,
who are empowered to make decisions based
on their market understanding. This means
Inchcape can respond rapidly and effectively
at every level to changing market conditions.
CAPEX & INVESTMENT
The strength of the Group’s balance sheet
and our brand relationships give us access
to investment opportunities. We follow a
highly disciplined and selective approach
to investment that targets high growth and
high margin markets.
GLOBAL IT INFRASTRUCTURE
Proprietary Distribution, VIR and Retail
information technology enhances our
productivity across the Group. Our global
iPower programme is designed to reduce
complexity and to provide our businesses
with better management information on
a timely basis.
See Executive Committee on page 46
See Operating Review
See Chief Executive’s Statement
RISK MANAGEMENT
Within our operationally decentralised
organisation, the Group’s risk appetite is
dictated by the Board while day-to-day risk
oversight is the responsibility of the Group iPOM
(Inchcape Peace of Mind) committee. Oversight
of risk management, however, remains in the
hands of the most senior management in our
local markets.
INVESTING IN PEOPLE
The key to outperforming our competition in
every market is to ensure that we have winning
people in winning teams. That’s why Inchcape is
focused, both centrally and locally, on ensuring
that we have in place the right people, the right
learning opportunities, the right reward systems
and the right culture.
REWARDING PERFORMANCE
Our people thrive in a culture which
recognises individual contributions to
our collective performance. This means that
recognition and acclaim are as important
as compensation in maintaining an
engaged workforce made up of committed,
energetic and enthusiastic people.
See Corporate Governance Report
See Corporate Responsibility Report
See Directors’ Report on Remuneration
www.inchcape.com
13
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
PREMIUM GROWTH
Consistent growth in the premium and luxury segments has delivered premium returns
for our shareholders. Our consistent performance is based on five competitive advantages
that remain relevant for the future. First, our focus on those premium and luxury brands that
continue to outperform the market. An aftersales strategy building sustainable margin that
continues to gather momentum as customer numbers increase from a growing Car Parc.
Our unique Customer 1st strategy, which underpins our pricing power. A unique set of
operational processes that differentiate us in every market. And our ability to leverage
attractive consolidation opportunities in high growth/high margin markets.
PREPARING FOR GROWTH IN SOUTH AMERICA
Benefiting from strong growth in the premium and luxury segment in South America,
in 2013 we opened two new flagship facilities for BMW. One in Lima, Peru and one
in Santiago, Chile. Both facilities improve the quality of the brand experience and
increase our aftersales capacity to take advantage of the growth in the Car Parc.
See page 23 for Chile case study
WWW.BMW.COM.PE WWW.BMW.CL
14
Inchcape plc Annual Report and Accounts 2013
PREMIUM GROWTH
Consistent growth in the premium and luxury segments has delivered premium returns
for our shareholders. Our consistent performance is based on five competitive advantages
that remain relevant for the future. First, our focus on those premium and luxury brands that
continue to outperform the market. An aftersales strategy building sustainable margin that
continues to gather momentum as customer numbers increase from a growing Car Parc.
Our unique Customer 1st strategy, which underpins our pricing power. A unique set of
operational processes that differentiate us in every market. And our ability to leverage
attractive consolidation opportunities in high growth/high margin markets.
www.inchcape.com
15
PREMIUM GROWTH
Consistent growth has delivered premium returns for our shareholders
and our brand partners.
OUR FIVE KEY DRIVERS OF PREMIUM GROWTH
Inchcape’s sustainable drivers of sustainable growth leverage a unique business model.
OUR FOCUS ON
PREMIUM AND
LUXURY BRANDS
We derive 90% of
our profits from
close relationships
with six premium
brand partner
groups who
continue
to outperform
the market.
OUR HIGH MARGIN
AFTERSALES
BUSINESS TO GAIN
MOMENTUM
The strong growth in
the New car market
is fueling growth in
the high margin
aftersales market.
OUR UNIQUE
CUSTOMER 1ST
STRATEGY
Our focus on
delivering superior
customer service
strengthens the
pricing power
of our brands.
OUR 12 INDUSTRY
LEADING
OPERATIONAL
PROCESSES
We have the
experience and
management depth
to apply world class
operational processes
which the local
competition
cannot match.
ACCESS TO
ATTRACTIVE
CONSOLIDATION
OPPORTUNITIES
Our balance sheet
strength and strong
brand partner
relationships give
us the opportunity
to invest selectively
in high margin and
high growth markets.
OUR BUSINESS MODEL
Inchcape is a premium automotive group with a distinctive and attractive business model.
RIGHT GROWTH STRATEGY
Customer 1st strategy to capture
growth in existing and new markets
RIGHT MARKETS
Global footprint uniquely
positions Inchcape for
future growth – 73% of
profits from Asia Pacific
& Emerging Markets
RIGHT BRANDS
Creating value with the
world’s leading brands
– 90% of profits from
six leading premium
manufacturer groups
S ervi c
trib
utio
is
D
e
P
arts
n
R
e
t
a
i
l
strategy
N
e
w
v
e
h
i
c
l
e
s
a
l
e
s
Used vehicle s a l e s
VIR
Financ
e
c
n
a
r
u
s
n
d I
n
e a
RIGHT CATEGORIES
Five distinct revenue
streams offering
growth (New vehicle
sales, Finance and
Insurance)/defensive
(Used vehicles, Service,
Parts) mix
RIGHT FINANCIALS
Attractive growth
prospects, strong cash
generation and robust
balance sheet
RIGHT PROCESSES
12 operational processes
drive performance
16
Inchcape plc Annual Report and Accounts 2013
STRONG GROWTH FORECAST
IN THE GLOBAL CAR MARKET
PREMIUM RETURNS FOR
OUR SHAREHOLDERS
GLOBAL TIV*
21%
Growth
GLOBAL PARC**
21%
Growth
INCHCAPE HISTORICAL TSR
+125%
240
m
0
0
1
m
7
m 9
4
m 9
0
9
m
6
8
m
3
8
m
5
6
1
,
1
m
7
1
1
,
1
m
5
7
0
,
1
m
4
3
0
,
1
m
6
9
9
m
2
6
9
220
200
180
160
140
120
100
09
10
11
12
13
INCHCAPE 1 YEAR TSR
+47%
13
14
15
16
17
18
13
14
15
16
17
18
* Source: IHS Automotive
** Source: LMC Automotive
BROAD BASED GROWTH MOVING FORWARD
Inchcape operates within an exciting
growth industry. The forecast total global
growth between 2013 and 2018 for both
New vehicles (TIV) and the installed base
(Car Parc) is set to be greater than 20%.
Our weighting to Asia Pacific and
Emerging Markets means that our country
portfolio is structurally attractive, as wealth
per capita increases vehicle ownership is
set to rise. Furthermore, the growth in New
vehicles leads to opportunities across
our value drivers and we are well
positioned to generate returns for our
shareholders from Finance & Insurance,
Used vehicles, Service and Parts sales.
% Inchcape
Revenue
2013
% Inchcape
Trading
profit 2013
% Inchcape
Trading profit
margin 2013
GDP growth
CAGR 2013-18
(Source: IMF)
TIV growth
CAGR 2013-18*
(Source: IHS
Automotive)
1-5 year
Car Parc growth
CAGR 2013-18*
(Source: LMC
Automotive)
56%
44%
73%
27%
6.1%
2.9%
+3.6%
+2.0%
+4.7%
+1.4%
5.0%
1.5%
Inchcape
markets
21
5
Asia Pacific & Emerging Markets
UK & Europe
* Portfolio weighted based on 2013 trading profit.
www.inchcape.com
17
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
CHAIRMAN’S STATEMENT
The Group delivered record results in 2013
KEN HANNA,
CHAIRMAN
18
Inchcape plc Annual Report and Accounts 2013
2013 has been another strong year for
Inchcape, marking a record profit and
a return to peak operating margin
performance. The strength of our premium
operations, our focus on Asia Pacific and
Emerging Markets, our dedication to our
Customer 1st strategy and the passion of
our colleagues have enabled Inchcape
to achieve these record results.
We acquired Trivett, Australia’s leading
luxury and premium automotive group,
on 1 March 2013 for an expected final
consideration of £76m. The acquisition
was an important step in the development
of our operations in Australasia, positioning
us with greater scale with premium and
luxury brands represented in high quality
retail centres in Sydney and Melbourne.
On 2 August 2013 we announced a share
buy back programme of £100m within
12 months, of which £50m was completed
by 31 December 2013. The Board of
Inchcape recognised the opportunity to
return cash to our shareholders and thus
ensure capital discipline, recognising the
priority to invest organically and retaining
the capacity for M&A opportunities.
Inchcape is well positioned to benefit
from the exciting growth prospects and
attractive consolidation opportunities
in the global automotive market given
our competitive advantage in customer
service and our strong relationships
with the world’s leading brands in the
premium and luxury segments.
I am very pleased to report that our
share price performance and progressive
dividend policy have combined to deliver
an excellent total shareholder return (TSR)
in 2013 of 47%.
PERFORMANCE
Group sales increased by 7.2% to
£6.5bn for the full year to 31 December
2013. The Group benefited from the Trivett
acquisition and like for like sales growth
was achieved in most of the geographic
segments. The Group also achieved profit
growth across the majority of its markets in
2013. The performance of our Emerging
Markets was especially pleasing. In Chile
and Peru, where we are the distributor
for BMW, the luxury car market grew
by 28% and 22% respectively. 2013 has
seen broad based growth across our
five value drivers as the recovery in
New vehicle volumes since 2010, in
a number of our markets, has led to
growth in Service and Parts sales.
recovery in 2014 of the New vehicle market
in Singapore as well as the expected
recovery of the Greek market in 2014 are
important developments for the Group.
Our geographic footprint positions us
for structural growth in Asia Pacific and
Emerging Markets, and our leading
premium partners give us confidence
in our ability to take market share and
maintain pricing power.
Furthermore, our operational discipline
supports the sustainability of returns and
when coupled with the intrinsically cash
generative nature of our business model,
we are confident in our ability to create
long term value for our shareholders.
KEN HANNA,
CHAIRMAN
Profit before tax and exceptional items
of £274.6m was 11.2% higher than 2012.
On a statutory basis, profit before tax
was £266.1m, 7.4% above 2012. Adjusted
earnings per share (EPS) rose by 11.3%
to 43.5p, driving a four year compound
annual growth rate of 12.6%.
on 2012 (14.5p). Subject to approval
at the Company’s Annual General
Meeting (AGM) on 16 May 2014, the final
dividend will be paid on 24 June 2014
to shareholders of the Company on
the register of members at the close
of business on 30 May 2014.
Cash generated from operations
during the year was £227.0m which
represents an 81.5% conversion of
statutory operating profit.
CAPITAL EXPENDITURE
The Group continued to be selective
on capital expenditure in 2013, ensuring
that cash was allocated to the right
growth prospects that meet our high
return requirements.
In 2013, we completed new flagship
BMW facilities in Chile and Peru. These
class-leading sites in Santiago and
Lima will enable Inchcape to take full
advantage of the significant growth
of recent years in BMW volumes in both
markets and critically we are well placed
to serve the aftersales requirements of
the fast growing Car Parcs. In China we
opened a Porsche site in Nanchang and
a Mercedes-Benz site in Jiujiang. In Russia
we opened new facilities for Rolls-Royce in
St. Petersburg and for Jaguar, Land Rover
and Volvo in Moscow.
BOARD
Following nine years’ service, Will Samuel,
the Deputy Chairman and Senior
Non-Executive Director, retired from
the Board on 16 May 2013. We are
very grateful for the valuable insights
and dedication delivered by Will to the
Group. Following this change Simon
Borrows became Senior Independent
Director. John Langston joined the Board
on 1 August 2013, and was appointed
Chairman of the Audit Committee on
1 September 2013.
DIVIDEND
The Board is pleased to recommend
payment of a final dividend for the year
ended 31 December 2013 of 11.7p,
+11.4% on 2012 (10.5p). This gives a total
dividend for 2013 of 17.4p, representing
a payout ratio of 40% and a 20% increase
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 48 to 56 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 2013 the CR Board
Committee, responsible for the strategic
direction of the Group’s Corporate
Responsibility 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 2013.
OUTLOOK
We are well positioned moving forward.
We operate with the world’s leading
premium brands across 26 markets, in
which we have long-standing market
share strength and where we deploy
our bespoke operational processes
to deliver excellence throughout the
value chain and thus enabling us to
outcompete local operators.
The Group has a track record of delivering
consistent profit growth despite challenging
trading conditions in some of our key
regions, namely South Asia and Europe.
The commencement of the anticipated
www.inchcape.com
19
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
CHIEF EXECUTIVE’S STATEMENT
Premium growth delivering premium returns for our shareholders
Inchcape is a leading global
premium automotive group, operating
in 26 countries worldwide both as a
Distributor and as a scale Retailer.
I am delighted to report another year
of strong performance for the Group.
We achieved robust growth across each
of the categories in which we operate,
continuing a long term trend of strong
performance, not just in the context of
the global economic challenges but
also in comparison with our competitors
across the world.
In the last four years, we have delivered
consistent profit growth and attractive
returns for our shareholders, with an
earnings per share (EPS) compound
annual growth rate of 12.6%, total
shareholder return (TSR) of 125%
and a return on capital employed
(ROCE) of 22%.
Our unique approach is based on a
global geographic footprint focused
on high margin, high growth markets,
a diversified set of revenue streams with
an emphasis on growing sustainable
high margin aftersales activities, and
a competitive advantage based on
operational excellence and delivering
outstanding customer service.
At the heart of our business lies our close,
long term partnerships with six premium
and luxury automotive manufacturer
groups, from which we derive c. 90% of
our gross profit: BMW/MINI/Rolls-Royce,
Jaguar/Land Rover, Mercedes-Benz,
Subaru, Toyota/Lexus and Volkswagen/
Audi/Porsche.
These premium and luxury brands are
growing ahead of the global automotive
market as a whole, due to their appeal
to the burgeoning middle classes in the
emerging markets. Their R&D strength
allows them to invest ahead of their
competition in fuel-efficient automotive
technology that appeals to customers in
the more developed markets. Importantly,
the pricing power of these brands helps
us to secure and grow our margins, which
enables us to achieve such strong returns.
ANDRÉ LACROIX,
GROUP CHIEF EXECUTIVE
20
Inchcape plc Annual Report and Accounts 2013
We believe that our market leading
sales and aftersales performance
in premium and luxury segments,
supported by our premium Customer
1st strategy and premium operations,
while seizing attractive consolidation
opportunities, is the key to delivering
sustainable growth for our shareholders.
PREMIUM MARKETS
Three quarters of our profits are derived
from the fast growing markets of Asia
Pacific and the Emerging Markets.
Indeed, we are highly selective about
the markets where we choose to operate
and for us the world’s most attractive
markets are not necessarily the largest.
The stand-alone New car markets in, for
example, Hong Kong, Singapore, Guam,
Macau, Peru and Ethiopia are small in a
global context but this is a great strength
for Inchcape as we have established
competitive positions with high returns.
Our Distribution and VIR operations are
focused in those small to medium sized
markets, where our scale position, superior
operating processes, marketing and sales
expertise and the quality of our people
provide a significant local advantage
to our brand partners in terms of brand
stewardship, advertising and promotional
capability, aftersales expertise, network
management and customer experience.
During 2013, our Distribution and VIR
operations generated 79% of our
Group trading profits and 90% of the
profits from our Distribution and VIR
activities come from Australasia, North
Asia, South Asia, Eastern Europe, Africa
and South America.
Our long lasting relationships with our
brand partners combined with the
superior quality of our operations have
given us a scale advantage in these
markets. In 12 of our markets, we achieved
a top three market share position for our
brand partners in 2013. Not only does this
deliver significant opportunities for New
car sales, it also provides strong and
sustainable revenue streams across all
our categories, particularly in our high
margin Aftersales servicing and Parts
business. Our scale advantage in the
Distribution/VIR markets is driving superior
returns for our shareholders.
In the world’s larger car markets, like the
UK, Russia and China, our six core brand
partners run their own distribution and
marketing companies. Here, we have
selectively invested in large-scale premium
retail facilities and provide our OEM
partners with the highest quality brand
representation and deliver exceptional
standards in customer care.
PREMIUM STRATEGY
Inchcape has a twin-track strengthen
and expand Customer 1st growth strategy.
Our key focus is on strengthening
our business through organic growth,
maximising the return on our existing
assets through a differentiated customer
experience to increase market share in
both vehicle sales and aftersales.
In fact, no matter where we operate,
it is our unique Customer 1st strategy
that prevails, providing a premium
customer experience for the world’s
best car brands. This is what drives
our competitive advantage: creating
high levels of customer satisfaction, that
we measure consistently through our
Inchcape Advantage programme, and
leveraging this to sustain and protect our
margins. Quite simply, we set standards
in markets across the world which the
local competition cannot match.
A key strategic component of our strong
business model is the diversity of our
five income streams, which we classify
into ‘growth’ and ‘defensive’ categories.
Our main growth category is New vehicle
sales, which historically has been at the
core of Inchcape’s business and, when
combined with our Vehicle Finance and
Insurance products, represents around
40% of Group gross profit.
Our ‘defensive’ categories of Used vehicle
sales, Aftersales servicing and Parts now
collectively account for 60% of our gross
profit. This is excellent progress for the
Group; not only is the trend towards
substantial growth in the global Car
Parc driving true sustainability for these
business streams – the Car Parc is over
10 times the size of the New car market –
but margins in this category are higher too.
Our premium strategy is supported
by our strong operational discipline,
a balanced focus between cash and
commercial priorities that we summarise
under our Top Five Priorities: maintaining
tight control over margins, working capital
and capital expenditure, while growing
the business through increased market
share and aftersales.
Through the strong brand partner
relationships our Customer 1st strategy
creates, we gain access to expansion
opportunities in high margin, high growth
areas of the world which we can pursue
thanks to the strength of our balance
sheet, as evidenced in 2013 when we
completed the acquisition of the Trivett
Automotive group, Australia’s largest
premium automotive retailer.
This premium growth strategy, in
premium markets, with premium
brands, is enabling us to deliver a
premium financial performance.
PREMIUM OPERATIONS
Our operational approach is to
appoint strong and experienced local
management teams and support them
with industry best practice, market-leading
technology and central governance.
Quite simply, this means we bring to local
markets a level of operational resource
and global expertise that enables us to
outperform the competition.
www.inchcape.com
21
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
CHIEF EXECUTIVE’S STATEMENT CONTINUED
To maximise this advantage, we have
developed a proprietary approach to
management that ensures operational
excellence in every market. This is made
up of 12 unique operational processes:
• Market intelligence and forecasting:
Our understanding and knowledge
of the markets where we operate has
improved over the years based on
powerful retail indicators and leading
technology, which enable us to make
accurate sales forecasts and to spot
trends even before they emerge –
providing strong competitive advantage
in good economic times and bad.
• Supply and working capital
management: We accurately
synchronise supply with demand
thanks to the exceptional integration
of our management processes, our
market measures and our forecasting.
Not only does this approach enable us
to control costs, it also ensures we can
satisfy our customers more easily than
the competition.
• Customer service: Our unique
Inchcape Advantage programme,
which underpins our commitment
to delivering consistently superior
customer service in every outlet,
continues to drive sustainable
aftersales retention and market
share growth everywhere we operate.
• Performance management: A key
element of Inchcape’s way of working
is the careful balance between
strong central governance and local
management, who are empowered
to make decisions based on their
market understanding. This means
Inchcape can respond rapidly and
effectively at every level to changing
market conditions.
• Capex and investment: The strength
of the Group’s balance sheet and
our brand relationships give us access
to investment opportunities. We follow
a highly disciplined and selective
approach to investment that targets
high growth and high margin markets.
• Marketing and innovation: Our
• Global IT infrastructure: Proprietary
in-depth knowledge of our markets and
our OEM partners enables us to bring
unparalleled insight and understanding
to positioning and promoting brands
and models. Our StarPlus model
processes provide marketing excellence
in our 26 markets. This not only drives
growth in revenues and market share,
it also further strengthens the equity
and image of our brands.
• Dealer network development: In
our distribution markets, our route to
market is largely managed by third
party dealers and our network
development teams provide expertise
in network expansion, retail standards,
operational training and IT support
which enables us to deliver world class
representation for our brands.
• World class retail standards:
We continually invest in the world’s
most advanced retail technologies,
in infrastructure and in our people to
ensure that all customers in every market
have an outstanding experience every
time they interact with us.
Distribution, VIR and Retail information
technology enhances our productivity
across the Group. Our global iPower
programme is designed to reduce
complexity and to provide our
businesses with better management
information on a timely basis.
• Risk management: Within our
operationally decentralised organisation,
the Group’s risk appetite is dictated by
the Board while day-to-day risk oversight
is the responsibility of the Group iPOM
(Inchcape Peace of Mind) Committee.
Oversight of risk management, however,
remains in the hands of the most senior
management in our local markets.
• Investing in people: The key to
outperforming our competition in
every market is to ensure that we have
winning people in winning teams. That’s
why Inchcape is focused, both centrally
and locally, on ensuring that we have in
place the right people, the right learning
opportunities, the right reward systems
and the right culture.
• Rewarding performance: Our
people thrive in a culture which
recognises individual contributions
to our collective performance. This
means that recognition and acclaim
are as important as compensation
in maintaining an engaged workforce
made up of committed, energetic
and enthusiastic people.
The application of these strong
operational processes differentiates us
both within the markets where we operate
and in the eyes of the manufacturers we
work with; our brand partners benefit from
our consistent market share and customer
service performance which strengthen
our brand relationships giving us access
to new business opportunities.
To see how a number of these key
processes work in practice, delivering
value to Inchcape, our brand partners,
our customers and our shareholders,
see the case study on page 23 about
our work for BMW in Chile.
PREMIUM GROWTH
PREMIUM RETURNS
Our consistent growth in the premium
and luxury segment has delivered
premium returns for our shareholders.
We believe that our performance track
record is based on five competitive
advantages: our focus on premium and
luxury brands that continue to outperform
the market; a rising Car Parc that feeds
our high margin Aftersales business; our
differentiated Customer 1st strategy which
underpins strong pricing power; a unique
set of 12 operational disciplines creating
local competitive advantage; and an
ability to leverage attractive consolidation
opportunities in high growth/high margin
markets. All these growth drivers remain
relevant into the future.
22
Inchcape plc Annual Report and Accounts 2013
CASE STUDY: INCHCAPE BMW CHILE
A PREMIUM APPROACH TO OPERATIONAL EXCELLENCE
Inchcape commenced its distribution
operations for BMW in Chile, a country
with tremendous opportunities, in 1994.
Chile has a population of 17.4 million,
making it one of the largest in which
Inchcape operates. There are six million
inhabitants in the capital, Santiago, a
truly global city that accounts for a third
of the country’s entire population. In
addition, Chile has delivered a four year
real compound annual GDP growth rate
of 5.3% between 2009 and 2012.
Today, BMW stands at the head of Chile’s
luxury automotive segment, with 37%
market share in 2013 – up from 27% just
four years ago.
Below, we highlight just three areas in which
our unique approach to operational
excellence, developed over many years
and involving a number of bespoke
processes, is driving our success in Chile
and indeed all of our Distribution markets.
MARKET INTELLIGENCE
AND FORECASTING
A key aspect of our approach is in-depth
market planning and analysis, based
around a tried and tested, best-practice
strategic and operational methodology
that works successfully wherever we
apply it across the world. Our detailed
segmentation analysis enables us to
accurately determine the annual volume
forecast and, in turn, the understanding
this brings allows us to select the
appropriate model mix.
We continue to track and understand
sales volumes throughout the year, with
updated monthly forecasts based on
our daily traffic analysis and other
leading indicators; this is an area where
we are particularly advanced, enabling
us to anticipate and plan for changes
that will inevitably take place during a
year’s trading.
WORLD CLASS RETAIL STANDARDS
Our focus on providing customers with
the highest levels of service is enabling
growth for our premium and luxury
brands in markets across the world. In
our new flagship retail and service centre
for BMW in Santiago, we have taken the
customer experience to new heights. In
terms of the facility itself, the landmark
building is a dramatic premium
statement of sustainability, and the
architecture provides a perfect showcase
for our brand partner’s vehicles. To this,
our people bring a dedicated knowledge
of the brand and a passion for delivering
highly individual customer care.
We have consolidated five facilities into
one, doubling our overall Aftersales
capacity and enhancing the overall
ambience and product display
capabilities. We have designed a
number of ‘customer journeys’ through
the centre depending on customer type,
reflecting the very real differences that
exist in aspiration and expectation
between, for example, BMW M-Sport
and Motorrad customers. Having the
scope to segment by vehicle type, we
ensure that all customers receive the
very best and most relevant experience.
MARKETING AND INNOVATION
Underpinned by Inchcape’s Group-wide
‘StarPlus’ marketing model, which
draws upon our deep understanding
of the brands we represent around the
world and the local markets where we
represent them, our team created a
campaign to leverage the completion
of the new Santiago site to position BMW
in the most effective and appropriate
manner for the Chilean market.
From our concept “Experience the
future” (“Bienvenidos al Futuro”), we
delivered a highly impactful campaign
that emphasises BMW’s outstanding
brand quality, product range, technology
and design, complemented by our own
comprehensive customer service offering.
In reflecting BMW’s brand characteristics,
a focus on retail innovation was of
fundamental importance – and our team
sought to develop true innovation in
customer service: a three year warranty
and free maintenance package was
developed alongside ‘ServiceConnect’,
with benefits including online booking
and tracking and a remote fault
diagnosis and response tool.
www.inchcape.com
23
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
Our premium growth strategy combined
with our strong cash and cost discipline
is the right one for Inchcape and for our
shareholders and I am confident we can
look forward to a long term performance
that continues our record of generating
sustainable premium growth and
premium returns.
ANDRÉ LACROIX,
GROUP CHIEF EXECUTIVE
CHIEF EXECUTIVE’S STATEMENT CONTINUED
Over the next five years, annual New
car sales are set to grow globally by
21%. Even more important for the
sustainability of our earnings, the
global Car Parc is forecast to increase
substantially, by 21% over the same period,
to 1,165 billion vehicles. Consequently we
see significant growth opportunities
ahead in all those categories where we
operate – New and Used premium car
sales, Finance and Insurance products,
Aftersales servicing and Spare parts.
The geographic spread of our markets
gives us a well-balanced approach to
growth. Our 21 Asia Pacific and Emerging
Markets businesses delivered 56% of our
revenue and 73% of our trading profit in
2013, thanks to the 6.1% average trading
profit margin they deliver. Our operations
in the UK and Europe, meanwhile,
delivered 44% of our revenue and 27%
of our trading profit.
With both New vehicle sales and the Car
Parc set to deliver substantial growth over
the next five years, these markets provide
the balance and stability needed to give
us a solid, sustainable platform for
continued growth across the Group.
In summary, Inchcape’s dedicated focus
on premium growth is delivering premium
returns for our shareholders:
We have a scale presence in the right
premium markets, where we expect robust,
broad based growth across all categories.
We have a highly attractive portfolio of
premium and luxury brands, with which we
have deep and long-standing relationships.
We have a premium strategy driven
by a strong focus on superior customer
service, enabling us to enjoy strong
pricing power in our markets and market
share growth in premium and luxury
Vehicle sales and in Aftersales.
We have the right operational discipline,
with a strong track record of delivering
leading market share.
We deliver premium returns with a
balanced mix of growth and defensive
drivers and a highly disciplined approach
to cost and cash management.
And we have a strong balance sheet,
which together with our outstanding
manufacturer partnerships clearly
positions us strongly to take advantage
of the exciting premium consolidation
opportunities in Asia Pacific and the
Emerging Markets, as evidenced by
our recent acquisition of the Trivett
Automotive group.
Trivett’s fit with Inchcape is excellent:
the business has 22 retail centres in
and around Sydney, Australia’s largest
metropolitan area for premium brands,
and two in Melbourne. This scale enables
Trivett to make a substantial contribution
to Inchcape Australasia – itself a
considerable business with 21 owned
and managed retail centres and 101
independently owned franchised Subaru
centres throughout Australasia. Just as
important, however, is Trivett’s portfolio
of premium brands, including BMW,
Jaguar, Land Rover, Volvo and Honda,
as well as super luxury brands Rolls-Royce,
Bentley, Aston Martin and McLaren.
In Trivett’s first year as part of Inchcape,
the business has already proved itself as a
powerful source of value for our Australian
operation, with a trading profit of £9.9m,
a trading margin of 3.3% and a ROCE of
17.3% in 2013. The prospects are promising
as Trivett integrates completely into our
global organisation, enabling us to
leverage significant commercial synergies.
24
Inchcape plc Annual Report and Accounts 2013
KEY PERFORMANCE INDICATORS (KPIS)
Inchcape’s premium growth delivering premium returns
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
£6.5bn
2012: £6.1bn
TRADING PROFIT
£305.8m
2012: £280.1m
TRADING MARGIN
4.7%
2012: 4.6%
8
7
6
5
4
3
2
1
0
n
b
9
.
5
£
n
b
8
.
5
£
n
b
6
.
5
£
n
b
5
.
6
£
n
b
1
.
6
£
TRADING PROFIT CONTRIBUTION
Australasia
Europe
North Asia
South Asia
UK
25.8%
6.4%
19.4%
9.7%
20.7%
09
10
11
12
13
Russia and Emerging Markets 18.0%
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 2013
Group sales were up 7.2% on
last year driven by strong top
line performance in Australia, the
UK and the Emerging Markets.
DEFINITION
Operating profit excluding the
impact of exceptional items
and unallocated central costs.
ACHIEVEMENTS IN 2013
A continued focus on cost control
and accretive margin growth
has meant that trading profit
has grown by 9.2% year on year.
5
4
3
2
1
0
%
6
.
4
%
7
.
4
%
5
.
4
%
2
.
4
%
5
.
3
09
10
11
12
13
DEFINITION
Calculated by dividing trading
profit by sales.
ACHIEVEMENTS IN 2013
The Group’s trading margin grew
to 4.7% (+0.1ppt).
PROFIT BEFORE TAX AND
EXCEPTIONAL ITEMS*
£274.6m
2012: £247.0m
WORKING
CAPITAL
£45.8m
2012: £25.9m
CASH GENERATED
FROM OPERATIONS
£227.0m
2012: £249.2m
300
250
200
150
100
50
0
m
6
.
4
7
2
£
m
0
.
7
4
2
£
m
7
.
7
2
2
£
m
0
.
4
1
2
£
m
1
.
5
5
1
£
09
10
11
12
13
80
70
60
50
40
30
20
10
0
m
7
.
6
7
£
m
4
.
8
1
£
m
2
.
2
1
£
m
8
.
5
4
£
m
9
.
5
2
£
09
10
11
12
13
350
300
250
200
150
100
50
0
m
7
.
6
3
3
£
m
3
.
4
7
2
£
m
7
.
4
4
2
£
m
2
.
9
4
2
£
m
0
.
7
2
2
£
09
10
11
12
13
DEFINITION
Represents the profit made
after operating and interest
expense excluding the impact
of exceptional items and before
tax is charged.
ACHIEVEMENTS IN 2013
Profit before tax and exceptional
items increased by 11.2%, to a
record £274.6m.
DEFINITION
Inventory, receivables, payables,
and supplier related credit.
ACHIEVEMENTS IN 2013
Working capital was tightly
managed ending at £45.8m.
DEFINITION
Operating profit adjusted for
depreciation, amortisation
and other non-cash items
plus the change in working
capital, provisions and
pension contributions.
ACHIEVEMENTS IN 2013
The Group has generated an
operating cash flow of £227.0m.
* 2012 restated for the adoption of IAS 19 (revised).
LIKE FOR LIKE SALES
+3.0%
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 2013
Like for like sales increased
by 3.0%.
www.inchcape.com
25
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
OPERATING REVIEW
Sustained top line growth and operating margin expansion
JOHN MCCONNELL,
GROUP FINANCE DIRECTOR
26
Inchcape plc Annual Report and Accounts 2013
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 2014 outlook commentary
is also referenced at constant currency.
The Group has delivered record results as we continued to benefit
from our broad geographic spread and our partnership with the
leading OEMs in the premium and luxury segments. The Group
has delivered robust top line growth and double digit profit growth.
Group sales at £6.5bn were up 7.7% on last year driven by strong
revenue performance in the UK, Emerging Markets and North Asia,
and by the acquisition of the Trivett Automotive group in Australia.
The Group delivered revenue growth in all segments except
Europe and South Asia.
Continued focus on margin expansion with disciplined cost
control enabled the Group to achieve an increase of 10.3% in
trading profit to £305.8m. Following a strong performance in 2012,
overheads before exceptional items as a percentage of sales
were reduced by 30 bps.
Working capital was tightly managed throughout the year and
resulted in a year end position of £45.8m, higher than in 2012
due to the growth in revenue.
SALES
£6.5bn
TRADING PROFIT
£305.8m
WORKING CAPITAL
£45.8m
NET CAPITAL EXPENDITURE
£84.9m
We have continued to make strategic investments throughout
the year, developing greenfield sites in China, Chile, Peru and
Russia and upgrading existing facilities in Singapore and the
UK. Net capital expenditure for the year was £84.9m.
Net cash at the end of the year was £123.0m, with the reduction
vs. 2012 driven by the share buy back programme announced
in August 2013 and the acquisition of the Trivett Automotive group.
During 2013 we completed the first £50m of our £100m share
buy back scheme at an average price of 613.7p and we plan
to complete the final £50m in the first half of 2014.
PERFORMANCE INDICATORS – RESULTS
We acquired Trivett Automotive group, Australia’s leading
luxury and premium automotive group, on 1 March 2013 for
an expected total consideration of £76m. In the first 10 months,
our Trivett business performed in line with expectations with
£298.8m in revenue, £9.9m in trading profit, a return on sales
(ROS) of 3.3% and a return on capital employed (ROCE) of 17.3%.
The integration of the business was completed to plan and we
are confident about the prospects for sustained profitable growth.
Sales
Trading profit
Trading margin %
Like for like sales
Like for like sales growth %
Profit before tax before exceptional items
Working capital
Cash generated from operations
Net cash
Australasia
Europe
North Asia
South Asia
United Kingdom
Russia & Emerging Markets
Trading profit
Central costs
Operating profit
* 2012 restated for the adoption of IAS 19 (revised).
Year ended
31.12.2013
£m
Year ended
31.12.2012*
£m
6,524.9
305.8
4.7
5,911.6
2.6
274.6
45.8
227.0
123.0
2013
Trading
profit
£m
78.9
19.5
59.2
29.7
63.3
55.2
305.8
2013
Exceptional
items
£m
2013
Operating
profit
£m
(5.7)
–
–
–
(1.1)
(1.0)
(7.8)
(0.7)
(8.5)
73.2
19.5
59.2
29.7
62.2
54.2
298.0
(19.6)
278.4
6,085.4
280.1
4.6
5,762.0
4.6
247.0
25.9
249.2
276.2
2012
Trading
profit
£m
67.2
16.8
52.8
35.1
65.2
43.0
280.1
% change
in constant
currency
7.7
10.3
0.1ppt
3.0
12.5
% change
7.2
9.2
0.1ppt
2.6
(2.0)ppt
11.2
76.8
(8.9)
(55.5)
2012*
Exceptional
items
£m
2012*
Operating
profit
£m
(2.2)
(4.7)
(0.1)
–
(2.9)
(8.1)
(18.0)
18.7
0.7
65.0
12.1
52.7
35.1
62.3
34.9
262.1
(1.6)
260.5
www.inchcape.com
27
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
BUSINESS ANALYSIS
Sales
Distribution
Retail
Like for like sales
Distribution
Retail
Trading profit
Distribution
Retail
Year ended
31.12.2013
£m
Year ended
31.12.2012
£m
% change
in constant
currency
% change
2,540.0
3,984.9
2,511.5
3,573.9
2,453.6
3,458.0
2,451.1
3,310.9
219.4
86.4
194.0
86.1
1.1
11.5
0.1
4.4
13.1
0.3
1.5
12.0
0.5
4.9
14.1
1.6
DISTRIBUTION BUSINESS
Our Distribution business grew year on year by 1.5% to £2.5bn
in terms of sales and 14.1% to £219.4m in trading profit. All
regions other than South Asia delivered margin expansion.
Sales in our Australasian segment declined by 4.3% to £674.8m
but trading profit grew by 14.0% to £55.0m. The 130 bps in trading
margin expansion was driven by a favourable product mix, an
improvement of the exchange rate between the Australian dollar
and Japanese Yen and a strong aftersales performance.
In South Asia, year on year sales decreased by 5.1% and trading
profit by 16.4%, driven by the decline of the New car market and
the competitive pressure on vehicle margin due to the high
Certificate of Entitlement (COE) prices.
In North Asia, sales grew by 7.5% and trading profit by 10.5% to
record levels of £566.1m and £59.2m respectively. This was driven
by very strong performance in our Hong Kong business where we
retained the Toyota Triple Crown award for the 22nd year in a row.
Russia and Emerging Markets continued to grow in 2013 with
sales up by 15.3% and trading profit up by 59.7%, driven by a
year of strong profitable growth in Ethiopia and South America.
Included in the results is a property profit of £6.2m on the disposal
of a property in South America which, if excluded, would have
seen an underlying profit improvement of 38.7%.
Our European segment returned to growth at a reported level,
but delivered a slight decline in sales at constant currency of
1.5%. Our successful new product launches and our continuing
cost controls allowed us to grow our trading profit by 8.7%, giving
us a trading margin increase of 40 bps.
RETAIL BUSINESS
Sales from our Retail operations increased by 12.0% to £4.0bn,
driven by the acquisition of the Trivett business in Australia
and by an 8.7% like for like performance in the UK. Trading
profit increased by 1.6%.
The UK New car market reached a five year high; and whilst
our UK Retail business grew headline sales by 4.1%, our like for
like sales growth of 8.7% (after the disposal of the Ford sites in
February 2013) was robust. Our gross margin decreased year
on year, as a result of the price pressure on new vehicles and
the consequent impact on used vehicle prices. Our UK Retail
business retained an industry leading trading margin of 2.5%.
With the addition of Trivett, we increased sales in Australasia
by 74.9% and trading profit by 59.8%. Our trading margin was
slightly down on last year due to the opening of a new site and a
significant recall for one of our brand partners. Our Trivett business
delivered a strong performance with a trading margin of 3.3%.
The European segment experienced a decline in sales, but
at a slower rate than 2012. Sales declined by 4.0% compared
to a decline of 6.0% in 2012.
The Russia and Emerging Markets segment continued to grow
at a similar rate to last year with sales up by 5.5% to £981.1m.
Trading profit was down 38.2% year on year as improved
profitability in China and Poland was more than offset by
margin pressure in Russia as industry over-supply drove
unprecedented pricing competition.
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.
28
Inchcape plc Annual Report and Accounts 2013
OPERATING REVIEW CONTINUED
AUSTRALASIA
Successful integration of Trivett drives record sales and trading profit
The Subaru launch of the new Forester was very successful
throughout 2013, driven by improvements in design, engine
performance and vehicle interior.
During the year, our brand partners in Retail delivered a successful
programme of model launches, including the BMW X5, MINI
Paceman, Jaguar F-Type, Volvo V40 and Range Rover Vogue
that have contributed strongly to growth of the segment.
At the end of 2013, we owned 45 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 OPERATING PERFORMANCE
In 2013, we delivered strong top line growth and margin
expansion as our Distribution business delivered strong
performance due to the launch of the new Forester and more
favourable exchange rates and our Trivett business delivered
£9.9m in trading profit in line with expectations.
Total revenue of £1,365.9m for the year was up by 24.1%.
Like for like revenue was down by 2.8% compared to 2012
due to the benefit in our 2012 revenue base of the one-off
supply replenishment after the 2011 earthquake in Japan.
OUTLOOK FOR 2014
In 2014, we expect the industry to benefit from the structural
growth drivers of population growth, premiumisation and
replacement cycle acceleration. Our Distribution business
will continue to leverage its strong pricing power based on
the premium positioning of Subaru and based on a better
exchange rate between the Australian dollar and Japanese
Yen. We will continue to focus on the growth of our Trivett
business in 2014 and there are a number of exciting product
launches planned across our portfolio of brands.
We expect to deliver a robust performance in 2014.
GEORGE ASHFORD,
CHIEF EXECUTIVE OFFICER, INCHCAPE AUSTRALASIA
KEY FINANCIAL HIGHLIGHTS
Sales
Distribution
Retail
Like for like sales
Distribution
Retail
Trading profit
Distribution
Retail
Trading margin %
Distribution
Retail
CONTRIBUTION
TO GROUP SALES
20.9%
Year ended
31.12.2013
£m
Year ended
31.12.2012
£m
1,365.9
674.8
691.1
1,026.8
674.8
352.0
78.9
55.0
23.9
5.8
8.2
3.5
1,168.7
747.8
420.9
1,122.5
747.8
374.7
67.2
51.3
15.9
5.7
6.9
3.8
CONTRIBUTION
TO GROUP PROFIT
25.8%
% change
16.9
(9.8)
64.2
(8.5)
(9.8)
(6.0)
17.4
7.2
50.3
0.1ppt
1.3ppt
(0.3)ppt
% change
in constant
currency
24.1
(4.3)
74.9
(2.8)
(4.3)
0.1
24.8
14.0
59.8
–
1.3ppt
(0.3)ppt
SALES
£1,365.9m +16.9%
(2012: £1,168.7m)*
TRADING PROFIT
£78.9m +17.4%
(2012: £67.2m)*
* at actual exchange rates.
THE MARKET
The Australian economy continued to grow in 2013 with total
industry volume up 2.2% and the car market in New Zealand
grew strongly, up 12.6% on 2012.
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.
Our Inchcape Australia operation holds franchises for Subaru,
Volkswagen, Mitsubishi, Isuzu and Kia. Moreover, on 1 March 2013
we acquired the Trivett Automotive group, the leading premium
automotive group in Australia, significantly expanding our
Retail footprint and expanding our portfolio with a number
of the world’s leading premium brands, including BMW, Jaguar,
Land Rover, Volvo, Honda and Harley Davidson and the
highly aspirational, super-luxury brands Rolls-Royce, Bentley,
Aston Martin and McLaren.
www.inchcape.com
29
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
EUROPE
Gaining market share and returning to profitable growth
KEY FINANCIAL HIGHLIGHTS
Sales
Distribution
Retail
Like for like sales
Distribution
Retail
Trading profit
Distribution
Retail
Trading margin %
Distribution
Retail
CONTRIBUTION
TO GROUP SALES
9.6%
Year ended
31.12.2013
£m
Year ended
31.12.2012
£m
% change
in constant
currency
% change
629.5
499.8
129.7
615.6
499.8
115.8
19.5
19.5
–
3.1
3.9
–
616.6
486.9
129.7
601.9
486.9
115.0
16.8
17.3
(0.5)
2.7
3.6
(0.4)
2.1
2.6
–
2.3
2.6
0.7
16.1
12.7
–
0.4ppt
0.3ppt
0.4ppt
(2.0)
(1.5)
(4.0)
(1.9)
(1.5)
(3.4)
11.7
8.7
–
0.4ppt
0.4ppt
0.4ppt
CONTRIBUTION
TO GROUP PROFIT
6.4%
SALES
£629.5m +2.1%
(2012: £616.6m)*
TRADING PROFIT
£19.5m +16.1%
(2012: £16.8m)*
* at actual exchange rates.
THE MARKET
The Belgian private car market remained stable in 2013
following the 14.9% decline in 2012 driven by the end of the
government’s CO2 incentive scheme.
The Greek market also stabilised with private vehicles in
marginal growth following the 40.2% decline in total industry
volume in 2012.
BUSINESS MODEL & STRATEGY
In Belgium and Luxembourg we distribute Toyota and Lexus
and own 11 retail centres with a network of 98 retail centres
operated by independent third party retailers and 33 repair
outlets. In Luxembourg we also operate a retail centre for Jaguar.
In Greece we are the distributor for Toyota and Lexus, owning
five retail centres and overseeing a further 40 which are
independently owned.
In Finland we are the distributor for Jaguar, Land Rover and
Mazda and manage a network of 47 independent retailers.
OUR OPERATING PERFORMANCE
Our Greek business outperformed the market, increasing
market share by 120 bps to 11.6%, and achieved overall
market leadership. In Belgium our market share of 3.8%
improved on last year by 10 bps.
At a headline reported level, the region returned to revenue
growth in 2013, but at constant currency we delivered a 2.0%
reduction in sales as our strong progress in market share in
Greece and Belgium was offset by aftersales revenue decline
in Greece.
We have delivered a solid trading performance with a break
even result in Retail and an overall trading margin of 3.1%, 40 bps
up on last year. Our teams have continued to protect the pricing
power of our brands and to drive a strong performance in our
highly profitable aftersales business.
The continued focus on vehicle mix, pricing and cost control
drove an 11.7% increase in trading profit.
OUTLOOK FOR 2014
The Greek market is expected to start its recovery after six years
of decline, which will enable our strong Toyota business to
leverage its market leading experience and its lean cost
structure to deliver profitable growth.
The Belgian market is expected to remain resilient with an
increased customer demand for fuel efficient technology,
which positions Toyota well for continued progress in 2014.
Strong marketing programmes increasing traffic into the
dealer network with new model launches coupled with tight
cost controls and effective pricing should enable us to deliver
another year of profitable growth.
We expect our European segment to deliver a strong
performance in 2014.
BERTRAND MALLET,
CHIEF EXECUTIVE OFFICER, TOYOTA BELGIUM
ARIS ARAVANIS,
MANAGING DIRECTOR, GREECE AND THE BALKANS
LOUIS FALLENSTEIN,
CHIEF EXECUTIVE OFFICER, EMERGING MARKETS
30
Inchcape plc Annual Report and Accounts 2013
OPERATING REVIEW CONTINUED NORTH ASIA
Another record year of profitable growth
KEY FINANCIAL HIGHLIGHTS
Sales
Distribution
Like for like sales
Distribution
Trading profit
Distribution
Trading margin %
Distribution
CONTRIBUTION
TO GROUP SALES
8.7%
Year ended
31.12.2013
£m
Year ended
31.12.2012
£m
566.1
566.1
499.9
499.9
59.2
59.2
10.5
10.5
518.7
518.7
458.5
458.5
52.8
52.8
10.2
10.2
CONTRIBUTION
TO GROUP PROFIT
19.4%
% change
in constant
currency
7.5
7.5
7.4
7.4
10.5
10.5
0.3ppt
0.3ppt
% change
9.1
9.1
9.0
9.0
12.1
12.1
0.3ppt
0.3ppt
SALES
£566.1m +9.1%
(2012: £518.7m)*
TRADING PROFIT
£59.2m +12.1%
(2012: £52.8m)*
* at actual exchange rates.
THE MARKET
New vehicle registrations in Hong Kong grew by 11.3% in 2013
reflecting the underlying strengths of the economy as well as
the change in government taxation, reducing the number of
vehicles benefiting from the efficient vehicle rebate from 1 April.
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 across the
segment. In Hong Kong we maintained our market leadership
position despite increased activities in the market following the
change of vehicle taxation in April. We retained our number
one position in the market with a 27.8% share and won the
Toyota Triple Crown award for the 22nd consecutive year.
Our Aftersales operations in Hong Kong had another strong
year as we benefited from the growth of the Car Parc and we
continued to increase customer retention with our targeted
marketing programmes.
In Guam, we delivered a robust performance, growing
our share in a growing market, and our Aftersales business
continued to benefit from growth in the Car Parc. In Guam,
we have been market leader for 33 consecutive years.
Overall, we delivered 7.5% sales growth with revenues
significantly higher than 2012 in both sales and aftersales.
Following the record 2012, North Asia further increased trading
profit by 10.5% to a new record level of £59.2m, with trading
margin up 30 bps to 10.5%.
OUTLOOK FOR 2014
We expect the Hong Kong economy to remain strong
and the New car market to continue to grow in 2014. The
Commercial vehicle market will start to grow when the
proposed replacement programme of pre-Euro IV diesel
becomes effective in February 2014.
We have a strong pipeline of exciting new product launches
across the Toyota, Lexus, Ford, Jaguar and Land Rover brands
and we expect to deliver a robust performance in North Asia
in 2014.
PATRICK S LEE,
CHIEF EXECUTIVE OFFICER, INCHCAPE NORTH ASIA AND CHINA
www.inchcape.com
31
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
SOUTH ASIA
Gaining market share ahead of the Singapore market recovery
KEY FINANCIAL HIGHLIGHTS
Sales
Distribution
Like for like sales
Distribution
Trading profit
Distribution
Trading margin %
Distribution
CONTRIBUTION
TO GROUP SALES
5.7%
Year ended
31.12.2013
£m
Year ended
31.12.2012
£m
369.3
369.3
369.3
369.3
29.7
29.7
8.0
8.0
385.1
385.1
385.0
385.0
35.1
35.1
9.1
9.1
CONTRIBUTION
TO GROUP PROFIT
9.7%
% change
(4.1)
(4.1)
(4.1)
(4.1)
(15.4)
(15.4)
(1.1)ppt
(1.1)ppt
% change
in constant
currency
(5.1)
(5.1)
(5.0)
(5.0)
(16.4)
(16.4)
(1.1)ppt
(1.1)ppt
SALES
£369.3m -4.1%
(2012: £385.1m)*
TRADING PROFIT
£29.7m -15.4%
(2012: £35.1m)*
OUR OPERATING PERFORMANCE
In 2013, we gained market share in Singapore, maintaining our
market leadership and growing our share by 100 bps vs. 2012
driven by successful launches of new models during the year
and a return to the taxi segment for Toyota.
Sales were down 5.1%, driven by the New Car market contraction
and the decline of the 1-5 year old Car Parc.
Our Aftersales activities remained strong and in the second
quarter, we opened our modernised Toyota and Lexus retail
flagship facility and introduced a number of customer service
innovations, such as “Evening Express”, where customers are
provided with light dinner in a lounge whilst having their cars
serviced in 45 minutes.
Trading profit reduced year on year by 16.4% to £29.7m, driven
by the negative operating leverage based on a revenue decline
of 5.1%, offset partially by our controls on margins and costs
which enabled us to deliver a trading margin of 8.0%.
In Brunei, we delivered top line growth and margin expansion
whilst increasing our strong market share in a growing market.
OUTLOOK FOR 2014
We expect the market will return to growth in 2014 driven by the
fact that we have now seen an increase in de-registrations year
on year for 16 consecutive months.
The growth prospects are truly exciting for our Singapore business
and we are well positioned, given our strong brand portfolio and
our excellent service reputation, to take advantage of the start of
market recovery as of 2014.
We expect to deliver a strong performance in South Asia in 2014.
KOH CHING HONG,
MANAGING DIRECTOR, INCHCAPE SOUTH ASIA
* at actual exchange rates.
THE MARKET
The car market in Singapore continued to decline in 2013
as expected, and ended the year 9.4% lower than 2012. This
market contraction was driven by a reduction in the number
of Certificates of Entitlement (COE) available, based on a
lower level of deregistrations.
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.
32
Inchcape plc Annual Report and Accounts 2013
OPERATING REVIEW CONTINUED UNITED KINGDOM
Strong revenue growth in a competitive market
KEY FINANCIAL HIGHLIGHTS
Sales
Distribution
Retail
Like for like sales
Distribution
Retail
Trading profit
Distribution
Retail
Trading margin %
Distribution
Retail
CONTRIBUTION
TO GROUP SALES
34.1%
Year ended
31.12.2013
£m
Year ended
31.12.2012
£m
2,224.3
41.3
2,183.0
2,134.1
41.3
2,092.8
63.3
8.6
54.7
2.8
20.8
2.5
2,133.8
37.4
2,096.4
1,962.7
37.4
1,925.3
65.2
7.2
58.0
3.1
19.3
2.8
CONTRIBUTION
TO GROUP PROFIT
20.7%
% change
4.2
10.4
4.1
8.7
10.4
8.7
(2.9)
19.4
(5.7)
(0.3)ppt
1.5ppt
(0.3)ppt
% change
in constant
currency
4.2
10.4
4.1
8.7
10.4
8.7
(2.9)
19.4
(5.7)
(0.3)ppt
1.5ppt
(0.3)ppt
SALES
£2,224.3m +4.2%
(2012: £2,133.8m)
TRADING PROFIT
£63.3m -2.9%
(2012: £65.2m)
* at actual exchange rates.
THE MARKET
The UK New car market reached a five-year high in 2013
with 2.3m units sold, around 11% more than in 2012. The retail
market continued to be the key driver of growth, increasing
15.6%, while the fleet/business market has also grown, albeit
at a lower rate of 5.7%.
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 111 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.
In February we disposed of our Ford retail operations.
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 won a number of industry awards for its unrivalled
level of customer service.
OUR OPERATING PERFORMANCE
Revenues at £2,224.3m were up 4.2% on the year and on a like
for like basis, adjusting for the Ford disposal, were up 8.7%. New
car sales drove an increase in revenue as we benefited from both
market growth and an improvement in share performance. Used
car revenues were in line with our expectations and our Service
and Parts business started to benefit from the gradual recovery
of the 1-5 year Car Parc.
Our continued cost discipline resulted in overhead reduction vs.
last year. This was offset by an unprecedented level of tactical
activities in the market which resulted in an over-supply of
vehicles and which impacted our gross margin on both new
and used cars. In 2013, our UK Retail business delivered an
industry leading trading margin of 2.5%.
IFS delivered a strong performance for the year, generating a
trading profit of £8.6m, leading to a trading margin of 20.8%,
a year on year increase of 150 bps.
OUTLOOK FOR 2014
We expect the overall industry to continue its growth trajectory
in 2014 albeit at a lower rate than 2013. The expected recovery
of the European markets should reduce the level of tactical
activity in the UK market which should gradually improve
new and used vehicles margin performance. The Car Parc
of vehicles between 1-5 years is expected to accelerate its
growth momentum based on the strength of growth in the
New car market in the last five years.
We are well positioned to leverage the growth of the New car
and Aftersales market as we stay focused on delivering superior
customer service and launch the exciting pipeline of our brand
partners’ new models.
We expect to deliver a solid performance in the UK in 2014 as
we expect a gradual recovery of vehicle margin and we plan to
leverage the good growth momentum of the 1-5 year Car Parc.
CONNOR MCCORMACK,
CHIEF EXECUTIVE OFFICER, INCHCAPE UK
www.inchcape.com
33
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
RUSSIA AND EMERGING MARKETS
Strong revenue growth and margin expansion
KEY FINANCIAL HIGHLIGHTS
Sales
Distribution
Retail
Like for like sales
Distribution
Retail
Trading profit
Distribution
Retail
Trading margin %
Distribution
Retail
CONTRIBUTION
TO GROUP SALES
21.0%
Year ended
31.12.2013
£m
Year ended
31.12.2012
£m
1,369.8
388.7
981.1
1,265.9
368.5
897.4
55.2
47.4
7.8
4.0
12.2
0.8
1,262.5
335.6
926.9
1,231.4
335.6
895.8
43.0
30.3
12.7
3.4
9.0
1.4
CONTRIBUTION
TO GROUP PROFIT
18.0%
% change
8.5
15.8
5.8
2.8
9.8
0.2
28.4
56.4
(38.6)
0.6ppt
3.2ppt
(0.6)ppt
% change
in constant
currency
8.1
15.3
5.5
2.5
9.3
(0.1)
30.5
59.7
(38.2)
0.7ppt
3.4ppt
(0.6)ppt
SALES
£1,369.8m +8.5%
(2012: £1,262.5m)*
TRADING PROFIT
£55.2m +28.4%
(2012: £43.0m)*
* at actual exchange rates.
THE MARKET
In South America, the demand for luxury cars increased by
26.7% during the year. In Ethiopia, the economic fundamentals
remain strong and the demand for Aftersales and New vehicles
continued to increase. In Russia, we have seen a decrease in the
New car market of 5.4% in 2013. In Eastern Europe we benefited
from improved demand in the Baltics, while the demand in
the Balkans remained challenging. In China, we have seen
a sustained healthy demand for luxury vehicles, with industry
year on year growth of 18%.
BUSINESS MODEL & STRATEGY
In South America we operate as the vertically integrated retailer
(VIR) for BMW in Peru and VIR for BMW and Rolls-Royce in Chile.
In Ethiopia we operate VIR for Toyota, Daihatsu, Komatsu, and
New Holland. In Russia we operate 22 scale retail centres in
St. Petersburg and Moscow, representing 10 brands.
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 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 China we have six scale retail centres for Lexus, Jaguar
and Land Rover in Shanghai and Shaoxing. We opened a new
Porsche centre in Nanchang in April and a Mercedes-Benz
centre in Jiujiang in October.
34
Inchcape plc Annual Report and Accounts 2013
OUR OPERATING PERFORMANCE
We have enjoyed robust growth in South America, Africa,
Poland and the Baltic states while trading conditions remained
challenging in the Balkans and Russia. Our operations in this
segment have delivered a record trading profit in 2013 of £55.2m
following their significant contribution to the Group’s earnings
growth over the last four years. In 2013, revenue for the segment
as a whole was £1,369.8m, 8.1% ahead of last year. Trading profit
of £55.2m was 30.5% ahead of last year and trading margin at
4.0% was up 70 bps as we improved gross margin and
maintained tight control on costs.
DISTRIBUTION PERFORMANCE:
The segment delivered revenue of £388.7m in 2013, a 15.3%
increase on last year. We delivered trading profit of £47.4m resulting
in a trading margin of 12.2%, a full 340 bps ahead of 2012. Our
South American operations generated a strong trading profit
performance driven by a strong operating leverage on the back
of double digit growth in the luxury market and by a profitable
disposal of property. In Africa, our profit performance was strong as
we benefited from a solid performance in New cars and aftersales
in Ethiopia. In Eastern Europe we benefited from a strong operating
leverage in the Baltics and on the back of solid industry growth,
while the trading environment remains challenging in the Balkans.
RETAIL PERFORMANCE:
In 2013, the segment delivered revenue of £981.1m, a 5.5%
increase vs. last year. Trading profit was impacted by margin
pressure in Russia as a result of unprecedented level of
oversupply which triggered an increased level of competitive
activities affecting vehicle margins. In Russia, we delivered a full
year revenue of £703.9m in 2013 and a trading profit of £4.5m
and we continued to strengthen our footprint with the opening
of Inchcape City in the centre of Moscow, representing Jaguar,
Land Rover and Volvo. In China, we benefited from improved
margins on New cars and aftersales and opened two new sites
in April (Porsche) and October (Mercedes-Benz). In Poland,
we continued to drive profitable growth as we leveraged the
capacity expansion we have pursued in the last two years.
OUTLOOK FOR 2014
In South America, we are now fully operational in landmark,
state of the art BMW centres in Lima and Santiago and we
are well-positioned to leverage the continued growth in sales
and aftersales. In Ethiopia, we will continue to benefit from the
favourable economic conditions resulting in increased demand
for vehicles and car repairs. In Russia, we will benefit from a full
year’s trading of our new flagship retail centre, Inchcape City,
conveniently located in the heart of Moscow’s business centre.
We expect a gradual recovery of vehicle margins as the vehicle
supply normalises throughout 2014. In China, the demand for
premium and luxury vehicles should continue to increase and
we will benefit from our two new openings.
Overall, we expect our Russia and Emerging Markets segment
to deliver a robust performance in 2014.
ARIS ARAVANIS,
MANAGING DIRECTOR, GREECE AND THE BALKANS
LOUIS FALLENSTEIN,
CHIEF EXECUTIVE OFFICER, EMERGING MARKETS
PATRICK S LEE,
CHIEF EXECUTIVE OFFICER, INCHCAPE NORTH ASIA AND CHINA
OPERATING REVIEW CONTINUED FINANCE REVIEW
The Group has delivered a strong performance in 2013
In addition to the segmental results, detailed below is
supplementary financial information on our operating activities.
CENTRAL COSTS
Unallocated central costs for the full year are £18.9m before
exceptional items (2012 restated: £20.3m). Our costs remain
well controlled with moderate inflationary increases. Included
in our central costs is a pension restructuring gain of £9.8m
(2012 restated: £2.9m) which has been offset by higher share-
based payments and other non-recurring costs.
JOINT VENTURES AND ASSOCIATES
The Group has reported zero share of profit after tax from joint
ventures in 2013 (2012: gain of £0.2m). This is mainly as a result
of the acquisition of the remaining 49% interest in the joint venture
in Russia in November 2012, thereby converting it into a 100%
owned subsidiary.
OPERATING EXCEPTIONAL ITEMS
The Group has reported exceptional operating costs of £8.5m
in 2013 (2012 restated: a gain of £0.7m). Included within this
are restructuring costs of £4.6m (2012: £17.3m), together with
£3.9m of acquisition costs for the Trivett business in Australia.
These costs were reported as exceptional costs in the first half
of 2013. Given the recent FRC guidance the Group will give
further consideration to how costs of a similar nature are
treated in future reporting periods.
PENSIONS
Starting 1 January 2013, the Group has adopted IAS 19 (revised),
‘Employee benefits’. The revised standard has impacted the way
the Group accounts for pensions and other post-retirement
benefits as follows:
• the interest cost and expected return on plan assets have
been replaced with a net interest amount, calculated by
applying the discount rate to the net defined benefit liability.
Under the previous standard, the expected return on plan
assets represented the weighted average expected return
on the assets held by the pension schemes; and
• expenses, other than investment management expenses,
are now recognised as period expenses when incurred. Under
the previous standard, expenses incurred in connection with
running the pension schemes formed part of the defined
benefit obligation.
The principal changes resulting from the adoption of the
revised standard are set out in note 34 of the Annual Report
and Accounts.
In 2013, the IAS 19 net post-retirement surplus was £106.0m
(2012 restated: £95.7m) and, in line with the funding programme
agreed with the Trustees, the Group made additional cash
contributions to the UK pension schemes amounting to £32.7m
(2012: £23.3m). We have however agreed with the Trustees that
future cash contributions will be reduced to circa £2m per annum.
NET FINANCING COSTS
Net financing costs before exceptional items have decreased
from £13.0m in 2012 (restated) to £12.3m in 2013. In 2013, the
Group reported a gain of £2.3m (2012: a gain of £4.8m) in our
mark to market reporting of the hedges for the US loan notes
and net interest income on pension assets of £5.4m (2012
restated: net income of £0.9m).
ACQUISITIONS AND DISPOSALS
In March 2013, the Group acquired Trivett Automotive group,
a premium and luxury automotive retailer and distributor in
Australia, for an expected total consideration of £76m. This
transaction added further scale to our Australian business,
which benefits from attractive automotive demand
characteristics and a robust economic background.
TAX
The effective tax rate before exceptional items for the year
is 24%, compared to 25% in 2012. This is due to the impact
of reducing tax rates in a number of our markets and the
successful conclusion of overseas territories tax audits. The
rate is expected to be similar for 2014.
NON CONTROLLING INTERESTS
Profits attributable to our non controlling interests were £6.6m,
compared to £5.9m in 2012. 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 2013, the translation of the Group’s overseas profits before
tax into sterling at the 2013 average exchange rate negatively
impacted the year’s results by £3.5m (2012: £nil impact). In the
final quarter of 2013, the strengthening of Sterling resulted in a
negative profit translation of £4.2m.
DIVIDEND
The Board recommends a final ordinary dividend of 11.7p per
ordinary share which is subject to the approval of shareholders
at the 2014 Annual General Meeting. This gives a total dividend
for the year of 17.4p per ordinary share (2012: 14.5p).
In February 2013, the Group disposed of its Ford retail centres in
the UK and a dealership in China, generating proceeds of £14.9m.
CAPITAL EXPENDITURE
During the year, the Group invested £84.9m (2012: £87.3m) of
net capital expenditure in the development of greenfield sites
and the enlargement of existing facilities, primarily in the UK,
Asia Pacific and the Emerging Markets.
CASH FLOW AND NET FUNDS
Working capital ended the year at £45.8m (2012: £25.9m)
primarily due to higher levels of inventory to support demand
in Asia, the UK and the Emerging Markets. At the end of 2013,
the Group had net funds of £123.0m (2012: £276.2m) after
acquiring the Trivett group for an expected total consideration
of £76m and buying back shares at a cost of £50.0m.
JOHN MCCONNELL,
GROUP FINANCE DIRECTOR
www.inchcape.com
35
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
PRINCIPAL RISKS
The Group applies an effective system of risk management
which identifies, monitors and mitigates risks
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.
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.
The key benefits of the system include maximised
resource efficiency through controlled prioritisation of
Further details of the Group’s risk management process can
be found on pages 53 to 54.
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
• The Group is investing in its Inchcape Advantage and
Customer 1st programmes to ensure that we win new
customers and retain existing ones
• The Group is investing in new ways of reaching its customers
including through the use of the internet and social media
• Obtaining favourable credit terms and making improvements
in supply chain management
• Group wide focus on working capital (particularly aged
stock) reduction
• 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
Maintenance of product
reputation in light of
product recalls
Negative impact on sales
revenue, margins and reputation
• Maintenance of up to date customer data to ensure swift
communication and response to affected customers
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
• Complaints monitoring to anticipate recalls
• Continuous product quality marketing to maintain reputation
• Constant focus on performance and continuous improvement,
effective communication and ensuring that our objectives are
closely linked to those of our brand partners
• 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
Security of confidential data,
particularly customer and
employee sensitive data
Impact on customer relationship
and erosion of reputation
• Recognised industry standard security policies in place
for all systems and servers
• Secure data centres (including relevant certifications
for third party data centres)
• A standardised and enhanced minimum controls framework
including automated controls in new systems and supporting
manual controls has been developed and is being implemented
• A rigorous audit plan in place to ensure full compliance and
regular follow up on mitigation plans via the risk management
(iPOM) network
Maintenance of control
environment following new
systems implementation
Loss of revenue/profit through
inefficiencies and potential fraud
36
Inchcape plc Annual Report and Accounts 2013
PEOPLE, INCLUDING EH&S
Description of risk
Failure to attract, develop
and retain talent
Impact
Unable to deliver business plans
Employees who lack motivation
and engagement
Failure to comply with
EH&S standards
Injury to customers/employees
ECONOMIC, POLITICAL AND ENVIRONMENTAL
Description of risk
European economic
instability impacting
local currencies and
trading environments
Impact
Volume and margin are
adversely impacted across our
European markets and our wider
third party dealer networks
performance deteriorates
LEGAL AND REGULATORY
Description of risk
Litigation and regulatory
risk in an environment
of ever increasing
regulatory scrutiny
Impact
Litigation or breaching the
laws or regulations of the
countries in which we operate
could have a financial and/or
reputational impact
TAX, PENSIONS AND INSURANCE
Mitigation
• Global annual performance review process
• Talent review and planning process
• Annual employee engagement survey and action planning
• External benchmarking of remuneration
• Succession plans in place for key positions
• Local EH&S co-ordinators in place in all markets
• Group and Regional EH&S steering committees in place
with defined reporting lines to iPOM Committees
• Training for all staff
• Specific EH&S audit plan
Mitigation
• Maintain focus on margin accretive initiatives across the region
• Maintain close relationships with the dealer network with regular
reviews of their financial strength
Mitigation
• 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
• Policies and procedures in place, including subsidiary
governance manual to emphasise compliance with
proper process
• 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
Impact
Increased tax liability
Mitigation
• Ensure adequate tax compliance readiness carried out locally
• Maintain accurate and robust tax records
• Monitor tax audits
Description of risk
Tax increase due to
Governments drive
for higher tax revenue
FINANCE AND TREASURY
Description of risk
Availability of credit
for customers and
floor plan financing
Counterparty risk
Impact
Customers unable to finance
vehicles impacting retail sales.
Dealer networks inability to
secure funding impacting
distribution sales
Credit losses
Currency risk
Transactional foreign
exchange exposures
Mitigation
• Maintain relationships with key banks at a Group and market level
• Close monitoring of credit lines offered to customers and
movements in floor plan financing
• Leverage Group relationship with OEM finance companies
• Deposits concentrated with counterparties approved
in advance by Group Treasury
• Cash deposits held locally in line with Group policy
• Continuous review of ratings of major banking partners
to ensure they maintain investment grade status
• A significant proportion of Group trading is denominated
in local currency
• Where possible, foreign exchange exposures are matched
internally before hedging externally
• Where businesses are billed in a foreign currency,
committed transactional exposures are hedged back
to the reporting currency
www.inchcape.com
37
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
CORPORATE RESPONSIBILITY REPORT
As a global industry leader, we seek to make a positive impact in the way
in which we operate around the world
In 2013 we further developed our activities in line with our
Corporate Responsibility (CR) mission to promote ‘Mobility
with Passion and Care’.
We aim to achieve our mission by adopting a global approach
to embedding responsible behaviour into the way we operate
and growing a sustainable business for the benefit of all our
stakeholders – our people, our customers, our brand partners,
the communities in which we operate and of course, our
shareholders. This approach helps us to capture the spirit and
energy of our incredible people and achieve our wider goals.
Ultimately it inspires us to become a better company.
We know that the best CR initiatives come from individual
passions. Across the world, our peoples commitment to their
local communities has inspired life-changing initiatives. For
example, in Ethiopia, where we operate a highly successful
Toyota business, our people have supported the Mother and
Child Rehabilitation Centre since 2002. This inspirational project
provides shelter, food, education, medical care and therapy for
the most disadvantaged children and education and support for
their parents to help them overcome trauma and build promising
futures. This is just one example of the many inspirational initiatives
that our colleagues are involved in around the world.
In 2013 we ran our Green Baton programme, designed to
highlight these initiatives by giving every Inchcape market the
opportunity to showcase the CR activities they are implementing
in their communities. It has proved highly successful, providing
inspiration and motivation amongst our employees.
Delivering differentiated customer service is the overarching
strategic goal for the Group and, as such, Customers are a core
area of our CR strategy. More information can be found on pages
8 and 9 of the Strategic Report and on page 42 of this report.
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.
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 impact on the lives of our people, our customers,
our brand partners and in the communities in which we operate,
while managing our impact on the environment.
ANDRÉ LACROIX,
GROUP CHIEF EXECUTIVE
ANDRÉ LACROIX,
GROUP CHIEF EXECUTIVE
2013 HIGHLIGHTS INCLUDE:
• Successful global roll out and completion of the Green
Baton programme which highlights local CR initiatives
from across our markets around the world.
• Continuation and strengthening of the Incredible Inchcape
programme designed to mobilise our colleagues to take the
Company to new heights.
• 2013 CO2 data was collected for all markets in accordance
with DEFRA standards.
OUR CORPORATE RESPONSIBILITY MISSION IS
TO PROMOTE ‘MOBILITY WITH PASSION AND CARE’
www.inchcape.com/responsibility/who_we_support
38
Inchcape plc Annual Report and Accounts 2013
OUR VALUES
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.
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.
www.inchcape.com
39
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
CORPORATE RESPONSIBILITY CONTINUED
GOVERNANCE AND MANAGEMENT
CORPORATE
RESPONSIBILITY
COMMITTEE
VICKY BINDRA,
COMMITTEE CHAIR
This report sets out the key principles of our CR programme.
It provides insight into the development of our people, our
Customer 1st approach, our relationships with our brand
partners, the impact on our environment and highlights
our achievements in the communities in which we operate.
The Board is responsible for the strategic direction of Corporate
Responsibility, however it has delegated certain responsibilities
to the CR Committee.
Only members of the Committee are required to attend
Committee meetings however, other individuals such as the
Group Communications Director and external consultants
are able to attend by invitation.
KEY RESPONSIBILITIES
• Develop the Group CR strategy and monitor
external developments
• Review the Group CR policy
• Monitor the Group CR risk exposure
• Review annual Corporate Responsibility Report
The terms of reference for the CR Committee can be found
on the website www.inchcape.com/about_us/governance
ACTIVITIES DURING THE YEAR
2012 Corporate Responsibility Report – The Committee reviewed
and approved the Corporate Responsibility Report for the year
ended 31 December 2012.
CO2 data collection – Throughout the year the Committee
reviewed the CO2 data collection process including: monitoring
the integrity of the data, the assurance process, the intensity
ratio and the relevant key environmental impacts. The Committee
also reviewed the guidance issued by the Department for
Environment, Food and Rural Affairs. The disclosures required
under Schedule 7 of the Large and Medium-sized Companies
and Groups (Accounts and Reports) Regulations in respect of
greenhouse gas emissions are detailed on page 41.
Green Baton – The Committee received regular updates on
the global Green Baton initiative. Further details are given on
page 41.
Communications strategy – The Committee reviewed and
approved the 2014 CR strategy including the appropriateness
of the five core areas and the CR communications programme.
Terms of reference – The Committee reviewed its terms
of reference and confirmed that it had been compliant
throughout the year.
CODE OF BUSINESS
It is vital that our businesses throughout the world operate in an
organised and compliant manner with consistent and robust
controls being applied. Doing so will ensure that our reputation
is preserved and that we can pursue:
Our Core Purpose – to create an incredible customer experience
for the best car brands in the world; and
Our Vision – our Customer 1st journey will create incredible growth
for our people, our brand partners and our shareholders which will
enable us to deliver our strategy and achieve our goals.
OUR
COMMITMENT
TO INTEGRITY
• Our Values
PERSONAL
INTEGRITY
• Conflicts
of interest
• Whistleblowing
• Gifts and
entertainment
BUSINESS
INTEGRITY
• Bribery
• Money
laundering
• Competition
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Inchcape plc Annual Report and Accounts 2013
OUR FIVE CORE AREAS
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
COMMUNITIES
With our extensive international businesses, we firmly believe in
supporting the many different communities and cultures within
which we operate, often through sponsorship and support for
local charities for local people. These inspirational activities are
decided on and driven by our people, who are passionate
about the causes and charities they support.
In 2013 we successfully completed the ‘Green Baton’ programme,
which was designed to highlight incredible local CR activities
from across our markets on our intranet site. The Green Baton
circulated the globe over 12 months and gave every Inchcape
market the opportunity to showcase the fantastic CR activities
they implemented in their businesses and communities.
On receiving the baton, each market had a two week window
to share and promote their CR activities on a dedicated section
of our Group intranet site. There, colleagues could learn about
the charities and communities we support and read about
the environmental and customer initiatives our people are
passionate about while picking up a wealth of other information
and tried and tested best practices.
Some truly incredible CR initiatives were carried out in 2013.
More information about these initiatives can be found on the CR
section of the corporate website www.inchcape.com/responsibility.
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.
ENVIRONMENT
Environment is a core area of focus within our CR programme.
During 2013 we refined our CO2 data collection process and
completed a full years data analysis.
Our colleagues around the world also took part in
environmentally focused initiatives to support their local
communities and wildlife.
GREENHOUSE GAS EMISSIONS
Under Schedule 7 of the Large and Medium-sized Companies
and Group (Accounts and Reports) Regulations 2008 (the
Regulations) quoted companies are required to report their
greenhouse gas emissions (GHG) in the Directors’ Report. As
the environment is a core area of focus, the information required
under the Regulations is given in this report, which forms part of
the Strategic Report.
ORGANISATIONAL BOUNDARY
We have reported on all material emissions for which we deem
ourselves to be responsible and which fall within our operational
and control boundaries.
REPORTING PERIOD
Our GHG reporting year is 1 January 2013 to 31 December 2013
and is aligned to our financial reporting year. This will form the
baseline data for subsequent years.
www.inchcape.com
41
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
CORPORATE RESPONSIBILITY CONTINUED
KEY ENVIRONMENTAL IMPACTS
Data is collected for three core key performance indicators:
• Energy – our global electricity and gas usage.
• Transport – movement of cars and parts from the point of
ownership (which means legal or contractual ownership)
to the point we cease to have legal ownership. This includes
test drives.
• Business travel – the movement of our people.
METHODOLOGY
The methodology used to calculate the Group’s GHG emissions
is based on the Environmental Reporting Guidelines, including
mandatory greenhouse gas emissions reporting guidance (June
2013) issued by the Department for Environment, Food and Rural
Affairs (DEFRA) and includes DEFRA’s 2013 conversion factors.
DATA COLLECTION
Data has been collected from the following markets: Australia,
Belgium, Brunei, Bulgaria, Chile, China, Estonia, Ethiopia, Finland,
Greece, Guam, Hong Kong, Latvia, Lithuania, Luxembourg,
Macau, New Zealand, Peru, Poland, Romania, Russia, Saipan,
Singapore and the UK.
The level at which we report is business unit for each market. This
covers our retail operations, distribution operations and business
service operations.
Scope
Description
Scope 1 (direct emissions)
Scope 2 (energy indirect)
Scope 3 (other indirect)
Transport of vehicles and
parts including test drives
Electricity and gas used
by the Group’s operations
Employees’ business travel
by air, car or train
INTENSITY RATIO
The Group’s intensity ratio is revenue per tonne of CO2. This allows
for a fair comparison over time of CO2 emissions, given the growth
trajectory envisaged by the Company and cyclical variations in
business activity.
GLOBAL GREENHOUSE GAS EMISSIONS DATA
Global GHG emissions data for period 1 January 2013
to 31 December 2013
Emissions from
Combustion of fuel and operation of facilities
Electricity, heat, steam and cooling purchased
for own use
Total footprint
Intensity ratio: £k revenue per tonne of CO2
Tonnes of CO2e
2013
66,165
62,325
128,490
51
42
Inchcape plc Annual Report and Accounts 2013
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 HIGHLIGHTS IN 2013
• We carried out over 3,600 mystery shop exercises in 208
retail showrooms and service centres globally
• We talked to 19,600 customers for our vehicle sales and
aftersales Net Promoter Score (NPS) programme
The NPS has improved again across the Group.
PEOPLE
EMPLOYEE
DIVERSITY
SENIOR
MANAGEMENT
DIVERSITY
BOARD
DIVERSITY
Female 3,716 (26%)
Male 10,718 (74%)
Female
10 (12%)
Male
75 (88%)
Female
Male
1 (11%)
8 (89%)
We know that it is our people that make all the difference and
throughout 2013 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 2013
we also continued to embed ‘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 that has 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
into their current role. Biographies of the Executive Committee
can be found on pages 46 to 48.
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.
ENVIRONMENT, HEALTH & SAFETY
NUMBER OF ACCIDENTS 2013
Location
2013
2012
2011
Australasia
Europe
North Asia
South Asia
UK
Russia & Emerging Markets
22
12
25
8
85
23
16
19
26
4
82
8
7
9
32
2
74
5
Our approach to safety aims to manage risks effectively by
ensuring that our employees are fully trained and our businesses
comply with safety regulations. During 2013, we have seen a
12.9% increase in the number of accidents reported. This is due
to an increased awareness in Emerging Markets and there have
been no specific trends or areas of concern.
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 provide systematic tools which will allow the Group to
significantly and consistently improve its focus on delivery of EH&S.
PROGRESS AGAINST GOALS
Objective
2013 progress
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 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 allocate resource
where required to support implementation of the required
standards across the Group. The Committee’s key tasks are:
• develop and maintain the Group EH&S Policy Statement
• identify and deliver priority areas for the development of
Group wide minimum standards and the roll out plan for
these standards
• review EH&S Audit results / self audit reviews
• maintain EH&S organisational structure and allocate
relevant resource to markets to help with EH&S embedding
• develop and implement market EH&S Audits
• develop and conduct market training
• identify key issues / trends for senior management action
Green Baton programme
EH&S best practice
CO2 data collection
The Green Baton programme was completed in 2013
Drive to report all accidents to ensure that policies and procedures are reviewed
and any issues raised addressed by the Group EH&S Steering Committee
The 2013 CO2 data was collected for all markets in accordance with DEFRA
standards and the first GHG report published
Goal attained
Attained
Attained
Attained
www.inchcape.com
43
STRATEGIC REPORTGOVERNANCEDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
BOARD OF DIRECTORS
A broad range of skills, knowledge and experience provides effective stewardship
1 KEN HANNA
CHAIRMAN
APPOINTMENT TO BOARD:
September 2001
3 JOHN MCCONNELL
GROUP FINANCE DIRECTOR
APPOINTMENT TO BOARD:
October 2009
5 SIMON BORROWS
SENIOR INDEPENDENT DIRECTOR
APPOINTMENT TO BOARD:
October 2010
SKILLS AND EXPERIENCE:
Ken is Chairman of Aggreko plc and
a Non-Executive Director of Tesco plc.
Prior to becoming Chairman, 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. He has 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.
2 ANDRÉ LACROIX
GROUP CHIEF EXECUTIVE
APPOINTMENT TO BOARD:
September 2005
SKILLS AND EXPERIENCE:
André is the Senior Independent Director
of Reckitt Benckiser Group plc and
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.
COMMITTEE MEMBERSHIP:
André is a member of the Nominations
and CR Committees.
SKILLS AND EXPERIENCE:
John was appointed as Group Finance
Director 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 the Group, John worked
with Reckitt and Colman (now Reckitt
Benckiser) for 13 years in a variety of
senior finance roles in the UK, Germany
and Australia.
John was appointed as a Non-Executive
Director of UBM plc in January 2014.
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 Co-Chief
Executive 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.
COMMITTEE MEMBERSHIP:
Simon is a member of the Audit and
Nominations Committees.
4 VICKY BINDRA
NON-EXECUTIVE DIRECTOR
APPOINTMENT TO BOARD:
July 2011
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.
COMMITTEE MEMBERSHIP:
Vicky is Chairman of the CR Committee.
6 ALISON COOPER
NON-EXECUTIVE DIRECTOR
APPOINTMENT TO BOARD:
July 2009
SKILLS AND EXPERIENCE:
Alison is Chief Executive of Imperial Tobacco
Group PLC.
Alison joined Imperial Tobacco in 1999
and through a number of senior roles has
contributed significantly to the international
expansion. She was appointed as Chief
Executive in May 2010 and since her
appointment she has led the development
and implementation of Imperial Tobacco’s
sustainable growth strategy.
Alison is a Chartered Accountant and was
previously with PricewaterhouseCoopers LLP.
COMMITTEE MEMBERSHIP:
Alison is a member of the Audit Committee.
1
2
3
4
5
44
44
Inchcape plc Annual Report and Accounts 2013
Inchcape plc Annual Report and Accounts 2013
INDUSTRY BACKGROUND
56%
Financial
Retail
33%
Consultancy 11%
BOARD TENURE
1 year
1> 4 years
4> years
1
6
2
7 JOHN LANGSTON
NON-EXECUTIVE DIRECTOR
APPOINTMENT TO BOARD:
August 2013
9 TILL VESTRING
NON-EXECUTIVE DIRECTOR
APPOINTMENT TO BOARD:
September 2011
SKILLS AND EXPERIENCE:
John joined the Board on 1 August 2013
and was appointed as Chairman of the
Audit Committee on 1 September 2013.
John is a Non-Executive Director and
Chairman of the Audit Committee of
Rexam PLC. He was formerly Finance
Director of Smiths Group plc, having been
a member of the Board of Smiths Group
since 2000. John has also held a number
of senior commercial positions at Smiths
Group as Group Managing Director of
the Speciality Engineering division and,
prior to that, the Detection and Sealing
Solutions divisions. From 1993, John held
senior positions at TI Group plc, joining the
Board of TI Group in 1998.
COMMITTEE MEMBERSHIP:
John is Chairman of the Audit Committee.
SKILLS AND EXPERIENCE:
Till is Senior Partner of Bain & Company
South East Asia. Till has a 23 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, Managing Partner for South East
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:
Till is a member of the Remuneration
and Nominations Committees.
8 NIGEL NORTHRIDGE
NON-EXECUTIVE DIRECTOR
APPOINTMENT TO BOARD:
July 2009
SKILLS AND EXPERIENCE:
Nigel is Chairman of Paddy Power plc
and Debenhams plc. He was appointed
as a Non-Executive Director of Aer Lingus
plc in January 2014. Nigel 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
Director of Aggreko plc.
COMMITTEE MEMBERSHIP:
Nigel is Chairman of the Remuneration
Committee.
6
7
8
9
www.inchcape.com
www.inchcape.com
45
45
DIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCE
EXECUTIVE COMMITTEE
A broad range of industry, commercial and strategic experience is vital to the
management of the Group
1 ANDRÉ LACROIX
GROUP CHIEF EXECUTIVE
APPOINTMENT TO EXECUTIVE COMMITTEE:
February 2006
Please see page 44 for full biography.
2 JOHN MCCONNELL
GROUP FINANCE DIRECTOR
APPOINTMENT TO EXECUTIVE COMMITTEE:
February 2006
Please see page 44 for full biography.
3 ARIS ARAVANIS
MANAGING DIRECTOR, GREECE AND
THE BALKANS
APPOINTMENT TO EXECUTIVE COMMITTEE:
July 2009
SKILLS AND EXPERIENCE:
In July 2013, Aris was promoted to
Managing Director, Greece and the
Balkans and is responsible for Greece,
Bulgaria, Romania and Macedonia. Aris
joined the Group in 1991 and during his
tenure 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, 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 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 the Group from Yum
Restaurants International (previously
Pepsi Restaurants International), where
he spent 10 years holding several senior
management positions.
5 KOH CHING HONG
MANAGING DIRECTOR,
INCHCAPE SOUTH ASIA
APPOINTMENT TO EXECUTIVE COMMITTEE:
August 2009
SKILLS AND EXPERIENCE:
Ching Hong joined Borneo Motors 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 Information
Systems (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
CHIEF EXECUTIVE OFFICER,
EMERGING MARKETS
APPOINTMENT TO EXECUTIVE COMMITTEE:
January 2012
SKILLS AND EXPERIENCE:
Louis was appointed Managing Director,
Emerging Markets in January 2012 and
was promoted to Chief Executive Officer
in July 2013. He is responsible for retail and
distribution activities in Poland, the Nordics,
South America, Africa and Russia. 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 and
was a major force in the integration
of the Lind Automotive Group and
European Motor Holdings with the
UK retail businesses.
1
2
3
4
5
6
46
46
Inchcape plc Annual Report and Accounts 2013
Inchcape plc Annual Report and Accounts 2013
8 TONY GEORGE
GROUP HR AND BUSINESS DEVELOPMENT
DIRECTOR
APPOINTMENT TO EXECUTIVE COMMITTEE:
February 2007
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. Tony has also worked with ICI in
India, Diageo plc where he was the first
Global Management Development
Director UDV in the UK and Burger King,
where he was the SVP International HR.
During his career Tony has lived and
worked in India, the UK, USA and Australia.
9 KEN LEE
GROUP MARKETING AND
COMMUNICATIONS DIRECTOR
APPOINTMENT TO EXECUTIVE COMMITTEE:
November 2006
SKILLS AND EXPERIENCE:
Ken joined the Group 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. In
August 2013, Ken’s role was extended to
include leadership of the Group wide
Marketing community.
Prior to joining the Group, 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. In
all three markets, Toyota has maintained
the No.1 position for several years. He is
also responsible for the Group’s operations
in China.
Prior to this, 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.
11 BERTRAND MALLET
CHIEF EXECUTIVE OFFICER,
TOYOTA BELGIUM
APPOINTMENT TO EXECUTIVE COMMITTEE:
July 2008
SKILLS AND EXPERIENCE:
Bertrand was appointed as Chief
Executive Officer, Toyota Belgium in
January 2012. Prior to this appointment he
was Managing Director of the Emerging
Markets and 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
USA. 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 as Finance
Director, UK Retail and was appointed
Chief Executive Officer of the UK business
in November 2009.
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. Prior to joining the Group
Connor held senior positions with B&Q plc,
Kingfisher plc, the L’Oréal Group and the
Gillette Company.
7
8
9
10
11
12
www.inchcape.com
www.inchcape.com
47
47
DIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCE
CORPORATE GOVERNANCE REPORT
The Board has defined a set of responsibilities and accountabilities that underpin
a high quality decision making process
KEN HANNA,
CHAIRMAN
IN THIS SECTION
55 Audit Committee Report
57 Nominations Committee Report
58 Directors’ Report on Remuneration
74 Directors’ Report
SEE ONLINE:
www.inchcape.com/annualreport
DEAR SHAREHOLDER
This Corporate Governance Report (the Report) is intended to
give shareholders an understanding of the Group’s governance
procedures. The Report sets out how the Company complied
with the 2012 UK Corporate Governance Code (the Code),
and how this has supported the Board’s decision making
process during the year. The disclosures made in the Report
mirror the Code and further statutory disclosures are included
at the end of the Report.
BOARD COMPOSITION AND DIVERSITY
Will Samuel retired in May 2013 after completing nine years’
service as a member of the Board. Will was appointed as a
Non-Executive Director in 2004 and became Deputy Chairman
and Senior Independent Director in 2006. The Board and
I would like to thank Will for his valued advice and assistance
over the last nine years.
As Chairman, it is my responsibility to ensure that members of
the Board have the right mix of skills, knowledge and experience
and after reviewing the composition of the Board following
Will’s departure, I am pleased to report that John Langston
was appointed as a Non-Executive Director in August 2013 and
became Chairman of the Audit Committee in September 2013.
John brings a wealth of financial and operational experience
to the Board and his full biography can be found on page 45.
Simon Borrows was appointed as the Senior Independent
Director in May 2013 and stepped down from the role of
Audit Committee Chairman in September 2013. He remains
a member of the Audit Committee. Further details can be
found in the Nominations Committee Report on page 57.
During our search for a new Non-Executive Director we gave
due consideration to diversity and the recommendations in
the Davies Report. We consider diversity to include ethnicity,
experience and geographical location as well as gender.
Our Board currently has 11% female representation.
We intend to recruit a further Non-Executive Director in 2014
and will consider all aspects of diversity including, but not
limited to, gender in the recruitment process.
STATEMENT OF CODE COMPLIANCE
The Board has complied with the 2012 UK Corporate
Governance Code during 2013 apart from the requirement
under provision D.2.1. Further information can be found of
page 65 of the Directors’ Report on Remuneration.
The information required under DTR7 is given on pages 48
to 57 and forms part of the Report.
KEN HANNA,
CHAIRMAN
48
Inchcape plc Annual Report and Accounts 2013
THE BOARD AND ITS COMMITTEES
The role of the Board is to have responsibility for generating
shareholder value over the long term by setting the Group’s
strategy, ensuring that appropriate resources are available to
enable the Company to meet its objectives and to monitor the
delivery of those objectives within an effective framework of
internal controls. The Board has a defined set of responsibilities
and accountabilities which are set out in the Matters Reserved
for the Board and include:
• Strategy and management – responsibility for long term
success of the Company, approval of objectives and
commercial strategy, approval of the extension of Group’s
activities into new business or geographic areas
• Financial reporting and controls – review and approval of
the Annual Operating Plan, major capital projects and
any changes to them
• Internal Controls – reviewing effectiveness of internal controls
processes to support strategy
• Risk – approval of the Group’s risk appetite, determining the
nature and extent of significant risks the Group is willing to
take to achieve its objectives
The full Matters Reserved for the Board can be found on the
website www.inchcape.com/about_us/governance
BOARD MEETINGS
The Board meetings are structured to allow the Board sufficient
time to discuss and review financial performance, achievement
of objectives, development of the Group’s strategy, operational
performance and risk and internal controls. Standing agenda
items are discussed at each Board meeting, which include:
• Chief Executive’s Report – this report gives an update on
performance across the Group
• Finance Director’s Report – includes the latest financial
information for the Group
• Investor Relations Report – provides an update on macro
trends by key geographies, share register movements and
summary of IR activity
KEY AREAS OF BOARD FOCUS DURING THE YEAR
STRATEGY
Trivett
acquisition
Two day Group
strategy review
BUSINESS
PERFORMANCE
Updates from
six key markets
Global systems
update
Talent & People
Pensions update
Marketing
update
Business
Development
Annual
Operating Plan
Reviewing M&A
opportunities
Final and
interim dividend
FINANCIAL
PERFORMANCE
Approval of the
2012 full year
results and 2013
interim results
Long range
forecasts /
performance
against plan
Monthly
management
accounts
GOVERNANCE
Re-appointment
of auditors
Board
evaluation
SHAREHOLDER
ENGAGEMENT
Annual General
Meeting
Share buy back
programme
Update on
shareholder
and market
perception
of the Group
RISK
Annual review
of Group risk
processes and
mitigation plans
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49
DIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED
COMMITTEES’ RESPONSIBILITIES
The table below shows the key Committees and their responsibilities. The Audit Committee Report can be found on page 55.
The Nominations Committee Report can be found on page 57, the Remuneration Committee Report can be found on page 65
and the CR Committee Report can be found on page 40.
INCHCAPE PLC BOARD
AUDIT
COMMITTEE
REMUNERATION
COMMITTEE
EXECUTIVE
COMMITTEE
NOMINATIONS
COMMITTEE
CORPORATE
RESPONSIBILITY
COMMITTEE
Delegated
authorities
Reviews
• Financial reporting
• Remuneration policy
• Group Strategy
• Balance of the Board
• Oversight of the Group
• Financial risk
management
• Internal Control
• Full year and
half year results
• Accounting policies
• Terms of engagement
of auditors
• Incentive plans
• Performance targets
• Operational
Management
• Leadership of
the Group
CR Programme
• Achievement of
performance targets
for short and long term
incentives
• Pay across the Group
• Quarterly performance
against strategic goals
• Quarterly performance
against AOP
• Composition of Board
• Group CR Policy
• Skills, knowledge
& experience on
the Board
• Diversity
Recommends • Re-appointment
of auditors
• Audit tender
• Auditors’ remuneration
• Level and structure
of remuneration for
Executive Directors and
Executive Committee
• Development
opportunities
for key talent
• Programmes to further
• Remuneration Policy
strategic agenda
• Appointments to
• Group CR strategy
the Board
• Election/re-election
of Directors at Annual
General Meeting
Monitors
Approves
• Integrity of financial
• Appropriateness of
statements
Remuneration Policy
• Employee engagement
levels across the Group
• Independence of
• Group’s CR risk exposure
Non-Executive Directors
• Legal & regulatory
• Effectiveness of
• Legal and regulatory
• Inchcape Advantage
• Succession planning
requirements
internal controls and
risk management
• Internal Audit function
• Legal and regulatory
requirements
• Statements in Annual
Report concerning
internal controls and
risk management
• Policy on non-audit
services
• Whistleblowing
procedures
requirements
• Customer 1st strategy
• Remuneration Policy
• Group wide strategic
• Nominations
• Annual CR Report
programmes
Committee Report
• External appointments
for Executive Directors
• Skills profile for
Non-Executive Directors
• Remuneration
packages for Executive
Directors and Executive
Committee members
• Design of long term
incentive plans
• Performance
targets for long term
incentive schemes
50
Inchcape plc Annual Report and Accounts 2013
LEADERSHIP
The Board met five times during 2013. Attendance is shown in the table below.
Name of Director
Scheduled
Attended Scheduled
Attended Scheduled
Attended Scheduled
Attended Scheduled
Attended
Board
Meetings
Audit Committee
Meetings
Nominations
Committee Meetings
Remuneration
Committee Meetings
Corporate Responsibility
Committee Meetings
Chairman
Ken Hanna
Group Chief Executive
André Lacroix
Group Finance Director
John McConnell
Non-Executive Directors
Vicky Bindra
Simon Borrows
(Senior Independent Director)
Alison Cooper
John Langston*
Nigel Northridge
Will Samuel**
Till Vestring
5
5
5
5
5
5
2
5
2
5
5
5
5
5
5
5
2
5
2
5
–
–
–
–
4
4
1
–
1
–
–
–
–
–
4
4
1
–
1
–
2
2
–
–
2
–
–
–
1
1
2
2
–
–
2
–
–
–
1
1
2
–
–
–
–
–
–
2
1
2
2
–
–
–
–
–
–
2
1
2
3
3
–
3
–
–
–
–
–
–
3
3
–
3
–
–
–
–
–
–
* John Langston was appointed on 1 August 2013.
** Will Samuel resigned on 16 May 2013.
ROLES AND RESPONSIBILITIES
The roles of the Chairman and Chief Executive are separate. A summary of their responsibilities is set out below.
CHAIRMAN
• To lead an effective Board by
providing direction and focus
and promoting open and
constructive debate
• Ensuring that members receive
information that is accurate,
relevant and timely
• Responsibility for composition
of the Board to ensure that the
members have the right mix of
skills, knowledge and experience
• Chair the Nominations
Committee and membership
of the CR Committee
GROUP CHIEF EXECUTIVE
• To develop the Group’s strategy
and business plans for approval
by the Board
• Report to the Board on performance,
the implementation of strategy and
significant developments
• To lead the Executive Committee,
develop and implement the Group’s
strategy, manage risk and the
internal control framework
• Responsibility for the day to day
operations of the Group, providing
information to the Board to aid the
decision making process
• To regularly engage with shareholders
on the Group’s activities and progress
against objectives
SENIOR INDEPENDENT DIRECTOR
• To act as a sounding board
for the Chairman
• To serve as an intermediary
to other Directors
• To be available to shareholders
should they have concerns
which have not been resolved
through the normal channels
• To hold an annual meeting of
Non-Executive Directors to evaluate
the performance of the Chairman
NON-EXECUTIVE DIRECTORS
The Non-Executive Directors bring a wide range of skills and experience to the Board. They are responsible for using their
independent judgement in decisions regarding the development and implementation of the Group’s strategy, monitoring
and reporting of performance and the integrity of internal controls and risk management.
The biographies of the Board can be found on pages 44 to 45.
The Non-Executive Directors held meetings in May and November without the presence of the Executive Directors.
www.inchcape.com
51
DIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED
EFFECTIVENESS
COMPOSITION OF THE BOARD
The Board consists of the Chairman, two Executive Directors and
six Non-Executive Directors. Will Samuel, who had served on the
Board for nine years, resigned in May 2013. John Langston was
appointed to the Board in August 2013 and became Chairman
of the Audit Committee in September 2013.
All Non-Executive Directors were considered independent during
2013, in accordance with the Code.
• Group Finance Director – financial review, current KPIs
• Group Financial Controller – operational financial review,
reporting systems and processes
• Group Audit Director – risk management, assurance
processes and internal controls
• Group Chief Information Officer – overview of the Group’s
IS strategy and structure
• Director of Taxation – overview of the Group’s tax structure
THE GEOGRAPHIC MAKE-UP
OF THE BOARD
LENGTH OF SERVICE OF
NON-EXECUTIVE DIRECTORS
• Group Communications Director – brand, marketing, internal
and external communications and Inchcape Advantage
• External auditor – external audit function
The Board is kept up to date throughout the year with key
information which includes:
• Regional updates from Executive Committee members and
other senior managers;
• Operational updates from departmental heads including,
tax, IT and internal audit;
• Monthly financial updates; and
• An annual overseas visit and UK dealership visits which allow
the Non-Executive Directors to informally meet the Group’s
employees to gain a deeper understanding of the business
The Company Secretary is available to offer advice and services
in relation to the business of the Board should they require it.
EVALUATION
In 2013, the Senior Independent Director facilitated an
internal review which consisted of one-to-one interviews
and a questionnaire which covered:
• strategy
• Board knowledge, effectiveness and contribution
• succession
• risk management
• the Nominations, Audit, Remuneration and CR Committees
• Board administration
The questionnaire was designed to encourage an open
exchange of views on how the Board operates.
The evaluation concluded that there is widespread agreement
and support for Board structure and processes. Also, as a result
of the evaluation, there will be a continued focus on Board
composition and succession planning of the Board and senior
management during 2014.
The Non-Executive Directors met without the Chairman present to
consider his performance. The Non-Executive Directors expressed
no concerns over the Chairman’s leadership of the Board.
RE-ELECTION
In accordance with the Code, all Directors stand for election
or re-election at the Annual General Meeting (the AGM).
At the 2013 AGM, shareholders re-appointed all the Directors.
Asia
UK
22%
78%
1 year
1> 4 years
4> years
1
6
2
APPOINTMENTS TO THE BOARD
The Nominations Committee has responsibility for evaluating the
composition of the Board and nominating suitable candidates
to the Board to fill any vacancies. Details of the activities of the
Nominations Committee can be found on page 57.
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 are given in their biographies on pages
44 to 45. The Executive Directors are generally permitted to take
one non-executive position as long as it does not lead to conflicts
of interest or undue time commitment.
COMMITMENT
The members of the Board are expected to allow sufficient
time to discharge their duties effectively. The minimum number
of days required by the Non-Executive Directors is set out in the
letter of appointment.
DEVELOPMENT AND INFORMATION AND SUPPORT
New Directors receive a tailored induction programme designed
to give them a comprehensive understanding of the strategy,
operations and values of the Group. John Langston joined the
Board in 2013 and received a formal induction. Over two days,
he met with the following key members of the Group to gain
an understanding of their roles and the Company’s operations:
• Chairman – the Board, its Committees, history of the Group,
vision and values
• Group Chief Executive – strategy, overview of operational
businesses, analyst and investor engagement
• Group Company Secretary – directors’ duties and regulatory
rules, governance and Board administration
• Group HR and Business Development Director – key
management, succession planning, remuneration
policy, business development strategy
52
Inchcape plc Annual Report and Accounts 2013
RISK MANAGEMENT PROCESS
THE BOARD
Responsibility for identifying significant risks, 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, Internal Controls,
compliance and whistleblowing
INTERNAL AUDIT
Responsibility for reviewing financial and operational controls, monitoring risk capture and mitigating
actions, reporting to the Audit Committee
GROUP iPOM COMMITTEE
Key day to day risk oversight is managed through the Group iPOM Committee which is chaired by the Group Chief Executive.
Its remit ensures that: focus is on key risks and actions to mitigate identified risks; compliance programmes exceed
external benchmarks; appropriate defences are in place to mitigate risks; whistleblowing policy is
managed to reduce risk of fraud
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
FUNCTIONAL ASSURANCE PROVIDERS
Functional teams are a key source of risk management effort
CORPORATE ASSURANCE
Lead continuous improvement in our risk management practices
ENABLERS
ACCOUNTABILITY
FINANCIAL AND BUSINESS REPORTING
The Board is responsible for presenting a fair, balanced
and understandable assessment of the Group’s position and
prospects. A statement of the Directors’ responsibility for reporting
the financial statements, the going concern statement and the
statement by the Directors that they consider the Annual Report,
as a whole, to be fair, balanced and understandable is set out
on page 74. The statement by the auditors about their reporting
responsibilities is given on page 141.
The Board is responsible for establishing and maintaining
adequate internal controls over regular financial reporting
for the Group, including the consolidation process. There is a
comprehensive system of internal controls in place, including
the 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 in the Group’s financial statements is reviewed
thoroughly by management to ensure that it complies with
relevant accounting policies and that financial reporting gives
a true and fair reflection of the financial position of the Group.
RISK MANAGEMENT AND INTERNAL CONTROLS
Internal Controls over the financial reporting framework are
designed to provide reasonable assurance regarding the
reliability of financial reporting as well as the preparation of
the financial statements in accordance with IFRS. Internal
Audit and management regularly assess the effectiveness
of internal controls over financial reporting as well as the
preparation of financial statements based on the framework
contained in the Turnbull Guidance. There have been no
significant changes and the Board has concluded that the
Group’s internal system of controls over financial reporting
was effective during the year.
The Board has overall responsibility for risk management and
is advised of key risks (including environmental, social and
governance risks) facing the Group on a rolling 12 month
basis, with a formal review of the most significant risks annually
or more frequently if required. Risks are categorised as systematic
risks – defined as known risks which are largely unchanging or
which apply Group wide and are managed through standard
policies and procedures, and dynamic risks – forward looking
risks which can be specific to a market, region or function, which
change in nature constantly and which are therefore managed
through bespoke mitigation or response plans.
Inchcape Peace of Mind (iPOM) is the Group wide programme
developed to drive risk management and engage risk aware
behaviours across the Group. The Group uses iPOM to define
and emphasise ‘the right way to do business’. The central
principle of iPOM is to ensure that risk management is recognised
as something within every employee’s scope of responsibility. The
iPOM framework encourages and enables employees to make
decisions which balance performance with conformance,
ensuring that the Group does business in the right way and
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53
DIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED
protects its reputation and the value it creates. The Group’s
principal risks can be found on pages 36 to 37.
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 on
pages 55 to 56.
REMUNERATION
The Remuneration Committee has responsibility for developing
the Company’s remuneration policy and monitoring its
implementation. Details of the Committee’s activities along
with the Remuneration Report can be found on pages 58 to 73.
RELATIONS WITH SHAREHOLDERS
The Board understands that effective communication is essential
to enable shareholders to gain a clear understanding of the
Group’s strategy, business model and remuneration policy.
The Chairman, Group Chief Executive, Group Finance
Director and Head of Investor Relations hold regular meetings
with institutional investors throughout the year through a
comprehensive investor relations programme. The programme
includes site visits, roadshows and conferences. During the
year approximately 260 institutions met with management
to discuss the Group and its objectives.
As part of the 2014 programme, institutional investors will be
able to attend an investor day during which the Executive
Committee will give presentations covering the Group’s
unique global operations, the focus on delivering operational
excellence and the confidence in delivering sustainable growth.
Shareholders are also kept informed of Company performance
through regular press releases. These are made available to
the London Stock Exchange and on the Company’s website.
Presentations were held for analysts for the Group’s annual and
half yearly results. Recorded conference calls are also held for
analysts on the release of Interim Management Statements.
These presentations and calls are published on the Company’s
website so that both private and institutional investors or potential
investors have access to the information.
The Board is provided with regular updates on the views raised
by the Company’s investors. During the year, the Board received
a presentation from external advisors on shareholder and market
perception of the Group and its strategy.
ANNUAL GENERAL MEETING (AGM)
The AGM gives all shareholders an opportunity to meet the
Board and ask any questions they have regarding the Group.
The Board encourages participation of private shareholders at
the AGM, however, the Board understands that it is not always
possible for shareholders to attend. For this reason, a prepaid
reply form is sent to shareholders to enable them to give their
views should they be unable to attend the AGM in person.
The Company complies with the Code as it relates to voting,
the proposal of separate resolutions on each substantially
separate issue and the attendance of Committee Chairmen
at the AGM. Details of the voting on resolutions at the AGM are
made available on the Company’s website.
The Group is committed to reducing its impact on the environment
and encourages shareholders to receive communications
electronically to reduce paper usage.
Shareholders can also register for news alerts via email. Please visit
the website www.inchcape.com/investors for more information.
It is important for investors to receive communications in the form
most appropriate to their needs and they can change the way
they receive shareholder communications at any time.
INVESTOR RELATIONS CALENDAR
Auto Conference
Roadshow
Dec
Jan
Auto Conference
Hong Kong Investor Day
Nov
Feb
Annual Results
Interim Management Statement
Audiocast
Oct
Sep
THROUGHOUT THE YEAR
1:1 MEETINGS AND
INCHCAPE ADVANTAGE
SITE VISITS HELD
Mar
Apr
Retail Conference
Roadshow
Interim Results
Audiocast & Presentation
Roadshow
Aug
May
Jul
Jun
54
Inchcape plc Annual Report and Accounts 2013
Audiocast & presentation
Roadshow
Broker & Retail Conferences
Roadshow
Interim Management
Statement
Audiocast
Retail Conference
Annual General Meeting
Retail Conferences
AUDIT COMMITTEE REPORT
JOHN LANGSTON,
CHAIRMAN
AUDIT COMMITTEE MEMBERSHIP AND MEETINGS 2013
The Audit Committee is comprised of three independent
Non-Executive Directors, John Langston, Alison Cooper
and Simon Borrows. John was appointed as Chairman on
1 September 2013 and is a qualified chartered accountant.
He is considered to have recent and relevant experience in
accordance with the provisions of the Code.
The Committee held four meetings during 2013 and
attendance is shown in the table on page 51.
Only members of the Committee are required to attend
Committee meetings however, other individuals (such as
the Chairman, Group Chief Executive, Group Finance
Director, Group Audit Director and external auditors)
are able to attend by invitation.
KEY RESPONSIBILITIES
The Board has delegated certain responsibilities to the Audit
Committee which are set out in its terms of reference.
These are reviewed on an annual basis and are available
on the Company’s website www.inchcape.com/about_us/
governance. The key responsibilities are as follows:
• Monitor the integrity of the financial statements and formal
announcements
• Review and recommend to the Board for approval the
annual and half yearly reports
• Review Group accounting policies
• Review significant financial reporting issues
• Review the financial and operational risks, policies
and risk management
• Monitor the effectiveness of internal controls and
risk management
• Monitor and review the effectiveness of the internal
audit function
• Monitor the effectiveness and independence of the
external auditors
• Approval of the policy on non-audit services
• Review representation letter requested by external auditors
• Recommend the re-appointment of the external auditors
• Recommend, for approval, the remuneration of external auditors
• Whistleblowing
ACTIVITIES DURING THE YEAR
During the year the Committee focused on the following matters:
• Review of the interim and year end financial statements
for the Group
• Review of the consistency and appropriateness of the
accounting policies
• Review of the methods used to account for significant
transactions, completeness of disclosures and material
areas in which significant judgements had been applied
• Review of the effectiveness of internal controls, risk assessment
process, the assurance process and changes to significant risks
• Approval of the Internal Audit Plan and review of its effectiveness
• Review of the accounting controls and IT control environment
for new systems
• Approval of the terms of engagement, strategy, scope
and effectiveness of the external auditors
• Review whistleblowing arrangements and procedures
in place during the year
• Review tax and litigation updates
SIGNIFICANT ISSUES
As part of the reporting and review process, the Committee has
discussed the significant issues considered in relation to the
financial statements and how those issues were addressed.
During the year the Committee considered the following key risks,
accounting issues and judgements:
Significant issue
Impairment
of goodwill
IT controls
framework
Going
Concern
Action taken
Management prepared a detailed impairment
review paper on the goodwill in the Group. The
Committee challenged the methodology,
assumptions and sensitivity analysis used by
management. The Committee also considered
the independent review by the external auditors.
The Committee concluded that the goodwill
carrying amounts shown in note 11 on page 112
of the financial statements were appropriate and
it approved the disclosures.
The Group is committed to maintaining a Group
wide internal controls framework to ensure that
appropriate controls are designed across key
business processes to reduce financial reporting
risks. Regular updates were given to the Committee
on the progress of our global systems roll out.
The Committee, having challenged the plans,
progress and risk management of the project
concluded that it was satisfied with the
appropriateness of the controls currently in
operation across the Group.
Management prepared a detailed paper on
going concern using the strategic plan forecasts
that had been approved by the Board including
the committed and uncommitted facilities
available, and then conducted sensitivity analysis.
The Committee challenged the assumptions used
and also considered the review conducted by the
external auditors. The Committee concluded that
the Board is able to make the Going Concern
statement on page 74 of the Directors’ Report.
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55
DIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCE
CORPORATE GOVERNANCE REPORT CONTINUED
FINANCIAL AND BUSINESS REPORTING
The Committee is responsible for monitoring the integrity of the
financial statements including the Group’s annual and half yearly
results and ensuring they are fair, balanced and understandable.
The external auditors also provide an auditors’ report to the
members providing an independent opinion on the truth and
fairness of the Group’s financial statements. This report can be
found on page 139. An external auditors’ review report of the
Group is also included in the half yearly results announcement.
RISK MANAGEMENT AND INTERNAL CONTROL
The Group has well established risk management and internal
control processes. These are regularly subject to audit and
the results are reported to the Audit Committee and the Board
for their review. iPOM is the Group wide risk management
programme, which has the objective to drive risk management
and risk aware behaviours across the Group.
Day to day management of risk is delegated to the iPOM
Committee, which consists of the Group Chief Executive, the
Group Finance Director, the Group HR Director, the Group
General Counsel, the Group Audit Director and the Group
Head of Corporate Assurance. The 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:
• the correct management focus is on key risks and actions to
mitigate or respond to identified and emerging risks
• 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
• appropriate defences are in place to mitigate exposure to,
or effect a response to, any risk that may crystallise
Further information on the risk management process can be
found in the Accountability section of the Corporate Governance
Report on page 53.
INTERNAL AUDIT
The Committee reviewed and agreed the Internal Audit Plan.
This included the proposed audit approach, allocation of
resources and the number of audits to be undertaken.
The Group Audit Director reported regularly on the audits
carried out, which covered a range of operational, financial
and IT processes and progress was reviewed against the Plan.
The Group Audit Director and his team met with the Committee
without the presence of management.
EXTERNAL AUDIT
The Audit Committee has 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 for a further year subject to their continued
satisfactory performance. The Committee reviewed the
effectiveness, independence and objectivity of the external
auditors and no matters of concern were raised during 2013.
The Committee keeps under review the ongoing legislative
proposals on audit tendering and rotation from the EU and the
Competition Commission, and will implement them when they
become final. These proposals have in effect superseded the
FRC’s comply-or-explain approach that underpins the Code
which would otherwise have applied to the Company for the
first time this year. The FRC plans to withdraw this tendering
provision during 2014.
PricewaterhouseCoopers LLP has been the Company’s auditor
for more than 20 years and the transitional rules that the EU
has proposed are expected to require an initial change of audit
firms no later than 2020. The Committee will continue to consider
annually whether to conduct an audit tender for audit quality or
independence reasons.
The external auditors attend all Committee meetings and the
Committee also meets with the external auditors without
management present.
EFFECTIVENESS AND INDEPENDENCE OF
EXTERNAL AUDITORS
The Committee reviewed the effectiveness of the external audit
process during the year by:
• Reviewing the experience and expertise of the auditors
• Reviewing the completion and variations, if any, of the
audit plan
• Reviewing the thoroughness and insight of the external auditors
in the treatment of principal accounting judgements
• Reviewing the content of the Report to the Audit Committee
The Committee received a formal statement of independence
from the external auditors when the external auditors presented
their Report to the Audit Committee for the interim review and
year end audit. The reports identified their assessment of key
issues arising from their work and highlighted the principal
accounting judgements underlying the Group’s results to
assist the Audit Committee in carrying out its own review
of the interim and year end financial information.
To safeguard the auditors’ independence the external
auditors must:
• not undertake certain non-audit services
• request authority from the Audit Committee Chairman for
non-audit services above a specific fee level
The Committee reviewed its policy of services provided by the
external auditors for non-audit services. The policy is in place to
ensure that the external auditors’ objectivity and independence
are not compromised by earning a disproportionate level of fees
for non-audit services or by performing work which, by its nature,
may compromise the external auditors’ independence.
The level and nature of non-audit fees are reviewed at year end
and at the half year to ensure that the policy is being adhered
to. The current policy is to maintain a 1:0.5 fee ratio except
where expressly approved by the Audit Committee Chairman.
Non-audit fees relate mainly to tax advisory services.
The Audit Committee is responsible for authorising the provision
of any non-audit services provided by the external auditor before
they may commence and a breakdown of fees paid can be
found on page 100 in note 3d.
56
Inchcape plc Annual Report and Accounts 2013
NOMINATIONS
COMMITTEE REPORT
KEN HANNA,
CHAIRMAN
KEY RESPONSIBILITIES
• Evaluate balance of skills, knowledge and experience
on the Board
• Agree skills profile for candidates to fill vacant Board positions
• Nominate suitable candidates for Board approval
• Succession planning for Executive Directors and
Senior Management
• Review the 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
Only members of the Committee are required to attend
Committee meetings however, other individuals (such as the
Group HR Director and external consultants) are able to attend
by invitation. Membership and meetings held during 2013 are
shown in the table on page 51.
ACTIVITIES DURING THE YEAR
Composition of the Board and its Committees – Will Samuel
retired from the Board in May 2013. After a review of the skills and
competencies of the Board, it was agreed that a Director with
financial experience would benefit and strengthen the Board.
A skills profile was prepared and an external search consultant, The
Inzito Partnership, appointed to assist in the recruitment process.
John Langston was identified as a suitable candidate and his
appointment was recommended to the Board for approval.
The Inzito Partnership does not provide any other services nor
does it have any other connection with the Company.
It was also agreed that Simon Borrows would be appointed
the Senior Independent Director and step down from his role
as Audit Committee Chair whilst remaining a Committee
member. John Langston was appointed as the Audit
Committee Chairman with effect from 1 September 2013.
Other changes during the year include the appointment
of Till Vestring as a member of the Nominations Committee.
Independence – 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.
Length of service – 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.
Simon Borrows completed his initial three year term in 2013. The
Committee evaluated his performance and agreed that he
should be appointed for a further three year term subject to
annual re-election by shareholders at the AGM.
Time commitment – 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.
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.
Policy on Board appointments – The Committee reviewed its
policy on multiple board appointments and confirmed that
the Directors had complied with the policy during the year.
Diversity policy – the Committee recognises the benefits
of having a diverse Board and sees increasing diversity at
Board level as an essential element in delivering the Group’s
strategy and objectives.
The Company believes that a truly diverse Board will include
and make good use of differences in skills, regional and
industry experience as well as background, race and gender.
These differences will be considered in determining optimum
composition of the Board and when possible should be
balanced appropriately. All Board appointments are made
on merit and in the context of the skills and experience
needed for the Board to be effective.
Succession planning – The Committee’s terms of reference
state that it is responsible for giving full consideration to
succession planning for the Directors and members of
the Group Executive Committee, taking into account the
challenges and opportunities facing the Company. During
2013, succession planning was discussed as part of the two
day Group strategy review by the Board.
www.inchcape.com
57
DIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATIONSTRATEGIC REPORTGOVERNANCE
DIRECTORS’ REPORT ON REMUNERATION
DEAR SHAREHOLDER
I am pleased to introduce the Directors’ Report on Remuneration
for the year ended 31 December 2013, which has been prepared
by the Remuneration Committee and approved by the Board.
The Group delivered a strong performance in 2013. Sales increased
by 7.2%, profit before tax and exceptional items was up 11.2%
to a record for the business of £274.6m. Adjusted earnings per
share rose by 11.3%.
In August 2013, the UK Government Department of Business,
Innovation & Skills (BIS) published regulations setting out
what companies must disclose in the Directors’ Report on
Remuneration with the overall aim of improving transparency,
empowering shareholders and promoting best practice. This
Report is divided into two sections. The first is the Directors’
Remuneration Policy, 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 Annual Report on Remuneration, which focuses on the
implementation of the remuneration policy in 2013 including the
total actual remuneration paid to each Director and details of
performance against targets, and how we intend to implement
our remuneration policy in 2014.
The Report complies with Regulation 11 and Schedule 8 of the
Large and Medium–Sized Companies and Groups (Accounts
and Reports) (Amendment) Regulations 2013 and other relevant
requirements of the FCA 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.
Following the year end, the Committee has started a consultation
with its larger shareholders on some proposed minor changes to
the EPS targets for long term incentive awards to be made in
2014. The outcome of this consultation will be reported in the
2014 Directors’ Report on Remuneration.
We will be putting the Directors’ Remuneration Policy to a binding
shareholder vote and the Annual Report on Remuneration to an
advisory vote at the Annual General Meeting (AGM) on 16 May
2014, asking our shareholders to approve these reports.
NIGEL NORTHRIDGE,
CHAIRMAN OF THE REMUNERATION COMMITTEE
REMUNERATION COMMITTEE FOCUS DURING THE YEAR:
• There were no major changes to the Group’s remuneration
policy during the year
• Continued strong performance of the business: adjusted
earnings per share rose by 11.3% and profit before tax is
7.4% above 2012
• Remuneration focus continues to be on revenue and
operating profit in the short term and EPS and ROCE in
the medium to long term
58
Inchcape plc Annual Report and Accounts 2013
PART 1 – DIRECTORS’ REMUNERATION POLICY
This section of the Report sets out the policy which shareholders are asked to approve at the 2014 AGM. The Committee intends
that this policy will formally come into effect from 16 May 2014.
Our remuneration policy is based on the following objectives:
• Align with and support the Group’s business strategy;
• Enable the Company to attract, retain and motivate executive management;
• Encourage the right behaviours, drive performance and reward results by delivering upper quartile pay for upper quartile
performance; and
• 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.
REMUNERATION POLICY FOR EXECUTIVE DIRECTORS
Element
Objective and link to strategy
Operation and performance metrics
Opportunity
Base salary
To pay competitive
salary to attract, retain
and motivate talent
Salaries are reviewed annually
and any increases typically take
effect from 1 April of each year
Annual bonus
To motivate outstanding
performance; specifically,
to reward sustainable
growth in profits, i.e.
growth that comes from
the top line as well as from
improving margins, and to
maintain exceptional levels
of customer service
Adjustments to salary will take
account of:
• increases awarded across the
Group as a whole, and conditions
elsewhere in the Group
• experience and performance
of the individual
• pay levels at organisations of a
similar size, complexity and type
• changes in responsibilities or
scope of the role
Based at least 70% on annual
financial performance. Measures
may include (but are not limited to)
revenue and operating profit
Any annual bonus earned above
100% of salary is paid in shares
which are automatically invested
in the co-investment plan
The bonus is reduced if Net Promoter
Score (NPS) falls below target levels
of performance
The Committee retains discretion
to adjust the bonus outcome up or
down to ensure it is a fair reflection of
the Group’s underlying performance
Increases are not expected to
exceed average increases for senior
management, unless a change in
scope or complexity of role applies
150% of salary maximum payable
for achieving stretch performance
against all measures
60% of salary payable for target
performance
12% of salary payable for entry level
performance
www.inchcape.com
59
GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
DIRECTORS’ REPORT ON REMUNERATION CONTINUED
REMUNERATION POLICY FOR EXECUTIVE DIRECTORS CONTINUED
Element
Objective and link to strategy
Operation and performance metrics
Opportunity
Performance
share plan (PSP)
To provide a meaningful
reward to senior executives
linked to the long term
success of the business
Annual awards of ‘normal’
performance shares, vesting based
on three year EPS growth and three
year average ROCE performance
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
To strengthen alignment
with shareholders by
defining award sizes
as a number of shares
Co-investment
plan (CIP)
To encourage executive
share ownership
and reinforce long
term success
The performance measures may
vary year on year to reflect strategic
priorities, subject to a minimum of
50% to be based on EPS growth, but
allowing for the potential introduction of
a third measure to facilitate continued
alignment with the Company’s strategy
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 has discretion to
reduce or prevent vesting in the
event of a material restatement
of the Group financial statements
or gross misconduct
The Committee also has discretion to
adjust the performance conditions in
exceptional circumstances, provided
the new conditions are no tougher or
easier than the original conditions
A voluntary share investment
opportunity in return for a
performance based match
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
on three year EPS growth and three
year average ROCE performance
Award levels are expressed as a number
of shares, subject to an individual limit of
300% of salary in normal circumstances
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
Threshold level performance will result
in 25% vesting of the ‘normal’ shares
and no vesting of the ‘enhanced’ shares
The Committee has discretion to
make higher awards in exceptional
circumstances. Any such additional
award would be capped at 150%
of salary
Executive Directors may invest up
to an overall normal maximum
of 50% of post-tax salary
Maximum match of 2:1, threshold
of 0.5:1
Maximum normal matching award
is therefore 100% of salary in any
year, and threshold matching
award is 25% of salary
In exceptional circumstances the
Committee may increase the investment
opportunity up to 100% of post-tax salary
60
Inchcape plc Annual Report and Accounts 2013
Element
Objective and link to strategy
Operation and performance metrics
Opportunity
Co-investment
plan (CIP)
continued
Save as you
earn (SAYE)
To encourage
share ownership
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
The performance measures may vary
year on year to reflect strategic priorities,
subject to a minimum of 50% to be
based on EPS growth, but allowing for the
potential introduction of a third measure
to facilitate continued alignment with the
Company’s strategy
Any dividends paid would accrue over
the vesting period and would be paid
only on those shares that vest
The Committee has discretion to
adjust the performance conditions in
exceptional circumstances, provided
the new conditions are no tougher
or easier than the original conditions
UK employees are able to 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
The Group’s 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
Executive Directors may also receive
a salary supplement in lieu of
pension contributions
Salary is the only element of
remuneration which is pensionable
Benefits currently include
(but are not limited to):
• company cars
• medical care
• life assurance premiums
All benefits are non-pensionable
Participation limits are those set
by the UK tax authorities from
time to time
Eligibility to join the Cash+ scheme
at a minimum level to meet
regulatory requirements
Cash supplement up to 40% of
base salary
None of the existing Executive Directors
received total taxable benefits exceeding
5% of salary over the last two financial
years, and it is not anticipated that the
cost of benefits provided will materially
exceed this level over the next three years
The Committee retains the discretion to
approve a higher cost in exceptional
circumstances (e.g. relocation)
To encourage share ownership and ensure alignment of executive interests with those of shareholders, Executive Directors are
required to hold a fixed number of shares equivalent to 200% of base salary. Each Executive Director has five years from 2007,
or date of appointment if later, to reach this shareholding.
www.inchcape.com
61
GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
DIRECTORS’ REPORT ON REMUNERATION CONTINUED
NOTES TO THE POLICY TABLE
PAYMENTS FROM EXISTING AWARDS
Executive Directors are eligible to receive payment from any
award made prior to the approval and implementation of the
remuneration policy detailed in this report. Such awards include
vested but unexercised options, as detailed on page 72.
to an extensive shareholder consultation prior to its
implementation and has received strong support from our
shareholders as reflected in the votes in favour of our Directors’
Remuneration Reports at the 2011, 2012 and 2013 AGMs. The
Committee will of course continue to keep the appropriateness
of our remuneration policy under review.
SELECTION OF PERFORMANCE MEASURES & TARGET SETTING
The annual bonus measures have been selected to incentivise
sustainable growth in profits. The matrix structure is intended
to provide a balanced focus between commercial and cash
initiatives. NPS is selected to reinforce the Group’s Customer 1st
strategy and maintain exceptional levels of customer service.
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.
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 supports the Group’s cash initiatives of controlling working
capital and capital expenditure, and when combined with EPS,
provides a balance between growth and returns.
Performance targets are set to be stretching and achievable,
taking into account the Company’s strategic priorities and the
economic environment in which the Company operates. Targets
are 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
the performance targets set are very stretching, and that the
maximum will only be available for truly outstanding performance.
CHANGES TO POLICY IN THE CURRENT YEAR
The remuneration policy outlined above for which we are
now seeking shareholder approval has been operated by the
Company since the beginning of 2011. The policy was subject
REMUNERATION POLICY FOR NON-EXECUTIVE DIRECTORS
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 are 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.
Objective and link to strategy
Operation and performance metrics
Opportunity
To provide fair remuneration,
reflecting the time
commitment and
responsibilities of the roles
Non-Executive Directors receive a fixed fee and do
not participate in any incentive schemes or receive
any other benefits, except for the Chairman who
receives medical cover
Fee levels are reviewed regularly, with any adjustments
effective immediately after the review is approved.
Additional fees are payable for acting as Senior
Independent Director and as Chairman of any
of the Board’s Committees (excluding the
Nominations Committee)
The Chairman’s fee is determined by the Remuneration
Committee and the fees for other Non-Executive Directors
are determined by the Executive Directors
Non-Executive Directors may elect to receive up to 20%
of the net fees per annum in the Company’s shares
Appropriate adjustments may be made
to fee levels, taking account of:
• increases awarded across the Group
as a whole, and conditions elsewhere
in the Group
• fee levels at organisations of a similar size,
complexity and type
• changes in complexity, responsibility or
time commitment required for the role
62
Inchcape plc Annual Report and Accounts 2013
CONSIDERATION OF CONDITIONS ELSEWHERE
IN THE GROUP
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.
However, the Committee Chairman had ad hoc discussions
with shareholders regarding remuneration during the year
and the Committee is always open to feedback from
shareholders on remuneration policy and arrangements.
Following the year end, the Committee has started a consultation
with its larger shareholders on some proposed minor changes
to the EPS targets for long term incentive awards to be made
in 2014. The outcome of the consultation will be reported in the
2014 Directors’ Report on Remuneration. We commit to undergoing
shareholder consultation in advance of any changes to
remuneration policy. The Committee will continue to monitor
trends and developments in corporate governance and market
practice to ensure the structure of the executive remuneration
remains appropriate. The votes received on the 2012 Directors’
Report on Remuneration are provided on page 71.
CONSIDERATION OF SHAREHOLDER VIEWS
When determining remuneration, the Committee takes into
account the guidelines of investor bodies and shareholder
views. In light of the extensive consultation exercise prior to
the introduction of our current remuneration policy in 2011,
the high level of support for the 2012 Directors’ Report on
Remuneration and the fact that no changes to remuneration
policy are being proposed for 2014, the Committee did not
carry out a formal shareholder consultation exercise in 2013.
PERFORMANCE SCENARIOS
The charts below show the remuneration that Executive
Directors could be expected to obtain based on varying
performance scenarios. 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
£5,401
55%
23%
22%
£2,340
29%
21%
50%
£1,175
100%
6,000
5,000
4,000
3,000
2,000
1,000
0
)
s
0
0
0
£
(
n
o
i
t
r
a
e
n
u
m
e
r
l
a
t
o
T
3,000
2,400
1,800
1,200
600
0
£2,560
51%
26%
23%
£1,167
27%
22%
51%
£598
100%
Minimum
On-target
Maximum
Minimum
On-target
Maximum
Key:
Salary pension and benefits
Annual bonus
Long-term incentives (CIP and PSP)
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 2014. For the annual bonus, the amounts illustrated are those potentially receivable in respect of
performance for 2014. For the CIP, the award opportunities assume full voluntary investment in Inchcape shares. PSP values are based
on the proposed number of shares to be awarded in 2014 and the average share price from 1 October 2013 to 31 December 2013
of 608.8p. Note that the projected values exclude the impact of any share price movements and dividend accrual.
The ‘Minimum’ scenario shows base salary, pension and benefits (i.e. fixed remuneration) which are the only elements of the
Executive Directors’ remuneration packages which are not at risk.
The ‘On-Target’ scenario reflects fixed remuneration as above, plus a target payout of 40% of the annual bonus, threshold match
of 0.5:1 under the CIP, and threshold vesting of 25% and 0% of the ‘normal’ and ‘enhanced’ shares, respectively, under the PSP.
The ‘Maximum’ scenario reflects fixed remuneration, plus full payout of all incentives.
www.inchcape.com
63
GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
DIRECTORS’ REPORT ON REMUNERATION CONTINUED
APPROACH TO RECRUITMENT REMUNERATION
EXTERNAL APPOINTMENTS
In the cases of appointing a new Executive Director, the Committee may make use of any of the existing components of remuneration,
as follows:
Component
Approach
Base salary
Pension
Benefits
Annual bonus
PSP
CIP
Other
The base salaries of new appointees will be determined by reference
to the scope of the role, experience of the individual, pay levels
at organisations of a similar size, complexity and type, pay and
conditions elsewhere in the Group, implications for total remuneration,
internal relativities and the candidate’s current base salary
New appointees will be eligible to participate in the Group pension
plan (or receive a cash supplement in lieu) on similar terms to existing
Executive Directors
New appointees will be eligible to receive normal benefits available
to senior managers, including (but not limited to) company cars,
medical care and life assurance
The annual bonus described in the policy table will apply to new
appointees with the relevant maximum being pro-rated to reflect
the proportion of employment over the year
New appointees will be granted awards under the CIP and PSP
on the same terms as other Executive Directors, as described in
the policy table
New appointees will be required to be eligible for a bonus before
they can participate in the CIP
Any buy out of incentives forfeited on leaving previous employer
will be structured on a comparable basis, taking into account any
performance conditions attached, time to vesting and share price
at the time of buy out
The Committee retains discretion to make use of the relevant listing
rule to facilitate such a buy out
Maximum annual grant value
n/a
150% of salary
300% of salary in normal
circumstances, or
higher in exceptional
circumstances
100% of salary in normal
circumstances, or 200%
of salary in exceptional
circumstances
n/a
The combined
maximum is not
intended to
exceed 400% of
salary in normal
circumstances
In determining the appropriate remuneration for a new Executive Director, the Committee will take into consideration all relevant factors
to ensure that arrangements are in the best interests of the Group and its shareholders.
INTERNAL APPOINTMENTS
In cases of internal promotions to the Board, the Committee will determine remuneration in line with the policy for external appointees
as detailed above. Where an individual has contractual commitments made prior to their promotion to Executive Director level, the
Company will continue to honour these arrangements. Incentive opportunities for below Board employees are typically no higher
than for Executive Directors, but measures may vary to provide better line-of-sight.
NON-EXECUTIVE DIRECTORS
In recruiting a new Non-Executive Director, the Committee will use the policy as set out in the table on page 62. A base fee in line with
the prevailing fee schedule would be payable for Board membership, with additional fees payable for acting as Senior Independent
Director or as Chairman of the Audit, Remuneration and CR Committees as appropriate.
64
Inchcape plc Annual Report and Accounts 2013
EXIT PAYMENT POLICY, SERVICE CONTRACTS
AND CHANGE OF CONTROL
The Company’s policy is to limit severance payments on
termination to pre-established contractual arrangements. In
addition, the Committee retains discretion to settle any other
amount reasonably due to the Executive Director, for example
to meet the legal fees incurred by the Executive Director in
connection with the termination of employment, where the
Company wishes to enter into a settlement agreement and
the individual must seek independent legal advice. 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.
When considering exit payments, the Committee reviews all
potential incentive outcomes to ensure they are fair to both
shareholders and participants.
The table below summarises how the awards under the
annual bonus, PSP and CIP are typically treated in specific
circumstances, with the final treatment remaining subject
to the Committee’s discretion:
Treatment of
bonus/awards
Payment/Vesting date
Either the end of
the performance
period or at the
Committee’s
discretion
Either the end of
the performance
period or at the
Committee’s
discretion
Bonus will lapse
unless the leave
date is after year
end. Bonus will only
be paid to the
extent the targets
set at the beginning
of the year have
been achieved
Bonuses will only be
paid to the extent
that targets set at
the beginning of the
year have been
achieved
Resulting bonus will
be pro-rated for time
served during year
Unvested awards
lapse on date
of resignation.
Vested awards
can be exercised
Either the end of
the performance
period or at the
Committee’s
discretion
Any unvested
awards will be
pro-rated for time
and performance
Either the end of
the performance
period or at the
Committee’s
discretion
Circumstance
Annual bonus
Resignation
Death, ill-health,
redundancy,
retirement, or any
other reason which
the Committee
may, in its absolute
discretion, permit
Change of control
PSP and CIP
Resignation
Death, ill-health,
redundancy,
retirement (CIP
only), or any other
reason which the
Committee may,
in its absolute
discretion, permit
Change of control
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
1 September
2005
12 months from
Director or
Company
To retirement
age
John
McConnell
1 October 2009 12 months from
Director or
Company
To retirement
age
The Company may terminate the Executive Directors’ contract
by paying a sum equal to his base salary and, in certain
circumstances, benefits including pension and life assurance,
car and entitlement to holiday pay for the 12 month period.
Executive Director service contracts are available to view at
the Company’s registered office.
PART 2 – ANNUAL REPORT ON REMUNERATION
The following section provides details of how the Company’s
remuneration policy was implemented during the financial year
ended 31 December 2013 and how it will be implemented in
the financial year ending 31 December 2014.
KEY RESPONSIBILITIES OF THE REMUNERATION COMMITTEE
• Remuneration policy
• Annual bonus targets
• Performance targets for share incentive plans
• Executive Committee remuneration
The terms of reference for the Remuneration Committee can be
found on the website www.inchcape.com/about_us/governance
The Committee Chairman is Nigel Northridge. The members are
Till Vestring and Ken Hanna. 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. No Director takes part in any decision affecting
his own remuneration.
After the retirement of Will Samuel during the year, the Committee
consisted of two independent Non-Executive Directors. Therefore
the Committee did not comply with Code D.2.1 of the UK
Corporate Governance Code which requires at least three
independent Non-Executive Directors. The recruitment of a further
Non-Executive Director is underway and an additional member
will be appointed to the Remuneration Committee in due course.
COMMITTEE ACTIVITIES DURING THE YEAR
Directors’ Report on Remuneration – The Committee approved the
2012 Directors’ Report on Remuneration and recommended to the
Board that the Report be approved by shareholders at the AGM.
Bonus – The Committee reviewed and agreed the achievement
of the performance targets for the 2012 bonus (payable in 2013).
The Committee also discussed the performance targets for
the 2013 bonus (payable in 2014) and agreed that these were
both relevant and satisfactory in light of the Group’s strategy.
Details of the 2013 bonus paid to the Executive Directors can
be found on page 67.
www.inchcape.com
65
GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
DIRECTORS’ REPORT ON REMUNERATION CONTINUED
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 in the table below.
reviewed and approved the performance targets and grant level
of the 2013 Performance Share Plan, the 2013 Co-investment Plan
and the 2013 SAYE grant. Details of the awards made to Executive
Directors can be found on page 70. The Committee also
monitored headroom limits in accordance with ABI guidelines.
Chairman’s fee – The Committee reviewed the Chairman’s
fee, which had not been increased since 2009. The Committee
approved an increase to £300,000 per annum.
Share plans – The Committee agreed the vesting level of the
2010 Executive Share Option Plan, reviewed the performance
targets of the 2011 and 2012 Performance Share Plan and
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.
SINGLE TOTAL FIGURE OF REMUNERATION FOR EXECUTIVE DIRECTORS (AUDITED)
The table below sets out the total actual remuneration received by each Executive Director for the year to 31 December 2013
and the prior year.
Base salary
Taxable benefits1
Pension2
Single-year variable3
Multiple-year variable4
Other5
Total
André Lacroix
(£000)
John McConnell
(£000)
2013
806
18
321
588
2,402
3
4,138
2012
790
18
311
815
446
–
2,380
2013
422
6
154
306
1,125
–
2,013
2012
408
10
168
420
254
–
1,260
The figures have been calculated as follows:
1. Taxable benefits comprise car allowance and medical cover.
2. During the year, André Lacroix and John McConnell received cash supplements of 40% and 30% of base salary, respectively, in lieu of pension contribution.
3. Payment for performance during the year under the annual bonus, including amounts paid in shares. See following sections for further details.
4. The 2013 figure includes any CIP and PSP awards based on the value at vesting of shares vesting on performance over the three year period ending 31 December 2013.
Shares valued based on the average share price from 1 October 2013 to 31 December 2013 of 608.8p. The 2012 figure has been restated to show the actual value of the
long term incentives which vested in 2013 rather than the estimates given last year.
5. SAYE based on the embedded value at grant. The mid market price on the date of grant, 1 November 2013, was 635.5p. The exercise price for the 2013 SAYE is 476p.
SINGLE TOTAL FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS (AUDITED)
The table below sets out a single figure for the total remuneration received by each Non-Executive Director (NED) for the year ended
31 December 2013 and the prior year.
Ken Hanna*
Will Samuel**
David Scotland**
Alison Cooper
John Langston**
Simon Borrows
Nigel Northridge
Vicky Bindra
Till Vestring
Total
Base fee
(£000)
Committee
Chair fee
(£000)
Total fees
(£000)
2013
2012
2013
2012
2013
2012
293
29
–
53
23
60
53
53
53
617
282
76
23
50
–
50
50
47
50
628
–
–
–
–
3
10
10
10
–
33
–
–
–
–
–
10
10
10
–
30
293
29
–
53
26
70
63
63
53
650
282
76
23
50
–
60
60
57
50
658
With effect from 1 May 2013, the fee payable to the Chairman of the Board is £300,000 p.a. and the basic fee payable to each Non-Executive Director is £55,000 p.a.
The fee payable for chairing the Audit, Remuneration and CR Committees is £10,000 p.a. The Senior Independent Director receives a fee of £76,000 p.a.
As the NED fees were reviewed and increased in 2013 there are no plans to review the fees in 2014.
* Ken Hanna’s fee includes medical cover.
** David Scotland left the Group on 10 May 2012, Will Samuel left the Group on 16 May 2013 and John Langston was appointed on 1 August 2013.
66
Inchcape plc Annual Report and Accounts 2013
SINGLE TOTAL FIGURE OF REMUNERATION OF ALL
DIRECTORS (AUDITED)
Single total figure
2013
£’000
6,801
2012
£’000
4,298
BASE SALARY
Salaries are reviewed annually and typically take effect from
1 April of each year.
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.
Salaries for 2014 were determined taking account of this
benchmarking data, as well as the other factors detailed
in the policy table.
The salaries for 2012, 2013 and 2014 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 2012
1 April 2013
1 April 2014
£794,254
(2% increase)
£409,734
(2% increase)
3.2%
increase
£810,140
(2% increase)
£426,123
(4% increase)
2.8%
increase
£826,343
(2% increase)
£434,645
(2% increase)
2.9%
increase
e
u
n
e
v
e
R
PENSION
During the year, André Lacroix and John McConnell received
cash supplements of 40% and 30% of base salary, respectively,
in lieu of pension contribution, and were eligible to join the
Cash+ scheme. This arrangement remains unchanged for 2014.
ANNUAL BONUS
ANNUAL BONUS IN RESPECT OF 2013 PERFORMANCE
In 2013, as for 2012, the Executive Directors’ annual bonuses were
assessed against a financial performance matrix. This matrix was
designed to reward stretching targets of revenue and operating
profit, whilst maintaining exceptional levels of customer service.
During the year, the Group delivered sales of £6.5bn and
operating profit before exceptional items of £286.9m, reflecting
annual growth of 7.2% and 10.3% respectively.
The Committee reviewed performance against the targets and
rules of the scheme and determined that revenue performance
was between target and stretch, and operating profit was
between target and stretch. The Group also achieved the NPS
targets. Taking into account all relevant factors, the Committee
determined that both the Group Chief Executive and the Group
Finance Director receive a bonus of 72.6% of salary for 2013.
Given the close link between performance measures
and longer term strategy, these targets remain commercially
sensitive and will not be published until such time that the
Committee is confident there will be no adverse impact on the
Company of such disclosure. We anticipate this will be no longer
than three years from the date of payment. The Committee will
keep this policy under review.
The Group’s performance in relation to the annual bonus matrix
is shown below.
Stretch
30%
90%
150%
Target
20%
60%
120%
Threshold
15%
45%
90%
NPS multiplier
X 0.8 -1.0
Threshold
Target
Stretch
Operating profit
Note: In this way,
20% of total bonus
is based on NPS –
the customer measure
ANNUAL BONUS FOR 2014
The maximum annual bonus opportunity for Executive Directors
in 2014 will remain unchanged from the opportunity in 2013,
and will be 150% of salary.
Bonuses will be based on the same financial performance matrix,
linked to revenue and operating profit, and customer service.
www.inchcape.com
67
GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
DIRECTORS’ REPORT ON REMUNERATION CONTINUED
PERFORMANCE SHARE PLAN
AWARDS VESTING DURING THE YEAR
In 2011, the Executive Directors were granted awards under the PSP. Vesting was dependent on EPS and average ROCE over
the three years to 31 December 2013. There was no retest provision. Further details, including vesting schedules and performance
against targets, are provided in the table below.
‘Normal’
performance shares
EPS
Performance measure
ROCE
Wtg.
75%
25%
Total (sum product of weighting and vest %)
‘Enhanced’
performance shares
EPS
100%
Performance targets
0% vesting below 7% p.a.;
25% vesting for 7% p.a.;
100% vesting for 15% p.a. or more;
Straight line vesting between these points
0% vesting below 18%;
25% vesting for 18%;
100% vesting for 21% or more;
Straight line vesting between these points
0% vesting below 15% p.a.;
100% vesting for 20% p.a. or more;
Straight line vesting between these points
Vesting outcome
(% of element)
71.5%
100%
79%
0%
The awards will vest on 23 May 2014, subject to continued employment. As the market price on the date of vesting is unknown at the
time of reporting, the value is estimated using the average market value over the last quarter of 2013 of 608.8p. The actual value at
vesting will be given in the 2014 Directors’ Report on Remuneration.
Executive Director
André Lacroix
John McConnell
André Lacroix
John McConnell
Interest held
304,171
130,761
101,390
26,152
Vesting %
Interest vesting
Date vesting Assumed market price
Estimated value
79%
0%
240,295
103,301
0
0
23 May 2014
608.8p
23 May 2014
608.8p
£1,462,916
£628,896
£0
£0
AWARDS MADE DURING THE YEAR
Awards of ‘normal’ and ‘enhanced’ awards were made to Executive Directors and other senior executives under the PSP in 2013,
and details are provided in the table on page 70.
Awards in 2011 were based on a percentage of salary, but were fixed as a number of shares for 2012 and 2013. 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 the face value will rise if the share price rises.
Performance conditions for awards made in 2013 are as follows:
NORMAL AWARDS
Three year EPS growth p.a.
Less than 7%
7%
15%
Between 7% and 15%
Three year average ROCE
Less than 18%
18%
21%
Between 18% and 21%
ENHANCED AWARDS
Vesting percentage
Three 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
Vesting percentage
0%
100%
Straight line basis
68
Inchcape plc Annual Report and Accounts 2013
CO-INVESTMENT PLAN
AWARDS VESTING DURING THE YEAR
In 2011, both Executive Directors made investments in the CIP and were therefore granted matching awards. Vesting was dependent
on EPS and average ROCE over the three years to 31 December 2013. There was no retest provision. Further details, including vesting
schedules and performance against targets, are provided in the table below.
Performance measure
EPS
ROCE
Wtg.
75%
25%
Total (sum product of weighting and vest %)
Performance targets
No match below 7% p.a.;
0.5:1 match for 7% p.a.;
2:1 match for 15% p.a. or more;
Straight line vesting between these points
No match below 18%;
0.5:1 match for 18%;
2:1 match for 21% or more;
Straight line vesting between these points
Vesting outcome
(% of element)
1.44:1 match
2:1 match
1.58:1 match
The awards will vest on 2 June 2014, subject to continued employment. As the market price on the date of vesting is unknown at
the time of reporting, the value is estimated using the average market value over the last quarter of 2013 of 608.8p. The actual value
at vesting will be given in the 2014 Directors’ Report on Remuneration.
Executive Director
André Lacroix
John McConnell
Interest held
195,322
103,238
Vesting %
Interest vesting
Date vesting Assumed market price
Estimated value
79%
154,304
81,558
2 June 2014
608.8p
£939,403
£496,525
AWARDS MADE DURING THE YEAR
During 2013, both Executive Directors made investments in the CIP. André Lacroix invested 12.3% of net salary (24% of gross salary) and
received an award of 49% of salary. John McConnell invested 1.2% of net salary (2.6% of gross salary) and received an award of 4.9%
of salary. Details of these awards are provided in the table on page 70.
For simplicity and alignment, the performance targets for the CIP awards are the same as the ‘normal’ PSP award made in 2013.
LONG TERM INCENTIVES FOR 2014
The Committee is currently consulting with major shareholders on proposed changes to the EPS targets attached to the PSP and CIP
awards for 2014, and at the same time a reduction in the total number of shares awarded for the PSP.
Subject to shareholder support for these proposals and shareholder approval of the Directors’ Remuneration Policy, for 2014 the
Group Chief Executive will receive 304,170 ‘normal’ PSP awards and 50,695 ‘enhanced’ PSP awards, and the Group Finance Director
will receive 130,760 ‘normal’ PSP awards and 13,075 ‘enhanced’ PSP awards.
EXECUTIVE SHARE OWNERSHIP (AUDITED)
As at 31 December 2013, the Directors held the following shares:
André Lacroix
John McConnell
Nil cost awards
Options held
Shares held
560,487
211,735
Subject to
performance
conditions
1,609,620
698,257
Subject to
deferral
n
n
Subject to
deferral
1,890
3,703
Vested but
not yet
exercised
1,205,337
50,072
Guideline
met*
y
y
* The Executive Directors are required to hold a fixed number of shares equivalent to 200% of base salary, which they both achieved as at 31 December 2013.
Details of the shares held by the Non-Executive Directors are given on page 71.
The number of shares held by each Director also includes any shares purchased under the CIP.
www.inchcape.com
69
GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
DIRECTORS’ REPORT ON REMUNERATION CONTINUED
AWARDS MADE DURING THE YEAR (AUDITED)
André Lacroix
‘Normal’ PSP
‘Enhanced’ PSP
CIP
SAYE
John McConnell
‘Normal’ PSP
‘Enhanced’ PSP
CIP
Date of
grant
Share
price
Number of
shares/options
awarded
Face
value at
grant
Performance period
Exercise period
11-Apr-13
11-Apr-13
23-Apr-13
01-Nov-13
11-Apr-13
11-Apr-13
23-Apr-13
513.5p
513.5p
499.0p
476.0p
513.5p
513.5p
499.0p
304,170
101,390
80,453
1,890
130,760
26,150
4,271
£1,561,913
£520,638
£401,460
£8,996
1 Jan 2013 – 31 Dec 2015 Apr 2016 – Apr 2017
1 Jan 2013 – 31 Dec 2015 Apr 2016 – Apr 2017
1 Jan 2013 – 31 Dec 2015 Apr 2016 – Oct 2016
n/a Nov 2016 – Apr 2017
£671,453
£134,280
£21,312
1 Jan 2013 – 31 Dec 2015 Apr 2016 – Apr 2017
1 Jan 2013 – 31 Dec 2015 Apr 2016 – Apr 2017
1 Jan 2013 – 31 Dec 2015 Apr 2016 – Oct 2016
• Performance conditions for awards made under the PSP and CIP in 2011 and 2012 are the same as those for awards made in 2013,
as detailed on page 68.
• PSP awards are based on a number of shares.
• At threshold 25% of the ‘normal’ PSP will vest, 0% of the ‘enhanced’ PSP will vest and 25% of the CIP will vest.
• The table shows the mid market price for shares on the date of grant for PSP and CIP.
• Details of all awards and options granted to Executive Directors can be found in the tables on pages 72 and 73.
PERCENTAGE CHANGE IN GROUP CHIEF
EXECUTIVE REMUNERATION
The table below shows the percentage change in Group Chief
Executive remuneration from 2012 compared with the average
percentage change in remuneration for all other employees.
ADVISORS TO THE COMMITTEE
The Remuneration Committee held a review of its advisors in 2010
and as a result of the review process appointed Kepler Associates
(Kepler) as the Company’s remuneration consultants. They have
no other connection with the Company.
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
of all elements of the remuneration policy and regular market
and best practice updates.
Kepler is a signatory and adheres to the Code of Conduct
for Remuneration Consultants (which can be found at
www.remunerationconsultantsgroup.com). Kepler reports
directly to the Committee Chairman and provides no
non-remuneration services to the Company and is therefore
considered to be independent.
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 £68,150 for their services during the
year, excluding expenses and VAT.
For the purposes of this disclosure, remuneration comprises salary,
benefits (excluding pension) and annual bonus only.
Salary
Taxable benefits
Single-year variable
Total
Change in remuneration from 2012 to 2013
Group Chief Executive
Senior Management*
2.0%
0.0%
-28.0%
-13.0%
2.7%
2.0%
-20.8%
-7.0%
* Employees representing the most senior executives (c.80) have been selected as
this group is large enough to provide a robust comparison, whilst also providing
data that is readily available on a matched sample basis. These employees also
participate in bonus schemes of a similar nature to Executive Directors and therefore
remuneration will be similarly influenced by Company performance.
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below shows the percentage change in total employee
pay expenditure and shareholder distributions
(i.e. dividends and share buy backs) from 2012 to 2013.
Distribution to shareholders
Employee remuneration
2013
£m
125.5
470.8
2012
£m
52.5
443.5
% change
139.0%
6.2%
On 2 August 2013, the Company announced a share buy
back of up to £100m within 12 months. As at 31 December 2013,
£49.7m had been returned to shareholders.
The Directors are proposing a final dividend for 2013 of
11.7p per share (2012: 10.5p).
70
Inchcape plc Annual Report and Accounts 2013
PAY FOR PERFORMANCE
The graph below shows the Total Shareholder Return (TSR) of
the Company over the five year period to 31 December 2013.
The FTSE mid 250 excluding investment trusts has been chosen
as the most suitable comparator group as it is the general market
index in which the Company appears. The table below details the
Group Chief Executive’s single figure remuneration and actual
variable pay outcomes over the same period.
HISTORICAL TSR PERFORMANCE
Growth in the value of a hypothetical £100 holding over the
5 years to 31 December 2013
1200
1000
800
600
400
200
0
08
09
10
11
12
13
SHAREHOLDER CONTEXT
The table below shows the advisory vote on the 2012 Directors’
Report on Remuneration at the 2013 AGM. It is the policy of the
Committee to consult with major shareholders prior to any major
changes to the remuneration policy.
For (including discretionary)
Against
Total votes cast (excluding
withheld votes)
Votes withheld*
Total votes cast (including
withheld votes)
Total number of votes
% of votes cast
364,369,003
20,958,318
385,327,321
299,899
385,627,220
94.56%
5.44%
100%
<0.1%
* Withheld votes are not included in the final proxy figures as they are not recognised
as a vote in law.
EXIT PAYMENT DURING THE YEAR
There were no exit payments made in 2013.
PAYMENTS TO PAST DIRECTORS
No payments were made to past Directors in 2013.
Key:
Inchcape
FTSE mid 250 excluding investment trust
OTHER DIRECTORSHIPS
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.
2013
4,138
CEO single figure of
remuneration (£000)
Annual bonus outcome
(% of maximum)
LTI2 vesting outcome
(% of maximum)
2010
2009
2012
1,984 1,984 2,556 2,3801
2011
100% 100%
52%
68%
48%
0%
0% 100% 100%
66%
1. This excludes the one-off award of options granted to André Lacroix in 2009, which
he subsequently elected to return to the Company. They would have been worth
c.£1,182k on vesting during 2012
2. LTI includes CIP, ‘normal’ PSP, ‘enhanced’ PSP shares and options prior to 2013
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
Committee and the Company complies with the limits set by
the Association of British Insurers.
Issued share capital as at 31 December 2013
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
463.8m
46.3m
17.3m
23.1m
1.5m
André Lacroix holds two such positions: Senior Independent
Director for Reckitt Benckiser Group plc for which he receives
a fee of £91,000 and as Non-Executive Chairman of Good
Restaurants AG for which he does not receive a fee.
John McConnell is a Non-Executive Director of UBM plc for
which he receives a fee of £70,000.
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 2013:
Name
Ken Hanna
André Lacroix
John McConnell
Vicky Bindra
Simon Borrows
Alison Cooper
Nigel Northridge
John Langston
Till Vestring
31 December 2013
1 January 2013
70,000
560,487
211,735
504
1,000,000
2,726
25,267
267
30,341
70,000
536,179
210,676
0
1,000,000
2,500
25,000
0
30,000
There have been no changes to the number of shares held by
the Directors between 31 December 2013 and 10 March 2014.
www.inchcape.com
71
GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
DIRECTORS’ REPORT ON REMUNERATION CONTINUED
PART 3 – ADDITIONAL INFORMATION [AUDITED]
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 pension specific ceiling of £137,400 in the 2012/13 tax year, subject to the
completion of between 20 and 40 years’ service. Members who joined after March 2005 contributed 7% of pensionable salary.
DIRECTORS’ PENSION ENTITLEMENTS
JOHN MCCONNELL
Increase in
accrued DB
pension during
the year £’000
Increase in
accrued DB
pension during
the year (net of
inflation) £’000
Accumulated
total of accrued
DB pension at
31.12.12 £’000
Accumulated
total of accrued
DB pension as at
31.12.13 £’000
Accumulated
lump sum
£’000
Pension value
in year £’000
Cash
supplement
£’000
Group pension
Cash+
0.0
n/a
0.0
n/a
14.7
n/a
15.0
n/a
n/a
48.0
0.1
27.0
n/a
127.0
John McConnell made a contribution to his pension of 7% of capped salary via salary sacrifice during the year. His normal retirement date is 16 March 2026.
Total
£’000
n/a
154.0
DIRECTORS’ SHARE OPTIONS
André Lacroix
John McConnell
Held at 31.12.13
205,468 (a)
755,999 (a)
243,870 (a)
–
1,890 (b)
–
28,428 (a)
21,644 (a)
–
–
–
3,703 (b)
Lapsed
during
year
Exercised
during
the year
Granted
during
the year
Held at
01.01.13
Exercise
price(£)(c)
–
–
–
–
–
–
4,390 (d)
–
–
–
17,746 (d)
–
–
–
–
–
– 222,772 (d)
46,875 (d)
–
– 125,806 (d)
–
–
–
–
–
–
1,890 (b)
–
–
–
–
–
–
–
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 (a)
6.034
2.00
3.10
2.05
4.76
2.140
4.416
5.776
2.00
3.20
3.10
2.43
Exercise period
Sept 2008 – Sept 2015
May 2012 – May 2019
Apr 2013 – Apr 2020
Nov 2013 – Apr 2014
Nov 2016 – Apr 2017
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.
•
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.
• Such options are normally exercisable between three and 10 years from grant.
(b) Under the Inchcape SAYE Share Option Scheme.
• 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.
• The table shows Executive Directors’ options over ordinary shares of 10.0p at 1 January 2013 and 31 December 2013.
• The mid market price for shares at the close of business on 31 December 2013 was 614.5p. The price range during 2013 was 430.9p to 645.0p.
(d) The following options were exercised during the year:
•
John McConnell exercised options over 17,746 ordinary shares on 13 March 2013. The mid market price for shares on the date of exercise was 521.0p. He sold all the shares
upon exercise. A gain of £54,036.57 was made on the sale of the shares.
John McConnell exercised options over 395,453 ordinary shares on 12 April 2013. The mid market price for shares on the date of exercise was 513.0p. He sold all the shares
upon exercise. A gain of £1,038,951.36 was made on the sale of the shares.
André Lacroix exercised options over 4,390 ordinary shares on 1 November 2013. The mid market price for shares on the date of exercise was 635.5p. He retained all the
shares upon exercise.
•
•
72
Inchcape plc Annual Report and Accounts 2013
PERFORMANCE SHARE PLAN
Share
awards as at
31.12.13
Share awards
lapsed
during the
year
Share awards
exercised
during the
year
André Lacroix
John McConnell
304,171 (a)
101,390 (b)
304,170 (a)
101,390 (a)
304,170 (a)
101,390 (b)
130,761 (a)
26,152 (b)
130,760 (a)
26,150 (b)
130,760 (a)
26,150 (b)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Share awards
granted
during the
year
–
–
–
–
304,170 (a)
101,390 (b)
Share
awards as at
01.01.13
304,171 (a)
101,390 (b)
304,170 (a)
101,390 (b)
–
–
Date of grant
Exercise period
23-May-11 May 2014 – May 2015
23-May-11 May 2014 – May 2015
April 2015 – April 2016
10-Apr-12
April 2015 – April 2016
10-Apr-12
April 2016 – April 2017
11-Apr-13
April 2016 – April 2017
11-Apr-13
–
–
–
–
130,760 (a)
26,150 (b)
130,761 (a)
26,152 (b)
130,760 (a)
26,150 (b)
–
–
23-May-11 May 2014 – May 2015
23-May-11 May 2014 – May 2015
April 2015 – April 2016
10-Apr-12
April 2015 – April 2016
10-Apr-12
April 2016 – April 2017
11-Apr-13
April 2016 – April 2017
11-Apr-13
Notes on the Performance Share Plan
•
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.
• The share price on the date of grant in 2011 was 379.9p
• The share price on the date of grant in 2012 was 354.3p
• The share price on the date of grant in 2013 was 513.5p
(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.
• Details of the performance targets are given on page 68.
• All awards were granted for nil consideration.
• The table shows Executive Directors’ awards over ordinary shares of 10.0p at 1 January 2013 and 31 December 2013.
• The mid market price for shares at the close of business on 31 December 2013 was 614.5p. The price range during 2013 was 430.9p to 645.0p.
CO-INVESTMENT PLAN
Awarded ordinary
shares 31.12.13
Ordinary shares
lapsed during
the year
Ordinary shares
exercised
during the year
Ordinary shares
awarded
during the year
Awarded ordinary
shares 01.01.13
195,322
117,164
80,453
103,238
120,015
4,271
–
–
–
–
–
–
–
–
–
–
–
–
–
–
80,453
–
–
4,271
195,322
117,164
–
103,238
120,015
–
Date of grant
02-Jun-11
22-Jun-12
23-Apr-13
02-Jun-11
22-Jun-12
23-Apr-13
Exercise period
Jun 2014 – Dec 2014
Jun 2015 – Dec 2015
Apr 2016 – Oct 2016
Jun 2014 – Dec 2014
Jun 2015 – Dec 2015
Apr 2016 – Oct 2016
André Lacroix
John McConnell
Notes on Co-investment Plan
•
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.
• Awards vest 75% on three year EPS growth and 25% on three year average ROCE.
• 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
• The share price on the date of grant in 2013 was 499.0p
• Details of the performance targets are given on page 68.
www.inchcape.com
73
GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
DIRECTORS’ REPORT
DIRECTORS
The Directors of the Company who were in office during
the year were:
Vicky Bindra
Simon Borrows
Alison Cooper
Ken Hanna
André Lacroix
John Langston
John McConnell
Nigel Northridge
Will Samuel
Till Vestring
Each Director held office throughout the year except Will Samuel
who retired on 16 May 2013 and John Langston who was
appointed on 1 August 2013.
There have been no appointments between 1 January 2014
and 10 March 2014.
The biographical details for each Director are given on pages 44
and 45.
In accordance with the 2012 UK Corporate Governance Code
all of the Directors will stand for election or re-election at the
AGM on 16 May 2014.
RESULTS AND DIVIDENDS
The Group’s audited financial statements for the year ended
31 December 2013 are shown on pages 78 to 82. The Board
recommends a final ordinary dividend of 11.7p per ordinary share.
If approved at the 2014 AGM, the final ordinary dividend will be
paid on 24 June 2014 to shareholders registered in the books of
the Company at the close of business on 30 May 2014. Together
with the interim dividend of 5.7p per ordinary share paid on
12 September 2013, this makes a total ordinary dividend for
the year of 17.4p per ordinary share (2012 – 14.5p).
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, judgment is given against the Director.
74
Inchcape plc Annual Report and Accounts 2013
The indemnity has been in force for the financial year ended
31 December 2013.
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 Strategic
Report on pages 1 to 43 and in the notes to the accounts on
pages 90 to 137.
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 with 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 (IFRS) 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:
• select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether IFRS, 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;
• 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:
• the Group financial statements, which have been prepared
in accordance with IFRS as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position and
profit of the Group; and
• the Operating review contained on pages 26 to 34 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.
The Board has reviewed the content of the Annual Report and
Accounts and considers when taken as a whole that it is fair,
balanced and understandable and provides the information
necessary for shareholders to assess the Company’s
performance, business model and strategy.
PRINCIPAL FINANCIAL RISK FACTORS
These risks are shown on page 37.
EVENTS AFTER THE REPORTING PERIOD
In the year ended 31 December 2013, the Company purchased,
for cancellation, 8,147,813 ordinary shares of 10.0p each at a
cost of £49.7m. In the period from 1 January to 10 March 2014,
the Company purchased, for cancellation, a further 4,078,000
ordinary shares of 10.0p each at a cost of £25.0m. The Company
is committed to completing a £100m share buy back
programme by 30 June 2014.
EMPLOYEES
The Company is committed to a policy of treating all its
colleagues and job applicants equally. 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.
DIVERSITY
The breakdown showing the number of female and
male employees who were (i) Directors of the Company
(ii) senior managers and (iii) employees of the Company as
at 31 December 2013 is given in the Corporate Responsibility
Report on page 42.
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 2013.
Name
31 December 2013
1 January 2013
Ken Hanna
André Lacroix
John McConnell
Vicky Bindra
Simon Borrows
Alison Cooper
Nigel Northridge
John Langston
Till Vestring
70,000
560,487
211,735
504
1,000,000
2,726
25,267
267
30,341
70,000
536,179
210,676
0
1,000,000
2,500
25,000
0
30,000
There have been no changes to the number of shares held by
Directors between 31 December 2013 and 10 March 2014.
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 2013, the Trust’s shareholding totalled 1,777,567
ordinary shares. Between 1 January 2014 and 10 March 2014
the Trust transferred 17,703 ordinary shares to satisfy the exercise
of awards under employee share plans.
SIGNIFICANT SHAREHOLDERS
As at 10 March 2014, the Company had been notified of the
following significant shareholders:
Shareholder
Percentage notified
Prudential plc
Standard Life
Mr George Horesh
Capital Group of Companies Inc
Schroders plc
Legal & General
9.22%
8.00%
7.99%
6.01%
5.07%
3.99%
Source TR-1 notifications. These are updated on the Company’s website.
SHARE CAPITAL
As at 31 December 2013, the Company’s issued share capital of
£46,380,853.70 comprised 463,808,537 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.
www.inchcape.com
75
GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
DIRECTORS’ REPORT CONTINUED
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, 16 May 2013, the
Company was authorised to make market purchases of up
to 46,578,249 ordinary shares (representing approximately
10.0% of its issued share capital).
On 2 August 2013, the Company announced a share buy
back of up to £100m within 12 months. The Board recognised
the opportunity to return cash to shareholders, thus ensuring
capital discipline.
Pursuant to the authority granted at the 2013 AGM the Company
purchased, for cancellation, 8,147,813 ordinary shares of 10.0p
each (representing 1.76% of the Company’s issued share capital
as at 31 December 2013) at a cost of £49.7m. All purchases were
made through the market.
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.
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.
76
Inchcape plc Annual Report and Accounts 2013
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, other than
remuneration, required to be disclosed in terms of the
Companies Act 2006 and IAS 24, ‘Related Parties’ was outstanding
at 31 December 2013, or was entered into during the year for
any Director and/or connected person (2012 – none).
GREENHOUSE GAS EMISSIONS
The information required under Schedule 7 of the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 in respect of greenhouse gas emissions is given
in the Environment section of the Corporate Responsibility Report
on pages 41 and 42.
EMPLOYEE INVOLVEMENT
The information required under Schedule 7 of the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 in respect of employee involvement is given in
the People section of the Corporate Responsibility Report on
pages 42 and 43.
CORPORATE GOVERNANCE STATEMENT
The information required under DTR7 is given in the Corporate
Governance Report on pages 48 to 57.
FINANCIAL INSTRUMENTS
The information required under Schedule 7 of the Large and
Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 in respect of financial instruments is given in note
23 to the financial statements on page 123 to 129.
ANNUAL GENERAL MEETING
The AGM will be held at 11.00 a.m. on Friday, 16 May 2014 at
Deutsche Bank AG, Winchester House, 1 Great Winchester Street.
London EC2N 2DB.
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.
The Directors’ Report and the Strategic Report were approved
by the Board and have been signed by the Company Secretary
on its behalf.
TAMSIN WATERHOUSE,
GROUP COMPANY SECRETARY
IN THIS SECTION
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 financial statements
FINANCIAL STATEMENTS
78
79
80
81
82
83
90
138 Five year record
139 Report of the auditors – Group
142 Company balance sheet
143 Accounting policies
144 Notes to the financial statements
150 Report of the auditors – Company
www.inchcape.com
77
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2013
Revenue
Cost of sales
Gross profit
Net operating expenses
Operating profit
Share of profit after tax of joint ventures and associates
13
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)
1. See note 34.
6
7
8
9
9
Before
exceptional
items
2013
£m
Exceptional
items
(note 2)
2013
£m
Notes
Before
exceptional
items
(restated)1
2012
£m
Exceptional
items
(note 2)
(restated)1
2012
£m
Total
2013
£m
Total
(restated)1
2012
£m
1, 3
6,524.9
–
6,524.9
6,085.4
–
6,085.4
(5,598.2)
(0.5) (5,598.7) (5,210.7)
(0.4) (5,211.1)
926.2
874.7
(0.4)
874.3
926.7
3
(639.8)
(647.8)
(614.9)
278.4
259.8
286.9
–
286.9
15.4
(27.7)
274.6
(65.9)
208.7
0.2
260.0
16.5
(29.5)
247.0
(60.8)
186.2
(0.5)
(8.0)
(8.5)
–
–
(8.5)
278.4
–
–
15.4
(27.7)
(8.5)
266.1
0.6
(65.3)
(7.9)
200.8
194.2
6.6
200.8
41.8p
41.1p
1.1
0.7
–
0.7
–
–
0.7
0.5
1.2
(613.8)
260.5
0.2
260.7
16.5
(29.5)
247.7
(60.3)
187.4
181.5
5.9
187.4
39.4p
38.7p
The notes on pages 90 to 137 are an integral part of these consolidated financial statements.
78 Inchcape plc Annual Report and Accounts 2013
78
Inchcape plc Annual Report and Accounts 2013
STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2013
Profit for the period
Other comprehensive income:
Items that will not be reclassified to the consolidated income statement
Defined benefit pension scheme remeasurements
Deferred tax recognised in statement of comprehensive income
Items that may be reclassified subsequently to the consolidated income statement
Cash flow hedges
Fair value gains on available for sale financial assets
Impairment losses on available for sale financial assets transferred to consolidated income statement
Recycled fair value gains on disposal of available for sale financial assets
Effect of foreign exchange rate changes
Deferred tax recognised in statement of comprehensive income
Other comprehensive (loss) / income for the period, net of tax
Total comprehensive income for the period
Total comprehensive income attributable to:
– Owners of the parent
– Non controlling interests
1. See note 34.
The notes on pages 90 to 137 are an integral part of these consolidated financial statements.
Notes
2012
(restated)1
£m
2013
£m
200.8
187.4
5
16
14
25
(33.9)
(3.6)
(37.5)
49.7
8.7
58.4
41.4
(46.1)
–
–
(1.6)
0.1
1.0
–
(103.9)
(12.3)
16
(12.8)
13.8
(76.9)
(43.5)
(114.4)
14.9
86.4
202.3
78.4
8.0
86.4
199.8
2.5
202.3
www.inchcape.com 79
79
www.inchcape.com
GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2013
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
Derivative financial instruments
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
1. See note 34.
Notes
2013
£m
As at 31
December
2012
(restated)1
£m
As at 1
January
2012
(restated)1
£m
11
12
13
14
15
16
5
17
15
14
23
18
19
20
23
21
22
20
21
23
16
22
5
19
24
25
26
587.1
732.7
14.0
1.4
26.9
24.6
125.4
1,512.1
1,042.7
309.9
8.3
106.2
2.2
396.8
1,866.1
8.2
1,874.3
3,386.4
559.5
693.1
13.8
4.0
31.2
40.4
122.4
1,464.4
928.9
258.4
2.7
116.1
3.0
597.9
1,907.0
31.3
1,938.3
3,402.7
542.6
647.6
29.5
5.6
34.4
43.0
56.6
1,359.3
905.5
251.5
0.5
139.7
2.2
558.9
1,858.3
5.7
1,864.0
3,223.3
(1,278.8) (1,150.7)
(62.6)
(47.5)
(41.9)
(113.5)
(1,467.9) (1,416.2)
(36.9)
(49.5)
(37.0)
(65.7)
(18.0)
(31.8)
(4.5)
(43.1)
(297.9)
(19.4)
(414.7)
(4.6)
(22.4)
(43.0)
–
(26.9)
(320.0)
(26.7)
(439.0)
(19.1)
(1,887.2) (1,874.3)
(1,140.6)
(7.4)
(45.1)
(36.8)
(101.9)
(1,331.8)
(29.6)
(54.1)
–
(42.9)
(338.6)
(60.8)
(526.0)
–
(1,857.8)
1,499.2
1,528.4
1,365.5
46.5
145.7
134.1
8.7
1,135.0
1,470.0
29.2
1,499.2
46.9
136.5
133.3
86.7
1,099.2
1,502.6
25.8
1,528.4
46.4
126.9
133.3
126.8
903.7
1,337.1
28.4
1,365.5
The notes on pages 90 to 137 are an integral part of these consolidated financial statements. The consolidated financial statements
on pages 78 to 137 were approved by the Board of Directors on 10 March 2014 and were signed on its behalf by:
ANDRÉ LACROIX,
GROUP CHIEF EXECUTIVE
JOHN MCCONNELL,
GROUP FINANCE DIRECTOR
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STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2013
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
At 1 January 2012
Adjustment for IAS 19 (revised)
At 1 January 2012 (restated)1
46.4
126.9
133.3
126.8
895.7
1,329.1
28.4
1,357.5
34
–
–
–
–
8.0
8.0
–
8.0
46.4
126.9
133.3
126.8
903.7
1,337.1
28.4
1,365.5
Profit for the year (restated)1
Other comprehensive income / (loss) for
the year (restated)1
Total comprehensive income / (loss) for
the year (restated)1
Share-based payments, net of tax
4,16
Net purchase of own shares by ESOP Trust
–
–
–
–
–
–
–
–
–
–
Issue of ordinary share capital
24
0.5
9.6
–
–
–
–
–
–
–
–
–
–
181.5
181.5
5.9
187.4
(40.1)
58.4
18.3
(3.4)
14.9
(40.1)
239.9
199.8
2.5
202.3
–
–
–
–
–
–
10.4
(2.3)
–
10.4
(2.3)
10.1
(52.5)
(52.5)
–
–
–
–
–
–
–
–
(3.3)
(1.8)
10.4
(2.3)
10.1
(52.5)
(3.3)
(1.8)
10
–
–
–
–
–
–
46.9
136.5
133.3
86.7
1,099.2 1,502.6
25.8
1,528.4
–
–
–
–
(0.8)
–
0.4
–
–
–
–
–
–
–
–
9.2
–
–
–
–
–
–
0.8
–
–
–
–
4,16
24
24
10
–
194.2
194.2
6.6
200.8
(78.0)
(37.8)
(115.8)
1.4
(114.4)
(78.0)
156.4
78.4
8.0
86.4
–
–
–
–
–
–
7.4
7.4
(50.0)
(50.0)
(2.5)
(2.5)
–
9.6
(75.5)
(75.5)
–
–
–
–
–
–
–
(4.6)
29.2
7.4
(50.0)
(2.5)
9.6
(75.5)
(4.6)
1,499.2
46.5
145.7
134.1
8.7
1,135.0 1,470.0
Dividends:
– Owners of the parent
– Non controlling interests
Disposal of businesses
At 1 January 2013 (restated)1
Profit for the year
Other comprehensive (loss) / income for
the year
Total comprehensive income / (loss) for
the year
Share-based payments, net of tax
Share buy back programme
Net purchase of own shares by ESOP Trust
Issue of ordinary share capital
Dividends:
– Owners of the parent
– Non controlling interests
At 31 December 2013
1. See note 34.
The notes on pages 90 to 137 are an integral part of these consolidated financial statements.
Share-based payments have been stated net of a tax charge of £1.6m (2012 – credit of £3.6m).
Cumulative goodwill of £108.1m (2012 – £108.1m) has been written off against the retained earnings reserve.
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CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2013
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 of available for sale financial assets
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Share buy back programme
Net purchase of own shares by ESOP Trust
Net cash inflow / (outflow) from borrowings
Payment of capital element of finance leases
Loans granted to joint ventures
Equity dividends paid
Dividends paid to non controlling interests
Net cash used in financing activities
Net (decrease) / 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
1. See changes in accounting policy and disclosures.
The notes on pages 90 to 137 are an integral part of these consolidated financial statements.
82 Inchcape plc Annual Report and Accounts 2013
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Notes
27a
28a
28c
2013
£m
2012
(restated)1
£m
227.0
(48.7)
10.9
(28.7)
160.5
(74.1)
14.9
(96.5)
(20.0)
31.6
(3.0)
249.2
(47.2)
14.7
(32.3)
184.4
(15.8)
2.9
(83.8)
(13.9)
10.4
(0.8)
(147.1)
(101.0)
9.6
(50.0)
(2.5)
0.1
(1.7)
–
(75.5)
(4.6)
(124.6)
13
10
27b
(111.2)
484.9
(41.5)
332.2
10.1
–
(2.3)
(3.5)
(0.4)
(3.2)
(52.5)
(3.3)
(55.1)
28.3
461.3
(4.7)
484.9
Notes
2013
£m
2012
£m
18
18
22
290.3
106.5
324.4
273.5
(64.6)
(113.0)
332.2
484.9
STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
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 available for sale
financial assets, and those financial assets and financial liabilities (including derivative instruments) held at fair value through profit
or loss, which are measured at fair value.
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.
IAS 19 (revised), ‘Employee benefits’ has become effective and has been retrospectively applied by the Group for accounting
periods starting 1 January 2013. The revised standard impacts the way the Group accounts for pensions and other post-retirement
benefits as follows:
• the interest cost and expected return on plan assets are replaced with a net interest amount, calculated by applying the discount
rate to the net defined benefit asset or liability. Under the previous standard, the expected return on plan assets represented the
weighted average expected return on the assets held by the pension schemes; and
• expenses, other than investment management expenses, are recognised as period expenses when incurred. Under the previous
standard, expenses incurred in connection with running the pension schemes formed part of the defined benefit obligation.
Under the previous accounting policy, the Group recognised actuarial gains and losses directly in other comprehensive income
which is as required by the new standard.
The principal changes resulting from the adoption of IAS 19 (revised), ‘Employee benefits’ are set out in note 34.
The following new standards are effective for accounting periods beginning 1 January 2013 but have not had a material impact
on the results or financial position of the Group:
• IAS 1, ‘Amendment to IAS 1, Presentation of financial statements: Other comprehensive income’. The main change resulting from
this amendment is a requirement for the Group to present items on the basis of whether they are potentially reclassifiable to profit
or loss in subsequent periods.
• IFRS 7, ‘Amendment to IFRS 7 Financial instruments: Disclosures – Offsetting financial assets and financial liabilities’. The Group has
included the new disclosures required by this amendment in note 23.
• IFRS 13, ‘Fair value measurement’. The change in the accounting policy has been made in accordance with its transitional provisions.
• Annual improvements 2011.
The following standards were in issue but were not 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 2014:
• IAS 27 (revised), ‘Separate financial statements’
• IAS 28 (revised), ‘Associates and joint ventures’
• IAS 32, ‘Amendment to IAS 32 Financial Instruments: Presentation – Offsetting financial assets and financial liabilities’
• IAS 36, ‘Amendment to IAS 36 Impairment of assets’
• IAS 39, ‘Amendment to IAS 39 Financial instruments: Recognition and measurement'
• IFRS 9, ‘Financial instruments’(not yet endorsed)
• IFRS 10, ‘Consolidated financial statements’
• IFRS 11, ‘Joint arrangements’
• IFRS 12, ‘Disclosure of interests in other entities’
• IFRS 10, 11 and 12, ‘Amendment to IFRS 10, 11 and 12, Transition guidance’.
The above standards are not expected to have a material impact on the Group's reported position or performance.
The following changes have been made to the consolidated statement of cash flows and related notes:
• The effect of foreign exchange rate changes on intra-group funding arrangements has been reclassified from settlement of
derivatives to effect on foreign exchange rate changes in 2013, with the prior year comparative restated accordingly;
• Other non cash items include non cash pension charges / (credits).
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
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 are consolidated and the Group’s share of results of its joint ventures and
associates is equity accounted for 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 to / reductions from 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.
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’ in 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 receivable and residual value. This
sits as deferred income in the consolidated statement of financial position and is released to the consolidated income statement
on a straight line basis over the life of the lease. The residual value commitment, which reflects the price at which the vehicle will be
bought back, is held within ‘trade and other payables’, according to the date of the commitment.
Dividend income is recognised when the right to receive payment is established.
Finance income is recognised when it is probable that the economic benefits will flow to the Group and the amount of income
can be measured reliably. It is accrued on a time basis by reference to the principal outstanding and at the effective interest
rate applicable.
Cost of sales includes the expense relating to the estimated cost of self-insured warranties offered to customers. These
warranties form part of the package of goods and services provided to the customer when purchasing a vehicle and are
not a separable product.
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STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
SHARE-BASED PAYMENTS
The Group operates various share-based award schemes. The fair value at the date at which the share-based awards are granted
is recognised in the consolidated income statement (together with a corresponding increase in shareholders’ equity) on a straight
line basis over the vesting period, based on an estimate of the number of shares that will eventually vest. At the end of each
reporting period, the Group revises its estimates of the number of awards that are expected to vest. The impact of any revision
is recognised in the consolidated income statement with a corresponding adjustment to equity.
For equity-settled share-based awards, the services received from employees are measured by reference to the fair value of the
awards granted. With the exception of the Group Save As You Earn scheme, the vesting of all share-based awards under all
schemes is solely reliant upon non-market conditions, therefore no expense is recognised for awards that do not ultimately vest.
Where an employee or the Company cancels an award, the charge for that award is recognised as an expense immediately,
even though the award does not vest.
FINANCE COSTS
Borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised
as part of the cost of that asset from the first date on which the expenditure is incurred for the asset and until such time as the asset
is ready for its intended use. A Group capitalisation rate is used to determine the magnitude of borrowing costs capitalised on each
qualifying asset. This rate is the weighted average of Group borrowing costs, excluding those borrowings made specifically for the
purpose of obtaining a qualifying asset.
All other borrowing costs are recognised as an expense in the period in which they are incurred.
INCOME TAX
The charge for current income tax is based on the results for the period as adjusted for items which are not taxed or are 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 or substantively 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 five 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
on a straight line basis over their estimated useful life, which is generally less than a year.
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ACCOUNTING POLICIES CONTINUED
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
2.0%
Short leasehold buildings
Plant, machinery and equipment
Interest in leased vehicles
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. Any impairment losses are included within ‘net operating expenses’ in the
consolidated income statement.
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.
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.
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STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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. Administrative scheme expenses associated with the plans are
recorded within ‘net operating expenses’ when incurred, in line with IAS 19 (revised). Net interest income or interest cost relating to
the funded defined benefit pension plans is included within ‘finance income’ or ‘finance costs’, as relevant, in the consolidated
income statement.
Changes in the retirement benefit obligation or asset 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.
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 in 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’s operating segments are countries and the
market channels, distribution and retail. These operating segments are then aggregated into reporting segments to combine those
with similar characteristics.
FINANCIAL INSTRUMENTS
The Group classifies its financial instruments in the following categories: loans and receivables; held at fair value through profit and
loss; financial liabilities measured at 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 through profit and loss 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.
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ACCOUNTING POLICIES CONTINUED
FINANCIAL INSTRUMENTS CONTINUED
Financial liabilities measured at amortised cost include non-derivative financial liabilities which are held at original cost, less
amortisation or provisions 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 hold 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:
• hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or
• hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction
(cash flow hedge).
FAIR VALUE HEDGE
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the consolidated
income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged
risk. The Group only applies fair value hedge accounting for hedging fixed interest risk on borrowings and future fixed amount
currency liabilities (on its cross currency interest rate swaps). The gain or loss relating to the effective portion of interest rate swaps
hedging fixed rate borrowings and changes in the fair value of those borrowings are recognised in the consolidated income
statement within ‘finance costs’. The gain or loss relating to the ineffective portion is also recognised in the consolidated income
statement within ‘finance costs’.
CASH FLOW HEDGE
For cash flow hedges that meet the conditions for hedge accounting, the portion of the gains or losses on the hedging instrument
that is determined to be an effective hedge is recognised directly in other comprehensive income and the ineffective portion is
recognised 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.
AVAILABLE FOR SALE FINANCIAL ASSETS
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 income’ and ‘finance costs’ respectively.
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STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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.
SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The Directors have made a number of estimates and assumptions regarding the future, and made some significant judgements in
applying the Group’s accounting policies. These are discussed below:
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).
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.
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 during the ordinary course
of business for which the ultimate tax determination is uncertain. 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.
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 (see notes 11 and 12).
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
(see note 30).
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NOTES TO THE FINANCIAL STATEMENTS
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
Distribution
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Total
Distribution
£m
898.5
(223.7)
674.8
644.3
(144.5)
499.8
566.1
–
566.1
55.0
–
55.0
–
55.0
19.5
–
19.5
–
19.5
59.2
–
59.2
–
59.2
369.3
–
369.3
29.7
–
29.7
–
29.7
41.3
–
41.3
8.6
–
8.6
–
8.6
420.5
(31.8)
388.7
2,940.0
(400.0)
2,540.0
47.4
–
47.4
–
47.4
219.4
–
219.4
–
219.4
2013
Revenue
Total revenue
Inter-segment revenue
Revenue from third parties
Results
Segment result
Operating exceptional items
Operating profit after exceptional items
Share of profit after tax of joint ventures
and associates
Profit / (loss) before finance and tax
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
The segment result in Russia and Emerging Markets includes a profit of £6.2m on a sale of a property.
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GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
2013
Revenue
Total revenue
Inter-segment revenue
Revenue from third parties
Australasia
£m
Europe
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Total
Retail
£m
Total pre
Central
£m
Central
£m
Total
£m
Retail
691.1
–
691.1
129.7
–
129.7
2,183.0
–
2,183.0
981.1
–
981.1
3,984.9
–
3,984.9
6,924.9
(400.0)
6,524.9
–
–
–
6,924.9
(400.0)
6,524.9
Results
Segment result
Operating exceptional items
Operating profit after exceptional items
Share of profit after tax of joint ventures
and associates
Profit / (loss) before finance and tax
23.9
(5.7)
18.2
–
18.2
–
–
–
–
–
54.7
(1.1)
53.6
–
53.6
7.8
(1.0)
6.8
–
6.8
86.4
(7.8)
78.6
–
78.6
305.8
(7.8)
298.0
–
298.0
(18.9)
(0.7)
(19.6)
–
(19.6)
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Central costs include a past service credit of £9.8m (net of costs).
Net finance costs of £12.3m are not allocated to individual segments.
286.9
(8.5)
278.4
–
278.4
15.4
(27.7)
266.1
(65.3)
200.8
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 SEGMENTAL ANALYSIS CONTINUED
2013
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
78.6
126.4
107.6
69.5
37.3
140.8
560.2
(172.4)
(130.6)
(80.5)
(51.3)
(57.6)
(114.2)
(606.6)
Segment assets include net inventory, trade receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
2013
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
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
3.5
–
0.6
3.5
0.5
0.6
6.3
0.4
0.1
0.8
0.8
2.0
0.3
2.1
5.6
6.2
1.4
2.5
1.9
–
1.8
4.4
–
1.6
2.0
–
0.6
3.9
0.2
7.4
0.1
0.2
6.2
0.1
(0.3)
27.1
11.4
0.4
2.5
1.2
–
0.6
41.2
25.1
4.9
11.5
11.8
1.6
14.4
Net provisions include inventory, trade receivables impairment and other liability provisions.
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STRATEGIC REPORT
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DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
1 SEGMENTAL ANALYSIS CONTINUED
2013
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
149.4
25.4
461.8
196.4
833.0
1,393.2
(162.0)
(13.2)
(454.3)
(121.7)
(751.2)
508.0
1,485.2
(1,357.8)
(529.4)
1,499.2
Segment assets include net inventory, trade receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
2013
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
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
0.9
–
–
1.9
–
0.1
7.5
0.3
0.3
–
0.9
–
–
0.1
29.2
–
2.2
10.3
–
1.9
23.8
22.5
0.1
3.5
8.8
0.1
2.5
0.4
52.9
0.4
5.7
21.9
0.1
4.5
94.1
25.5
10.6
33.4
11.9
6.1
31.8
46.2
1.4
–
8.3
0.2
–
–
4.5
95.5
25.5
18.9
33.6
11.9
6.1
50.7
Net provisions include inventory, trade receivables impairment and other liability provisions.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 SEGMENTAL ANALYSIS CONTINUED
2012
Revenue
Total revenue
Inter-segment revenue
Revenue from third parties
Results
Segment result
Operating exceptional items
Operating profit / (loss) after
exceptional items
Share of profit / (loss) after tax of joint
ventures and associates
Profit / (loss) 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
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)
194.0
(4.7)
30.1
189.3
–
30.1
(0.1)
189.2
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STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
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 / (loss) after
exceptional items
Share of profit / (loss) after tax of joint
ventures and associates
Profit / (loss) before finance and tax
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
1. See note 34.
Australasia
£m
Europe
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Retail
Total
Retail
£m
Total pre
Central
£m
Central
(restated)1
£m
Total
(restated)1
£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)
(0.5)
(1.1)
14.5
(1.6)
–
14.5
–
(1.6)
58.0
(2.9)
55.1
–
55.1
12.7
(7.9)
86.1
(13.3)
280.1
(18.0)
(20.3)
18.7
259.8
0.7
4.8
0.3
5.1
72.8
262.1
(1.6)
260.5
0.3
73.1
0.2
262.3
–
(1.6)
0.2
260.7
16.5
(29.5)
247.7
(60.3)
187.4
Central costs include pension credits of £2.9m (restated).
Net finance costs of £13.0m are not allocated to individual segments.
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NOTES TO THE FINANCIAL STATEMENTS 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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STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
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
1. See note 34.
Australasia
£m
Europe
£m
United
Kingdom
£m
Russia and
Emerging
Markets
£m
Retail
Total
Retail
£m
Total
(restated)1
£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
1,433.0
(1,279.8)
(594.5)
1,528.4
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
–
–
–
–
–
2.3
22.3
–
2.1
10.0
–
1.2
0.2
0.8
–
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
28.3
46.9
0.7
–
7.9
0.2
–
–
–
–
–
5.9
86.0
42.6
15.1
29.7
13.7
3.7
0.2
1.9
0.8
52.8
Net provisions include inventory, trade receivables impairment and other liability provisions.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2 EXCEPTIONAL ITEMS
Restructuring costs
Acquisition of business
Closure of defined benefit pension schemes to future accrual
Loss on deemed disposal of joint venture
Total exceptional items before tax
Exceptional tax credit
Total exceptional items
2013
£m
(4.6)
(3.9)
–
–
(8.5)
0.6
(7.9)
2012
(restated)1
£m
(17.3)
–
19.2
(1.2)
0.7
0.5
1.2
In the first half of 2013, exceptional costs of £8.5m relate to restructuring charges of £4.6m together with £3.9m of costs associated
with acquiring the Trivett business in Australia. The exceptional tax credit of £0.6m represents tax relief on restructuring costs.
In 2012, the restructuring costs of £17.3m represented 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 maintained an organisational structure and
efficient cost base across the Group. Included within this was an impairment charge of £0.8m in respect of property, plant and
equipment and £2.1m in respect of goodwill and other intangible assets.
Also during 2012, the Group closed two of its UK defined benefit pension schemes to future accrual. The net gain1 to the Group of
£19.2m comprised a curtailment gain1 of £25.5m net of costs of £6.3m associated with implementing the changes including the
harmonisation of pension arrangements.
In 2012, the Group had also 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 2012 exceptional tax credit of £0.5m represented 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 charge1 arising on pension scheme curtailment gains
(£4.3m charge).
In 2013 and 2012, restructuring costs have been reported as exceptional items in the consolidated income statement. In 2013,
these costs were reported as exceptional items in the first half of the year. Given the recent FRC guidance, the Group will give further
consideration to how costs of a similar nature are treated in future reporting periods.
1. See note 34. 2012 reported amounts were: net gain of £19.7m, curtailment gain of £26.0m, tax charge of £4.4m.
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GOVERNANCE
DIRECTORS’ REPORT
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
2013
£m
5,976.9
548.0
6,524.9
2012
£m
5,579.7
505.7
6,085.4
Distribution costs
Administrative expenses / (income)
Other operating (income) / expenses
1. See note 34.
Net operating
expenses before
exceptional
items
2013
£m
Exceptional
items
2013
£m
355.2
304.2
(19.6)
639.8
–
8.0
–
8.0
Net
operating
expenses
2013
£m
355.2
312.2
(19.6)
647.8
Net operating
expenses before
exceptional
items (restated)1
2012
£m
Exceptional
items
(restated)1
2012
£m
Net
operating
expenses
(restated)1
2012
£m
330.5
288.8
(4.4)
614.9
3.1
(5.4)
1.2
(1.1)
333.6
283.4
(3.2)
613.8
Other operating (income) / expenses in 2013 includes a £6.2m profit on disposal of a property in South America and £9.8m
pension credit (net of costs) in Central (2012 – £2.9m (restated)).
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
2013
£m
33.6
11.9
6.1
–
–
–
2.0
(7.4)
56.2
2012
£m
29.7
13.7
3.7
1.9
0.2
0.8
2.1
(0.2)
47.8
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NOTES TO THE FINANCIAL STATEMENTS 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
Audit fees – firms other than PricewaterhouseCoopers
E. STAFF COSTS
Wages and salaries
Social security costs
Other pension costs
Share-based payment charge
2013
£m
2012
£m
0.6
1.5
0.1
0.4
0.3
0.2
3.1
0.2
0.6
1.4
0.1
0.6
0.3
0.3
3.3
0.2
2013
£m
403.8
43.9
14.1
9.0
470.8
2012
(restated)1
£m
381.3
43.3
12.1
6.8
443.5
1. Adjusted to reflect the adoption of IAS 19 (revised). 2012 reported Other pension costs were £12.0m.
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 58 to 73 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
2013
Number
499
279
1,461
895
190
1,567
4,891
Distribution
2012
Number
536
287
1,404
878
179
1,412
4,696
2013
Number
1,090
328
–
–
4,804
3,158
9,380
Retail
2012
Number
699
359
–
–
4,805
3,421
9,284
2013
Number
1,589
607
1,461
895
4,994
4,725
14,271
131
14,402
Total
2012
Number
1,235
646
1,404
878
4,984
4,833
13,980
140
14,120
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GOVERNANCE
DIRECTORS’ REPORT
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 £9.0m (2012 – £6.8m), all of which is equity-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:
2013
Outstanding at 1 January
Granted
Exercised
Lapsed
Outstanding at 31 December
Exercisable at 31 December
2012
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
4,843,082
2,436,221
(120,951)
(474,579)
6,683,773
6,150,383
–
(3,018,176)
(282,579)
2,849,628
Save As You
Earn Plan
2,632,474
869,131
(829,973)
(391,978)
2,279,654
Other
Share Plans
1,545,923
504,730
(243,061)
(101,888)
1,705,704
11,644
2,849,628
82,631
3,954
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
–
£2.71
£4.76
£2.48
£2.68
£3.24
£2.98
£2.52
£3.07
£2.15
£3.17
£2.71
£2.63
* 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.
The weighted average remaining contractual life for the share options outstanding at 31 December 2013 is 2.3 years (2012 – 3.7 years).
The range of exercise prices for options outstanding at the end of the year was £2.00 to £6.03 (2012 – £2.00 to £6.03). 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 2013 and
31 December 2012:
Weighted average share price at grant date
Weighted average share price at date of exercise
Weighted average exercise price
Vesting period
Expected volatility
Expected life of option
Weighted average risk free rate
Expected dividend yield
Weighted average fair value per option
Performance
Share Plan
Save As You
Earn Plan
Other
Share Plans
2013
2012
2013
2012
2013
2012
£5.15
£5.37
n/a
3.0 years
n/a
3.0 years
n/a
n/a
£5.15
£3.55
£3.66
n/a
3.0 years
n/a
3.0 years
n/a
n/a
£3.55
£6.02
£6.09
£4.76
3.0 years
34.5%
3.2 years
1.0%
2.7%
£1.37
£3.70
£4.07
£3.07
3.0 years
40.6%
3.2 years
0.4%
3.1%
£1.07
£5.51
£5.86
n/a
3.0 years
n/a
3.0 years
n/a
n/a
£5.51
£3.62
£3.86
n/a
3.0 years
n/a
3.0 years
n/a
n/a
£3.62
No options were granted under the Executive Share Option Plan in 2013 or 2012.
The expected life and volatility of the options are based upon historical data.
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NOTES TO THE FINANCIAL STATEMENTS 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,
primarily in the UK.
A. UK SCHEMES: BENEFITS, GOVERNANCE, CASH FLOW OBLIGATIONS AND INVESTMENTS
The Group operates four main defined benefit Final Salary pension schemes in the UK which are all closed to new employees and
largely closed to future benefit accrual. The schemes are the Inchcape Motors Pension Scheme, the Normand Pension Scheme,
the Inchcape Overseas Pension Scheme and the TKM Group Pension Scheme. The Group also operates a defined benefit Cash
Balance scheme in the UK, called Cash+, which is designed to meet regulatory requirements for auto-enrolment legislation.
BENEFIT STRUCTURE
Final Salary schemes provide benefits to members in the form of a guaranteed level of pension payable for life. The level of benefits
provided depends on final salary at retirement (or leaving date, if earlier) and length of service. The Group underwrites investment,
mortality and inflation risks necessary to meet the obligations under the schemes. In the event of poor returns, increased life
expectancy or higher than expected inflation, the Group is required to address any shortfall through a combination of an increase
in contributions or by making appropriate adjustments to the schemes.
Cash Balance schemes like the Inchcape Cash+ Pension scheme allow members to accrue a percentage of their earnings each
year, which then grows to provide a lump sum payment on retirement. Members have accrued benefits under this scheme with
effect from 1 January 2013. The Group underwrites the investment risk to normal retirement age (65), but all inflation and mortality
risks associated with benefits are borne solely by the members.
GOVERNANCE
Our UK schemes are registered with HMRC and comply fully with the regulatory framework published by the UK Pensions Regulator.
Benefits are paid to members from separate funds administered by Independent Trustees who are appointed by the Group. The
Trustees are required to act in the best interest of the members, and are responsible for making funding and investment decisions
in conjunction with the Group.
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.
SCHEME SPECIFIC CASH OBLIGATION / INVESTMENT DETAIL
INCHCAPE MOTORS PENSION SCHEME (CLOSED SCHEME)
The latest actuarial valuation for this scheme was carried out at 5 April 2013 on a market related basis and determined in
accordance with the advice of independent professionally qualified actuaries based on the projected unit credit method. The
actuarial valuation determined that the duration of the liabilities is approximately 18 years and that a small surplus exists on a
prudent funding basis. The Group contributes £0.5m p.a. towards the administrative costs of running the scheme and no further
review is scheduled until April 2016.
The investment strategy is to hold 65% of bonds which hedge inflation and interest rate risk, with the remaining 35% held in
diversified growth funds which are designed to grow at a rate significantly faster than the liabilities, whilst spreading investment risk
across a broad spectrum of asset classes. Investment performance in excess of that assumed in the valuation is captured by
increasing the proportion of hedging assets.
NORMAND PENSION SCHEME (CLOSED SCHEME)
The latest actuarial valuation for this scheme was carried out at 5 April 2011 on a market related basis and determined in
accordance with the advice of independent professionally qualified actuaries based on the projected unit credit method. The
actuarial valuation determined that the duration of the liabilities is approximately 24 years and that the scheme was approximately
97% funded on a prudent funding basis. The Group contributes £0.4m p.a. towards the administrative costs of running the scheme
and improving the funding ratio. The next review is scheduled for April 2014.
The investment strategy is to hold 50% of bonds which hedge inflation and interest rate risk, with the remaining 50% held in
diversified growth funds which are designed to grow at a rate significantly faster than the liabilities, whilst spreading investment risk
across a broad spectrum of asset classes.
102 Inchcape plc Annual Report and Accounts 2013
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GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS CONTINUED
INCHCAPE OVERSEAS PENSION SCHEME
This scheme is managed from Guernsey and is subject to most UK regulations. It is therefore reported under the United Kingdom in
this note. The latest triennial actuarial valuation for this scheme was carried out at 31 March 2012 and determined in accordance
with the advice of independent professionally qualified actuaries based on the projected unit credit method. The actuarial
valuation determined that the duration of the liabilities is approximately 13 years and that the scheme was approximately 92%
funded on a prudent funding basis. The Group contributes £0.5m p.a. towards the administrative costs of running the scheme
and no further review is scheduled until April 2015.
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 2013 on a market related basis and
determined in accordance with the advice of independent professionally qualified actuaries based on the projected unit method.
The actuarial valuation determined that the duration of the liabilities is approximately 12 years and that the scheme is considered
fully funded on a prudent basis. No cash contributions are required by the Group and the next review is scheduled for April 2016.
The scheme has a prudent investment strategy with a swap overlay in place to fully hedge inflation and interest rate risks.
Approximately 15% of the assets are invested in diversified growth funds which are designed to grow at a rate significantly faster
than the liabilities, whilst spreading investment risk across a broad spectrum of asset classes.
INCHCAPE CASH+ PENSION SCHEME
This scheme is a new defined benefit scheme under which members accrue benefits with effect from 1 January 2013. An interim
valuation was carried out at 5 April 2013 which determined that the scheme was considered fully funded on a prudent basis. The
Group contributed £0.2m towards the administrative costs of running the scheme and the next review is in April 2016.
The initial investment strategy is to invest in diversified growth funds which are designed to grow at a rate significantly faster than the
liabilities, whilst spreading investment risk across a broad spectrum of asset classes. Any outperformance of the investments will be
invested in investment grade corporate bonds to hedge against future adverse market moves.
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 are 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 £6.3m (2012 – £4.8m). There are no outstanding
contributions to the defined contribution schemes at the year end (2012 – £nil).
D. DEFINED BENEFIT PLANS
As the Group’s principal defined benefit schemes are in the UK, these have been reported separately from 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.
The 2012 numbers have been restated to reflect the adoption of IAS 19 (revised), as explained in note 34.
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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
United Kingdom
Overseas
2013
%
3.9
3.4
4.4
3.4
2.4
2012
%
4.5
3.0
4.3
3.0
2.3
2013
%
3.6
0.1
2.6
0.4
n/a
2012
%
3.6
0.2
1.3
0.4
n/a
The rate of increase in healthcare costs is 5.5% (2012 – 6.1%) 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 23.7 years (2012 – 23.0 years) for current pensioners and 25.5 years
(2012 – 25.4 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 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
2013
£m
(870.2)
978.9
108.7
–
108.7
(0.9)
107.8
2012
(restated)
£m
(841.8)
947.0
105.2
–
105.2
(1.2)
104.0
124.8
(17.0)
107.8
122.2
(18.2)
104.0
Overseas
2012
(restated)
£m
(44.2)
37.5
(6.7)
(0.4)
(7.1)
(1.2)
(8.3)
2013
£m
(909.0)
1,017.0
108.0
–
108.0
(2.0)
106.0
Total
2012
(restated)
£m
(886.0)
984.5
98.5
(0.4)
98.1
(2.4)
95.7
0.2
(8.5)
(8.3)
125.4
(19.4)
106.0
122.4
(26.7)
95.7
2013
£m
(38.8)
38.1
(0.7)
–
(0.7)
(1.1)
(1.8)
0.6
(2.4)
(1.8)
THE AMOUNTS RECOGNISED IN THE CONSOLIDATED INCOME STATEMENT ARE AS FOLLOWS:
Current service cost
Past service credit
Scheme expenses
Interest expense on plan liabilities
Interest expense on irrecoverable element of pension
surplus
Interest income on plan assets
Plan settlements
Plan curtailments
United Kingdom
2013
£m
(5.3)
10.5
(1.9)
(35.4)
–
40.9
–
–
8.8
2012
(restated)
£m
(4.9)
–
(1.9)
(37.4)
(4.0)
42.5
2.9
25.5
22.7
Overseas
2012
(restated)
£m
(2.4)
–
–
(0.8)
–
0.6
–
0.1
(2.5)
2013
£m
(2.5)
–
(0.1)
(0.5)
–
0.4
–
–
(2.7)
Total
2012
(restated)
£m
(7.3)
–
(1.9)
(38.2)
(4.0)
43.1
2.9
25.6
20.2
2013
£m
(7.8)
10.5
(2.0)
(35.9)
–
41.3
–
–
6.1
The past service credit of £10.5m (£9.8m net of associated costs) arises from ongoing initiatives to mitigate the volatility associated
with the Group’s defined benefit obligations. In 2013, these initiatives included changes to pensions in payment and to benefits
available to members at retirement.
104 Inchcape plc Annual Report and Accounts 2013
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STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS CONTINUED
THE AMOUNTS RECOGNISED IN THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ARE AS FOLLOWS:
Actuarial (losses) / gains on liabilities:
– Experience gains and losses
– Changes in demographic assumptions
– Changes in financial assumptions
Actuarial (losses) / gains on assets:
– Experience gains and losses
Recoverable 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 surplus recognised in the year
Effect of foreign exchange rates
At 31 December
United Kingdom
2013
£m
2012
(restated)
£m
(11.7)
(4.4)
(21.0)
(4.7)
–
(41.8)
3.7
–
(60.6)
16.2
88.5
47.8
United Kingdom
2013
£m
104.0
8.8
36.8
(41.8)
–
–
107.8
2012
(restated)
£m
5.8
22.7
27.7
(40.7)
88.5
–
104.0
CHANGES IN THE PRESENT VALUE OF THE DEFINED BENEFIT OBLIGATION ARE AS FOLLOWS:
At 1 January
Current service cost
Past service credit
Interest expense on plan liabilities
Actuarial (losses) / gains:
– Experience gains and losses
– Changes in demographic assumptions
– Changes in financial assumptions
Contributions by employees
Benefits paid
Plan settlements
Plan curtailments
Effect of foreign exchange rate changes
At 31 December
United Kingdom
2013
£m
(843.0)
(5.3)
10.5
(35.4)
(11.7)
(4.4)
(21.0)
–
39.2
–
–
–
(871.1)
2012
(restated)
£m
(816.2)
(4.9)
–
(37.4)
3.7
–
(60.6)
(0.4)
38.1
9.2
25.5
–
(843.0)
Overseas
2012
(restated)
£m
(2.0)
–
0.3
3.6
–
1.9
Overseas
2012
(restated)
£m
(10.0)
(2.5)
1.9
1.9
–
0.4
(8.3)
Overseas
2012
(restated)
£m
(45.5)
(2.4)
–
(0.8)
(2.0)
–
0.3
(0.1)
3.2
–
0.1
1.8
(45.4)
2013
£m
0.1
–
3.8
3.6
0.4
7.9
2013
£m
(8.3)
(2.7)
2.0
7.5
0.4
(0.7)
(1.8)
2013
£m
(45.4)
(2.5)
–
(0.5)
0.1
–
3.8
(0.1)
3.6
–
–
1.1
(39.9)
Total
2012
(restated)
£m
1.7
–
(60.3)
19.8
88.5
49.7
Total
2012
(restated)
£m
(4.2)
20.2
29.6
(38.8)
88.5
0.4
95.7
Total
2012
(restated)
£m
(861.7)
(7.3)
–
(38.2)
1.7
–
(60.3)
(0.5)
41.3
9.2
25.6
1.8
(888.4)
2013
£m
(11.6)
(4.4)
(17.2)
(1.1)
0.4
(33.9)
2013
£m
95.7
6.1
38.8
(34.3)
0.4
(0.7)
106.0
2013
£m
(888.4)
(7.8)
10.5
(35.9)
(11.6)
(4.4)
(17.2)
(0.1)
42.8
–
–
1.1
(911.0)
www.inchcape.com
www.inchcape.com 105
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS CONTINUED
CHANGES IN THE FAIR VALUE OF THE DEFINED BENEFIT ASSET ARE AS FOLLOWS:
At 1 January
Interest income on plan assets
Scheme expenses
Actuarial (losses) / gains:
– 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
2013
£m
947.0
40.9
(1.9)
(4.7)
36.8
–
(39.2)
–
–
978.9
–
978.9
2012
(restated)
£m
906.5
42.5
(1.9)
16.2
27.7
0.4
(38.1)
(6.3)
–
947.0
–
947.0
Overseas
2012
(restated)
£m
35.9
0.6
–
3.6
1.9
0.1
(3.2)
–
(1.4)
37.5
(0.4)
37.1
2013
£m
37.5
0.4
(0.1)
3.6
2.0
0.1
(3.6)
–
(1.8)
38.1
–
38.1
2013
£m
984.5
41.3
(2.0)
(1.1)
38.8
0.1
(42.8)
–
(1.8)
1,017.0
–
1,017.0
CHANGES IN THE FAIR VALUE OF THE IRRECOVERABLE ELEMENT OF THE PENSION SURPLUS ARE AS FOLLOWS:
United Kingdom
2012
Overseas
2012
Total
2012
(restated)
£m
942.4
43.1
(1.9)
19.8
29.6
0.5
(41.3)
(6.3)
(1.4)
984.5
(0.4)
984.1
Total
2012
At 1 January
Interest expense
Recoverable element recognised in the year
At 31 December
2013
(restated)
2013
(restated)
2013
(restated)
–
–
–
–
(84.5)
(4.0)
88.5
–
(0.4)
–
0.4
–
(0.4)
–
–
(0.4)
(0.4)
–
0.4
–
(84.9)
(4.0)
88.5
(0.4)
AT THE END OF THE REPORTING PERIOD, THE PERCENTAGE OF THE PLAN ASSETS BY CATEGORY HAD BEEN INVESTED AS FOLLOWS:
Equities (quoted)
Equities (unquoted)
Corporate bonds (quoted)
Corporate bonds (unquoted)
Government bonds (quoted)
Diversified growth funds (quoted)
Other (quoted)
Other (unquoted)
United Kingdom
Overseas
2013
2012
2013
2012
2013
5.7%
1.0%
17.5%
1.4%
32.4%
24.1%
7.6%
10.3%
100.0%
5.4%
1.0%
31.1%
2.4%
29.8%
24.0%
2.7%
3.6%
100.0%
68.5%
–
26.0%
–
–
–
2.9%
2.6%
100%
65.9%
–
26.8%
–
–
–
2.9%
4.4%
100.0%
8.0%
1.0%
17.8%
1.3%
31.2%
23.2%
7.5%
10.0%
100.0%
Total
2012
7.7%
0.9%
31.0%
2.3%
28.7%
23.0%
2.7%
3.7%
100.0%
The fair value of the Group’s own equity held within plan assets is £nil.
106 Inchcape plc Annual Report and Accounts 2013
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DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS CONTINUED
The following disclosures relate to the Group’s defined benefit plans only.
E. RISK MANAGEMENT
ASSET VOLATILITY
Scheme liabilities are calculated on a discounted basis using a discount rate which is set with reference to corporate bond yields.
If scheme assets underperform this yield, then this will create a deficit. The combined schemes hold approximately 70% of assets
as defensive assets (gilts, bonds, swaps) which mitigate significant changes in yields, and active monitoring plans are in place to
identify opportunities to increase the proportion of such assets further when economically possible.
As the schemes mature, the Group reduces the level of investment risk by investing more in government and corporate bonds
that better match the liabilities. However, the Group believes that due to the long term nature of the scheme liabilities, a level of
continuing equity investment is an appropriate element of the long term investment strategy.
INFLATION RISK
The majority of the Group’s defined benefit obligations are linked to inflation. Higher inflation will lead to higher liabilities, although in
the majority of cases there are caps on the level of inflationary increases to be applied to pension obligations, and approximately
50% of the Group’s total inflation risk is hedged through holding inflation-linked assets such as gilts and swaps.
LIFE EXPECTANCY
The plans’ obligations are to provide a pension for the life of the member, so realised increases in life expectancy will result in an
increase in the plans’ benefit payments. Future mortality rates cannot be predicted with certainty. All of the schemes conduct
scheme-specific mortality investigations annually, to ensure the Group has a clear understanding of any potential increase in
liability due to pensioners living for longer than assumed. The trustees of the scheme hedge this risk by adopting a prudent
approach in their assumption for future improvements.
F. SENSITIVITY ANALYSIS
The disclosures above are dependent on the assumptions used. The table below demonstrates the sensitivity of the defined benefit
obligation to changes in the assumptions used for the UK schemes. Changes in assumptions have an immaterial effect on the
overseas schemes.
IMPACT ON THE DEFINED BENEFIT OBLIGATION
Discount rate -0.25%
Discount rate +0.25%
Inflation -0.25%
Inflation +0.25%
Mortality -1 year
United Kingdom
2013
%
+4.0
-3.8
-3.4
+3.6
+3.3
2012
%
+4.8
-4.6
-4.5
+4.6
+3.0
The above analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely
to occur, and changes in some of the assumptions may be correlated. The above variances have been used as they are believed
to be reasonably possible fluctuations.
G. EXPECTED FUTURE CASH FLOWS
The Group has agreed to pay approximately £1.6m (2012 – £32.5m) to its defined benefit plans in 2014. The Group does not expect
any material changes to the annual cash contributions over the next three years given the funding position of the largest schemes,
which account for 90% of the Group’s total pension liabilities.
The defined benefit obligations are based on the current value of expected benefit payment cash flows to members over the next
several decades. The average duration of the liabilities is approximately 18 years for the UK schemes.
www.inchcape.com
www.inchcape.com 107
107
GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
6 FINANCE INCOME
Bank and other interest receivable
Net interest income on post-retirement plan assets and liabilities
Other finance income
Total finance income
1. See note 34.
2013
£m
3.0
5.4
7.0
15.4
2012
(restated)1
£m
3.7
0.9
11.9
16.5
In 2012, the Group recognised £3.7m of interest relating to tax refunds which was included within ‘other finance income’.
7 FINANCE COSTS
Interest payable on bank borrowings
Interest payable on Private Placement
Interest payable on other borrowings
Fair value adjustment on Private Placement
Fair value loss on cross currency interest rate swaps
Stock holding interest
Other finance costs
Capitalised borrowing costs
Total finance costs
1. See note 34.
2013
£m
0.8
2.8
0.2
(24.3)
22.0
19.9
6.9
(0.6)
27.7
2012
(restated)1
£m
0.6
4.4
0.2
(18.0)
13.2
18.0
11.7
(0.6)
29.5
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% (2012 – 2.0%).
108 Inchcape plc Annual Report and Accounts 2013
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GOVERNANCE
DIRECTORS’ REPORT
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
2013
£m
2012
(restated)1
£m
–
–
53.7
53.7
(0.6)
(0.6)
52.5
13.4
65.9
–
(0.6)
(0.6)
65.3
2.4
2.4
54.0
56.4
–
(0.9)
55.5
5.3
60.8
(4.6)
4.1
(0.5)
60.3
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 24.0% (2012 – 24.6%) is lower than the standard blended rate of tax of
24.5% (2012 – 23.4%) as explained below. The standard rate comprises the average statutory rates across the Group, weighted in
proportion to accounting profits and losses.
Profit before tax
Profit before tax multiplied by the standard rate of tax of 24.5% (2012 – 23.4%)
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
1. See note 34.
2013
£m
266.1
65.2
2012
(restated)1
£m
247.7
58.0
–
(3.6)
–
0.4
0.2
3.3
–
(0.2)
65.3
0.1
4.9
(0.3)
1.7
(6.1)
2.7
0.4
(1.1)
60.3
www.inchcape.com
www.inchcape.com 109
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS 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
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
– Held in Treasury
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
2013
£m
200.8
(6.6)
194.2
7.9
202.1
41.8p
41.1p
43.5p
42.8p
2012
(restated)1
£m
187.4
(5.9)
181.5
(1.2)
180.3
39.4p
38.7p
39.1p
38.5p
2013
number
2012
(restated)1
number
468,782,483
465,120,309
(1,765,092)
(2,687,560)
464,329,831
7,823,169
(1,552,107)
(2,687,560)
460,880,642
7,580,557
472,153,000
468,461,199
1. Adjusted to reflect the adoption of IAS 19 (revised). 2012 reported dilutive effect of potential ordinary shares was 7,318,204.
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 held in Treasury.
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.
Basic 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
held in Treasury.
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.
110 Inchcape plc Annual Report and Accounts 2013
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STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
10 DIVIDENDS
The following dividends were paid by the Group:
Interim dividend for the six months ended 30 June 2013 of 5.7p per share (2012 – 4.0p per share)
Final dividend for the year ended 31 December 2012 of 10.5p per share (2011 – 7.4p per share)
2013
£m
26.6
48.9
75.5
2012
£m
18.5
34.0
52.5
A final dividend for the year ended 31 December 2013 of 11.7p per share amounting to £54.0m is subject to approval by
shareholders at the Annual General Meeting and has not been included as a liability as at 31 December 2013.
11 INTANGIBLE ASSETS
Cost
At 1 January 2012
Businesses acquired
Businesses sold
Additions
Retirement of fully amortised assets not in use
Effect of foreign exchange rate changes
At 1 January 2013
Businesses acquired (note 28)
Businesses sold
Additions
Disposals
Reclassified to disposal group (note 19)
Effect of foreign exchange rate changes
At 31 December 2013
Accumulated amortisation and impairment
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 1 January 2013
Businesses sold
Amortisation charge for the year
Disposals
Effect of foreign exchange rate changes
At 31 December 2013
Net book value at 31 December 2013
Net book value at 31 December 2012
Goodwill
£m
Computer
software
£m
Other
intangible
assets
£m
564.0
8.3
(0.7)
–
–
(1.3)
570.3
43.2
(0.2)
–
–
(0.8)
(25.9)
586.6
(61.7)
–
(0.2)
–
1.3
(60.6)
0.2
–
–
(0.3)
(60.7)
525.9
509.7
76.6
–
–
15.1
(0.8)
(0.5)
90.4
–
–
18.9
(0.3)
–
(1.9)
107.1
(36.3)
(3.7)
(1.9)
0.8
0.4
(40.7)
–
(5.9)
0.2
0.5
(45.9)
61.2
49.7
–
0.1
–
–
–
–
0.1
0.1
–
–
–
–
–
0.2
–
–
–
–
–
–
–
(0.2)
–
–
(0.2)
–
0.1
Total
£m
640.6
8.4
(0.7)
15.1
(0.8)
(1.8)
660.8
43.3
(0.2)
18.9
(0.3)
(0.8)
(27.8)
693.9
(98.0)
(3.7)
(2.1)
0.8
1.7
(101.3)
0.2
(6.1)
0.2
0.2
(106.8)
587.1
559.5
As at 31 December 2013, capitalised borrowing costs of £1.5m (2012 – £1.5m) were included within ‘computer software’, £nil of
which was capitalised in 2013 (2012 – £nil).
www.inchcape.com
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
11 INTANGIBLE ASSETS CONTINUED
GOODWILL
Goodwill acquired in a business combination is allocated to the cash generating units (CGUs) or group of CGUs (hereafter
collectively referred to as ‘CGU groups’) that are expected to benefit from the synergies associated with that business combination.
These CGU groups represent the lowest level within the Group at which the associated goodwill is monitored for management
purposes. Unless otherwise stated, the Group evaluates goodwill in CGU groupings at a country operation level, e.g. UK Retail,
Australia Retail.
The carrying amount of goodwill has been allocated to CGU groups within the following reporting segments:
United Kingdom
Russia and Emerging Markets
South Asia
Australasia
2013
£m
262.1
202.1
19.4
42.3
525.9
2012
£m
262.1
217.6
20.5
9.5
509.7
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 CGU groups during the year ended 31 December 2013.
The recoverable amounts of all CGU groups 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, 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. 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 rates used are calculated as the
Group’s weighted average cost of capital adjusted for a risk premium attributable to the relevant country. The pre-tax discount
rates used vary between 10% and 12% and reflect long term country risk.
112 Inchcape plc Annual Report and Accounts 2013
112
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STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
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 reporting segments with material
goodwill balances were as follows:
United Kingdom
Russia and Emerging Markets
South Asia
Australasia
Discount rate
10%
10% to 12%
10%
11%
Long term
growth rate
2%
5%
2%
2%
IMPAIRMENT
No impairment charge was recognised in the year ended 31 December 2013. In 2012, an impairment charge of £0.2m was
recognised relating to sold sites.
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 CGU groups.
The Group’s goodwill in the Russia and Emerging Markets segment at 31 December 2013 is allocated as follows:
Russia
Latvia
Lithuania
Other
At 31 December 2013
Cost
£m
178.0
44.2
21.6
2.7
246.5
Impairment
provision
£m
Net book
value
£m
–
(44.2)
–
(0.2)
(44.4)
178.0
–
21.6
2.5
202.1
The value in use calculations for the Group’s business in Russia currently exceed the carrying value by approximately 9%. A 0.5%
reduction in the long term growth rate would reduce the headroom available to approximately 2% of the carrying value, whilst a
0.5% increase in the discount rate would almost eliminate the headroom.
The value in use calculations for the Group’s business in Lithuania currently exceed the carrying value by approximately 34%. A 0.5%
increase in the discount rate or a 0.5% reduction in the long term growth rate would reduce the headroom to approximately 25% of
the carrying value.
www.inchcape.com
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
12 PROPERTY, PLANT AND EQUIPMENT
Cost
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 1 January 2013
Businesses acquired (note 28)
Businesses sold
Additions
Disposals
Transferred to inventory
Retirement of fully depreciated assets not in use
Reclassified within assets held for sale and disposal group (note 19)
Effect of foreign exchange rate changes
At 31 December 2013
Accumulated depreciation and impairment
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 1 January 2013
Businesses sold
Depreciation charge for the year
Disposals
Transferred to inventory
Retirement of fully depreciated assets not in use
Reclassified from assets held for sale (note 19)
Effect of foreign exchange rate changes
At 31 December 2013
Net book value at 31 December 2013
Net book value at 31 December 2012
Plant,
machinery
and
equipment
£m
Land and
buildings
£m
Subtotal
£m
Interest
in leased
vehicles
£m
627.7
20.7
–
52.4
(5.6)
–
(0.1)
(14.6)
(4.8)
675.7
31.9
(1.0)
57.8
(15.8)
–
–
0.7
(32.1)
717.2
(106.9)
–
(11.6)
2.9
(0.8)
–
0.1
3.7
1.7
(110.9)
0.2
(11.6)
2.3
–
–
(0.1)
2.8
(117.3)
599.9
564.8
185.2
1.5
(0.2)
33.6
(10.7)
(5.5)
(5.2)
(1.5)
(2.9)
194.3
5.6
(1.7)
37.7
(14.4)
(1.5)
(1.3)
(0.7)
(11.4)
206.6
(118.8)
0.1
(18.1)
7.7
–
0.8
5.2
1.3
2.0
(119.8)
1.4
(22.0)
9.5
0.6
1.3
–
5.9
(123.1)
83.5
74.5
812.9
22.2
(0.2)
86.0
(16.3)
(5.5)
(5.3)
(16.1)
(7.7)
870.0
37.5
(2.7)
95.5
(30.2)
(1.5)
(1.3)
–
(43.5)
923.8
(225.7)
0.1
(29.7)
10.6
(0.8)
0.8
5.3
5.0
3.7
(230.7)
1.6
(33.6)
11.8
0.6
1.3
(0.1)
8.7
(240.4)
683.4
639.3
94.9
–
–
42.6
(0.7)
(51.5)
–
–
(1.4)
83.9
–
–
25.5
–
(33.5)
–
–
(1.0)
74.9
(34.5)
–
(13.7)
0.3
–
17.2
–
–
0.6
(30.1)
–
(11.9)
–
16.8
–
–
(0.4)
(25.6)
49.3
53.8
Total
£m
907.8
22.2
(0.2)
128.6
(17.0)
(57.0)
(5.3)
(16.1)
(9.1)
953.9
37.5
(2.7)
121.0
(30.2)
(35.0)
(1.3)
–
(44.5)
998.7
(260.2)
0.1
(43.4)
10.9
(0.8)
18.0
5.3
5.0
4.3
(260.8)
1.6
(45.5)
11.8
17.4
1.3
(0.1)
8.3
(266.0)
732.7
693.1
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.
114 Inchcape plc Annual Report and Accounts 2013
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DIRECTORS’ REPORT
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 50 years unexpired
Short leasehold
2013
£m
3.2
–
3.2
2013
£m
427.5
30.9
141.5
599.9
2012
£m
2.0
0.5
2.5
2012
£m
410.5
37.0
117.3
564.8
As at 31 December 2013, £5.0m (2012 – £4.4m) of capitalised borrowing costs were included within ‘land and buildings’, £0.6m of
which was capitalised in 2013 (2012 – £0.6m).
13 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
At 1 January
Disposals
Share of profit after tax of joint ventures and associates
Loan advances
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
2013
£m
–
6.4
6.4
(0.3)
(0.3)
(0.6)
5.8
GROUP’S SHARE OF RESULTS OF JOINT VENTURES AND ASSOCIATES
Revenue
Expenses
Profit before tax
Tax
Share of profit after tax of joint ventures and associates
0.1
(0.1)
–
–
–
2012
£m
–
6.4
6.4
(0.6)
–
(0.6)
5.8
1.7
(1.6)
0.1
0.1
0.2
2013
£m
0.1
25.5
25.6
(14.2)
(3.2)
(17.4)
8.2
1.4
(1.4)
–
–
–
2012
£m
0.1
26.1
26.2
(11.6)
(6.6)
(18.2)
8.0
1.7
(1.7)
–
–
–
2013
£m
13.8
–
–
–
0.2
14.0
2013
£m
0.1
31.9
32.0
(14.5)
(3.5)
(18.0)
14.0
1.5
(1.5)
–
–
–
2012
£m
29.5
(18.7)
0.2
3.2
(0.4)
13.8
Total
2012
£m
0.1
32.5
32.6
(12.2)
(6.6)
(18.8)
13.8
3.4
(3.3)
0.1
0.1
0.2
As at 31 December 2013, no guarantees were provided in respect of joint ventures and associates borrowings (2012 – £nil).
Principal joint ventures and associates are disclosed in note 31 of this Report.
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS 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
2013
£m
6.7
7.2
(4.2)
–
–
–
9.7
2013
£m
1.4
8.3
9.7
2013
£m
0.3
8.1
1.3
9.7
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
At 31 December 2013, the bonds attracted a weighted average fixed interest rate of 3.25% (2012 – 0.4%). 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:
2013
2012
Less than
1 year
£m
8.1
2.6
Between
1 and
2 years
£m
–
1.0
Total
interest
bearing
£m
8.1
3.6
In certain jurisdictions management are required to hold bonds to offset future vehicle warranty obligations. To meet this obligation,
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.
116 Inchcape plc Annual Report and Accounts 2013
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STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
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
Businesses acquired
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:
2013
£m
188.1
(8.4)
179.7
–
91.7
38.5
309.9
Current
2012
£m
148.3
(8.5)
139.8
0.1
76.7
41.8
258.4
Non-current
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)
2013
£m
0.1
–
0.1
–
20.8
6.0
26.9
2013
£m
(8.5)
(0.3)
(2.0)
0.8
1.6
–
(8.4)
2013
2012
Neither past
due nor
impaired
£m
122.5
101.9
Total
£m
188.2
148.4
Past due but not impaired
0 < 30 days
£m
30 – 90 days
£m
> 90 days
£m
Impaired
£m
33.1
22.3
13.8
9.3
10.4
6.4
8.4
8.5
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.
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
16 DEFERRED TAX
Net deferred tax (liability) / asset
At 1 January 2013 (restated)1
(Charged) / credited to the consolidated
income statement
Charged to shareholders’ equity
Businesses acquired (note 28)
Effect of foreign exchange rate changes
At 31 December 2013
Analysed as:
Deferred tax assets
Deferred tax liabilities
1. See note 34.
Pension and
other post-
retirement
benefits
£m
Cash flow
hedges
£m
Share-based
payments
£m
(5.7)
13.0
5.1
(11.6)
(3.6)
–
–
(20.9)
0.1
(12.8)
–
(1.0)
(0.7)
0.7
(1.6)
–
–
4.2
Tax
losses
£m
10.5
(4.1)
–
–
(0.2)
6.2
Accelerated
tax
depreciation
£m
Provisions
and other
timing
differences
£m
3.7
0.2
–
–
0.2
4.1
(13.1)
1.9
–
1.3
(1.5)
(11.4)
2013
£m
24.6
(43.1)
(18.5)
Total
£m
13.5
(12.8)
(18.0)
1.3
(2.5)
(18.5)
2012
(restated)1
£m
40.4
(26.9)
13.5
The Group has unrecognised deferred tax assets of £35m (2012 – £27m) relating to tax relief on trading losses. The asset represents
£141m (2012 – £115m) of losses at the standard blended rate of 24.5% (2012 – 23.4%). The asset is not recognised, as £141m
(2012 – £115m) 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 £6.2m (2012 – £10.5m) in respect of tax losses relates to trading losses in Russia (£2.6m), Belgium (£1.7m)
and other territories (£1.9m) where future profits are anticipated with reasonable certainty.
The Group has unrecognised deferred tax assets of £27m (2012 – £30m) relating to capital losses. The asset represents £133m
(2012 – £133m) of losses at the UK standard rate of 20.0% (2012 – 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, a tax charge of £3.5m (2012 – £nil) would be payable.
As the overseas reserves are anticipated to be repatriated within 12 months, the provision has been made to current tax.
The £11.4m (2012 – £13.1m) net deferred tax liability for ‘other timing differences’ consists of a £28.4m (2012 – £31.1m) liability
in respect of the net book value of tangible fixed assets that do not qualify for tax allowances and property revaluations and a
£17.0m (2012 – £18.0m) deferred tax asset in respect of provisions and other temporary differences between the accounts base
and the tax base. The key temporary differences are £11.0m in Australia, £3.0m in the UK, £2.0m in Russia and £1.0m in other
territories (2012 – £15.0m in Australia, £2.0m in South America and £1.0m in other territories).
118 Inchcape plc Annual Report and Accounts 2013
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DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
17 INVENTORIES
Raw materials and work in progress
Finished goods and merchandise
2013
£m
14.4
1,028.3
1,042.7
2012
£m
11.5
917.4
928.9
Vehicles held on consignment which are in substance assets of the Group amount to £133.8m (2012 – £128.1m). 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 £32.3m (2012 – £28.0m) 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 £5,337.0m (2012 – £4,926.6m). The write down of inventory to net realisable
value recognised as an expense during the year was £40.7m (2012 – £30.5m). All of these items have been included within
‘cost of sales’ in the consolidated income statement.
18 CASH AND CASH EQUIVALENTS
Cash at bank and cash equivalents
Short term deposits
2013
£m
290.3
106.5
396.8
2012
£m
324.4
273.5
597.9
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 2013, the weighted average
floating rate was 0.7% (2012 – 0.9%).
£20.7m (2012 – £20.9m) 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 2013, short term deposits have a weighted average period to maturity of 40 days (2012 – 19 days).
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS 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:
Goodwill
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
2013
£m
5.8
2.4
8.2
(4.6)
2013
£m
0.8
0.7
4.3
–
5.8
(4.6)
(4.6)
2012
£m
22.7
8.6
31.3
(19.1)
2012
£m
–
3.6
17.1
2.0
22.7
(19.1)
(19.1)
Assets held for sale relate to surplus properties within the UK, which are actively marketed with a view to sale. The disposal group
relates to assets and liabilities of a retail centre in Australasia, which was disposed of in March 2014.
In 2012, the disposal group corresponded 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
2013
£m
57.7
225.4
759.8
34.6
187.9
0.2
13.2
1,278.8
Current
2012
£m
57.7
157.4
722.9
19.0
176.1
0.2
17.4
1,150.7
Non-current
2012
£m
0.2
–
9.4
–
12.8
–
–
22.4
2013
£m
0.3
–
7.5
–
10.2
–
–
18.0
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 are subject to a weighted average floating interest rate of 3.8% (2012 – 3.5%). Interest charged under these agreements is
included within stock holding interest.
At 31 December 2013, current other trade payables includes £413.9m (2012 – £325.8m) of creditors where payment is made on
deferred terms and is subject to a weighted average floating interest rate of 2.4% (2012 – 2.6%). 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.
120 Inchcape plc Annual Report and Accounts 2013
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GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
21 PROVISIONS
At 1 January 2013
Charged to the consolidated income statement
Released to the consolidated income statement
Effect of unwinding of discount factor
Businesses acquired (note 28)
Utilised during the year
Effect of foreign exchange rate changes
At 31 December 2013
Analysed as:
Current
Non-current
Product
warranty
£m
Vacant
leasehold
£m
Litigation
£m
51.0
18.8
(5.3)
0.5
–
(18.1)
(2.2)
44.7
5.7
0.1
(2.2)
–
4.5
(2.1)
(0.6)
5.4
7.9
0.1
(1.4)
–
–
(0.8)
0.3
6.1
Other
£m
20.3
2.6
(3.1)
–
0.4
(7.6)
–
12.6
2013
£m
37.0
31.8
68.8
Total
£m
84.9
21.6
(12.0)
0.5
4.9
(28.6)
(2.5)
68.8
2012
£m
41.9
43.0
84.9
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 and Australia. 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 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.
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
22 BORROWINGS
2013
Current
Bank overdrafts
Finance leases
Non-current
Private Placement
Finance leases
Total borrowings
2012
Current
Bank overdrafts
Finance leases
Non-current
Private Placement
Finance leases
Total borrowings
Floating rate
Weighted
average
effective
interest rate
%
0.3
–
0.3
1.4
–
1.4
1.2
Floating rate
Weighted
average
effective
interest rate
%
0.1
–
0.1
2.1
–
2.1
1.6
£m
64.6
–
64.6
293.4
–
293.4
358.0
£m
110.5
–
110.5
317.6
–
317.6
428.1
Fixed rate
Weighted
average
effective
interest rate
%
Total interest
bearing
£m
On which
no interest
is paid
£m
–
6.3
6.3
–
6.5
6.5
6.5
64.6
1.1
65.7
293.4
4.5
297.9
363.6
–
–
–
–
–
–
–
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
£m
–
1.1
1.1
–
4.5
4.5
5.6
£m
–
0.5
0.5
–
2.4
2.4
2.9
2013
Total
£m
64.6
1.1
65.7
293.4
4.5
297.9
363.6
2012
Total
£m
113.0
0.5
113.5
317.6
2.4
320.0
433.5
The above analysis is presented after taking account of the cross currency fixed to floating interest rate swap on the Private
Placement of US$436m (2012 – US$436m).
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 £31.1 m (2012 – £49.0m).
The Group’s borrowings are unsecured.
At 31 December 2013, the committed funding facilities of the Group comprised syndicated bank facilities of £450m (2012 – £450m),
a bi-lateral facility of €65m (2012 – €65m) and Private Placement loan notes totalling US$436m (2012 – US$436m).
At 31 December 2013, none (2012 – 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 four years, and
US$161m in six years.
122 Inchcape plc Annual Report and Accounts 2013
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GOVERNANCE
DIRECTORS’ REPORT
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 the Private Placement of US$436m
(2012 – US$436m).
2013
Fixed rate
Finance leases
Floating rate
Bank overdrafts
Private Placement
2012
Fixed rate
Finance leases
Floating rate
Bank overdrafts
Private Placement
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
1.1
0.5
0.3
1.5
0.6
1.6
5.6
64.6
–
–
–
–
–
–
187.8
–
–
–
105.6
64.6
293.4
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
23 FINANCIAL INSTRUMENTS
The Group’s financial liabilities, other than derivatives, comprise 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 market risk, interest rate risk, currency risk, credit risk and liquidity risk.
A. CLASSES OF FINANCIAL INSTRUMENTS
2013
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
–
260.1
–
–
260.1
–
–
–
–
260.1
9.7
–
–
–
9.7
–
–
–
–
9.7
–
–
106.2
–
106.2
–
(41.4)
–
(41.4)
64.8
–
–
–
–
–
(1,203.1)
–
(363.6)
(1,566.7)
(1,566.7)
–
–
–
396.8
396.8
–
–
–
–
396.8
Total
£m
9.7
260.1
106.2
396.8
772.8
(1,203.1)
(41.4)
(363.6)
(1,608.1)
(835.3)
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www.inchcape.com 123
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
23 FINANCIAL INSTRUMENTS CONTINUED
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)
B. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The following financial assets are subject to offsetting, enforceable netting arrangements and similar agreements:
As at 31 December 2013
Derivative financial assets
Cash and cash equivalents
Trade and other receivables
Total
As at 31 December 2012
Derivative financial assets
Cash and cash equivalents
Trade and other receivables
Total
Gross amounts
of financial
liabilities set off
in the
statement of
financial
position
Net amounts of
financial
assets
presented in
the statement
of financial
position
Gross amounts
of financial
assets
Related amounts not set off
in the statement of
financial position
Financial
instruments
Cash
collateral
received
Net
amount
106.6
396.8
3.1
506.5
118.5
597.9
3.9
720.3
(0.4)
–
(0.6)
(1.0)
(2.4)
–
(0.6)
(3.0)
106.2
396.8
2.5
505.5
116.1
597.9
3.3
717.3
(11.5)
(64.6)
–
(76.1)
(19.1)
(113.0)
(0.3)
(132.4)
–
–
–
–
–
–
–
–
94.7
332.2
2.5
429.4
97.0
484.9
3.0
584.9
The following financial liabilities are subject to offsetting, enforceable netting arrangements and similar agreements:
As at 31 December 2013
Derivative liabilities
Bank overdrafts
Trade and other payables
Total
As at 31 December 2012
Derivative liabilities
Bank overdrafts
Trade and other payables
Total
Gross amounts
of financial
assets set off in
the statement
of financial
position
Net amounts of
financial
liabilities
presented in
the statement
of financial
position
Gross amounts
of financial
liabilities
Related amounts not set off
in the statement of
financial position
Financial
instruments
Cash
collateral
received
Net
amount
(41.8)
(64.6)
(0.6)
(107.0)
(65.0)
(113.0)
(0.9)
(178.9)
0.4
–
0.6
1.0
2.4
–
0.6
3.0
(41.4)
(64.6)
–
(106.0)
(62.6)
(113.0)
(0.3)
(175.9)
11.5
64.6
–
76.1
19.1
113.0
0.3
132.4
–
–
–
–
–
–
–
–
(29.9)
–
–
(29.9)
(43.5)
–
–
(43.5)
For the financial assets and liabilities subject to enforceable netting arrangements or similar agreements above, each agreement
between the Group and the counterparty allows for net settlement of the relevant financial assets and liabilities if the amounts relate
to the same transaction and are in the same currency. If the parties subject to the agreement do not elect to settle on a net basis,
financial assets and liabilities will be settled on a gross basis. However, each party to the netting agreement will have the option to
settle all such amounts on a net basis in the event of a default of the other party.
124 Inchcape plc Annual Report and Accounts 2013
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GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
23 FINANCIAL INSTRUMENTS CONTINUED
C. 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:
• 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;
• 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;
• changes in the carrying value of financial instruments not in hedging relationships only affect the consolidated
income statement;
• 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.
D. 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 2013, 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.
2013
Sterling
Euro
Russian Ruble
Australian Dollar
2012
Sterling
Euro
Russian Ruble
Australian Dollar
Increase
in basis
points
Effect on profit
before tax
£m
75
50
50
100
75
50
50
100
(4.2)
0.2
(0.2)
(1.6)
(3.1)
0.1
(0.2)
(1.2)
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www.inchcape.com 125
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
23 FINANCIAL INSTRUMENTS CONTINUED
E. 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 functional 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.
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.
2013
Yen
Yen
2012
Yen
Yen
Increase /
(decrease) in
exchange
rate
Effect on
equity
£m
+10%
-10%
+10%
-10%
0.5
(0.5)
0.9
(0.9)
F. 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
–
7.9
47.7
49.3
1.3
–
–
–
106.2
2013
Short term
deposits
£m
12.4
17.4
18.3
23.7
24.8
–
–
9.9
106.5
Derivative
assets
£m
2012
Short term
deposits
£m
–
0.1
59.4
55.6
1.0
–
–
–
116.1
68.4
54.6
47.3
35.9
41.2
8.5
0.2
17.4
273.5
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.
126 Inchcape plc Annual Report and Accounts 2013
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GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
23 FINANCIAL INSTRUMENTS CONTINUED
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, cash equivalents, receivables and other financial assets is represented by
their carrying amount.
Total cash at bank of £290.3m (2012 – £324.4m) 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.
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.
G. 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 Strategic Report on page 36 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 2013 and 2012 based
on expected contractual undiscounted cash flows:
2013
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
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
Less than
3 months
£m
Between
3 to 12
months
£m
Between
1 to 5 years
£m
Greater than
5 years
£m
Total
£m
396.5
232.3
1.3
1.7
631.8
(64.9)
(1,085.5)
(27.8)
(1,178.2)
(546.4)
Less than
3 months
£m
580.7
184.6
1.4
4.3
771.0
0.3
21.6
7.2
32.7
61.8
(16.5)
(105.1)
(14.0)
(135.6)
(73.8)
Between
3 to 12
months
£m
17.2
20.8
1.5
18.4
57.9
(113.3)
(975.6)
(19.0)
(1,107.9)
(336.9)
(16.5)
(53.4)
(43.5)
(113.4)
(55.5)
–
4.3
0.7
222.5
227.5
–
1.9
0.5
149.8
152.2
396.8
260.1
9.7
406.7
1,073.3
(232.9)
(12.5)
(160.4)
(405.8)
(178.3)
(115.9)
–
(125.8)
(241.7)
(89.5)
(430.2)
(1,203.1)
(328.0)
(1,961.3)
(888.0)
Between
1 to 5 years
£m
Greater than
5 years
£m
Total
£m
–
3.8
1.0
237.7
242.5
(260.6)
(12.3)
(163.9)
(436.8)
(194.3)
–
0.4
2.8
161.0
164.2
597.9
209.6
6.7
421.4
1,235.6
(130.1)
(0.5)
(129.5)
(260.1)
(95.9)
(520.5)
(1,041.8)
(355.9)
(1,918.2)
(682.6)
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www.inchcape.com 127
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
23 FINANCIAL INSTRUMENTS CONTINUED
H. FAIR VALUE MEASUREMENT
In accordance with IFRS 13, disclosure is required for financial instruments that are measured in the consolidated statement
of financial position at fair value. This requires disclosure of fair value measurements by level for the following fair value
measurement hierarchy:
• quoted prices in active markets (level 1);
• inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly (level 2); or
• inputs for the asset or liability that are not based on observable market data (level 3).
The following table presents the Group’s assets and liabilities that are measured at fair value:
Assets
Derivatives used for hedging
Available for sale financial assets
Liabilities
Derivatives used for hedging
Level 1
£m
Level 2
£m
–
9.7
9.7
106.2
–
106.2
2013
Total
£m
106.2
9.7
115.9
Level 1
£m
Level 2
£m
–
6.7
6.7
116.1
–
116.1
2012
Total
£m
116.1
6.7
122.8
–
(41.4)
(41.4)
–
(62.6)
(62.6)
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 2013.
The Group’s derivative financial instruments comprise the following:
Cross currency interest rate swap
Forward foreign exchange contracts
2013
£m
89.8
16.4
106.2
Assets
2012
£m
111.8
4.3
116.1
2013
£m
–
(41.4)
(41.4)
Liabilities
2012
£m
–
(62.6)
(62.6)
The ineffective portion recognised in the consolidated income statement that arises from fair value hedges amounts to a gain of
£2.3m (2012 – gain of £4.8m). The ineffective portion recognised in the consolidated income statement that arises from cash flow
hedges amounts to a gain of £nil (2012 – £nil).
128 Inchcape plc Annual Report and Accounts 2013
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STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
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 (2012 – 15 months).
The nominal principal amount of the outstanding forward foreign exchange contracts relating to transactional exposures at
31 December 2013 was £760.4m (2012 – £955.9m).
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 2013 are expected to be released to the consolidated income statement within 15 months
of the end of the reporting period (2012 – 15 months).
FAIR VALUE HEDGE
At 31 December 2013, 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.
I. 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.
2013
2012
149.6
n/a
n/a
116.0
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
Cancelled under share buy back
At 31 December
2013
Number
2012
Number
468,108,202
3,848,148
(8,147,813)
463,808,537
463,473,216
4,634,986
–
468,108,202
2013
£m
46.9
0.4
(0.8)
46.5
2012
£m
46.4
0.5
–
46.9
B. SHARE BUY BACK PROGRAMME
At 31 December 2013, the Company held 2,687,560 treasury shares (2012 – 2,687,560) with a total book value of £99.4m (2012 –
£99.4m). These shares may be either cancelled or used to satisfy share options at a later date. The market value of treasury shares
at 31 December 2013 was £16.5m (2012 – £11.6m).
During the year, the Group repurchased 8,147,813 (2012 – nil) of its own shares through purchases on the London Stock Exchange,
at a cost of £49.7m. The shares repurchased during the year were cancelled, with none held within treasury shares at the end of the
reporting period. An amount of £0.8m, equivalent to the nominal value of the cancelled shares, has been transferred to the capital
redemption reserve. Costs of £0.3m associated with the transfer to the Group of the repurchased shares and their subsequent
cancellation have been charged to the profit and loss reserve.
www.inchcape.com
www.inchcape.com 129
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS 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 10 March 2014 under
the provisions of the Companies Act 2006 have been disclosed in the significant shareholdings section of the Directors’ Report.
D. SHARE OPTIONS
At 31 December 2013, 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 (£)
20 May 2014
29 September 2014
6 March 2015
11 September 2015
19 May 2019
7 April 2020
The Inchcape 1999 Share Option Plan
– approved (Part II – UK)
18,106
2,288
31,122
18,211
22,513
24,249
– unapproved (Part I – UK)
30,677
50,561
218,727
1,066,499
334,363
– unapproved overseas (Part I – Overseas)
76,782
147,127
494,871
293,000
20,532
20 May 2014
6 March 2015
11 September 2015
19 May 2019
7 April 2020
20 May 2014
6 March 2015
19 May 2019
7 April 2020
13 June 2020
The Inchcape SAYE Share Option Scheme
– approved
1 May 2014
1 May 2015
1 May 2016
1 May 2017
2.05
2.43
3.07
4.76
4.42 82,631
4.37 455,996
5.78 894,235
6.03 846,792
2.00
3.10
4.42
5.78
6.03
2.00
3.10
4.42
5.78
2.00
3.10
2.63
Included within the retained earnings reserve are 1,777,567 (2012 – 1,692,848) ordinary shares in the Company 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 2013 was £5.5m (2012 – £4.0m). The market value of these shares at both 31
December 2013 and 10 March 2014 was £10.9m (31 December 2012 – £7.3m, 11 March 2013 – £9.0m).
130 Inchcape plc Annual Report and Accounts 2013
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DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
25 OTHER RESERVES
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 1 January 2013
Cash flow hedges:
– Fair value movements
– Reclassified and reported in inventories
– Tax on cash flow hedges
Recycled fair value gains on disposal of available for sale financial assets
Effect of foreign exchange rate changes
At 31 December 2013
Available for
sale reserve
£m
Translation
reserve
£m
Hedging
reserve
£m
Total other
reserves
£m
0.8
–
–
–
1.0
0.1
–
1.9
–
–
–
(1.6)
–
0.3
131.6
(5.6)
126.8
–
–
–
–
–
(12.1)
119.5
–
–
–
–
(102.1)
17.4
(54.0)
12.5
12.4
–
–
–
(34.7)
37.8
(0.7)
(11.4)
–
–
(9.0)
(54.0)
12.5
12.4
1.0
0.1
(12.1)
86.7
37.8
(0.7)
(11.4)
(1.6)
(102.1)
8.7
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.
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
Adjustment for IAS 19 (revised)
At 1 January (restated)1
Total comprehensive income attributable to owners of the parent for the year:
– Profit for the year
– Actuarial (losses) / gains on defined pension benefits (note 5)
– Tax (charged) / credited to reserves
Total comprehensive income for the year
Share-based payments, net of tax
Share buy back programme
Net purchase of own shares by ESOP Trust
Dividends paid (note 10)
At 31 December
1. See note 34.
2013
£m
1,099.2
–
1,099.2
194.2
(33.9)
(3.9)
156.4
7.4
(50.0)
(2.5)
(75.5)
1,135.0
2012
(restated)1
£m
895.7
8.0
903.7
181.5
49.7
8.7
239.9
10.4
–
(2.3)
(52.5)
1,099.2
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
27 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
A. RECONCILIATION OF CASH GENERATED FROM OPERATIONS
Cash flows from operating activities
Operating profit
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 exceptional items
Other non cash items
Cash generated from operations
* Includes additional payments of £32.7m (2012 – £23.3m).
B. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Net (decrease) / increase in cash and cash equivalents
Net cash outflow from borrowings and finance leases
Change in net cash and debt resulting from cash flows
Effect of foreign exchange rate changes on net cash and debt
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
Finance leases
Fair value of cross currency interest rate swap
Net funds
1. See note 34 and changes in accounting policies and disclosures.
132 Inchcape plc Annual Report and Accounts 2013
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2013
£m
2012
(restated)1
£m
278.4
8.5
6.1
33.6
(7.4)
9.0
(89.0)
(44.0)
114.4
(12.5)
(31.0)
(13.0)
(15.4)
(10.7)
227.0
2013
£m
(111.2)
1.6
(109.6)
(40.6)
2.3
(5.3)
(153.2)
276.2
123.0
2013
£m
290.3
106.5
(64.6)
332.2
(293.4)
(5.6)
33.2
89.8
123.0
260.5
(0.7)
3.7
29.7
(0.2)
6.8
(42.5)
(9.5)
47.3
(16.5)
(22.3)
2.1
(8.2)
(1.0)
249.2
2012
£m
28.3
3.9
32.2
(4.6)
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
STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
28 ACQUISITIONS AND DISPOSALS
A. ACQUISITIONS
On 1 March 2013, the Group acquired the Trivett Automotive group in Australia.
Details of the 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 receivables1
Cash and cash equivalents
Trade and other payables
Provisions (note 21)
Borrowings
Tax liabilities
Net assets acquired
Goodwill
Purchase consideration
Satisfied by
Consideration – Cash paid
Consideration – Cash expected to be repaid
Purchase consideration
Net cash in business acquired
Borrowings in business acquired
Total consideration
2013
£m
0.1
37.5
4.8
76.3
15.5
4.8
(92.3)
(4.5)
(6.0)
(4.3)
31.9
42.7
74.6
78.9
(4.3)
74.6
(4.8)
6.0
75.8
1. Included within Trade and other receivables are trade receivables with a fair value of £14.8m with the gross contractual amount being £14.9m.
The goodwill arising on acquisition is attributable to the anticipated future cash flows of the acquired business and synergies
expected to arise following integration with the Group’s existing business in Australia. Specifically, the goodwill represents the
premium paid to expand the Group’s presence in this important market and achieve regional scale in the premium and luxury
brand sector. This provides a platform to deliver growth and improved returns far quicker than would have been achievable
through organic expansion.
During the year, the accounting in respect of the acquisition of the 49% interest in the Inchcape Independence group in Russia
was finalised and resulted in an increase in goodwill of £0.5m.
B. PROFORMA FULL YEAR INFORMATION
If the acquisition of the Trivett group had occurred on 1 January 2013, the approximate revenue and operating profit before
exceptional items for the period ended 31 December 2013 of the Group would have been £6,587.1m and £287.9m respectively.
This information has been estimated based on the management information of the Trivett group prior to acquisition. The acquired
business contributed revenue of £298.8m and operating profit before exceptional items of £9.9m to the Group for the period
1 March to 31 December 2013.
C. DISPOSALS
During the year, the Group disposed of Ford retail centres in the UK and a Toyota dealership in China, generating disposal
proceeds of £14.9m.
In 2012, the Group disposed of its interest in a dealership in Russia at book value, generating disposal proceeds of £2.9m.
29 GUARANTEES AND CONTINGENCIES
Guarantees, performance bonds and contingent liabilities
2013
£m
24.2
2012
£m
15.6
Guarantees and contingencies largely comprise letters of credit issued on behalf of the Group in the ordinary course of business.
The Group also has, in the ordinary course of business, commitments under foreign exchange instruments relating to the hedging
of transactional exposures (see note 23).
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NOTES TO THE FINANCIAL STATEMENTS 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*
2013
£m
11.4
88.3
2012
£m
15.8
91.3
* Residual value commitments comprise the total repurchase liability on all vehicles sold subject to a residual value commitment, of which £16.2m (2012 – £27.0m) has been
included within ‘trade and other payables’. These commitments are largely expected to be settled over the next 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
2013
£m
46.8
119.9
197.0
363.7
2012
£m
43.8
104.2
154.0
302.0
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
2013
£m
3.2
6.9
10.8
20.9
2012
£m
3.7
6.1
7.3
17.1
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
2013
£m
1.2
4.0
3.0
8.2
(2.6)
5.6
2012
£m
0.7
0.9
3.9
5.5
(2.6)
2.9
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FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
31 RELATED PARTY DISCLOSURES
A. PRINCIPAL SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES
The consolidated financial statements include the principal subsidiaries, joint ventures and associates 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 is included in the Company’s annual return.
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NOTES TO THE FINANCIAL STATEMENTS 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
2013
£m
–
0.1
1.0
0.1
2012
£m
0.1
61.2
0.9
0.1
2013
£m
–
–
0.2
–
2012
£m
–
0.1
0.2
–
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 (2012 – £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
2013
£m
7.8
1.0
4.2
1.0
14.0
2012
£m
8.9
1.1
2.1
0.2
12.3
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
2013
1.63
1.18
12.14
1.96
49.97
2012
1.53
1.23
12.33
1.98
49.43
2013
1.86
1.20
12.85
2.09
54.46
2012
1.56
1.23
12.59
1.98
49.53
33 EVENTS AFTER THE REPORTING PERIOD
In the year ended 31 December 2013, the Company purchased, for cancellation, 8,147,813 ordinary shares of 10.0p each at a
cost of £49.7m (see note 24). In the period from 1 January to 10 March 2014, the Company purchased, for cancellation, a further
4,078,000 ordinary shares of 10.0p each at a cost of £25.0m. The Company is committed to completing a £100m share buy back
programme by 30 June 2014.
136 Inchcape plc Annual Report and Accounts 2013
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DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
34 ADOPTION OF IAS 19 (REVISED)
The principal changes as a result of the transition to IAS 19 (revised), ‘Employee benefits’ are set out in the following tables.
The impacts on the total comprehensive income are detailed below:
Increase in pre-exceptional operating expenses
Decrease in exceptional income
Increase in operating expenses
Increase in net finance costs
Decrease in tax expense
Net decrease in profit for the period
Attributable to:
Owners of the parent
Non controlling interests
Movement in actuarial losses in other comprehensive income
Deferred tax effect on actuarial losses in other comprehensive income
Net increase in other comprehensive income, net of tax
Net increase in total comprehensive income
Attributable to:
Owners of the parent
The impacts on the consolidated statement of financial position are detailed below:
Increase in retirement benefit asset
Decrease in retirement benefit obligation
Increase in deferred tax liability
Net impact on shareholders' equity
Attributable to:
Owners of the parent
Year to
31 Dec 2012
£m
(2.1)
(0.5)
(2.6)
(1.2)
0.8
(3.0)
(3.0)
–
16.1
(0.1)
16.0
13.0
13.0
As at
31 Dec 2012
£m
As at
1 Jan 2012
£m
21.8
1.2
(2.0)
21.0
9.3
1.4
(2.7)
8.0
21.0
8.0
There is no impact on the consolidated statement of cash flows.
In note 1 Segmental analysis, operating expenses of £(2.1)m for the year ended 31 December 2012 have been allocated to Central.
This relates to £(2.0)m scheme expenses which, under the revised standard, are recognised in the period in which they are incurred,
and to a £(0.1)m decrease in the settlement gain recognised in 2012.
A £(0.5)m decrease in the exceptional curtailment gain recognised by the Group in 2012 has also been allocated to Central in
the segmental analysis.
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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,
with the exception of 2012 which has been restated to reflect the adoption of IAS 19 (revised)1.
Consolidated income statement
Revenue
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
Net funds
Net assets
Equity attributable to owners of the parent
Non controlling interests
Total shareholders’ equity
1. See note 34 of the financial statements.
2013
£m
2012
(restated)
£m
2011
£m
2010
£m
2009
£m
6,524.9
6,085.4
5,826.3
5,885.4
5,583.7
286.9
(8.5)
278.4
–
278.4
(12.3)
–
266.1
(65.9)
0.6
200.8
(6.6)
194.2
266.1
41.8p
274.6
43.5p
17.4p
259.8
0.7
260.5
0.2
260.7
(13.0)
–
247.7
(60.8)
0.5
187.4
(5.9)
181.5
247.7
39.4p
247.0
39.1p
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
–
1,512.1
(135.9)
1,376.2
123.0
1,499.2
1,464.4
(212.2)
1,252.2
276.2
1,528.4
1,350.0
(236.0)
1,114.0
243.5
1,357.5
1,311.2
(227.7)
1,083.5
205.8
1,289.3
1,306.1
(217.2)
1,088.9
0.8
1,089.7
1,470.0
29.2
1,499.2
1,502.6
25.8
1,528.4
1,329.1
28.4
1,357.5
1,263.1
26.2
1,289.3
1,067.7
22.0
1,089.7
138 Inchcape plc Annual Report and Accounts 2012
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STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS
OF INCHCAPE PLC
REPORT ON THE GROUP FINANCIAL STATEMENTS
OUR OPINION
In our opinion the Group financial statements, defined below:
• give a true and fair view of the state of the Group’s affairs as
at 31 December 2013 and of the Group’s profit and cash flows
for the year then ended;
• have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs) as
adopted by the European Union; and
• have been prepared in accordance with the requirements of
the Companies Act 2006 and Article 4 of the IAS Regulation.
This opinion is to be read in the context of what we say in the
remainder of this Report.
WHAT WE HAVE AUDITED
The Group financial statements, which are prepared by
Inchcape plc, comprise:
• the consolidated statement of financial position as at 31
December 2013;
• the consolidated income statement and consolidated
statement of comprehensive income for the year then ended;
• the consolidated statement of changes in equity and
consolidated statement of cash flows for the year then
ended; and
• the summary of significant accounting policies and
notes to the financial statements, which includes other
explanatory information.
The financial reporting framework that has been applied in
their preparation comprises applicable law and IFRSs as
adopted by the European Union.
Certain disclosures required by the financial reporting
framework have been presented elsewhere in the Annual
Report and Accounts 2013 (the Annual Report), rather
than in the notes to the financial statements. These are cross-
referenced from the financial statements and are identified
as audited.
WHAT AN AUDIT OF FINANCIAL STATEMENTS INVOLVES
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) (ISAs (UK & Ireland)).
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 Group financial statements
and to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications
for our report.
OVERVIEW OF OUR AUDIT APPROACH
MATERIALITY
We set certain thresholds for materiality. These helped us to
determine the nature, timing and extent of our audit procedures
and to evaluate the effect of misstatements both individually
and on the financial statements as a whole.
Based on our professional judgement, we determined
materiality for the Group financial statements as a whole to be
£13 million, which is approximately 5% of the Group’s profit
before tax.
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above £0.65
million as well as misstatements below that amount that, in our
view, warranted reporting for qualitative reasons.
OVERVIEW OF THE SCOPE OF OUR AUDIT
The Group is organised into six geographic operating segments
(Australasia, Europe, North Asia, South Asia, United Kingdom
and Russia and Emerging Markets). The operating businesses
are further categorised into two market channels – distribution
and retail. The Group financial statements are a consolidation
of 56 reporting units, comprising the Group’s operating
businesses (within the six geographic segments and two
market channels) and centralised functions.
In establishing the overall approach to the Group audit, we
determined the type of work that needed to be performed at
the reporting units by us, as the Group engagement team, or
component auditors within PwC UK and from other PwC network
firms and other firms operating under our instruction. Where the
work was performed by component auditors, we determined
the level of involvement we needed to have in the audit work at
those reporting units to be able to conclude whether sufficient
appropriate audit evidence had been obtained as a basis for
our opinion on the Group financial statements as a whole.
The reporting units vary significantly in size and we identified
24 reporting units that, in our view, required an audit of
their complete financial information, due to their size or risk
characteristics. These 24 reporting units contributed 91%
of the Group’s profit before tax.
AREAS OF PARTICULAR AUDIT FOCUS
In preparing the financial statements, the Directors made
a number of subjective judgements, for example in respect
of significant accounting estimates that involved making
assumptions and considering future events that are inherently
uncertain. We primarily focused our work in these areas by
assessing the Directors’ judgements against available evidence,
forming our own judgements, and evaluating the disclosures in
the financial statements.
In our audit, we tested and examined information, using
sampling and other auditing techniques, to the extent we
considered necessary to provide a reasonable basis for us to
draw conclusions. We obtained audit evidence through testing
the effectiveness of controls, substantive procedures or a
combination of both.
We considered the following areas to be those that required
particular focus in the current year. This is not a complete list
of all risks or areas of audit focus identified by our audit. We
discussed these areas of focus with the Audit Committee.
Their Report on those matters that they considered to be
significant issues in relation to the financial statements is
set out on page 55.
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS
OF INCHCAPE PLC CONTINUED
Area of focus
Goodwill impairment assessment
We focused on this area because it involves complex and
subjective judgements by the Directors, including the future
results of the business.
As set out in note 11 of the financial statements, the recoverable
amount of the goodwill in Russia (£178.0 million) and Lithuania
(£21.6 million) is sensitive to a change in the key assumptions.
Fraud in revenue recognition
ISAs (UK & Ireland) require us to consider the risk of fraud in
revenue recognition. We focused our work on the potential
fraudulent recognition of revenue, in particular items posted
through manual journals to revenue accounts.
Risk of management override of internal controls
ISAs (UK & Ireland) require that we consider this.
How the scope of our audit addressed the area of focus
We evaluated the Directors’ future cash flow forecasts, including
comparing them with the latest Board approved budgets and
tested the integrity of underlying calculations. We challenged
the Directors’ key assumptions for long term growth rates in the
forecasts by comparing them with historical results and external
data. We challenged the discount rate by assessing the cost of
capital for the Company and comparable organisations.
We also performed sensitivity analysis around the key drivers of
the cash flow forecasts, specifically the long term growth rates
and the assumptions relating to revenue growth and operating
margins, as well as the discount rates. Having ascertained the
extent of change in those assumptions that either individually
or collectively would be required for the goodwill to be impaired,
we considered the likelihood of such movements in those key
assumptions arising.
We evaluated the relevant IT systems and tested the internal
controls over revenue transactions recognised in the financial
statements. We tested the validity of sales recorded in the period
by agreeing them to appropriate third party documentation and
cash receipts. We also tested manual journal entries posted to
revenue accounts by identifying and investigating unusual or
irregular items.
We assessed the overall control environment of the Group,
including the arrangements for staff to ‘whistle-blow’
inappropriate actions, and interviewed senior management
and the Group’s Internal Audit function. We examined the
significant accounting estimates and judgements relevant to
the financial statements, such as impairment reviews and
warranty provisions, for evidence of bias by the Directors that
may represent a risk of material misstatement due to fraud.
We also tested journal entries and incorporated an element
of unpredictability in our audit work.
GOING CONCERN
Under the Listing Rules we are required to review the Directors’ statement, set out on page 74, in relation to going concern.
We have nothing to report having performed our review.
As noted in the Directors’ statement, the Directors have concluded that it is appropriate to prepare the Group’s financial statements
using the going concern basis of accounting. The going concern basis presumes that the Group has adequate resources to
remain in operation, and that the Directors intend it to do so, for at least one year from the date the financial statements were
signed. As part of our audit we have concluded that the Directors’ use of the going concern basis is appropriate.
However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s
ability to continue as a going concern.
140
Inchcape plc Annual Report and Accounts 2013
www.inchcape.com 140
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
AND THE AUDIT
OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS
As explained more fully in the Directors’ responsibilities
statement set out on page 74, 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 ISAs (UK & 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.
OTHER MATTER
We have reported separately on the Company financial
statements of Inchcape plc for the year ended 31 December
2013 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
10 March 2014
OPINION ON OTHER MATTER PRESCRIBED BY THE
COMPANIES ACT 2006
In our opinion the information given in the Strategic report and
the Directors’ Report for the financial year for which the Group
financial statements are prepared is consistent with the Group
financial statements.
OTHER MATTERS ON WHICH WE ARE REQUIRED TO
REPORT BY EXCEPTION
ADEQUACY OF INFORMATION AND EXPLANATIONS RECEIVED
Under the Companies Act 2006 we are required to report to
you if, in our opinion, we have not received all the information
and explanations we require for our audit. We have no
exceptions to report arising from this responsibility.
DIRECTORS’ REMUNERATION
Under the Companies Act 2006 we are required to report to you
if, in our opinion, certain disclosures of Directors’ remuneration
specified by law have not been made. We have no exceptions
to report arising from this responsibility.
CORPORATE GOVERNANCE STATEMENT
Under the Listing Rules we are required to review the part of
the Corporate governance report relating to the Company’s
compliance with nine provisions of the UK Corporate
Governance Code (‘the Code’). We have nothing to
report having performed our review.
On page 75 of the Annual Report, as required by the
Code Provision C.1.1, the Directors state that they consider
the Annual Report taken as a whole to be fair, balanced and
understandable and provides the information necessary for
members to assess the Group’s performance, business model
and strategy. On page 55, as required by C.3.8 of the Code,
the Audit Committee has set out the significant issues that it
considered in relation to the financial statements, and how
they were addressed. Under ISAs (UK & Ireland) we are
required to report to you if, in our opinion:
• the statement given by the Directors is materially inconsistent
with our knowledge of the Group acquired in the course of
performing our audit; or
• the section of the Annual Report describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We have no exceptions to report arising from this responsibility.
OTHER INFORMATION IN THE ANNUAL REPORT
Under ISAs (UK & Ireland) we are required to report to you if,
in our opinion, information in the Annual Report is:
• materially inconsistent with the information in the audited
Group financial statements; or
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in
the course of performing our audit; or
• otherwise misleading.
We have no exceptions to report arising from this responsibility.
www.inchcape.com
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2013
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
Called up share capital
Share premium accounts
Capital redemption reserve
Profit and loss account
Total shareholders’ funds
Notes
2013
£m
2012
£m
3
1,637.5
1,623.6
4
4
5
6
7
9
9.8
340.0
3.3
353.1
363.2
903.2
10.2
1,276.6
(5.5)
347.6
(4.5)
1,272.1
1,985.1
2,895.7
(571.1)
(1,770.7)
(4.6)
1,409.4
(4.6)
1,120.4
11, 13
13
13
13
46.5
145.7
134.1
1,083.1
1,409.4
46.9
136.5
133.3
803.7
1,120.4
The financial statements on pages 142 to 149 were approved by the Board of Directors on 10 March 2014 and were signed on its
behalf by:
ANDRÉ LACROIX,
GROUP CHIEF EXECUTIVE
Registered Number: 609782
Inchcape plc
JOHN MCCONNELL,
GROUP FINANCE DIRECTOR
142 Inchcape plc Annual Report and Accounts 2013
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Inchcape plc Annual Report and Accounts 2013
STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
ACCOUNTING POLICIES
BASIS OF PREPARATION
These financial statements are prepared for Inchcape plc (the Company) for the year ended 31 December 2013. 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 differences are
taken to the profit and loss account.
FINANCE COSTS
Finance costs consist of interest payable on the 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. 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
83 to 89.
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS
1 AUDITORS’ REMUNERATION
The Company incurred £0.1m (2012 – £0.1m) in relation to UK statutory audit fees for the year ended 31 December 2013.
2 DIRECTORS’ REMUNERATION
Wages and salaries
Social security costs
Pension costs
2013
£m
4.1
0.4
0.5
5.0
2012
£m
3.8
0.4
0.4
4.6
Further information on Executive Directors’ emoluments and interests is given in the Directors’ Report on Remuneration which can be
found on pages 58 to 73.
3 INVESTMENT IN SUBSIDIARIES
Cost
At 1 January
Additions
Disposals
At 31 December
Provisions
At 1 January
Provisions for impairment
Disposals
At 31 December
Net book value
2013
£m
2012
£m
1,663.4
84.6
(35.4)
1,712.6
1,661.8
1.6
–
1,663.4
(39.8)
(70.7)
35.4
(75.1)
(39.8)
–
–
(39.8)
1,637.5
1,623.6
The Directors believe that the carrying value of the investments is supported by their underlying net assets.
In 2013, the Company invested £84.6m in a new subsidiary, Inchcape Finance (Ireland) Limited.
Also, the Company disposed of its investments in Inchcape Testing Services Limited and Southwell Motor Company Limited. Both
investments had been fully provided for.
An impairment charge of £70.7m has been recognised in the year to ensure that the carrying value of investments is stated at the
lower of cost and recoverable amount.
144
Inchcape plc Annual Report and Accounts 2013
www.inchcape.com 144
STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
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
Other taxation and social security payable
Other creditors
7 CREDITORS – AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Amounts owed to Group undertakings
Private Placement
2013
£m
9.8
9.8
2.7
337.3
340.0
2013
£m
3.3
2013
£m
2.7
2.8
5.5
2013
£m
308.9
262.2
571.1
2012
£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
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 2015 and bear interest at rates linked to LIBOR.
www.inchcape.com
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
8 DEFERRED TAX
At 1 January 2013
(Charged) / credited to the profit and loss account
At 31 December 2013
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
1.5
(0.3)
1.2
1.0
0.5
1.5
2013
£m
4.6
–
4.6
Total
£m
2.5
0.2
2.7
2012
£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 2013 (2012 – £nil))
2013
£m
2012
£m
504.2
502.8
The Company is party to composite cross guarantees between banks and its subsidiaries. The Company’s contingent liability under
these guarantees at 31 December 2013 was £3.3m (2012 – £10.2m).
11 SHARE CAPITAL
A. ALLOTTED, CALLED UP AND FULLY PAID UP
Ordinary shares
At 1 January
Allotted under share option schemes
Cancelled under share buy back
At 31 December
2013
Number
2012
Number
2013
£m
2012
£m
468,108,202 463,473,216
4,634,986
–
463,808,537 468,108,202
3,848,148
(8,147,813)
46.9
0.4
(0.8)
46.5
46.4
0.5
–
46.9
B. SHARE BUY BACK PROGRAMME
At 31 December 2013, the Company held 2,687,560 treasury shares (2012 – 2,687,560) with a total book value of £99.4m
(2012 – £99.4m). These shares may be either cancelled or used to satisfy share options at a later date. The market value of treasury
shares at 31 December 2013 was £16.5m (2012 – £11.6m).
During the year, the Company repurchased 8,147,813 (2012 – nil) of its own shares through purchases on the London Stock
Exchange, at a cost of £49.7m. The shares repurchased during the year were cancelled, with none held within treasury shares at
the end of the reporting period. An amount of £0.8m, equivalent to the nominal value of the cancelled shares, has been transferred
to the capital redemption reserve. Costs of £0.3m associated with the transfer to the Company of the repurchased shares and their
subsequent cancellation have been charged to the profit and loss reserve.
C. SUBSTANTIAL SHAREHOLDINGS
Details of substantial interests in the Company’s issued ordinary share capital received by the Company at 10 March 2014 under
the provisions of the Companies Act 2006 have been disclosed in the significant shareholdings section, in the Directors’ Report on
page 74.
146 Inchcape plc Annual Report and Accounts 2013
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Inchcape plc Annual Report and Accounts 2013
STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
11 SHARE CAPITAL CONTINUED
D. SHARE OPTIONS
At 31 December 2013, 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
20 May 2014
4.42 82,631
29 September 2014
4.37 455,996
6 March 2015
5.78 894,235
11 September 2015
6.03 846,792
1 May 2014
1 May 2015
1 May 2016
1 May 2017
2.05
2.43
3.07
4.76
18,106
2,288
31,122
18,211
22,513
24,249
– unapproved (Part I – UK)
30,677
50,561
218,727
1,066,499
334,363
19 May 2019
7 April 2020
20 May 2014
6 March 2015
11 September 2015
19 May 2019
7 April 2020
– unapproved overseas (Part I – Overseas)
76,782
147,127
494,871
293,000
20,532
20 May 2014
6 March 2015
19 May 2019
7 April 2020
13 June 2020
2.00
3.10
4.42
5.78
6.03
2.00
3.10
4.42
5.78
2.00
3.10
2.63
Included within the retained earnings reserve are 1,777,567 (2012 – 1,692,848) ordinary shares in the Company 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 2013 was £5.5m (2012 – £4.0m). The market value of these shares at both 31
December 2013 and 10 March 2014 was £10.9m (31 December 2012 – £7.3m, 11 March 2013 – £9.0m).
www.inchcape.com
www.inchcape.com 147
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GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 £2.0m (2012 – £1.4m), all of which is equity-settled.
The following table sets out the movements in the number of share options and awards during the year:
2013
Share Option Plan
Executive Share Option Plan
Save As You Earn Plan
Performance Share Plan
Other Share Plans
Weighted average
exercise price (£)
2012
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
01 November 2013
23 May 2011
10 April 2012
11 April 2013
02 June 2011
22 June 2012
23 April 2013
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
02 June 2011
22 June 2012
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
562,470
–
298,560
237,179
–
–
–
–
–
–
–
–
–
–
1,890
–
–
562,470
–
–
84,724
2.86
4.76
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(17,746)
–
–
–
(222,772)
(46,875)
(125,806)
(4,390)
–
–
–
–
–
–
–
–
–
28,428
21,644
205,468
755,999
–
243,870
–
3,703
1,890
562,474
562,470
562,470
298,560
237,179
84,724
0.50
1.22
1.56
1.60
1.07
1.08
1.05
0.84
0.81
1.37
3.80
3.54
5.14
3.90
3.40
4.99
2.47
2.99
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.50
1.22
1.56
1.60
1.07
1.08
1.05
0.84
0.81
3.80
3.54
3.90
3.40
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
The weighted average remaining contractual life for the share options outstanding at 31 December 2013 is 2.6 years
(2012 – 4.0 years) and the range of exercise prices for options outstanding at the end of the year was £2.00 to £6.03
(2012 – £2.00 to £6.03).
148 Inchcape plc Annual Report and Accounts 2013
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Inchcape plc Annual Report and Accounts 2013
STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
12 DIVIDENDS
The following dividends were paid by the Company:
Interim dividend for the six months ended 30 June 2013 of 5.7p per share (2012 – 4.0p per share)
Final dividend for the year ended 31 December 2012 of 10.5p per share (2011 – 7.4p per share)
2013
£m
26.6
48.9
75.5
2012
£m
18.5
34.0
52.5
A final proposed dividend for the year ended 31 December 2013 of 11.7p per share amounting to £54.0m is subject to approval by
shareholders at the Annual General Meeting and has not been included as a liability as at 31 December 2013.
13 RESERVES
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 1 January 2013
Profit for the financial year
Dividends
Issue of ordinary share capital
Net purchase of own shares by ESOP Trust
Share buy back programme
Share-based payments charge
At 31 December 2013
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
46.4
–
–
0.5
–
–
46.9
–
–
0.4
–
(0.8)
–
46.5
126.9
–
–
9.6
–
–
136.5
–
–
9.2
–
–
–
145.7
133.3
–
–
–
–
–
133.3
–
–
–
–
0.8
–
134.1
Profit
and loss
account
£m
755.1
96.6
(52.5)
–
(2.3)
6.8
803.7
398.4
(75.5)
–
(2.5)
(50.0)
9.0
1,083.1
Total
£m
1,061.7
96.6
(52.5)
10.1
(2.3)
6.8
1,120.4
398.4
(75.5)
9.6
(2.5)
(50.0)
9.0
1,409.4
14 PRINCIPAL SUBSIDIARIES AT 31 DECEMBER 2013
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.
www.inchcape.com
www.inchcape.com 149
149
GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS
OF INCHCAPE PLC
OPINIONS ON OTHER MATTER PRESCRIBED BY THE
COMPANIES ACT 2006
IN OUR OPINION:
• the information given in the Strategic Report and the Directors’
Report for the financial year for which the Company financial
statements are prepared is consistent with the Company
financial statements.
• the part of the Directors’ Report on Remuneration to be
audited has been properly prepared in accordance with the
Companies Act 2006.
OTHER MATTERS ON WHICH WE ARE REQUIRED TO
REPORT BY EXCEPTION
ADEQUACY OF ACCOUNTING RECORDS AND INFORMATION
AND EXPLANATIONS RECEIVED
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
• we have not received all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the 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.
We have no exceptions to report arising from this responsibility.
DIRECTORS’ REMUNERATION
Under the Companies Act 2006 we are required to report to you
if, in our opinion, certain disclosures of Directors’ remuneration
specified by law have not been made. We have no exceptions
to report arising from this responsibility.
OTHER INFORMATION IN THE ANNUAL REPORT
Under ISAs (UK & Ireland), we are required to report to you if,
in our opinion, information in the Annual Report is:
• materially inconsistent with the information in the audited
Company financial statements; or
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Company acquired
in the course of performing our audit; or
• otherwise misleading.
We have no exceptions to report arising from this responsibility.
REPORT ON THE COMPANY FINANCIAL STATEMENTS
OUR OPINION
In our opinion the Company financial statements, defined below:
• give a true and fair view of the state of the Company’s affairs
as at 31 December 2013;
• have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements
of the Companies Act 2006.
This opinion is to be read in the context of what we say in the
remainder of this report.
WHAT WE HAVE AUDITED
The Company financial statements, which are prepared by
Inchcape plc, comprise:
• the Company balance sheet as at 31 December 2013; and
• the summary of significant accounting policies and notes to
the financial statements, which includes other explanatory
information.
The financial reporting framework that has been applied in their
preparation comprises applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
In applying the financial reporting framework, the Directors
have made a number of subjective judgements, for example
in respect of significant accounting estimates. In making such
estimates, they have made assumptions and considered
future events.
Certain disclosures required by the financial reporting framework
have been presented elsewhere in the Annual Report and
Accounts 2013 (the Annual Report) rather than in the notes
to the financial statements. These are cross-referenced from the
financial statements and are identified as audited.
WHAT AN AUDIT OF FINANCIAL STATEMENTS INVOLVES
We conducted our audit in accordance with International
Standards on Auditing (UK & Ireland) (‘ISAs (UK & Ireland)’).
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
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 Company financial statements
and to identify any information that is apparently materially
incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the
audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications
for our report.
150 Inchcape plc Annual Report and Accounts 2013
150
Inchcape plc Annual Report and Accounts 2013
STRATEGIC REPORT
GOVERNANCE
DIRECTORS’ REPORT
FINANCIAL STATEMENTS
SHAREHOLDER INFORMATION
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
AND THE AUDIT
OUR RESPONSIBILITIES AND THOSE OF THE DIRECTORS
As explained more fully in the Directors’ responsibilities
statement set out on page 74, the Directors are responsible for
the preparation of the 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
Company financial statements in accordance with applicable
law and ISAs (UK & 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.
OTHER MATTER
We have reported separately on the Group financial statements
of Inchcape plc for the year ended 31 December 2013.
MARK GILL
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
10 March 2014
www.inchcape.com
www.inchcape.com 151
151
GOVERNANCESTRATEGIC REPORTDIRECTORS’ REPORTFINANCIAL STATEMENTSSHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION
SHAREHOLDER PROFILE
As at 31 December 2013, the Company had 6,755 holdings on
its register of ordinary shareholders (2012 – 6,979). 72.1% 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 (2012 – 71%). The majority of
funds are managed from the UK, with the USA representing 15.8%.
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. 120 by market capitalisation in
the FTSE 350 (2012 –130).
The share price by volume graph shows the movement in the
share price, closing at 614.5p as at 31 December 2013.
SHARE PRICE BY VOLUME DURING 2013
)
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Inchcape share price
Volume
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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
Deutsche Bank
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 2014
ANNOUNCEMENT OF 2013 INTERIM RESULTS
August 2014
152
Inchcape plc Annual Report and Accounts 2013
EXPLORE OUR WEBSITE FOR
ACCESS TO OUR LATEST
ANNUAL REPORT AND MORE.
THE 2013 ONLINE ANNUAL REPORT INCLUDES:
– read about Inchcape’s progress in our ‘Year in Review’
– a searchable PDF of the Annual Report
– download prior year Annual Reports
– Inchcape videos – watch and learn more about
Inchcape and what we do
www.inchcape.com/annualreport
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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
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