ANNUAL REPORT AND ACCOUNTS 2018
I
N
C
H
C
A
P
E
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
8
REVENUE
£9.3BN
2017: £9.0BN
DIVIDEND PER SHARE1
26.8P
2017: 26.8P
CASH RETURNED TO SHAREHOLDERS
£115.2M
2017: £152.9M
RETURN ON CAPITAL EMPLOYED1
28%
2017: 30%
1APM (alternative performance measures),
page 165
STRATEGIC REPORT
1 Chairman’s welcome
2 Chief Executive’s review
4 Our unique global position
6 Working with leading OEM partners
8 Our value chain
11 Overview of our industry
12 Our strategy
15 Our investment proposition
16 Capital Allocation Framework
18 Key Performance Indicators
20 Operating and financial review
28 Corporate social responsibility
35 Risk management
GOVERNANCE
48 Board of Directors
50 Chairman’s statement
51 Corporate Governance Report
68 Directors’ Report on Remuneration
88 Directors’ Report
FINANCIAL STATEMENTS
94 Independent auditor’s report to the members of Inchcape plc
102 Consolidated income statement
103 Consolidated statement of comprehensive income
104 Consolidated statement of financial position
105 Consolidated statement of changes in equity
106 Consolidated statement of cash flows
107 Accounting policies
118 Notes to the financial statements
165 Alternative performance measures
166 Five year record
167 Company statement of financial position
168 Company statement of changes in equity
169 Company Accounting policies
171 Notes to the Company financial statements
OTHER INFORMATION
184 Shareholder information
Visit our website for additional information and
interactive features inchcape.com
Clarifying our Financial Metrics
The following table shows the key profit measures that we use throughout this report to most accurately describe
underlying operating performance and how they relate to statutory measures.
Metric
Gross Profit
Results
Use of Metric
1,301.3
Direct profit contribution from Value Drivers (e.g. Vehicles and Aftersales)
Less: Segment operating expenses
(899.9)
Trading Profit
Less: Central Costs
401.4
Underlying profit generated by our Segments
(16.3)
Operating Profit (pre Exceptional Items)
385.1
Underlying profit generated by the Group
Less: Exceptional Items
Operating Profit
(210.8)
174.3
Statutory measure of Operating Profit
Less: Net Finance Costs and JV profit (inc. exceptional items)
(42.2)
Profit before Tax
Add back: Exceptional Items
132.1
Statutory measure of profit after the costs of financing the Group
224.7
Profit Before Tax & Exceptional Items
356.8
One of the Group’s KPIs
CHAIRMAN’S WELCOME
NIGEL
STEIN
Chairman
DEAR SHAREHOLDERS,
I was honoured to be appointed Chairman of Inchcape
at last May’s annual general meeting, succeeding
Ken Hanna in the role. Ken had served on the Board
for 17 years, including nine as Chairman, playing
a significant part in Inchcape being the successful
company it is today. On all stakeholders’ behalf,
I thank him for his contribution and look forward
to taking the Company forward on the next stage
of its constant evolution.
2018 TRADING
Inchcape had a resilient trading performance in 2018,
a year which saw challenging conditions in several
automotive markets, with lower demand in the UK and
Australia particularly impacting our results. The Group
performed well in its other markets, keeping sales overall
moving ahead and pre-exceptional profit before tax only
slightly lower. Employees across Inchcape worked
extremely hard to deliver this result and I sincerely thank
them for their efforts.
STRATEGY
Since assuming my role, I have taken the opportunity
to visit several of the Group’s larger markets. In each,
I was impressed by the capability, commitment and
enthusiasm of the Inchcape teams I met and noted their
strong support for the Ignite strategy, which is bringing
increasing benefits to the bottom line.
Progress against the five drivers of the Ignite strategy
is covered elsewhere in this report, but at a time of low
growth in Inchcape’s main markets, successful execution
of those initiatives will be increasingly important to
our success.
As is clear from the results, Inchcape’s business is
increasingly weighted towards the Distribution segment.
The Board believes this is a more resilient market position
than a purely Retail presence, although it recognises
the importance of demonstrating Inchcape’s Retail
credentials to its global OEM partners. Future investment
and capital expenditure are therefore planned to be
more weighted to our Distribution than Retail segment.
FUTURE TRENDS
The Board spends considerable time looking at the
longer-term outlook in the global automotive industry.
This is a time of considerable change in our industry,
with some major disruptive trends looking likely to change
the way cars are purchased, used and maintained in the
medium to longer term. These include electrification of
the drivetrain including more battery electric cars; shared
ownership; and autonomous or “self driving” vehicles.
All of these being enabled by a high degree of digital
connectivity inside and between vehicles.
Inchcape is working closely with its OEM partners to
evaluate how these changes will impact our automotive
markets, how we can benefit from them and what risks
we must guard against.
Nearer at hand are changes already taking place in
the way our customers choose to interact with Inchcape,
with most now using digital channels to evaluate the
model they would like before they ever visit a showroom.
We are stepping up our investment in digital capability
to ensure Inchcape keeps an attractive and competitive
online presence.
GOVERNANCE
Inchcape prides itself on a strong governance culture,
recognising that in a business spread broadly across
emerging markets and with new acquisitions, this
cannot be taken for granted. During the year several
governance processes were refreshed and a new Code
of Conduct and Employee Handbook issued, supported
by an extensive training programme.
BOARD CHANGES
A strong and relevant Board with skills which add to the
Company’s wider “experience” is an important asset.
In that connection we were pleased to welcome Jane
Kingston who joined the Board in August 2018. Jane’s
background and previous career are set out in detail
elsewhere in the Directors’ Report. Her expertise is already
proving useful to our team.
Nigel Northridge, the Senior Independent Director,
is standing down from the Board at the AGM after more
than nine years’ service. I would like to thank Nigel for his
excellent contribution to the Board over those years. The
Board has approved the appointment of Jerry Buhlmann
to succeed Nigel Northridge as Senior Independent
Director. Further details are given on page 66.
LOOKING AHEAD
The anticipated softening of demand in a number
of major markets and the potential economic impact
of Brexit in the UK and Europe will create a challenging
backdrop to 2019. Despite this we expect Inchcape
to deliver a resilient underlying performance.
The strengths of the Group’s business model, its exposure
to high growth markets, strong partnership with leading
OEMs and weighting towards Distribution, together with
a strong focus on cost control, will help us to respond
to the current challenges and position us well for the
years ahead.
Nigel Stein
Chairman
Inchcape Annual Report and Accounts 2018
1
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHIEF EXECUTIVE’S REVIEW
UNDERLYING
STRENGTH DELIVERING
LONG-TERM VALUE
STEFAN
BOMHARD
Chief
Executive
A UNIQUE AND SUSTAINABLE BUSINESS MODEL
Inchcape has a unique business model; we are the only
independent automotive Distributor and Retailer with
global scale.
The heart of our business, and our core set of
competencies, is in automotive Distribution, that is the
management of the post-factory value chain for our
vehicle manufacturer or ‘OEM’ (original equipment
manufacturer) partners. The Distribution model
allows us to capture a greater portion of the value
chain and drive higher margins and returns. We have
long-standing strategic Distribution partnerships,
providing end-to-end routes-to-market for some of the
world’s leading and most recognisable vehicle
manufacturers; our portfolio of these brands is diverse
and includes premium, volume and commercial OEMs,
which gives us a balanced segmental representation
across our operations.
Within that value chain we also operate as a Retailer,
giving us true insight into our customers and allowing
us to develop world-class customer experience
solutions that are globally scalable. In fact, through
the full-spectrum Distribution value chain Inchcape
manages business partner and customer touchpoints
from vehicle product planning right through to servicing
customers’ cars.
Our business model and segmental split are shown in
more detail on pages 8-9.
OUR STRATEGY TO DRIVE GROWTH
Inchcape’s Ignite strategy is the powertrain that moves
our business forward and underpins our ambition to drive
growth. Ignite was created to drive operational
excellence across our markets; to consolidate select
parts of our fragmented industry; to continually innovate
to take advantage of our scale and expertise; and to
ensure a long-term future for the Company.
Through Ignite’s first four objectives – our organic growth
drivers – we build a stronger, more sustainable business,
as well as the trust of our OEM partners and customers.
These are our two key operational stakeholders and the
focal points of our vision to become the world’s most
trusted automotive Distributor and Retailer.
Inchcape operates in markets that are subject to
changing trends and conditions, and it is through Ignite
that we strive to maximise the profit opportunity against
that backdrop.
You can read more about the strategic objectives and
our progress this year on pages 12-13.
Once more it is my pleasure to write to you at the end
of a year that has delivered strategic progress in many
markets, despite some external pressures. We have
grown our business, adding several new contracts
to our portfolio, and placing greater emphasis on
Distribution as the core of our business model; we have
further leveraged our scale on costs; and we have made
good progress in improving our digital capability and
execution of the Inchcape customer experience.
In many ways the financial results of 2018 validate
our strategic intent to focus our growth on Distribution.
Our influence and control of the full value chain in
Distribution markets ensured we were able to mitigate
market challenges, returning a very positive full year
performance in the Asia region. However, we continued
to face significant pressures in some of our Retail markets
(in particular Australia and the UK) where performance
was impacted by factors including a market slowdown
and a reduced demand for diesel, leading to a resilient
Group profit performance in 2018. We have progressed
many strategic objectives during the year and have
actions in place to improve our Retail operations in 2019.
I would like to outline why despite facing periodic
challenges I believe that Inchcape has the fundamental
strength to succeed, to continue to grow and to deliver
returns on investment for our shareholders over the
long term.
A full review of how our markets performed in 2018 can
be found on pages 20-26 in the Operating Review.
2
Inchcape Annual Report and Accounts 2018
A PLATFORM FOR CONSOLIDATION
Ignite’s fifth objective focuses on entry into and
consolidation of small to medium-sized markets with
high growth potential where we can optimise our unique
competitive advantage to establish market-leading
positions for our OEM partners. The key to this strategy,
and one of the successes of the past year, is in
establishing regional platforms for growth, using an initial
market presence in a given region as a springboard to
further consolidation opportunities. In 2018 we used this
approach to consolidate BMW Group’s Baltic operations
where we were awarded the Distribution contract for
Lithuania, in addition to our existing agreements in Latvia
and Estonia, which we began to operate at the start of
this year. This approach benefits our partners, as well as
Inchcape, as we can leverage our scale across the
region, adding value through one efficient operation.
Significantly, in March we extended our Latin American
platform with a scale acquisition in Costa Rica and
Panama. We acquired Grupo Rudelman and with it
the Distribution contract for Suzuki and a number of
emergent Chinese brands. We have now significantly
increased our exposure in the Americas, through both
long-standing and newer partnerships, in the high-growth
potential markets that we see as fundamental to our
continuing consolidation of the industry.
It is important to add that while we have capitalised on
a strong set of opportunities recently, we have a
disciplined approach to our allocation of capital. We
have the firepower to invest and a rich pipeline from
which to select the very best opportunities to develop,
but we do so in a way that is consistent with our strategy
of long-term, sustainable growth.
BUILDING STRUCTURAL AND PEOPLE
CAPABILITY
Of course, none of the progress we have made over the
past year would have been possible without the expertise
and dedication of our people. One of Inchcape’s
greatest strengths is its talent which we nurture and
develop, promoting people to senior positions from within
the Company, and mining the deep specialist
knowledge base of our existing employees.
We have continued to invest in the skills we need as our
industry evolves, managing succession and ensuring
long-term viability, and we recognise that the sustainable
business of the future must bring new talent in from
outside to extend Inchcape’s capabilities where we see
a gap. In particular, we have expanded our digital teams
both at Group and market level, where they are playing
a leading role in the continued optimisation of our Retail
footprint and customer experience.
On behalf of the Executive Team, I would like to take this
opportunity to thank our talented people across the
business for their dedication to making our vision a reality.
As we build and improve our people capability,
so we evolve our systems and structural capabilities.
The potential for technological advancement in our
industry should not be underestimated and our aim
is to keep pace and anticipate wherever possible to
maintain a strong competitive edge, both now and in
the years ahead.
You can read more about our view of the changing
automotive industry and our responses on page 11.
LONG-TERM VALUE CREATION
The combination of our business model, our strategy
and our capability comprises Inchcape’s core strength
and provides the basis of our proposition for multi-layered
growth: through operations with a weighting towards
higher margin Distribution contracts; through a balanced
exposure to mature and high-growth potential markets;
through scale leveraged to build efficiencies across our
global operations; through sensible deployment of cash
generated through the operations; and through our
positive response to the evolving automotive industry.
Inchcape is structured to maximise the opportunities for
earnings and delivering cash returns for our shareholders
and I believe wholeheartedly that the business will
continue its long track record of delivering growth.
OUTLOOK
I believe Inchcape has a strong and sustainable business
model which provides an excellent long-term investment
proposition. This year has reaffirmed that our Ignite
strategy is taking Inchcape in the right direction; it has
demonstrated the growth opportunity in Distribution,
has enabled us to improve our operations and has
enhanced our global footprint. Our diversified and
Distribution-weighted portfolio will continue to be an
engine for growth over the long term.
We also remain focused on ensuring the best possible
performance of our Retail businesses against the market
headwinds we continue to face. We believe that we have
exited 2018 with a stronger Retail strategy and are
starting to see benefits from operational improvements
that are being implemented.
Looking nearer term, excluding an expected AUDJPY
transactional currency headwind we expect our
performance in 2019 to remain resilient, in line with
continued market trends already seen towards the
latter part of 2018.
Overall, as the automotive industry continues to evolve
and with Inchcape’s foundational strengths and stability
in the face of change, I am confident that we will
capitalise on the opportunities ahead. I believe that the
combination of our dedicated people, the Ignite strategy
and a sustainable business model means that Inchcape
is positioned well to respond to market dynamics.
Stefan Bomhard
Chief Executive
Inchcape Annual Report and Accounts 2018
3
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
OUR UNIQUE
GLOBAL POSITION
Inchcape is the only independent multi-brand automotive
Distributor and Retailer with global presence.
Our operations span countries on five continents with a balanced and diverse portfolio
of both mature and emerging markets, providing access and in-country expertise for
some of the world’s leading automotive manufacturers. We seek to maintain a balance
between mature and emerging markets to support the strategic agendas of our
manufacturer partners.
18,700
EMPLOYEES
32
INTERNATIONAL MARKETS
OVER
90 YEARS
AUTOMOTIVE EXPERIENCE
ASIA
AUSTRALASIA
UK/EUROPE
EMERGING MARKETS
Australia
New Zealand
Brunei
China
Guam
Hong Kong
Macau
Saipan
Singapore
Thailand
Argentina
Chile
Colombia
Costa Rica
Ethiopia & Djibouti
Kenya
Panama
Peru
Russia
Albania
Belgium
Bulgaria
Estonia
Finland
Greece
Latvia
Lithuania
Luxembourg
Macedonia
Poland
Romania
UK
4
Inchcape Annual Report and Accounts 2018
1100+
LOCATIONS IN OUR
DISTRIBUTION AND RETAIL
NETWORK
Inchcape Annual Report and Accounts 2018
5
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS WORKING WITH
LEADING OEM PARTNERS
Inchcape has long-standing partnerships with the world’s
leading automotive groups, with a core focus on manufacturers
of premium and volume passenger vehicles.
In select markets we also represent commercial and agricultural vehicles and machinery
as well as emergent passenger vehicle brands.
The OEMs (original equipment manufacturers) with which Inchcape works are some of the
foremost drivers of technological innovation in the automotive industry, from advances
in hybrid and battery electric drivetrains to future mobility solutions.
Seven core partnerships
We have long-standing relationships with each of our seven core OEM partners, the majority
of which are built around exclusive Distribution contracts in multiple markets.
51 yrs
48 yrs
41 yrs
See page 10
See page 19
See page 21
See page 34
See page 47
See page 17
See page 14
31 yrs
30 yrs
29 yrs
26 yrs
6
Inchcape Annual Report and Accounts 2018
PASSENGER VEHICLES
COMMERCIAL VEHICLES
Inchcape Annual Report and Accounts 2018
7
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS OUR VALUE CHAIN
We have a unique and sustainable business model, providing full-spectrum
Distribution capability for our OEM partners, operating throughout the value
chain. Acting as custodians of some of the world’s most recognisable brands,
we provide automotive manufacturers with a highly effective route-to-market
and a vital link between the brand and the customer.
PRODUCT PLANNING
Our brand partners call upon our local
market insights to inform the planning
and design of new models, tailoring
designs, specifications and sales
volumes to the exacting needs
of each market.
BRAND POSITIONING
With specialist understanding of the
markets in which we operate, we are
ideally placed to develop brand
propositions that will resonate with
local consumers, maximising brand
penetration and market share
positions on behalf of our partners.
IMPORT & LOGISTICS
Overseeing global transport and
operating comprehensive port or
border to showroom connections
means that we are able to remove all
logistical burdens from our partners.
A05EB5
NEW & USED VEHICLE SALES
We want to provide the world’s best
automotive purchasing experience for
New and Used cars throughout the
managed network and our own retail
operations. Whether online or in
person our aim is to make each stage
of the vehicle ownership journey easy,
effective and enjoyable, and to build
lifetime relationships with
our customers.
8
Inchcape Annual Report and Accounts 2018
FINANCE & INSURANCE
We partner with financial institutions
around the world to help our
customers purchase and care for
their vehicles with a wide range
of transparent financing product
options available to support their
ownership lifestyle.
AFTERSALES & SERVICING
With long-term investments in state-of-
the-art facilities, expert technicians
and first-class customer care, our
objective is to create life-long
Inchcape customers for all their
Aftersales needs, from routine
servicing to accident repair.
A05EB5
NATIONAL MARKETING
We develop and refine marketing
plans on behalf of our partners from
pricing and promotion to customer
communications, based on extensive
research of consumers and
competitors as well as our specialist
insight of local market dynamics and
macro-economic trends.
PARTS DISTRIBUTION
With strong brand relationships,
specialist Distribution capabilities and
Retail networks, Inchcape is a trusted
supplier of original equipment
manufacturer parts and accessories
throughout any given market.
NETWORK MANAGEMENT
As an OEM Distribution partner, we
select and appoint the independent
dealer network, training and
managing them, and optimising the
retail footprint across each geography.
DISTRIBUTION 93%
RETAIL 7%
Trading Profit
VEHICLE SALES 62%
AFTERSALES 38%
Gross Profit
DISTINCT ROUTES
TO MARKET
The Inchcape value chain spans
both Distribution and Retail
competencies, with a weighting
towards higher margin
Distribution contracts.
DIVERSIFIED REVENUE
STREAMS
We have a balanced approach
to revenue generation,
maximising opportunities at all
points in the value chain.
Inchcape Annual Report and Accounts 2018
9
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Our partnership with Toyota Motor
Corporation is the longest standing
in our portfolio, with 51 years as a
Distributor in geographies that now
reach from South East Asia to East
Africa, from Europe to the Americas.
LOCATIONS
DISTRIBUTION
Hong Kong, Macau, Guam, Saipan, Singapore, Brunei, Greece, Belgium,
Luxembourg, Albania, Bulgaria, Macedonia, Romania, Ethiopia,
Chile & Colombia (Hino only)
RETAIL
UK, China, Russia
10
Inchcape Annual Report and Accounts 2018
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
OVERVIEW OF OUR INDUSTRY
AUTOMOTIVE EVOLVES
The automotive industry is undergoing significant
change. Advances in technology and its effect on
consumer society are redefining the automotive value
chain, enabling innovation to challenge the status quo
of our industry; new profit pools are now being found
in automotive and creating competition for incumbents.
However, continuing our long tradition of embracing
change as an opportunity, we are actively monitoring
these exciting developments, to participate where
we are confident Inchcape has, or can build,
the capabilities to succeed. We have identified four
trends with the potential to impact our business model:
Digitalisation, Electrification, Connectivity and
Shared Mobility.
Digitalisation
Advances in mobile connectivity, technology
and the ability to leverage data have reset
how consumers expect to access and use
goods and services. As a Distributor with control
of the value chain and expertise in customer
experience, this is where we are aiming to build
a competitive advantage.
Our customers’ experience in other, more digitally advanced
consumer industries, has exposed a relative lack of development
in the automotive route to market, presenting opportunities for
incumbents as well as new entrants. We are seeing trends that
have disrupted other markets emerging which may challenge
the traditional dealers’ position in the value chain; new specialist
market entrants who focus on specific ‘pain-points’ within the
existing experience; OEMs re-examining their route to market and
the role of the dealer network; and aggregators that come
between the dealer-customer relationship. Given our role as both
Distributor and Retailer in many markets, we are ideally placed
to innovate to stay competitive. For these and other markets,
both existing and new, we are developing and piloting an
omni-channel digital-to-dealership platform, to transform how
we fulfill our customers’ needs throughout their vehicle
ownership journey.
Electrification
Increasingly challenging emission regulations for
vehicle manufacturers combined with increasing
restriction on the use of the most polluting
vehicles, particularly in cities, are driving the
automotive industry to develop cleaner, more efficient
powertrains with electrification emerging as the leading
alternative technology.
Within Distribution markets our main profit drivers are the sale
of new vehicles and parts; as our OEM partners develop new
hybrid and electric models, we are upskilling our workforce and
restructuring our service capability to ensure that we are able
to capitalise on this change. We are collaborating with our OEM
partners to ensure an appropriate model pipeline for the markets
where we represent their brands, and maintaining excellent
procurement and supply links for parts. Given our core focus in
small- and medium-sized markets, we expect to see incremental
growth in the penetration of alternative drivetrain vehicles, and
we are working to ensure that we have the business model and
infrastructure in place to maximise future opportunities.
Connectivity
Technology in new vehicles is becoming
increasingly sophisticated, optimising the internal
functions of the vehicle. Advances in network
coverage and the cost of data transfer are
presenting opportunities to share this data outside
the vehicle ecosystem to optimise both functionality
and the in-car experience of passengers. In the coming years we
expect almost all new cars to have a high degree of
connectivity, either embedded or through tethered technology,
for example via smartphone apps.
From Inchcape’s point of view, the opportunity is likely to be
twofold: first in capturing the data potential of our developed
omni-channel platform; and second in our role as the OEM’s
distribution partner with exclusive control over and access to
a given market such as our partnerships with Toyota in Hong
Kong or Subaru in Australia.
Shared mobility
A05EB5
Customers’ mobility requirements have evolved
beyond the current purchase-ownership model
resulting in new services centred on customer
convenience and flexibility, such as ride hailing,
growing rapidly. New technology-focused
companies have led the way in developing this
emerging mobility model with OEMs making strategic
investments to ensure a stake in the development of these
new channels.
As a Distributor with the required infrastructure to import,
finance, prepare and maintain vehicles, Inchcape can play
a significant role in the shared mobility value chain. Our core
competencies should provide a competitive advantage
in providing asset management for fleet mobility operators
and we are already active in this area, with a contract in place
to provide fleet servicing and insurance (as ‘Total-care Service’)
for the ride-hailing company Grab in Singapore. Additionally,
we are involved in the trial of an autonomous shuttle service at
the National University of Singapore as we look to learn as much
as we can from this emergent new technology.
INCHCAPE’S FUTURE, NOW
It is crucial to the long-term sustainability of our business
that we continue to monitor the changes in our industry,
to maximise the potential opportunities and mitigate risk1.
Our Ignite strategy is proving the value which can
be generated today through focusing on customer
experience, nurturing strong and long-lasting OEM
relationships, continually improving our operations,
leveraging our global scale and making strategic
investments to accelerate growth.
These strategic imperatives become even more
important as we navigate a changing industry and
success across them will combine to differentiate us
from competitors both within and outside of our industry,
supporting our vision of becoming the world’s most
trusted automotive Distributor and Retailer.
1. See Key Risks 6 and 7 on pages 39 and 41
Inchcape Annual Report and Accounts 2018
11
OUR STRATEGY
IGNITE STRATEGY
DRIVING OUR GROWTH
Lead in
customer
experience
To be the
world’s most
trusted
automotive
Distributor and
Retailer
Become
the OEM’s
partner
of choice
Invest to
accelerate
growth
Leverage
our global
scale
Deliver full
potential on all
our revenue
streams
12
Inchcape Annual Report and Accounts 2018
Inchcape’s strategic objectives are what drives the
business. With the twin focal points of our customers
and OEM partners at the heart of the strategy,
Ignite combines five objectives to bring to life
our vision to become the world’s most trusted
automotive Distributor and Retailer.
Our strategy was developed to drive operational excellence across our markets;
to consolidate markets with high-growth potential in our fragmented industry;
to innovate to take advantage of our scale and expertise; and to build
a sustainable business model for the long term.
Ignite is structured to drive continual improvement and the spread of best practice
across all our revenue streams, powering our defence against fluctuating market
conditions. And within this structure the strategy has room to evolve to ensure that
the business can react with agility, to keep pace with and anticipate the changing
automotive industry.
DELIVERING OUR STRATEGY: OUR GLOBAL LEADERSHIP TEAM
Our Group Executive Committee is a global team of business leaders that
combines a strong focus on operational excellence with a wealth of experience
in automotive and a wide range of other industries, including FMCG, management
services, utilities and finance. The executive team drives the strategic vision and
operational direction of the Company on behalf of the Board.
Stefan Bomhard
Richard Howes
Aris Aravanis
George Ashford
Stéphane Chatal
Group Chief
Executive Officer
Chief Financial
Officer
CEO Continental
Europe
CEO Asia
Chief Information
Officer
Alison Clarke
James Brearley
Chief Human
Resources Officer
CEO Inchcape UK
Ruslan Kinebas
CEO Emerging
Markets
Bertrand Mallet
Nick Senior
Chief Development
Officer
CEO Australasia
Inchcape Annual Report and Accounts 2018
13
OUR STRATEGY CONTINUED
OBJECTIVE
WHAT IT MEANS
PRIORITIES
LEAD IN CUSTOMER
EXPERIENCE
As the global automotive industry
rapidly evolves, the purchasing
behaviour and service-level
expectations of consumers are
clearly changing. We will invest
to maintain our position as leader
in customer service innovation
in automotive Distribution and
Retail, with digital a key priority
– Build digital and data capabilities at Group
and market levels
– Improve mobile performance to better reflect
customers’ preferences
– Optimise digital traffic to improve
online performance
– Introduce structured measurement to improve
customer experience
BECOME THE OEM
PARTNER OF
CHOICE
We have a very strong portfolio
of brands. We now need to build
on our OEM partnerships to
ensure that we thoroughly
deserve to achieve the status
of ‘partner of choice’ across all
our relationships, and then to
robustly defend that position
– Understand and support our OEM partners’
objectives
– Ensure we maintain and reinforce contact
with OEM partners
– Maintain and grow market share for
existing partners
– Partner with OEMs to consolidate regional
Distribution markets
DELIVER THE FULL
POTENTIAL ON ALL
OUR REVENUE
STREAMS
The addressable market for
Aftersales is set to grow faster
than New car sales. The Used
car market, which is typically
a multiple of that of New cars in
most of our territories, is a further
growth opportunity. Finance and
Insurance (F&I) is another
significant focus for growth
– Implementation of Aftersales playbooks
in all territories including new markets
– Strong focus on extending F&I product
coverage to more of portfolio
– Deploying proven Used car initiatives
to grow GPU
LEVERAGE OUR
GLOBAL SCALE
We aim to maximise the
opportunity of our unique
position in the automotive
industry to share more expertise
and best practice across our
organisation, leveraging our
global scale to improve
collaborative working and
cost optimisation
– Development and initial implementation
of procure-to-payment (P2P) programme
– Continue to drive savings through extension
of procurement initiatives to new opportunities
for centralised purchasing
– Demonstrate shared best practice globally
through extending rollout of commercially
successful initiatives
INVEST TO
ACCELERATE
GROWTH
The automotive Distribution
and Retail markets are highly
fragmented; we apply
a disciplined use of capital
to fuel further growth through
selective participation in
market consolidation
– Continue to develop rich pipeline of relevant
M&A opportunities
– Focus on acquisitions in strong growth potential,
small- to medium-sized markets
– Build regional platforms of consolidated
Distribution contracts to support OEMs,
leverage our scale and drive improvements
in customer experience
Inchcape Annual Report and Accounts 2018
behaviour and service-level
expectations of consumers are
clearly changing. We will invest
to maintain our position as leader
in customer service innovation
in automotive Distribution and
Retail, with digital a key priority
customers’ preferences
– Optimise digital traffic to improve
online performance
– Introduce structured measurement to improve
customer experience
on our OEM partnerships to
ensure that we thoroughly
deserve to achieve the status
of ‘partner of choice’ across all
our relationships, and then to
robustly defend that position
with OEM partners
– Maintain and grow market share for
existing partners
– Partner with OEMs to consolidate regional
Distribution markets
DELIVER THE FULL
POTENTIAL ON ALL
OUR REVENUE
STREAMS
The addressable market for
Aftersales is set to grow faster
than New car sales. The Used
car market, which is typically
a multiple of that of New cars in
most of our territories, is a further
growth opportunity. Finance and
Insurance (F&I) is another
significant focus for growth
– Implementation of Aftersales playbooks
in all territories including new markets
– Strong focus on extending F&I product
coverage to more of portfolio
– Deploying proven Used car initiatives
to grow GPU
LEVERAGE OUR
GLOBAL SCALE
We aim to maximise the
opportunity of our unique
position in the automotive
industry to share more expertise
and best practice across our
organisation, leveraging our
global scale to improve
collaborative working and
cost optimisation
– Development and initial implementation
of procure-to-payment (P2P) programme
– Continue to drive savings through extension
of procurement initiatives to new opportunities
for centralised purchasing
– Demonstrate shared best practice globally
through extending rollout of commercially
successful initiatives
INVEST TO
ACCELERATE
GROWTH
The automotive Distribution
and Retail markets are highly
fragmented; we apply
a disciplined use of capital
to fuel further growth through
selective participation in
market consolidation
small- to medium-sized markets
– Build regional platforms of consolidated
Distribution contracts to support OEMs,
leverage our scale and drive improvements
in customer experience
OBJECTIVE
WHAT IT MEANS
PRIORITIES
PROGRESS IN 2018
LEAD IN CUSTOMER
EXPERIENCE
As the global automotive industry
– Build digital and data capabilities at Group
– Developed omni-channel platform, launching in
rapidly evolves, the purchasing
and market levels
Australia in 2019
– Improve mobile performance to better reflect
– Increasing proportion of annual capex spend to
support digitisation
– Continued rollout of Salesforce CRM (customer relationship
marketing), Brightedge SEO (search engine optimisation) and
reputation.com, creating a 360o view of the customer journey
and enabling us to deliver the experiences that customers
are seeking
BECOME THE OEM
PARTNER OF
CHOICE
We have a very strong portfolio
– Understand and support our OEM partners’
– Meaningful expansion of relationship with Suzuki,
of brands. We now need to build
objectives
new to our core set of OEMs
– Ensure we maintain and reinforce contact
– Consolidation of regional markets with BMW and
Jaguar Land Rover
– Regular contact through strategic ‘top-to-top’ and
regular operational meetings
– Market share growth in 15 territories that had TIV
(total industry volume) growth vs 2017
– Good growth in Aftersales gross profit driven by
increased capacity in Singapore and leveraging
processes in South America
– Used car initiatives drove double digit growth
in Russia and South America
– F&I programmes delivering ahead of plan,
profit growth at twice rate of vehicle sales:
incremental £15m in 2018
– Cumulative procurement savings £32m to date
– Key 2018 initiatives include tyre distribution,
vehicle storage and transportation, parts
– Began rollout of P2P platform to enable global
savings in 2019+
– Expanded rollout of vehicle protection product
GardX demonstrates shared best practice and
leveraged scale
– Continue to develop rich pipeline of relevant
– Scale acquisition in Costa Rica and Panama including
M&A opportunities
Distribution contract for Suzuki
– Focus on acquisitions in strong growth potential,
– South America business acquired in 2016 achieved
target ROIC in 2018, one year early
– Contract wins with JLR in Kenya, BMW in Guam
– In early 2019 consolidated all Baltic countries for BMW
with addition of Lithuania
– Award of BMW contract in Kenya to extend
east Africa representation
Inchcape Annual Report and Accounts 2018
Our 26 years strong distribution partnership with
Subaru Corporation is one of our most important.
We distribute and operate the brand in Australia,
maintaining Subaru’s highest share globally in that
market. Subaru was the OEM brand central to our
biggest recent acquisition, leading our expansion
in South America in 2016 and helping to create
a significant platform for further growth in the region.
LOCATIONS
DISTRIBUTION
Australia, New Zealand, Chile, Colombia, Peru, Argentina
14
Inchcape Annual Report and Accounts 2018
OUR INVESTMENT PROPOSITION
A POWERFUL MULTI-
LAYERED INVESTMENT
PROPOSITION
Well positioned to deliver shareholder value through organic growth,
consolidation and cash returns.
DISTRIBUTION AT OUR CORE
2014
2018
80%
93%
PROFIT CONTRIBUTION
EVOLUTION:
DISTRIBUTION
Distribution
strengths:
– High ROCE
– Lower fixed costs
– Strong cash
generation
IGNITE STRATEGY
– Underlying existing Distribution markets expected
to grow 3% through the cycle
– Operational optimisation and innovation creating
the right internal conditions for inorganic growth
CONTINUED CONSOLIDATION IN A
FRAGMENTED MARKET WILL CREATE VALUE
– Highly fragmented industry
– High barriers to entry
– Inchcape is the largest global independent distributor
STRONG AND INCREASING WEIGHTING TO
HIGH GROWTH MARKETS
2014
2018
10%
26%
PROFIT CONTRIBUTION
EVOLUTION:
EMERGING MARKETS
New contracts
since 2016:
Chile, Peru, Costa Rica,
Panama, Kenya,
Thailand, Lithuania,
Estonia, Guam,
Australia
– Inchcape has a 1% share of the addressable market
of Distribution-led regions (c.14m TIV, 20% of global
total) and envisages significant opportunity
SUSTAINABLE BUSINESS MODEL
– Strong, long-term partnerships with OEMs
– Strong track-record of value creation
– Investing for the future
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
TOTAL RETURN COMPONENTS
Multi-layered earnings growth opportunity
Annual return consideration
ORGANIC
GROWTH
MARKET
DRIVERS
– Inchcape market growth expectations
– Supported by increasing exposure to fast
OPERATIONAL
EXCELLENCE
STRATEGIC
OPTIONS
CONTRACT
WINS/ M&A
growth markets
– Revenue stream optimisation
– Global cost efficiencies and best practices
– Strong balance sheet, annual free cash flow
– Large consolidation opportunity
– Actively shifting to higher growth,
cash generative businesses
BUYBACKS
– Excess cash returned to shareholders
DIVIDEND
– 40% payout ratio (targeted)
ATTRACTIVE
TOTAL
RETURN
g
g
g
g
g
Inchcape Annual Report and Accounts 2018
15
CAPITAL ALLOCATION FRAMEWORK
Inchcape has a disciplined capital allocation policy. We have a strong balance sheet
and an attractive cash conversion model, resulting in excess free cash post investment
in organic capex and payment of dividends. We look to utilise this strong position to
grow the business inorganically, investing in value-accretive acquisitions that will ensure
longer-term growth of the business and value for shareholders. Beyond this we will look
to return any excess cash to shareholders through share buybacks.
CASH UTILISATION PRIORITIES
EXCESS CASH POST CAPEX,
WORKING CAPITAL
DIVIDEND
VALUE-ACCRETIVE
M&A OPPORTUNITIES
REMAINING EXCESS FCF DISTRIBUTED
THROUGH BUYBACKS
– STRONG BALANCE SHEET
– TARGETED 60-70% FCF
CONVERSION
CUMULATIVE CASH RETURNS
ACQUISITION SPEND SINCE 2016
£47m
£99m
£225m £406m £588m £788m £941m £1,056m £1,130m
£208.2m
£29.3m
£487.4m
£
4
7
m
£
9
9
m
£
5
0
m
£
1
7
5
m
£
1
5
0
m
£
2
5
6
m
£
2
4
1
m
£
3
4
7
m
£
3
5
1
m
£
4
3
7
m
11
12
13
14
15
16
£
4
0
1
m
£
6
5
5
m
£
4
0
1
m
£
7
2
9
m
18
19*
£
4
0
1
m
£
5
4
0
m
17
Share buyback (cumulative)
Dividends (cumulative)
* For final dividend announced with FY18 results
PROGRESSIVE DIVIDEND POLICY
£249.9m
South
America
acquisition
Central
America
acquisition
Other
acquisition
Total
spend
− Target 40% annual payout ratio on basic adjusted EPS (pre exceptionals)
− Full year dividend at least maintained on the prior year
− Interim dividend set at 1/3 of the prior year’s total DPS
16
Inchcape Annual Report and Accounts 2018
Our partnership with BMW Group
is nearly 30 years strong and has
been a key focus for consolidating
growth. We completed our
consolidation of BMW Distribution
in the Baltic region with the award
of the contract for Lithuania in 2018,
also adding the Distribution
contract for Guam last year. As well
as holding Distribution contracts
in South America, we also have
significant operations in our largest
Retail-only markets: UK and Russia.
LOCATIONS
DISTRIBUTION
Chile, Peru, Latvia, Lithuania, Estonia, Guam, Kenya
RETAIL
UK, Russia, Poland, Australia
Inchcape Annual Report and Accounts 2018
17
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS KEY PERFORMANCE INDICATORS
KPIs provide insight into how the Board and Executive Committee monitor the
Group’s strategic and financial performance, as well as directly linking to the key
measures for executive remuneration. KPIs are stated in actual rates of exchange.
REVENUE
OPERATING MARGIN
£9.3BN
2017: £9.0BN
4.2%
2017: 4.5%
£
9
.
3
b
n
£
9
.
0
b
n
£
7
.
8
b
n
£
6
.
5
b
n
£
6
.
7
b
n
£
6
.
8
b
n
4
.
8
%
4
.
7
%
4
.
4
%
4
.
6
%
4
.
5
%
4
.
2
%
PROFIT BEFORE TAX AND
EXCEPTIONAL ITEMS
£356.8M
2017: £381.6M
£
3
8
1
.
6
m
£
3
5
6
.
8
m
£
3
4
9
.
4
m
£
3
0
3
.
2
m
£
3
1
2
.
1
m
£
2
7
4
.
6
m
Definition
18
14
17
16
15
13
Consideration receivable from
the sale of goods and services.
It is stated net of rebates and
any discounts, and excludes
sales related taxes.
14
16
17
15
13
Operating profit (before
exceptional items) divided
by sales.
18
14
17
16
15
18
13
Represents the profit made
after operating and interest
expense excluding the impact
of exceptional items and before
tax is charged.
Why we measure
2018 Highlights
Top-line growth is a key
financial metric of both
‘Becoming the OEMs’ Partner
of Choice’ and ‘Leading in
Customer Experience’.
The Group delivered £9.3bn,
growth of +3.6% vs. last year.
A key metric of operational
efficiency, ensuring that we
are leveraging global scale to
translate sales growth to profit.
A key driver of delivering
sustainable and growing
earnings to shareholders.
Operating margin at 4.2% was
30bps lower than the prior year
impacted by some Retail markets
In 2018 pre-exceptional PBT
declined by 2.6% in constant
currency, 6.5% in actual currency.
ADJUSTED EARNINGS
PER SHARE
65.0P
2017: 66.7P
FREE CASH FLOW
£280.7M
2017: £313.9M
RETURN ON CAPITAL
EMPLOYED
28%
2017: 30%
6
6
.
7
p
6
5
.
0
p
5
9
.
6
p
5
0
.
2
p
5
2
.
1
p
4
3
.
5
p
£
2
9
2
.
0
m
£
8
6
.
4
m
£
3
1
3
.
9
m£
1
9
0
.
5
m
£
2
8
0
.
7
m
£
1
7
7
.
6
m
3
0
%2
6
%2
2
%
3
0
%
3
0
%
2
8
%
Definition
18
17
16
14
15
13
Adjusted earnings per share is
calculated on earnings which
exclude exceptional items, and
the weighted average number
of fully paid ordinary shares in
issue during the year.
14
18
17
16
15
13
Net cash flows from operating
activities, before exceptional
cash flows, less normalised
net capital expenditure
and dividends paid to
non-controlling interests.
14
16
18
17
15
13
Operating profit (before
exceptional items) divided by the
average of opening and closing
capital employed, where capital
employed is defined as net
assets less net funds.
Why we measure
A key metric highlighting the
earnings achieved for
shareholders over the year.
A key driver of the Group’s ability
to ‘Invest to Accelerate Growth’
and to make distributions
to shareholders.
A key measure of Ignite (Invest
to Accelerate Growth), ROCE is
a measure of the Group’s ability
to drive better returns for investors
on the capital we invest.
2018 Highlights
Adjusted EPS declined less than
PBT given a lower tax rate.
The Group delivered free cash
flow of £280.7m, in line with
normalised annual conversion.
The Group delivered ROCE
of 28%.
18
Inchcape Annual Report and Accounts 2018
Inchcape and Jaguar Land Rover’s
partnership stretches back nearly
50 years in total. We have continued
our Jaguar Land Rover growth
story right up to the present day,
with Distribution contracts awarded
for Thailand in 2016, and Colombia
and Kenya in 2018. We now
represent Jaguar and Land Rover
both as Distributor and Retailer
in 12 markets on four continents.
LOCATIONS
DISTRIBUTION
Thailand, Hong Kong, Macau, Colombia, Finland, Estonia, Latvia, Lithuania, Kenya
RETAIL
UK, Russia, Australia
Inchcape Annual Report and Accounts 2018
19
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
OPERATING AND FINANCIAL REVIEW
GOOD DISTRIBUTION
GROWTH AMIDST
CHALLENGING HEADWINDS
RICHARD
HOWES
Chief
Financial
Officer
Group revenue of £9.3bn is up 5.8% year-on-year,
and 4.2% excluding the Central America acquisition
that was announced in March 2018. Organic growth
was particularly strong in the Emerging Markets,
driven by Russia and South America where the
benefits of our Ignite strategy are particularly visible
both through value driver growth and acquisitions.
The enhancement of our South America portfolio with
the acquisition made in 2016 continues to benefit us,
with the business performing very well. Other regions
have seen more resilient organic growth against some
market headwinds.
Key Performance Indicators – results
Revenue
Operating profit before exceptional items1,2
Operating margin1
Profit before tax3
Profit before tax before exceptional items1
Free cash flow1
Return on capital employed1
The Group delivered an operating profit before
exceptional items of £385.1m, down 1.4% year-on-year
and down 4.5% excluding the new Central American
operations. Our Distribution business continues to
be the growth engine of the Group, with Distribution
trading profit up 6.5% and, excluding the accretion
of the new Central American businesses, growing
by 3.0%. This performance has been driven by Asia.
Performance in our Distribution business was offset
by continued weakness in our UK and Australia Retail
markets where market-driven factors have weighed
on margins. Our Group operating margin over the year
was 4.2%, compared with 4.5% in 2017.
Profit before tax and exceptional items of £356.8m
is down 2.6% year-on-year, reflective of the challenging
Retail trading environment and impact on margins.
Reported profit before tax declined 64.2% year-on-year
in actual currency, given an exceptional charge
of £225m largely relating to impairments in our
UK & Europe segment.
The Group delivered strong free cash flow of £280.7m,
down 11% versus 2017, representing a conversion rate
of 73%, compared with 77% in 2017 and slightly above
our target range of cash generation, despite timing
impacts on working capital that were particularly
beneficial in 2017. Working capital benefit in 2018 was
driven by improvements in Asia and Central America.
Return on capital employed (ROCE) for the Group
was 28% compared with 30% in 2017.
Continues on page 22
Year ended
2018
£m
Year ended
2017
£m
9,277.0
385.1
4.2%
132.1
356.8
280.7
28%
8,953.3
406.6
4.5%
369.0
381.6
313.9
30%
% change in
constant
currency
5.8%
(1.4%)
–
–
(2.6%)
–
–
% change
3.6%
(5.3%)
–
(64.2%)
(6.5%)
(10.6%)
–
1. These measures are Alternative Performance Measures, see page 165.
2. 2018 adjusted operating profit excludes an exceptional primarily non-cash charge of £210.8m, comprising £198.2m of goodwill and asset impairment (UK & Europe),
£5.4m of non-cash pension charge relating to GMP equalisation and £7.2m relating to acquisitions. 2017 adjusted profit excludes an exceptional charge of £12.6m,
comprising £10.5m of primarily cash exceptional charges relating to the fixed cost review, and £2.1m of costs relating to the South American acquisition.
3. 2018 adjusted profit before tax excludes a £13.9m exceptional non-cash finance cost relating to fair value adjustments against repayment of US Private placement
loans in 2009.
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 2019 outlook commentary is also referenced at constant currency.
20
Inchcape Annual Report and Accounts 2018
We have a long-standing
Distribution partnership with Suzuki
stretching back over 40 years.
In March 2018 our acquisition
of Grupo Rudelman introduced
not only two new markets to our
portfolio, but also a step-change in
our relationship with Suzuki, and we
are delighted that the brand is now
a volume Distribution partner and
the lead brand in our newly formed
Central America platform.
LOCATIONS
DISTRIBUTION
Costa Rica, Panama, Singapore, Argentina
Inchcape Annual Report and Accounts 2018
21
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW CONTINUED
SEGMENTAL PERFORMANCE
Segmental detail can also be found in Note 2 of the accounts, and our appendix contains the list of markets that fall
within each region. During the year, the Group has reviewed the operating segments and determined that in those
regions where we are the Distributor and manage a network that includes dealerships that we own and operate,
the results of those retail operations are better reflected as part of the results from Distribution. This has resulted in the
results from our Subaru, Peugeot and Citroen retail operations in Australia and Toyota retail operations in Europe being
reported as part of Australasia and UK and Europe Distribution. Restatements are also reflective of smaller changes
relating to IFRS 15 and a reallocation of some central costs.
DISTRIBUTION
The Distribution segment delivered year-on-year revenue growth of 6.6%, or 3.6% excluding the new Central American
operations. Distribution trading profit grew 6.5% in constant currency and was up 3.0%, excluding the Central America
acquisition. Group Distribution trading margin declined 20bps to 7.5%, a strong improvement of 90bps in our Asia
business, offset mostly by our Emerging Markets business in Ethiopia. On our historic segmental presentation Distribution
grew +9.3%, or +5.6% excluding the new Central America operations.
Revenue
Asia
Australasia
UK & Europe
Emerging Markets
Total Distribution
Trading profit
Asia
Australasia
UK & Europe
Emerging Markets
Total Distribution
Trading profit margin
Asia
Australasia
UK & Europe
Emerging Markets
Total Distribution
Year ended
2018
£m
Year ended
20171
£m
% change in
constant
currency
% change
1,687.7
1,198.4
1,145.5
956.5
4,988.1
1,692.6
1,237.8
1,068.4
794.7
4,793.5
169.6
87.8
33.3
84.2
374.9
10.0%
7.3%
2.9%
8.8%
7.5%
154.2
92.2
34.5
85.9
366.8
9.1%
7.4%
3.2%
10.8%
7.7%
(0.3%)
(3.2%)
7.2%
20.4%
4.1%
10.0%
(4.8%)
(3.5%)
(2.0%)
2.2%
1.3%
2.6%
5.4%
26.0%
6.6%
11.8%
0.8%
(5.2%)
7.7%
6.5%
0.9ppt
(0.1ppt)
(0.3ppt)
(2.0ppt)
(0.2ppt)
0.9ppt
(0.1ppt)
(0.3ppt)
(1.5ppt)
(0.1ppt)
1. 2017 restated following the adoption of IFRS 15 and segmental change
– Asia revenue grew 1% and trading profit grew 12%,
driven by a pleasing New car performance and
supported by Aftersales. In Hong Kong, we saw very
strong underlying market share growth of more than
140bps against a broadly flat market, excluding
incentive-driven electric vehicle volumes in 2017.
This was helped by the successful launch of the
new Toyota Alphard product. Singapore’s sales
performance was pleasing against the new vehicle
market decline of 18% which was driven by the
anticipated reduction in Certificates of Entitlement
(COEs) availability. The annualising effect of the Harrier
product launch, historically a domestic-Japanese
focused product for Toyota, helped to drive market
share gains in Singapore and was also beneficial to
margin mix. Trading profit margins for Asia as a whole
grew 90bps, driven by double digit profit growth in
Hong Kong alongside a strong top-line and good
management of Singapore headwinds which enabled
profit growth in the market.
– Australasia saw sales growth of 3% and trading profit
growth of 1%. On our previous classification Australasia
trading profit grew 14%. The Australian new car market
declined by 3% over the year, with weakness driven
by the New South Wales submarket, although
outperformance continued to be seen in the SUV
segment. Against these market trends our Subaru
operations were able to broadly maintain their global
leading market share at 4.3% over the year, although
the phasing of the new Forester launch impacted sales
growth in the second half. Australasia trading profit
was supported by a net c.£16m transactional currency
tailwind. The division’s profit decline excluding the Yen
benefit includes the weaker profit generated in Retail
sites, in part due to a high Sydney concentration,
where the Australian market saw greater contraction.
The Peugeot Citroën business, which saw the
successful launch of the Peugeot 3008, albeit in
a competitive market, remains broadly breakeven.
– UK & Europe sales grew 5% and trading profit declined
5%. The Greek market was up 17% over the year as it
continued to recover from years of decline following
a sustained period of macro-economic and political
uncertainty. Our Toyota Lexus operations benefited
from this trend and drove good growth for the division.
In Belgium, the Passenger car market grew by 1% and
22
Inchcape Annual Report and Accounts 2018
was impacted by competitor actions around WLTP
which impacted profit growth. Our Balkan and Baltic
operations continued to structurally grow over 2018,
however competitive behaviours, including linked
to WLTP, in the Baltics restricted profit growth later
in the year.
– Emerging Markets sales grew 26% over the year and
trading profit grew 8%, strongly supported by Ignite
initiatives. Excluding the Central America acquisition,
trading profit declined by 8%. The new South American
operations we acquired at the end of 2016 have
continued to demonstrate strength, with benefits from
being part of the wider Inchcape Group being
realised. Within the mix, commercial vehicles saw
a recovery in Colombia and Subaru sales across the
region have remained encouraging. Our pre-existing
South American BMW Distribution business saw both
Chile and Peru achieve market leadership, although
Peru was affected by a sales tax change. The organic
performance of the division was however mostly
impacted by a profit decline in Ethiopia. Ethiopia was
impacted by more limited currency availability which
caused supply constraints in this high margin Aftersales
driven business despite demand remaining high.
– The Central America acquisition which we made in
March 2018 has contributed £140m of revenue over
the year and £12m of trading profit. The business has
integrated well although the Costa Rica and Panama
markets have declined during 2018. The merits of the
acquisition however remain intact and we are pleased
with the progress we are making with our meaningful
increase in Suzuki exposure.
RETAIL
The Retail segment delivered a solid revenue performance, growing by 5.0%, driven by Russia where the success
of Ignite initiatives can be seen. Trading profit declined by 58.7% year-on-year, with margins down 100bps to 0.6%.
Dynamics in the UK and Australia drove the margin decline with vehicle margin weakness and negative operating
gearing. On our historic segmental presentation Retail trading profit declined 53.1%.
Revenue
Australasia
UK & Europe
Emerging Markets
Total Retail
Trading profit
Australasia
UK & Europe
Emerging Markets
Total Retail
Trading profit margin
Australasia
UK & Europe
Emerging Markets
Total Retail
Year ended
2018
£m
Year ended
20171
£m
% change in
constant
currency
% change
382.2
3,057.6
849.1
4,288.9
401.6
3,174.4
583.8
4,159.8
(7.7)
14.8
19.4
26.5
(2.0%)
0.5%
2.3%
0.6%
9.4
52.0
3.6
65.0
2.3%
1.6%
0.6%
1.6%
(4.8%)
(3.7%)
45.4%
3.1%
(181.9%)
(71.5%)
438.9%
(59.2%)
(4.3ppt)
(1.1ppt)
1.7ppt
(1.0ppt)
0.8%
(3.7%)
60.0%
5.0%
(187.0%)
(71.6%)
490.0%
(58.7%)
(4.3ppt)
(1.1ppt)
1.7ppt
(1.0ppt)
1. 2017 restated following the adoption of IFRS 15 and segmental change
– Australasia revenue grew 0.8% but trading profit
declined 187%. Over the year we have continued to
see impacts from F&I commission regulation but have
also seen an impact from a cooling property market
which has weighed on Sydney in particular, although
the wider market also saw an increasing pull-back over
the year. Our Retail business had also benefited in 2017
from £9m property profit which was not repeated
in 2018.
– UK and Europe sales declined 4% and trading profit
declined 72%, given a contraction in margins to 0.5%
from 1.6% in the prior year. Our UK business has seen
a 7% market decline in New car volumes, but more
importantly a further 30% contraction in diesel New car
volumes. This has led to an oversupply of diesel New
car product in the market. In addition, the new WLTP
led to supply shortages of certain models in the second
half of the year given delays in product testing.
Inchcape’s OEM brand exposure emphasised the
impact of both trends to the business in comparison
to the wider market. These trends, alongside negative
operational gearing, weakened our margins over the
year. Given current trading margins we have reduced
our near-term margin expectations and taken a £198m
non-cash exceptional impairment to the carrying value
of goodwill and site-based assets.
– Emerging Markets, which includes only Russia, saw
60.0% revenue growth over the period and 490%
trading profit growth. Strong performance led to 2018
profit almost five times greater than the prior year.
The total Russian New car market grew only 13%
in comparison, and much of the benefit can be
attributed to our Ignite strategy. We have seen strong
growth across value drivers, with profit achieved
through F&I, Used and Aftersales up meaningfully.
Used car gross profit doubled and F&I saw a strong
uplift from the introduction of a paint protection
product, as well as improved selling processes.
Inchcape Annual Report and Accounts 2018
23
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
OPERATING AND FINANCIAL REVIEW CONTINUED
2019 OUTLOOK
Overall, for the Group, we are expecting a resilient
constant currency profit performance in 2019, excluding
a large transactional Yen FX headwind. We currently
expect this headwind to be £35m, and including this we
expect a challenging performance. We remain focused
on improving the efficiency of the business through our
Ignite initiatives and controlling costs to manage the
headwinds expected over the year. Cash generation
remains a focus of the business and we anticipate
conversion in line with target levels over the period,
supported by a reduced capex level compared with
prior year.
Distribution: We expect 2019 to be a resilient year,
excluding transactional headwinds in Australasia,
with resilient performances in Asia, Australasia and
Emerging Markets but a strong performance in Europe.
In Asia we expect a continued Singapore market decline,
although supported by a commercial vehicle scrappage
scheme, as well as a broadly stable Hong Kong market.
South America growth remains beneficial to the
Emerging Markets, but currency availability in Ethiopia
remains limited which is likely to impact supply despite
strong demand. The Costa Rica market is likely to soften
further but we are confident that we have the
foundations to improve the business through Ignite
initiatives. The cooling of the Australian property market
is likely to limit underlying progress in Australasia,
although we have the benefit of a fresh product line-up.
Europe is expected to benefit from continued momentum
in Greece as well as improved performance in the Baltics.
Retail: We expect growth in Russia to remain strong
and for performance in the UK and Australia to be
more stable. Whilst the UK market remains challenging,
we have started 2019 with a cleaner stock profile,
improved centralised processes and have actions
underway to rationalise our cost base. Similarly,
in Australia the market remains pressured, but we are
also looking at our cost base and are driving our Ignite
initiatives even harder. Russia’s phasing is likely to see
a slower first half given VAT changes in the market.
Any impact to trading from Brexit would however be
a further risk to this Retail performance.
Group
Distribution
Retail
Vehicles
Aftersales
Total
Vehicles
Aftersales
Total
Vehicles
Aftersales
Total
24
Inchcape Annual Report and Accounts 2018
VALUE DRIVERS
We provide disclosure on the value drivers behind our
revenue and profit. This includes:
– Gross profit attributable to Vehicles – New vehicles,
Used vehicles and the associated F&I income; and
– Gross profit attributable to Aftersales, Service and Parts.
Over the year we saw a 3.4% increase in Vehicle gross
profit and a 6.6% increase in Aftersales gross profit,
excluding the Central America acquisition. Inchcape
operates across the automotive value chain and over
the year generated 38% of gross profit through Aftersales.
Distribution Vehicles gross profit grew 9.0%, or up 5.0%
excluding the new Central American operations.
This reflects higher New vehicle margins in Asia, the
transactional currency tailwind of £16m in Australasia,
and good vehicle growth in South America and Greece.
Distribution Aftersales gross profit increased 9.3%, or 6.1%
excluding the new Central American operations, driven
by South America, Australasia and Singapore although
Ethiopia was a drag, given reduced parts supply.
The Retail business saw a 0.3% increase in Vehicles gross
profit, reflecting margin declines in the UK and Australia,
despite strength in Russia.
Retail Aftersales gross profit increased by 7.6% year-on-
year. This reflects strength in Russia but weaker growth
in Australasia. UK aftersales performance was up mid-
single digit.
Gross profit
£m
% change
% change in
constant
currency
Year ended
Year ended
2018
809.7
491.6
1,301.3
544.1
325.6
869.7
265.6
166.0
431.6
2017
784.4
466.8
1,251.2
514.1
308.7
822.8
270.3
158.1
428.4
3.2%
5.3%
4.0%
5.8%
5.5%
5.7%
(1.7%)
5.0%
0.7%
6.0%
8.7%
7.0%
9.0%
9.3%
9.1%
0.3%
7.6%
2.9%
We expect the effective rate to increase to 23-24% in 2019
given the profit mix across the Group.
Non-controlling interests
Profits attributable to our non-controlling interests
were £7.0m, compared to £7.9m in 2017. The Group’s
non-controlling interests principally comprised a 10%
share of Subaru Australia, a 6% share of the Motor &
Engineering Company of Ethiopia, a 30% share
in NBT Brunei and a 33% minority holding in UAB Vitvela
in Lithuania.
Foreign currency
During the year, the Group incurred a loss of £15.5m
(2017: a gain of £15.2m) from the translation of its
overseas profits before tax into sterling at the 2018
average exchange rate when compared with the
average exchange rates used for translation in 2017.
Dividend
The Board recommends a final ordinary dividend of
17.9p per ordinary share which is subject to the approval
of shareholders at the 2018 Annual General Meeting.
This gives a total dividend for the year of 26.8p per
ordinary share (2017: 26.8p). The dividend will be paid
on 21 June 2019 to all shareholders on the register of
members on 17 May 2019. A Dividend Reinvestment Plan
(DRIP) is available to Ordinary shareholders and the final
date for receipt of elections to participate in the
DRIP is 31 May 2019.
Pensions
At the end of 2018, the IAS 19 net post-retirement surplus
was £81.9m (2017: £72.3m), with the increase in the
surplus driven by changes in demographic and financial
assumptions partially offset by a decrease in the value of
pension assets. In line with the funding programme
agreed with the Trustees, the Group made additional
cash contributions to the UK pension schemes
amounting to £2.7m (2017: £2.7m). We have agreed with
the Trustees that future cash contributions will continue at
broadly this level.
During the year, Aviva completed the issue of individual
policies to members of the TKM pension scheme and
the trustees of the scheme returned £16.8m before
tax (£10.9m after tax) of the surplus in the scheme to
the Group.
OTHER FINANCIAL ITEMS
Central costs
Unallocated central costs for the full year are £16.3m
before exceptional items (2017: £25.2m). Our costs
remain tightly controlled with moderate inflationary
increases and, in the year, have benefitted from
a year-on-year reduction in underlying costs together
with unusually low claims in central insurance operations.
Operating exceptional items
In 2018, the Group has recorded exceptional operating
costs of £210.8m (2017: £12.6m). The charge in 2018
is comprised of goodwill and other asset impairments
of £198.2m, costs of £7.2m relating to the acquisition and
integration of businesses, primarily the Grupo Rudelman
business in Central America, and £5.4m as a result of
equalising Guaranteed Minimum Pensions in the Group’s
UK pension schemes following a ruling in the High Court.
In 2017, the exceptional operating costs comprised costs
of £10.5m associated with the global cost reduction
programme and £2.1m in relation to the acquisition and
integration of the Subaru and Hino Distribution businesses
in South America.
Net financing costs
Net financing costs for the year, before exceptional
finance costs, have increased from £25.0m in 2017 to
£28.4m in 2018. The increase is due to increased levels
of debt and supplier financing following the acquisition
of the business in Central America in March 2018,
together with the impact of an increase in base rates
in the second half of 2017 and the annualisation of the
interest cost on the sterling loan notes. Over 2019 we
expect a charge of £28m in constant currency.
During the year, we incurred exceptional finance costs
of £13.9m. This represents a one-off correction to the fair
value basis of assessment of the Group’s US$ Private
Placement Loan Notes. This amount has been reported
as an exceptional item in order to provide additional
useful information regarding the Group’s underlying
business performance. The impact on profit before tax
in each of the prior periods affected was not material
and, had each period been reported correctly,
there would have been no impact on executive
or employee remuneration.
Tax
The effective tax rate for the year before exceptional
items was 22.5% (2017: 25.2%). The underlying rate
reflects the Group’s profit mix and weighted average
tax rate, together with the impact of post-acquisition
restructuring of the Indumotora business and the
resolution of audits in several jurisdictions. During 2018,
tax paid was £98.7m (2017: £85.9m) with the increase
principally driven by the timing of instalment payments
in Hong Kong and Singapore. Tax paid also includes
£5.9m relating to the return of the surplus from the
TKM pension scheme.
Inchcape Annual Report and Accounts 2018
25
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS OPERATING AND FINANCIAL REVIEW CONTINUED
Acquisitions and disposals
In March 2018, the Group acquired Grupo Rudelman,
a Suzuki focused Distribution business with integrated
Retail assets operating in Costa Rica and Panama.
The total cost of this acquisition was £155.5m including
cash acquired of £8.5m. During the year the Group also
entered into a Distribution contract with Jaguar Land
Rover to distribute the Jaguar and Land Rover brands in
Kenya and acquired one Lexus site in the UK. The Group
has also disposed of its Jaguar Land Rover operations in
Shaoxing and a dealership in the UK generating disposal
proceeds of £13.4m.
In 2017 the Group acquired premium automotive
operations in Estonia, focused on exclusive Distribution
for BMW Group, from United Motors AS and entered into
a Distribution contract with Groupe PSA to distribute the
Peugeot and Citroen brands in Australia. The total cost
of these acquisitions was £19.3m. In addition, the Group
also made a completion payment of £4.4m in relation
to the Subaru and Hino business in South America.
The Group also disposed of its Lexus operations in
Shanghai generating disposal proceeds of £5.6m.
Financing
During the year, the Group has entered into a £120m
bilateral facility with a relationship bank, maturing in
March 2019 with an option to extend for a further
six months, with terms similar to those of the Group’s
existing Revolving Credit Facilities (RCF).
Driven by upcoming maturities, in February 2019
we refinanced our core RCF. This has increased our
committed facilities from £620m to £700m at improved
rates which drives a broadly neutral impact to our interest
charge. The facility extends over the period to 2024, with
options to extend to 2026 at the discretion of lenders.
Capital expenditure
During the year, the Group invested £99.3m (2017:
£101.4m) of net capital expenditure in the development
of greenfield sites, the enhancement of existing facilities
RECONCILIATION OF FREE CASH FLOW
and the continued rollout of the iPower system.
During 2017 the Group invested in greenfield sites
and the enlargement of existing facilities, including the
optimisation of the Jaguar Land Rover footprint in the UK.
We expect net capital expenditure to fall to a more
normalised level of c£75m in 2019.
Cash flow and net funds
The Group delivered free cash flow of £280.7m (2017:
£313.9m). After the acquisition of businesses in the year,
the payment of the final dividend for 2017 and the interim
dividend for 2018, the Group had net funds of £12.7m
(2017: net funds of £80.2m).
Lease accounting (IFRS 16)
IFRS 16 introduces a comprehensive model for the
identification of lease arrangements and accounting
treatments for both lessees and lessors. IFRS 16 will
supersede the current guidance on leases including
IAS 17 when it becomes effective for the Group’s financial
year commencing 1 January 2019. Under IFRS 16, the
distinction between operating leases (off balance sheet)
and finance leases (on balance sheet) is removed for
lessee accounting and replaced with a model where
a right-of-use asset and a corresponding liability are
recognised for all leases by lessees. As a result, all leases
will be on balance sheet except for short-term leases and
leases of low value assets.
The Group plans to apply a fully retrospective approach
to leases where the Group is the lessee. Therefore,
the cumulative effect of adoption of IFRS 16 will be
recognised as an adjustment to the opening balance of
retained earnings at 1 January 2018, with restatement of
comparative information. The Group is currently finalising
its assessment of IFRS 16 and estimates that the impact
on adoption would be to add c £450m to £470m of lease
liabilities to the balance sheet as at 31 December 2018.
It would also increase the ratio of net debt / EBITDA by
c0.9x. However, it is a non-cash accounting adjustment
and does not change the financial liquidity of the Group.
Net cash generated from operating activities
Add back: Payments in respect of exceptional items
Net cash generated from operating activities, before exceptional items
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of property, plant and equipment
Net capital expenditure
Dividends paid to non-controlling interests
Free cash flow
Included within free cash flow are movements in restricted cash balances described in note 18.
26
Inchcape Annual Report and Accounts 2018
Year to
31 December
2018
£m
Year to
31 December
2018
£m
Year to
31 December
2017
£m
Year to
31 December
2017
£m
–
–
–
(90.8)
(34.4)
25.9
–
–
–
375.7
10.1
385.8
–
–
–
(99.3)
(5.8)
280.7
–
–
(103.2)
(24.0)
25.8
–
–
–
389.5
32.1
421.6
–
–
–
(101.4)
(6.3)
313.9
BUSINESS MODELS
ASIA
At the heart of the Asia region, we are the Distributor and exclusive Retailer for Toyota, Lexus, Hino and Suzuki and operate
Distribution and exclusive Retail for Jaguar, Land Rover and Ford in Hong Kong with additional Distribution and Retail
franchises across the region.
Country
Hong Kong
Macau
Singapore
Brunei
Guam
Saipan
Thailand
China
Route to market
Distribution & Exclusive Retail
Distribution & Exclusive Retail
Distribution & Exclusive Retail
Distribution & Exclusive Retail
Distribution & Exclusive Retail
Distribution & Exclusive Retail
Distribution & Exclusive Retail
Retail
Brands
Toyota, Lexus, Hino, Daihatsu, Jaguar, Land Rover, Ford, Maxus
Toyota, Lexus, Hino, Daihatsu, Jaguar, Land Rover, Ford, Maxus
Toyota, Lexus, Hino, Suzuki
Toyota, Lexus
Toyota, Lexus, BMW, Chevrolet
Toyota
Jaguar, Land Rover
Porsche, Mercedes, Lexus, VW
AUSTRALASIA
We are the Distributor for Subaru in both Australia and New Zealand, in addition to Peugeot and Citroen in Australia.
We also operate multi-franchise Retail operations in Sydney, Melbourne and Brisbane.
Country
Australia
Route to market
Distribution & Retail
Retail
New Zealand
Distribution
Brands
Subaru, Peugeot, Citroen
BMW, Jaguar, Land Rover, VW, MINI, Honda, Isuzu, Kia, Mitsubishi,
Aston Martin, Bentley, McLaren, Rolls-Royce
Subaru
UK AND EUROPE
We have scale Retail operations across the core regions of the UK focused on premium and luxury brands. Our European
operations are centred on Toyota and Lexus Distribution in Belgium, Greece and the Balkans, BMW Retail in Poland and
a number of fast-growing businesses in the Baltic region focused on Jaguar Land Rover, Mazda and other brands.
Route to market
Retail
Brands
Toyota, Lexus, Audi, BMW, MINI, Jaguar, Land Rover, Mercedes,
VW, Porsche, Smart
Distribution & Retail
Toyota, Lexus
Country
UK
Belgium
Luxembourg
Greece
Romania
Bulgaria
Macedonia
Albania
Finland
Estonia
Latvia
Lithuania
Distribution
Distribution & Retail
Retail
Distribution & Retail
Jaguar, Land Rover, Mazda
Jaguar, Land Rover, Mazda, BMW, MINI, Kia
BMW, MINI, Ford, Jaguar, Land Rover, Mazda,
Mitsubishi, Jaguar, Land Rover, Mazda, Ford, Hyundai, BMW, MINI,
Rolls-Royce
BMW, MINI
Poland
Retail
EMERGING MARKETS
In South America, we have BMW Distribution businesses in Chile and Peru as well as Subaru and Hino operations across
these markets, Colombia and Argentina. Our business in Ethiopia is centred on Distribution and exclusive Retail for Toyota. In
Russia we operate 22 retail centres in Moscow and St Petersburg representing a number of our global OEM brand partners.
Country
Ethiopia & Djibouti
Kenya
Russia
Route to market
Distribution & Exclusive Retail
Distribution & Retail
Retail
Chile
Peru
Colombia
Argentina
Costa Rica
Panama
Distribution & Retail
Distribution & Retail
Distribution & Retail
Distribution & Retail
Distribution
Distribution
Brands
Toyota, Daihatsu, Komatsu, New Holland, Hino
Jaguar Land Rover, BMW
Toyota, Audi, BMW, Jaguar, Land Rover, Lexus, MINI, Rolls-Royce,
Volvo
BMW, Subaru, Rolls-Royce, Hino, DFSK, Kia
BMW, Subaru, DFSK, BYD
Subaru, Hino, DFSK, Mack, Daihatsu, BAIC, Jaguar, Land Rover
Subaru, Suzuki
Suzuki, BAIC, JAC, Changan, Kubota
Suzuki, JAC, Changan, Great Wall
Inchcape Annual Report and Accounts 2018
27
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CORPORATE SOCIAL RESPONSIBILITY
SUPPORTING
OUR LONG-TERM
SUSTAINABILITY
CSR is one of the mechanisms that helps to ensure the
long-term sustainability of the Company. It is an important
contributor to building Trust, which is at the heart of our Ignite
strategy’s vision: to become the world’s most trusted
automotive Distributor and Retailer.
OUR CSR STRATEGY IS COMPRISED OF THREE CORE PILLARS
Our people
Health and Safety
Sustainability and
the environment
n itie s
u
m
m
o
a l C
c
L o
O
E
M
s
I
n
v
e
s
t
o
r
s
&
S
h
a
r
e
h
o
l
d
e
r
s
To be the
world’s most
trusted automotive
Distributor
and Retailer
Employees
s
r
e
m
o
t
s
u
C
28
Inchcape Annual Report and Accounts 2018
STAKEHOLDER ENGAGEMENT
Complementing this approach, and creating a further level of support to deliver our vision of Trust, is how we identify
and interact with key groups for whom Inchcape provides value: engagement with our stakeholders.
Our goal is to create value and build Trust through commercially and societally beneficial dialogues with all our key
stakeholder groups.
Group
OEMS
CUSTOMERS
EMPLOYEES
How we create value
How we engage
Outcomes in 2018
We provide our OEM partners
with professional and efficient
routes to market for the
post-factory automotive
value chain.
– ‘Top-to-top’ executive
management meetings
– Regular market-level
operational meetings focus
on maximising performance
– Pan-market brand
development support for
leading OEMs
– Establishment of Suzuki as
a core partner with scale
acquisition in Costa Rica
and Panama
– Relationship-driven
expansions into new
Distribution markets
for BMW and JLR
We provide access to
automotive ownership and
support services throughout
the customer journey, and
aim to deliver the best
experiences for customers
in our industry globally.
– Analysis of reviews to feed
in to continuous cycle
of improvement
– Single view of customer
through Salesforce
implementation
– Ongoing surveys at
market level
– Introduction of reputation.
com review aggregation
tool to produce clear
overviews of and
improvement in
performance
– Continued rollout of
Salesforce CRM to build full
journey service capability
We aim to enable every
colleague to achieve their
personal goals at each stage
of the employee journey;
to recognise and develop
talent; and to foster a socially
conscious culture based on
inclusion, empowerment
and optimised potential
through learning.
– Bi-annual engagement
– Survey completed in
& pulse surveys
– Employee intranet and
collaborative platforms
provide two-way
communications
capability Group-wide
– Prospective employees –
maintain active awareness
of issues to stay relevant
16 markets and results
shared with senior teams
– Action planning in progress
– Survey planned for
completion in all markets
by end Q2 2019
INVESTORS &
SHAREHOLDERS
Our objective is to deliver
outstanding returns on
long-term investment based
on a sustainable platform for
growth, disciplined approach
to capital allocation and cash
returns through dividends and
share buy-back.
– Regular dialogue with
institutional investors
– AGM
– Annual Report & plc website
– Capital Markets Day held
at regular intervals – last in
May 2018
– Positive reaction to in-depth
focus given at Capital
Markets presentations
– Positive change to
analyst position; deeper
understanding of our
strategy and how we
create value
LOCAL
COMMUNITIES
We have a balanced
approach to engagement
with the communities in which
we operate, empowering
ownership at local level with
structural support from Group.
– Market-specific activity,
– Local support given to
coordinated at local level
– Group-level support for
extraordinary events
affecting our market
communities
provide emergency shelter
to our employees and their
families affected by typhoon
in Saipan
– Funds raised by colleagues
and matched by Group for
Saipan relief
Inchcape Annual Report and Accounts 2018
29
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
CORPORATE SOCIAL RESPONSIBILITY CONTINUED
OUR PEOPLE
The knowledge, experience and dedication to excellence embodied by Inchcape people in all fields of activity is the
Company’s greatest asset. Our human resources function both at a Group and market level focuses on ensuring that
our people’s value is recognised and rewarded; that talent is developed through learning; and that all employees are
empowered to achieve their personal goals at each stage of their career with Inchcape.
Our ambition is to create a socially conscious culture based on inclusivity and learning.
– We believe that the business is enriched by embracing diversity in the workplace and this is underpinned by market-
relevant policies and practices.
– We foster a learning culture to enable people to optimise their performance in role and truly realise their potential.
– We aim to empower our people to collaborate in communities of practice; to share and work together socially
knowing that their contribution is truly valued.
The approach we take to engaging and developing our workforce is designed to proactively mitigate Principal Risk 16,
see pages 39 and 44.
2018 PROGRESS
Over the past year we have developed and implemented several initiatives to support our people strategy over the
long term, the rollout of which will continue in 2019.
Leadership and talent
Our global leadership development programme was created to identify and support a pipeline of talent to ensure
succession and the long-term sustainability of the business. Currently this consists of around 100 leaders and managers
in 19 countries, but this rolling programme continues to identify a pool of high-potential individuals at different stages
of their careers.
In addition to internal development, we have also broadened our talent pool by hiring from outside the automotive
industry as we seek to bring new skills and capabilities to support our digital transformation.
Learning and development
We have partnered with Hive Learning to build a new learning and development platform for Inchcape, as an enabler
to sharing best practice on a wide range of subjects relevant to our business. The digital Hive tool allows teams to
leverage expertise both from inside and outside of the business, to build a knowledge-bank of reference materials that
improve skill-sets and ultimately develop more successful customer propositions.
In 2019, rollout of Hive will be extended to more individuals and teams with greater scope for collaboration and
communication to leverage our global scale.
Employee KPI dashboard
In 2018 our objective was to aggregate and measure demographic information at different levels, from individual
markets to total Group, in support of our overall people strategy. Ultimately our ambition is to employ a well-equipped
and capable workforce that is relevant to the markets in which we operate and reflective of our local communities and
wider society.
30
Inchcape Annual Report and Accounts 2018
HEALTH AND SAFETY
The health and safety of our people, customers and all
who use our facilities is of the utmost importance to us.
We are committed to providing environments that can
be trusted as spaces in which to work, where risks are
controlled and that are clean, safe and promote healthy
work-life balance.
Our aim is to achieve zero safety incidents and to reduce
our exposure to risk1 by continually challenging ourselves,
sharing best practices and investing in the systems,
structure and training to support our objectives.
With operations in 32 international markets and no single
worldwide Health and Safety standard to apply to the
business, it is our ambition to build a consistent approach
through shared best practice and leveraged scale.
We have appointed a Group HSE Director to lead this
work (plus Environment) through a global ‘Community
of Practice’. The primary function of the H&S CoP is to
develop a single direction for Inchcape’s Health and
Safety culture across all our business, as described below.
1. See Principal Risk 10 on pages 39 and 43
BUILDING HSE CAPABILITY
Main activities
Description
ESTABLISHING
PERFORMANCE
TRANSPARENCY
– Develop set of common KPIs
– Introduce a reporting system that shares results and highlights best practice
– Develop and use one set of business policies and procedures with the objective
of ensuring the level of compliance required in each market
– Develop and introduce online reporting dashboard to facilitate transparent reporting
MANAGING
COMMUNITIES
OF PRACTICE (COP)
– Launch the CoPs by deploying HSE members across business regions to support
locally on the codification of best practices and standards
– Commence the CoP communication, promote the business focus toward HSE
with support from HSE team
CODIFYING
INCHCAPE –
PRACTICES
AND STANDARDS
– Prioritise capability areas for standard setting (incl. ways of working and ways of thinking)
– Drive standard development and documentation of fit for purpose implementation
road map, led by Group HSE experts
– Define Inchcape practices, three tiered approach: 1. Inchcape Compliance Practice,
2. Inchcape Good Practices, 3. Inchcape Best Practices
COORDINATING
OPPORTUNITY
ASSESSMENTS
– Create approach and format for opportunity assessments, e.g. health checks
combined with on-site audits
– Oversee regions conducting the assessments, participate in assessments and
share learnings for speedy implementation
– Analyse results, share opportunities with business partners, CoP committee,
give recommendations on how to proceed
PROVIDING
EXPERT SUPPORT
– Develop robust prioritisation logic for start point and rollout sequence
– Engage on-site with managers to support implementation of CoP and/or best practice
– Help to solve specific problems by delivering hard output
SUPPORT
TRAINING
– Prepare training material (how to implement, deploy, measure and improve
best practices)
– Train and disseminate capabilities (local CoP members to become coaches)
– Train people selectively on market level to close capability gaps in markets
(i.e. through training products)
Inchcape Annual Report and Accounts 2018
31
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
CORPORATE SOCIAL RESPONSIBILITY CONTINUED
SUSTAINABILITY AND THE ENVIRONMENT
2018 PROGRESS
During the year we have continued to improve our data
collection processes for greenhouse gas emissions
(“GHG emissions”) and have also incorporated the data
for our newly acquired businesses.
We have also been collecting information which will help
us set science-based targets. We are working towards
ensuring that the data is robust and that the targets are
both achievable and meaningful before we roll out
globally and will continue this work into 2019.
The GHG emissions for 2018 and for the prior year are
given on page 90 of the Directors’ Report.
CDP CLIMATE CHANGE
During the year, we participated in the CDP Climate
Change project (formerly The Carbon Disclosure Project).
We, along with our shareholders and customers,
recognise the tangible business benefits of disclosure
and are taking steps to address our environmental
impact and improve our score year-on-year. We will
continue to participate annually and endeavour to
manage our impact on the environment positively.
FOCUS FOR 2019
Our new Group HSE Director, will also have responsibility
for our environmental strategy and will begin to embed
standardised practices in the markets during the year.
We will monitor effectiveness of these policies and report
the outcomes in future years.
ENVIRONMENT CASE STUDY
The employees at VW Romford have been preparing energy consumption data to monitor their usage
for several years in order to minimise energy waste. During 2018, the site consumed a total of 454,178kWh
of electricity equal to approximately £43,412.
However, it was noted that the overnight electricity consumption was not being managed as efficiently
as possible and data analysis calculated that £7,727 worth of electricity was overconsumed outside
of operational hours which could be avoided. As a result of the energy audit the following observations
and actions were made:
– Areas prone to having lights left on were identified
– PIR sensors were adjusted to shorten the timer and increase LUX sensitivity
– Boiler controls were located and programmed correctly
– Air Conditioning controls that require manual operation were identified
– Showroom lighting switches were turned off at night
– The showroom heating and ventilation timer clock was reprogrammed
The actions taken did not impact the general operations of the site and resulted in a large reduction
in electricity usage, with savings of approx. £7,700 or 67,410.80kW of electricity on track for 2019.
32
Inchcape Annual Report and Accounts 2018
NON-FINANCIAL INFORMATION STATEMENT
The table sets out the non-financial information as required under the Non-Financial Reporting Directive.
Reporting Requirement
Relevant Policy
Employees
Code of Conduct
Health & Safety Policy
Human Rights
Code of Conduct
Where to read more
CSR Report
Directors’ Report
See below
See below
Social matters
Environmental matters
Anti-bribery and corruption
Modern Slavery Statement
Code of Conduct
Code of Conduct
Anti-bribery and Corruption Policy
www.inchcape.com
CSR Report
See below
Code of Conduct
Business Model
Gifts and Hospitality Policy
–
Our business model
The Inchcape Code of Conduct is available on www.inchcape.com/Governance
Page
30
90-91
–
–
–
–
–
8-9
STAKEHOLDER VOICE
The CSR Report on pages 28 to 33 sets out the key
stakeholders and how the Group has engaged with
them during the year. The Board receives regular
updates from stakeholders including shareholders,
OEM brand partners and employees. The Board will
consider the process for workforce engagement to
ensure that it complies with the 2018 UK Corporate
Governance Code and will report on progress in next
year’s Annual Report and Accounts.
EMPLOYEES
Our employees are integral to our business model and
the delivery of our strategy and failure to attract, retain
and develop our people is recognised as a key risk,
further details of which are given in the Risk Management
Report on page 44. Regular reviews are undertaken
to ensure that we have the right skills to deliver for our
customers, including technician programmes and
apprenticeships. A new employee experience survey
and focus group sessions have been rolled out globally
and the results of these, along with any action plans,
will be communicated to our designated Non-Executive
Director, as part of the workforce engagement required
under the 2018 UK Corporate Governance Code.
Employee policies are implemented at a local level and
include policies on pay and rewards, flexible working,
maternity and paternity policies,
HUMAN RIGHTS
We embrace, support and respect the human rights
of everyone we work with and we comply fully with
appropriate human rights legislation in the countries
in which we operate. We don’t use or accept forced,
bonded or involuntary prison or child labour. We only
employ people who choose to work freely and respect
their rights to equal opportunities and freedom
of association.
ENVIRONMENTAL MATTERS
The Group’s business model is not reliant on natural
resources however the Company acknowledges that our
main suppliers, our OEM partners, do. Each of our brand
partners have developed comprehensive sustainability
programmes and the automotive industry in general has
made significant progress in reducing vehicle emissions.
Our OEM partners are at the forefront of technological
advances to improve fuel efficiency. Further information
on future trends can be found on page 11.
As an automotive Distributor and Retailer we do not have
a manufacturing footprint to manage however we use
energy in our dealerships, transport cars and parts
globally and have an impact from business travel.
Further details of our greenhouse gas emissions can
be found on page 90.
ANTI-BRIBERY AND CORRUPTION
The Company has in place an anti-bribery and
corruption training programme which employees are
required to complete. This programme is being refreshed
in 2018 and employees will be required to undertake
a new online training module which will also be included
in the induction programme for new employees where
applicable. Our anti-bribery and corruption policy sets
out our zero tolerance stance to bribery and corruption.
Compliance is monitored via reports to Speak Up!,
the external whistleblowing channel, and adherence
to other relevant policies such as the gifts and
hospitality policy.
Inchcape Annual Report and Accounts 2018
33
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS In the UK Inchcape represents
Mercedes-Benz as a Retailer, and
with 12 dealerships in the Midlands
and North West of England, we are
one of the largest in the market.
Our relationship with Daimler’s
brands dates to 1985.
LOCATIONS
RETAIL
Ellesmere Port
Coventry
Derby
Leicester
Liverpool
Loughborough
Conwy
Nottingham
Oxford
Southport
Stratford – upon Avon
Warrington
34
Inchcape Annual Report and Accounts 2018
RISK MANAGEMENT
OUR RISK
FRAMEWORK
The Board is responsible for determining the nature and extent
of the risks it is willing to take in order to achieve its objectives and
has implemented a comprehensive risk management framework
to help it do so. By managing our risks in a professional and
consistent way, we aim to operate with true ‘peace of mind’.
INCHCAPE PEACE OF MIND –
OUR APPROACH TO RISK
Inchcape Peace of Mind (iPOM) is our Group-wide risk
management and governance framework focusing on
empowering each and every one of our colleagues to
consider the risks associated with the decisions they take.
The Group has a three lines of defence model, with
the first line of defence the policies and procedures
implemented locally, the second line of defence
comprising oversight functions and regional and Group
management and the third line of defence the Internal
Audit function. Continuously reviewing and building on
our procedures, processes and frameworks to prevent
risks from impacting our business, or to enable us to
respond promptly and decisively when they do, gives
us confidence in our ability to achieve our strategic
objectives and support the long-term sustainable growth
of our business.
The automotive industry is set to experience a period
of rapid and unprecedented change, bringing both risks
and opportunities, and our overview of the industry is
given on page 11. Additionally, as a global business with
a focus on growth by acquisition, we operate in
an ever-changing, dynamic risk environment where
economic, political, environmental, social, legal and
technological changes present a complex risk
landscape which threatens our ability to achieve
our strategic objectives. However, we believe that our
diversity of brand portfolio and geographic spread,
combined with our strong balance sheet, cost control
and risk-aware decision-making processes, make us
resilient to all but the most significant and persistent risks.
The Board reviews the Group Principal Risk Footprint and
its appetite for risk on an annual basis, and adopts an
integrated approach to risk by regularly discussing the
principal risks as part of its agenda.
In 2018 the Board focused its review of the principal risks
according to both the potential severity of those risks,
but also with regard to the level of influence we are able
to exert over them. In doing so it ensured that the Group’s
risk mitigation activities centred on those risks where
it can have the greatest influence in the context
of its risk appetite.
RISK APPETITE STATEMENT
During the year the Board considered its risk appetite
against each of the principal risks, but with a strong focus
on strategic and managed risks where we perceive we
have the greatest influence. The Board also discussed its
risk appetite with regard to inherent risks, but with
recognition that we have proportionately less influence
upon these, and whilst we mitigate as far as we can,
inherent risks are an accepted part of doing business.
In summary, the Board has a very low appetite for risks
that could lead to violations of health, safety and
environmental legislation, or to breaches of legal and
regulatory requirements, and we have recently made
additional investments in these areas to ensure we
maintain appropriate compliance processes.
In keeping with the Ignite strategy, we also have a low
appetite for risks that could impact our reputation,
or that of our OEM partners, customers or employees,
for example in the areas of data management and
cyber security, as evidenced by our focus on GDPR
compliance processes and through the implementation
of a comprehensive cyber security strategy.
In contrast, the Group has a higher risk appetite
in relation to operating in economically or politically
challenging markets, as demonstrated by the acquisition
of the Grupo Rudelman business during the year, and by
our expansion into Kenya with JLR. We appreciate that
without taking risks in new and sometimes unstable
territories we would miss out on valuable opportunities
for growth, particularly in emerging markets. We have
experience in successfully managing operations in
volatile markets and, accordingly, we have the capability
and control procedures in place to address the
challenges that come with those risks.
We recognise that the automotive industry is ripe for
disruption and as such we are closely monitoring the
opportunities and challenges that may arise. We are
willing to take measured risks and make calculated
investments to preserve and improve our position in the
future automotive value chain, for example through
significant investments in the digital customer journey.
Inchcape Annual Report and Accounts 2018
35
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS RISK MANAGEMENT CONTINUED
Group risk framework
t
h
g
i
s
r
e
v
O
&
n
o
i
t
c
e
r
i
D
k
r
o
w
e
m
a
r
F
e
c
n
a
n
r
e
v
o
G
k
s
R
d
n
a
e
t
i
t
e
p
p
A
k
s
R
i
i
,
n
o
i
t
a
g
i
t
i
m
g
n
i
r
o
t
i
n
o
m
n
o
i
t
a
m
r
o
n
f
i
k
s
i
R
,
t
n
e
m
e
g
a
n
a
m
,
n
o
i
t
l
a
u
a
v
e
,
n
o
i
t
a
c
i
f
i
t
n
e
d
I
BOARD
The Board is responsible for setting out its risk appetite and for reviewing
the Group’s principal risks in that context. In addition to the annual risk
assessment, the Board adopts an integrated approach by discussing
the principal risks as part of its annual agenda.
AUDIT COMMITTEE
The Audit Committee has delegated responsibility from the Board for reviewing
the effectiveness of risk management, internal controls, compliance and
whistleblowing, receiving regular reports from management, the Head of
Corporate Assurance, and the Head of Internal Audit. The Audit Committee
also undertake ‘deep dives’ on the Group’s principal risks.
GROUP EXECUTIVE COMMITTEE
The Group Executive Committee carries out routine evaluations
of the Group’s principal risks and ensures that appropriate mitigating
actions are identified and implemented and annually reviews and
approves the Group Principal Risk Footprint.
GROUP IPOM COMMITTEE
A sub-committee of the Group Executive Committee, whose remit is to ensure:
–
There is the correct mechanism in place to identify, evaluate and
mitigate the Group’s principal risks;
– A compliance programme is in place that meets or exceeds external
benchmarks and is appropriate in terms of legal requirements, content,
sector, costs and resources;
–
Internal controls are appropriate, well designed and
operating consistently;
–
The Group’s fraud and whistleblowing programme
is operating effectively.
FUNCTIONAL LEADERS
Oversee risk management activity
within their area of expertise,
providing detailed input into the
risk process, including biannual
risk assessments to the Group
iPOM Committee.
2nd line of defence
REGIONAL IPOM
COMMITTEES
Provide direct oversight of risk
management activity across each
region. They meet quarterly to
review the principal risks and
mitigating actions, reporting twice
annually to the Group iPOM
Committee.
2nd line of defence
Market iPOM Committees
In each market, a Market iPOM Committee ensures that risk management
remains a management priority. Meetings and outputs are aligned with the
Regional/Group iPOM Committees, Audit Committee and Board meetings.
1st line of defence
Internal Audit
Provide risk-based
independent assurance to
the Audit Committee over
the effectiveness of internal
controls and risk
management.
3rd line of defence
Corporate assurance
Leads continuous
improvement in our risk
management practices
and risk mitigation techniques,
and coordinates the Group
Risk Assessment Process.
Regional risk
champions
Market based experts who
coordinate regional risk
management activity,
including risk reports.
Finance leadership
team
Deliver ongoing support for
the implementation of
mitigating actions, and also
provide independent
challenge to the risk footprint
at least annually.
36
Inchcape Annual Report and Accounts 2018
R
NITO
O
M
IDENTIFY
E
V
A
L
U
A
T
E
THE ENTERPRISE RISK
MANAGEMENT PROCESS
The Group has a consistent approach
to risk assessment throughout its
operations. The process and outputs
are coordinated by the Group Head
of Corporate Assurance.
R
E
P
O
R
T
A T
E
R
T
Identify
Evaluate
Treat
Report
Monitor
We identify the risks and opportunities that may impede or expedite our ability
to achieve our Ignite strategic objectives. We articulate those risks and opportunities
in a consistent way.
We prioritise our risks according to a consistent set of definitions, considering
both the impact and the likelihood, allowing us to focus our mitigation plans.
Management teams take action to address the risks we face either to control
the likelihood of the risks crystallising or mitigate the impact if they do and bring
our risk profile in line with the Board’s risk appetite.
The Group Executive Committee and the Board regularly review the output from
the Enterprise Risk Management process.
We maintain an up-to-date assessment of risks and ensure that the controlling
and mitigating actions we have identified are taken in a timely way.
Market and regional iPOM Committees, and functional leads, review their risks on a quarterly basis and risk registers
are formally reported to the Group twice per year.
Inchcape Annual Report and Accounts 2018
37
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
RISK MANAGEMENT CONTINUED
GROUP PRINCIPAL RISK FOOTPRINT
The principal risk footprint comprises the most pressing
risks that would cause the greatest damage to the
reputation or financial strength of the Company if not
effectively evaluated, understood and managed.
The Group iPOM Committee discusses and reviews
the Group’s principal risks on a rolling basis as part
of its normal operations. During 2018 the leadership
team of each region presented a detailed regional risk
assessment to the Committee.
We recognise, and are actively managing, further risks
(both at Group level and within individual business units)
as identified by our comprehensive risk management
process, but these are deemed less material than the
16 principal risk factors noted on the footprint.
Given the size and geographical diversity of our business,
we understand there may be additional risks not currently
known to management and we continuously improve
our iPOM processes to ensure we capture as complete
a picture as possible.
Changes to the risk footprint
Following a detailed review of the Group principal risk
footprint, the Board has in some cases made revisions
to either the scope of the risk or its assessment of its
severity. These changes are noted in the detailed
commentary on pages 40 to 45.
In addition, the following risk was removed from the
principal risk footprint as the Board felt that there was
now sufficient certainty for the implications to be
managed under normal business operations.
– Dynamic changes in local or international tax rules
(e.g. domestic tax reform in markets in which we
operate or changes to transfer pricing rules as a result
of the OECD’s Base Erosion and Profit Sharing initiative.
h
g
H
i
i
m
u
d
e
M
w
o
L
T
C
A
P
M
I
Note:
1
2
3
4
5
6
7
9
10
11
12
15
16
8
13
Low
Medium
LIKELIHOOD
14
High
The Board reviews its risks according to where we have most influence over the outcome
STRATEGIC risks directly addressed by Ignite
MANAGED risks where our ability to influence the impact and/or likelihood is relatively high
INHERENT risks where our ability to influence the impact and/or likelihood is relatively low
38
Inchcape Annual Report and Accounts 2018
Principal risks
The principal risks to achievement
of our strategy are:
Key risks
Link to Ignite
Trend
Loss of global Distribution contract with major brand partner.
Significant retrenchment of credit available to customers, dealer network or Inchcape plc negatively
impacts vehicle sales and/or operational capability.
Material damage to OEM brand or product reputation, or a major interruption to OEM operations
or product supply, negatively impacts vehicle sales.
Major loss or misappropriation of confidential or sensitive data results in financial penalty
and/or reputational damage.
Failure to achieve sufficient return on investment through our acquisition strategy leads to higher
leverage, reduced EPS and/or deterioration of our relationship with our brand partners.
Impact of disruptive technologies and/or new entrants to the industry threatens our position
in the value chain.
Failure to keep pace with changes in the digital economy impacts on revenues and/or OEM relations.
Fluctuations in exchange rates with negative impact on financial performance.
Major cyber incident or other systems interruption impacts on ability to service customers
and/or operational efficiency.
Failure to safeguard our customers and employees by not consistently applying EH&S standards
across the Group.
Internal controls failure or fraud of sufficient scale to materially affect financial performance or
reputation.
Individual governments increasing restrictions on cross border currency movements leads to higher
incidents of trapped cash across the Group.
Social, political and regulatory instability leads to economic uncertainty, market interruption
and/or threat to safety.
Changes in legislation, or the way that legislation is applied, directly affect customer demand
for certain vehicle types or our ability to generate income from Aftersales.
Failure to comply with laws and regulations leads to material financial penalty or
reputational damage.
Failure to attract, retain and develop our people leads to economic uncertainty, market interruption
and/or threat to safety.
g
g
g
TRUST g
h
g
h
g
g
TRUST g
g
g
g
g
h
g
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Key
Become the OEM partner of choice
Deliver full potential on all our revenue streams
Invest to accelerate growth
Lead in customer experience
Inchcape Annual Report and Accounts 2018
39
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
RISK MANAGEMENT CONTINUED
KEY RISKS
STRATEGIC RISKS
Risks which are mitigated directly by the implementation of our Ignite strategy
Description
Impact
Mitigating actions
Loss of distribution contract with major brand partner
Impact:
High
Likelihood:
Low
Trend
g
Distribution and Retail contracts are fundamental to our
business model. Our ability to maintain those contracts,
and attract and execute further business development
opportunities, depends upon the quality of our OEM
relationships.
The underlying factors which could contribute to a contract
being terminated include:
− Failure to deliver a sufficiently attractive value proposition
to brand partners.
− Consistent failure to deliver to targets or standards
or comply with the terms of Distribution agreements.
− Failure to deliver on growth strategy or defend our
business model against new entrants.
− Major fraud, bribery, data security or other systemic
compliance failure.
Non-renewal, or
termination, of Distribution
or Retail contracts.
Negative impacts on
revenue and profit.
Reduced ability to deliver
inorganic growth.
OEM partner of choice is a central pillar of
Ignite strategy.
Partner development teams continuously
improve relations, share knowledge and address
common issues with each OEM globally.
Diversification of brand partner relationships acts
as a natural hedge against the impact of a loss
of a single OEM relationship.
Focus on agreeing, and delivering to,
OEM volume expectations.
Strong focus on legal and regulatory
compliance.
Comprehensive risk management framework
to mitigate unforeseen threats.
Failure to achieve sufficient return on investment through our
acquisitions strategy leads to reduced EPS and/or deterioration of our
relationship with our OEM partners
Impact:
High
Likelihood:
Medium
h
Inchcape complements its organic growth agenda by
pursuing inorganic growth through acquisition. We have
made several successful acquisitions in recent years.
Failure to identify appropriate targets, acquire them on the
right terms or to efficiently integrate those businesses into our
existing operation will adversely impact our ability to deliver
the benefits expected from those acquisitions.
Inefficient capital
allocation.
Failure to realise
growth objectives.
Top down and bottom up approach to target
identification.
Dedicated business development team in place
to project manage M&A.
Damage to relationship
with OEM partner.
Strong M&A governance process through M&A
Committee and Board.
Overpayment for
acquisition impacts on
profitability.
Exposure to unknown/
misunderstood risks in
unfamiliar markets.
Partnering with the OEM, where appropriate,
to align expectations and requirements.
Robust valuation and comprehensive due
diligence process supported by external advisors.
Codified, regionally driven integration strategy
developed and supported by Group functions.
Intensive performance focus for newly
acquired businesses.
Roll out of Minimum Control Framework (MCF)
in each new business.
2018 Update
In recognition of the quickening pace of investment in new businesses under Ignite, the definition of this principal risk has been widened
to reflect the financial and reputational risks in the full M&A process, rather than focussing purely on extraction of value as reported in the
2017 risk assessment. Given the increasing volume of deals and opportunities we have also increased our assessment of the gross likelihood
from ‘low’ to ‘medium’.
40
Inchcape Annual Report and Accounts 2018
Description
Impact
Mitigating actions
Impact of disruptive technologies and/or new entrants to the
industry threatens our position in the value chain
Impact:
High
Likelihood:
High
Trend
g
The automotive sector is set to experience a period of rapid
and unprecedented change bringing both risks and
opportunities.
Volume and margin are
adversely impacted
across our markets.
Specific risk factors include:
− Electrification of drivetrains.
− Connected cars and the associated increase
in available data.
− Autonomous vehicles and/or mobility solutions replacing
vehicle ownership as the preferred model.
− OEM consolidation and disintermediation
in the value chain.
Adverse impact on
value of retail sites due
to falling demand.
Uncompetitive product
line up leads to a
long-term loss of sales.
Loss of ability to own and
therefore monetise data.
Long-term change in
vehicle ownership model
may lead to changes in
the automotive value
chain including
disintermediation.
Diversification of brand partnerships across
different vehicle types and technologies.
Continually seeking to understand how best
to deploy our core capabilities to position
ourselves in the changing automotive model
e.g. capacity for fleet management services
and network infrastructure offerings.
Initiatives to monetise data such as targeted
marketing, predictive maintenance and
recall management.
Regular liaison with OEM partners to match
pipeline and product planning to emerging
technologies and support demand.
Understand the connectivity strategy of our
OEM partners and where we can help / position
ourselves in the value chain.
Close monitoring of developments in industry
and local market, including monitoring possible
disruptors and likely timeframe for entry into
the market.
Pilot of possible new partner technologies.
Failure to keep pace with changes in the digital economy impacts
on revenues and/or OEM relations
Impact:
High
Likelihood:
High
h
Technologies are continuing to develop that allow for
real-time processing of vast amounts of data, and the
development of networks connecting people, service
providers and appliances (including vehicles).
The digitalisation of the customer journey, and growth of
online customer platforms, presents the opportunity to
improve the customer offering, whilst at the same time
presenting new risks around data protection, maintenance of
standards and customer engagement through, for example,
social media.
Digital platforms may also allow our brand partners to reach
out to our customer base directly with consequences for our
place in the value chain.
Volume and margin are
adversely impacted.
Adverse impact on value
of retail sites as demand
is fulfilled online.
Reduced ability to drive
demand/margin as
online consumers are no
longer geographically
dependent – driving
competitive price
reductions.
Lower customer
retention rates impact
Aftersales profits.
Digitalisation strategy driving investment
in seamless, omni-channel brand experience
and a best in class digital platform.
Group and market level monitoring and
management of social media presence.
Focus on data analysis to identify opportunities
to monetise data.
Local use of the internet and social media as
a communications channel for our customers.
2018 Update
The Board has increased its assessment of the gross impact of this risk from ‘medium’ to ‘high’ as a reflection of the quickening pace of the
digitalisation of the customer journey, and therefore of the velocity with which it needs to implement its response.
Inchcape Annual Report and Accounts 2018
41
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
RISK MANAGEMENT CONTINUED
MANAGED RISKS
Risks over which we are able to exert considerable influence on the impact or likelihood of occurrence.
Description
Impact
Mitigating actions
Major loss or misappropriation of confidential or sensitive data
results in financial penalty and/or reputational damage
Impact:
High
Likelihood:
Medium
Trend
g
We hold, and process, a significant amount of data
belonging to a range of stakeholders including our OEM
partners, our customers, our employees, and our suppliers.
Impact on customer and/
or OEM relationship and
erosion of reputation.
Cyber-attacks are on the increase and data is an ever more
valuable commodity. Increasingly sophisticated attacks are
being perpetrated by a wide range of well-resourced
threat actors.
A major cyber security incident, or data breach, which leads
to a compromise or misuse of confidential, business critical
or sensitive information could not only interrupt our business,
but also lead to civil or criminal penalties and significant
reputational damage.
Adverse financial impact
as a result of civil or
criminal action.
Regulatory intervention
leads to impact on
financial performance
(fine) or business
operations.
Global Information Security policies and
procedures developed by IT Security Manager.
Information assets defined and security controls
benchmarked to ensure best practices.
Global vulnerability and risk scanning in
place to enhance likelihood of early response
and intervention.
Cyber awareness training deployed to all relevant
staff globally.
Investment in advanced network threat detection
and malicious communications filters.
Physical and logical security measures control
access to key infrastructure, and subject to
regular penetration testing.
Encryption of valuable and sensitive data.
2018 Update
A reference to ‘misappropriation’ of data has been added to this risk to more clearly reflect the fact that there are two principal factors: loss of
data due to human error, and theft of data by malicious actors.
Major cyber incident or other systems interruption impacts on ability to
service customers and/or operational efficiency
Impact:
Medium
Likelihood:
Low
g
Our business performance, and our ability to service our
customers and our OEM partners, depends upon the ability
of our systems to deliver a very high degree of operational
reliability. We have a diverse, and reasonably complex, IT
landscape with multiple potential points of failure and must
ensure that redundancies are built into our infrastructure to
enable continuity should there be a large-scale disruption.
Our iPower programme is intended to standardise and
energise the core systems infrastructure that supports our
business and we must ensure that controls and processes
are maintained across all of our systems infrastructure
whether iPower or legacy.
Business continuity
interruption, leading
to lost sales opportunity
and adverse
reputational impact.
Loss, or compromise,
of data crucial to business
operation impacts the
efficiency of operation.
Built-in resilience and security in place with active
monitoring for core systems.
Minimum controls framework including manual
back-ups in place.
SLA assurances and relevant accreditations from
major systems infrastructure providers.
Business continuity plans in place in all markets.
Close management of iPower implementations
and period of post implementation ‘hyper care’.
2018 Update
The title of this risk has been updated to reflect that the most likely, and damaging, threat to systems continuity is a cyber incident perpetrated
by malicious actors. The balance of mitigating action has also been changed to address this.
42
Inchcape Annual Report and Accounts 2018
Description
Impact
Mitigating actions
Impact:
Medium
Likelihood:
Low
Trend
g
Failure to safeguard our customers and
employees by not consistently applying EH&S
standards across the Group
Inchcape employs more than 18,000 people across the
globe. We are also responsible for the safety of significant
numbers of customers and visitors to our sites.
Our businesses are subject to a wide range of laws and
regulations which vary significantly in stringency from
country to country depending on the prevailing culture.
Our OEM partners also have their own health and safety
standards that they apply.
Wherever in the world they may happen, though, the
consequences of failing to prevent accidents can lead to
employee injury, business interruption, significant fines,
criminal consequences for directors and senior managers
and reputational damage.
Injury to customers,
employees or
third parties.
Serious incident leading
to lost time.
Unlimited fines.
Personal sanctions (for
directors and officers).
Damage to reputation
following injury to, or
death of, employees
or customers.
Civil or criminal action.
Local Health & Safety policies in place in all
markets to comply with local legislation.
Qualified Health & Safety practitioners in major
markets (UK, Russia, Australia, Asia, Latam),
and at Group level.
Basic training offered to all staff with more
advanced training for higher risk roles.
Clear ‘ways of working’ displayed in prominent
areas in the higher risk areas (e.g. workshops).
Health & Safety audits undertaken to confirm
compliance with standards.
Accidents, hazards and near misses
monitored on a regular basis with corrective
actions tracked.
Internal controls failure or fraud of sufficient scale to materially
affect financial performance or reputations
Strong internal controls and processes underpin our
operations. Without them we would fail to protect the value
we create and undermine our growth potential.
Significant fraud with
financial and reputational
consequences.
Significant error or
financial misstatement.
Procedural breakdown
with consequences for
efficiency and/or business
interruption.
Impact:
Medium
Likelihood:
Medium
g
Minimum Controls Framework (MCF) sets an
unambiguous global controls standard.
Delegation of Authorities policy in place to ensure
that decisions are undertaken within approved
authority limits and parameters.
Central internal controls team created to oversee
implementation and development of MCF.
Clear management accountability for
internal controls.
Automation of control through iPower
implementation including automated controls
reduces the possibility of error or oversight.
Fraud and other major control incidents
monitored by the Audit Committee.
Close monitoring of MCF compliance by Group
Internal Audit.
2018 Update
The Board added the risk of fraud to reflect the increasing level of identified incidents during the year.
Inchcape Annual Report and Accounts 2018
43
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
RISK MANAGEMENT CONTINUED
Description
Impact
Mitigating actions
Failure to comply with laws or regulations leads to material financial
penalty or reputational damage
Impact:
Medium
Likelihood:
Medium
Trend
h
The Group, and its businesses, are subject to a wide range
of laws and regulations.
Financial impact of fines/
sanctions.
Key appointments at Group level to help oversee
legal compliance.
The consequences of a failure to comply with those laws and
regulations can vary from small fines, and orders to take
remedial actions, to significant financial consequences,
reputational damage and even imprisonment of directors
and officers.
Regulatory intervention
leads to business
interruption or other
inefficiencies.
Adverse reputational
impact affecting brand
partner relationships.
Head of Legal & Regulatory Compliance, Group
Legal Counsel.
Creation of Group Legal Community to facilitate
knowledge sharing.
Nominated legal representative and/or retained
counsel in major markets to monitor existing and
emerging legislation.
Code of Conduct refreshed to set out
overarching standards of behaviour and
compliance globally.
Local training programmes in place for
relevant staff to raise awareness and
confirm expectations.
Online legal/compliance training solution
to be implemented globally in 2019.
2018 Update
During the year, we completed our preparations for the implementation of the European General Data Protections Regulations which became
fully enforceable from 25 May 2018. The Board has increased its assessment of the likelihood of this risk from ‘low’ to ‘medium’ to reflect the
trend towards increasing regulatory pressure in the automotive industry, and also in recognition of our growing global footprint, particularly in
emerging markets.
Failure to attract, retain and develop our people leading to knowledge
drain and operational inefficiency
Impact:
Medium
Likelihood:
Medium
g
Inchcape employs over 18,000 people across 32 different
territories in various roles including Sales, Aftersales, and back
office functions.
The fragmented nature of the automotive sector, coupled
with remuneration strategies that typically reward short-term
performance, mean that the industry suffers from high
turnover rates, especially in retail businesses. These can
exceed 30-35% per annum.
Our Ignite strategy, as well as the impact of disruptive trends
and emerging technologies in the automotive industry, mean
that the skills and capabilities needed to succeed are
constantly changing. Not having the right talent, and
diversity, at all levels may compromise our ability to deliver
the Ignite strategy.
Loss of core knowledge
and experience.
Global Talent Strategy to ensure resources are
aligned to strategic requirements.
Business interruption or
operational inefficiency.
Talent review pipeline to maximise the value-add
of our people.
Failure to deliver strategic
objectives.
Recruitment, induction and continuous
development policies in all markets.
Drive5 behaviours underpin
development process.
Performance related pay structure calibrated
to incentivise and drive talent retention.
Key policies, procedures and other
documentation to facilitate handovers.
Restructuring where necessary to right-skill
the business.
44
Inchcape Annual Report and Accounts 2018
INHERENT RISKS
The Board recognises that there are some risks over which Inchcape’s influence is somewhat limited, and the impact
and likelihood of the risk are more heavily affected by external factors. The Board ensures that, as far as possible,
actions are taken to address these risks according to its risk appetite but recognises and accepts an inherent level
of risk as a natural part of doing business.
Risk
Comments
Impact
Likelihood
Trend
Significant retrenchment of
credit available to customers,
dealer network or Inchcape plc
negatively impacts vehicle
sales and/or operational
capability
Readily available, affordable credit is fundamental to our
customers ability to buy, and to our and our dealers ability to
operate. Whilst we have various local initiatives in place to help
our customers and dealers access appropriate finance, we are
also reliant on our banking and OEM partners to provide suitably
attractive options.
High
Low
Material damage to OEM
brand or product reputation,
or a major interruption to
OEM operations or product
supply negatively impacts
vehicle sales
As a Distributor and Retailer, our performance is correlated with
that of our OEM partners. We work closely with them to foresee
and address issues in our role as representative of their brand,
but ultimately, we have only very limited control over their
performance. Our brand diversity acts as a natural hedging
strategy to further minimise this risk.
High
Low
The Board has revised its definition of this risk to include damage
to OEM or product reputation.
Fluctuations in exchange
rates with negative impact
on financial performance
As a global organisation we accept the risk that outside normal
hedged transactions we are exposed to currency fluctuations.
These can be both positive and negative and our geographical
diversity provides a certain amount of natural hedging.
Medium High
g
g
g
Individual governments
increasing restrictions
on cross-border currency
movements leading to higher
incidents of trapped cash
across the Group
We regularly look for mitigating strategies including investment
opportunities in local businesses that can generate hard currency
earnings or engaging with government and central banks to
ensure we receive our fair allocation of hard currency reserves.
Medium Medium g
Social, political and regulatory
instability leads to economic
uncertainty, market interruption
and/or threat to safety
We accept that in certain markets there is an enhanced risk of
social, political and regulatory instability. We recognise that there is
little we can do to prevent such risks, but instead ensure we have
plans in place to respond quickly and decisively if they do occur.
Low
Medium g
The scope of this risk has been widened by the Board to
recognise the impact of economic uncertainty, reflective of the
implications of Brexit.
Changes in legislation or the
way that legislation is applied
directly affects customer
demand for certain vehicle
types or our ability to generate
income from Aftersales
We accept that demand for vehicles is heavily impacted by
prevailing legislation. There is little we can do to influence that
legislation in our favour. Instead we implement processes to
foresee and prepare for its impact (alongside our OEM partners),
our geographic and OEM diversity also providing a natural hedge.
The Board has widened the scope of this risk to include
Aftersales legislation.
Low
High
g
Inchcape Annual Report and Accounts 2018
45
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
RISK MANAGEMENT CONTINUED
BREXIT
The UK is currently scheduled to leave the European
Union on 29 March 2019. There is uncertainty, however,
as to whether this will indeed be the departure date and
as to the terms of the UK/EU relationship after that date.
In “agreed deal” scenarios, there will be a sufficient
planning period of at least 21 months available to plan
and prepare for the implications of Brexit. In the event
of a no-deal Brexit, however, there will be no such
transition period.
Our immediate focus, therefore, has been on
preparing for a no-deal scenario. We have taken steps
to understand the potential impacts of such a scenario
upon our business and have identified, and taken,
those mitigating actions that are available to us.
The nature, and location, of our business means that
there are three principal potential impacts. These are
– Macro-economic impacts in the UK economy lead to
reduced consumer confidence and a reduction in the
overall size of the addressable market;
– The introduction of tariffs on UK automotive exports to
European markets, and certain third countries, results
in increased costs that are not able to be recovered
from customers;
– A fall in the value of sterling increases the sterling value
of the Group’s foreign currency earnings.
The Board has considered these potential impacts
carefully together with the mitigation plans in place.
We are working closely with our OEM partners to ensure
that any impacts are minimised.
The Board and Group Executive Committee are actively
monitoring the position and will continue to take the
actions that are available to them to respond to events
as they unfold.
VIABILITY STATEMENT
The long-term viability of the Group is intrinsically linked to
the delivery of the Ignite strategy and the cash-generative
nature of this business model. Our continued viability is
dependent upon the continuation of our relationships
with our OEM partners. In addition, three years is also
the key timeline for New vehicle purchase in mature
markets with good personal finance penetration. In
seeking to be the OEM partner of choice, we continue to
build on the long-term strategic relationships we have
developed to grow our businesses together over a far
longer timeframe.
The plans and projections prepared as part of the
Group’s annual strategic planning process consider
the Group’s cash flows, committed and uncommitted
funding positions, forecast future funding requirements
and lending covenants. As part of the strategic planning
process, the Board adopts a rigorous approach to the
identification of the principal risks and to monitoring the
actions taken to mitigate these risks.
The Board has prioritised three of the principal risks for
the purposes of assessing the longer-term viability
of the Group:
– Loss of global distribution contract with major
brand partner;
– Significant retrenchment of credit available to
customers, dealer network or the Group negatively
impacts vehicle sales and/or operational capability;
– Material damage to OEM brand or product reputation,
or a major interruption to OEM operations or product
supply, negatively impacts vehicle sales.
Sensitivity analysis is undertaken to stress-test the
resilience of the Group and its business model. For the
purposes of viability testing we modelled the first and
third of these risks. The risk of a liquidity / credit shock,
has been modelled as a sensitivity on top of both of
these risks to understand their combined financial
impact. For 2019, the Board has also considered the
impact of a “no deal no transition” Brexit.
The Group is considered to be viable if the interest cover
covenant is maintained within the prescribed limit and
there is available debt headroom to fund operations.
The Group’s committed facilities, provided by the US
Private Placement market and through our syndicate
of relationship banks, coupled with the existing
cash-generative nature of our business model,
combine to generate sufficient cash flow headroom
under the extreme scenarios tested and the interest
cover covenant is not breached.
On the basis of an assessment of the principal risks, and
on the assumption that the principal risks are managed
and mitigated as described, and based on the Board’s
review of the strategic plan and the results of the
sensitivity analysis undertaken, the Board has a
reasonable expectation that the Company will be
able to continue in operation and meet its liabilities
as they fall due over the period to December 2021.
DIRECTORS’ APPROVAL OF THE
STRATEGIC REPORT
Our 2018 Strategic Report, from pages 1 to 46, has been
reviewed and approved by the Board of Directors on
27 February 2019.
46
Inchcape Annual Report and Accounts 2018
Stefan Bomhard
Chief Executive
Inchcape has a Retail-only
partnership with VW Group and
represents the core VW and Audi
brands as well as the performance
marque Porsche. Our VW Group
relationship goes back 30 years in
four international markets.
LOCATIONS
RETAIL
UK, Russia, China, Australia
Inchcape Annual Report and Accounts 2018
47
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS BOARD OF DIRECTORS
EXPERIENCED AND
EFFECTIVE LEADERSHIP
Nigel Stein
Stefan Bomhard
Richard Howes
Jerry Buhlmann
Rachel Empey
Group Chief
Executive
Appointed:
April 2015
Chief Financial
Officer
Appointed:
Non-Executive
Director
Appointed:
Non-Executive
Director
Appointed:
April 2016
March 2017
May 2016
Skills and experience:
Skills and experience:
Skills and experience:
Skills and experience:
Richard has a wealth
of experience across
the financial and
commercial sectors,
working for multi-site
businesses with
substantial global
footprints. He joined
the Group from
Coats plc where
he was Chief
Financial Officer.
Richard is
a chartered
accountant.
Stefan has senior
level experience
gained in a wide
range of retail and
FMCG businesses.
Prior to joining the
Group, he was
President of Bacardi
Limited’s European
region and has held
a number of senior
positions at Cadbury
Plc, Unilever PLC,
Diageo plc, Burger
King and Procter &
Gamble.
Other appointments:
Non-Executive
Director of
Compass Group PLC.
Jerry has over
30 years’ experience
in the media and
advertising industries.
He was CEO of
Dentsu Aegis from
2013 until earlier this
year and prior to its
acquisition by
Dentsu Inc, Jerry
was the CEO of
Aegis Group PLC.
Jerry is also a director
of Madison Sports
Group and the
Media Trust.
Committee
membership:
Remuneration,
CSR and Nomination
Committees.
Rachel was
appointed Chief
Financial Officer
of Fresenius SE & Co.
KGaA, a top
healthcare company
listed on the DAX
index, in August 2017.
Previously Rachel
was Chief Financial
and Strategy Officer
of Telefónica
Deutschland Holding
AG (“Telefónica
Deutschland”).
Rachel is a chartered
accountant.
Committee
membership:
Audit and
Nomination
Committees.
Non-Executive
Director
Appointed to the
Board:
October 2015
Appointed as
Chairman:
May 2018
Skills and experience:
Nigel was Chief
Executive of GKN plc
until his retirement in
December 2017. He
has a wide range of
international, general
management and
finance experience
gained in various
roles at GKN plc and
also has experience
in the automotive
and manufacturing
sectors.
Nigel is a chartered
accountant.
Committee
membership:
Chair of the
Nomination
Committee and
member of the CSR
Committee.
Full biographies, including past employment history, can be found on www.inchcape.com
48
Inchcape Annual Report and Accounts 2018
Jane Kingston
John Langston
Coline McConville
Nigel Northridge
Till Vestring
Non-Executive
Director
Appointed:
Non-Executive
Director
Appointed:
Non-Executive
Director
Appointed:
Senior Independent
Director
Appointed:
Non-Executive
Director
Appointed:
July 2018
August 2013
June 2014
July 2009
September 2011
Skills and experience:
Skills and experience:
Skills and experience:
Skills and experience:
Skills and experience:
Jane served as Group
Human Resources
Director for Compass
Group PLC from 2006
until her retirement in
2016. Jane also
held senior positions
at Enodis PLC,
Blue Circle PLC
(now Lafarge SA) and
Coats Viyella PLC.
Jane has significant
remuneration
experience and is
Remuneration
Committee Chair of
National Express plc
and Spirax-Sarco
Engineering plc.
Other appointments:
Non-Executive
Director of Spirax-
Sarco Engineering
plc and National
Express plc.
Committee
membership:
Remuneration
and Nomination
Committees.
John has corporate
finance, accounting
and international
experience acquired
in senior financial
roles in the
engineering sector.
He is an experienced
Non-Executive
Director who has
a strong governance
background and was
the Audit Committee
Chair of Rexam PLC
until its sale to Ball
Group in 2016.
John is a chartered
accountant.
Committee
membership:
Chair of Audit
Committee and
member of
Nomination
Committee.
Coline has extensive
remuneration
experience as the
Remuneration
Committee Chair
of Travis Perkins plc,
Fevertree plc and
of TUI Travel plc until
its merger with
TUI AG. Coline is
an experienced
Non-Executive
Director and has
served as a director
on several UK boards.
Other appointments:
Non-Executive Director
of Fevertree Drinks plc,
Travis Perkins plc,
3i Group plc and
a member of the
supervisory board
of TUI AG.
Committee
membership:
Chair of Remuneration
Committee and
member of
Nomination and CSR
Committees.
Nigel brings
international and
commercial
experience acquired
across a number
of sectors. He is
an experienced
Non-Executive
Director and has
served as a director
on the boards of
several large UK
and global plc’s.
Till is an Advisory
Partner with
Bain & Co, based
in Singapore.
He has extensive
experience advising
multinationals on
growth strategy
across Asia and
leading Asian
companies on
strategy, M&A
and organisation.
Other appointments:
Other appointments:
Chairman of Hogg
Robinson plc,
Chairman of
Scandinavian
Tobacco Group A/S
and non-executive
Chairman of Belfast
City Airport.
Committee
membership:
Remuneration, Audit
and Nomination
Committees.
Non-Executive
Director of Keppel
Corporation.
Committee
membership:
Chair of CSR
Committee
and member
of Remuneration
and Nomination
Committees.
Inchcape Annual Report and Accounts 2018
49
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHAIRMAN’S STATEMENT
A GOVERNANCE CULTURE
NIGEL
STEIN
Chairman
Watch online inchcape.com/AR18
DEAR SHAREHOLDER
I am pleased to present the Corporate Governance
Report for the year ended 31 December 2018. The next
few sections explain how the Board and its Committees
have discharged their duties throughout the year and
I hope you find it informative.
OUR BUSINESSES
As part of my induction, I have been able to travel to
several markets to meet colleagues and learn more
about the business. The Board also travelled to Singapore
for its annual overseas meeting in October 2018. The visit
provided an opportunity for our Non-Executive Directors
to meet personally with colleagues and observe how
Ignite is being implemented within our markets. The Board
visited the Inchcape Lexus Boutique and Toyota World and
also spent time at the Suzuki dealership. The local teams
updated the Board on the latest customer initiatives being
introduced across the region, including the automated
Leads Distribution System and other digitalisation projects
which are enhancing our sales capabilities.
The Board also received presentations on industry trends
including on future mobility from Mr Yutaka Okayma from
Toyota Asia Pacific and Professor Lee Der Horng, a leading
transport academic in Singapore. Industry insights such
as these increased the Board’s knowledge on specialist
areas and are vital for Non-Executive Directors who are
not involved in the day-to-day running of the business.
50
Inchcape Annual Report and Accounts 2018
A clear understanding of future industry trends is
imperative for the Board to aid its decision making process
and an overview of the trends is given on page 11.
GOVERNANCE AND CULTURE
As previously mentioned the Board approved a new
Code of Conduct which is being rolled out globally.
The Code sets out the minimum standards of behaviour
expected from our employees to act with honesty and
integrity. The Code gives clear guidance on ethical
decision making, the identification of misconduct and
whistleblowing procedures. The Code also sets out our
commitment to all our stakeholders. These concepts are
at the heart of our vision to be the world’s most trusted
automotive Distributor and Retailer and create the
cornerstone of the culture within Inchcape.
2018 saw a considerable number of governance and
regulatory changes which were duly discussed by the Board.
The new UK Corporate Governance Code was published
in July 2018 and the Board agreed the actions it needed to
take to comply during 2019. The Board is considering how
and what information it receives from key stakeholders and
whether these engagement mechanisms are appropriate.
The Board has also considered engagement with the
workforce and the three options given in the new Code.
The Board feels that a designated Non-Executive Director is
the most appropriate method at this time and has appointed
Till Vestring, Chair of the CSR Committee, to take up the role.
Till will set out how the CSR Committee intends to engage
with our employees during the year. The Board will review
periodically to ensure that both the Board and our employees
are getting value from the engagement process.
BOARD COMPOSITION
As mentioned in my statement on page 1, Nigel Northridge
will retire following the AGM, and I am delighted to confirm
Jerry Buhlmann will succeed him as Senior Independent
Director. Further details are given on page 66. As a result of
the planned Board changes, I have been considering our
succession process to ensure that we are planning ahead
to have the right balance of skills and experience.
I am focused on ensuring that we have 33% female
representation by 2020. To help us achieve this we are
looking at our candidate selection processes to ensure
a truly diverse range of candidates are being considered.
Further details of succession planning are given in the
Nomination Committee Report on pages 65 to 66.
I thank you for your support during 2018 and look forward
to the coming year.
Nigel Stein
Chairman
CORPORATE GOVERNANCE REPORT
Leadership
STATEMENT OF CODE COMPLIANCE
The Company was compliant with the provisions of the 2016 UK Corporate Governance Code throughout the year.
The Code can be found on the FRC’s website www.frc.org.uk
The information required under DTR 7 is given on pages 51 to 87 and forms part of this report.
GOVERNANCE STRUCTURE
THE BOARD OF INCHCAPE PLC
Collectively responsible for the long-term success of the Company
Audit
Committee
Remuneration
Committee
Executive
Committee
Nomination
Committee
CSR
Committee
Delegated
authorities:
Financial Reporting
Risk Management
Internal Control
Delegated
authorities:
Remuneration
Policy
Incentive plans
Performance
Targets
Delegated
authorities:
Group Strategy
Operational
Management
Delegated
authorities:
Board Composition
Delegated
authorities:
CSR Strategy
Diversity
Succession
Planning
Committee Report
page 58
Committee Report
page 68
Committee Report
page 65
Committee Report
page 67
Delegated
authorities:
Risk oversight
Minimum Control
Framework
iPOM
Committee
Group Capital
Committee
Delegated
authorities:
Oversight of Group
capital expenditure
Inchcape Annual Report and Accounts 2018
51
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CORPORATE GOVERNANCE REPORT CONTINUED
The Board
The Board is collectively responsible for the long-term success of the Company which it achieves by setting
the strategic direction of the Group and ensuring that there are the necessary financial and human resources
available to deliver the objectives. The Board also ensures that there are controls, processes and procedures
in place to ensure that the right culture exists for the achievement of the strategic goals.
Chairman
Senior Independent
Director
Chief Executive
Officer
Nigel Stein, as Chairman, is responsible
for leading an effective Board, ensuring
timely, accurate and relevant
information is received by Board
members, planning the composition
of the Board and is Chair of the
Nomination Committee.
The Chairman sets the Board’s agenda
and ensures that appropriate time is
allocated to discuss each agenda
item. He is also responsible for ensuring
there is a culture of openness and
debate and that constructive
relationships exist between the
Non-Executive Directors and
Executive Directors.
Nigel Northridge is the Senior
Independent Director and is available
to shareholders if they do not want to
speak to the Chairman or the Group
Chief Executive Officer.
His role is to act as a sounding board
for the Chairman and to serve as an
intermediary to other members of
the Board.
Stefan Bomhard, as Group Chief
Executive Officer, is responsible for
developing the Group’s strategy,
running the day-to-day operations,
reporting to the Board on
performance, implementation
of strategy and any significant
developments, leading the Group
Executive Committee including
managing risk and internal control
and engaging with shareholders.
The Non-Executive Directors are appointed to offer a wide range of skills and experience which enable them to advise,
support and constructively challenge management, to provide independent judgement on the Board’s discussions
and to help with the development of the Company’s strategy.
The Non-Executive Directors met in 2018 without the presence of Stefan Bomhard and Nigel Stein to discuss their
performance. If a Director has a concern about the running of the Company which cannot be resolved, it would be
recorded in the Board minutes. No such concerns arose in 2018.
Activities of the Board
The table below shows the Board and Committee meetings held during the year. There were additional Board calls and
Committee meetings throughout the year to discuss specific issues as they arose.
Name
Stefan Bomhard
Jerry Buhlmann
Rachel Empey
Ken Hanna*
Richard Howes
Jane Kingston*
John Langston
Coline McConville
Nigel Northridge
Nigel Stein
Till Vestring
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
CSR
Committee
Scheduled/attended Scheduled/attended Scheduled/attended Scheduled/attended Scheduled/attended
6/6
6/6
6/6
2/2
6/6
3/3
6/6
6/6
6/6
6/6
6/6
–
–
4/4
–
–
–
4/4
–
4/4
–
–
–
2/2
–
1/1
–
1/1
–
2/2
2/2
2/2
2/2
–
2/2
1/1
1/1
–
1/1
2/2
2/2
2/2
2/2
2/2
2/2
2/2
–
1/1
–
–
–
2/2
–
1/1
2/2
* Ken Hanna retired from the Company following the 2018 AGM. Jane Kingston joined the Company in July 2018.
52
Inchcape Annual Report and Accounts 2018
The Board is collectively responsible for the long-term success of the Company and achieves this by setting its strategic
aims whilst ensuring that the necessary financial and human resources are available. The Board also ensures that the
correct controls are in place to drive the right culture throughout the organisation to achieve its strategic objectives in
a sustainable manner. The Chairman ensures that there is a culture of openness and transparency on the Board to
facilitate constructive debate on all matters considered during the year.
There is a schedule of formal matters reserved for the Board which can be found at www.inchcape.com/governance.
Focus in 2018
Investor engagement
Ignite strategy
Risk
Financial reporting
Leadership
What we achieved
A Capital Markets Day was held in June 2018
which was designed to give investors a clear
explanation of the Distribution business
model, the drivers of growth for Inchcape
and our view of future trends and our
positioning against them.
The Ignite M&A programme had several
successes in 2018 with Distribution contract
wins in Kenya, Colombia, Lithuania and
Guam and the acquisition of Grupo
Rudelman in Central America.
An important part of the Board’s discussions
is the capital allocation framework to ensure
that cash is being utilised effectively. During
the year the Board discussed dividend
policy, capital expenditure and share
buybacks. Further details can be found
on page 16.
The Board undertook a comprehensive risk
appetite assessment during the year which
included a focus on the impact of Brexit
on the business. Further information can
be found in the Risk Management Report
on pages 35 to 46.
The Board reviews the performance of the
business on a regular basis and challenges
management on the assumptions made
and judgements used, with assurances
provided by both internal and external
sources to ensure that the information
communicated to stakeholders is fair,
balanced and understandable.
The Board discussed succession, talent
development and diversity for the senior
management population.
Governance and culture
The Board approved the following:
Partners
– General Data Protection Regulations
– Inchcape Code of Conduct
The Board regularly discusses the Group’s
OEM partners to ensure that the Group
is offering the best possible service at
every part of the value chain. See pages
8 to 9.
Focus for 2019
– Engagement with stakeholders other
than shareholders
– Workforce engagement
– Consideration of s172 reporting
– Global industry trends
– Disruptive and future industry trends
– Strategy development
– Annual review of principal risks and
mitigating actions
– Annual review of risk appetite
– Brexit outcomes
– Approval of annual operating plan
– Review of delegated authorities and
capital expenditure processes
– Value driver performance
– New accounting standards
– Group Executive Committee
succession planning
– Talent pipeline planning
– Diversity and inclusion review
– Implementation of 2018 UK Corporate
Governance Code
– Review adoption of Code of Conduct
across the Group
– Anti-bribery and corruption training
– Management meetings with
OEM counterparts
– Deep dive of Ignite OEM Partner
of Choice objective
Inchcape Annual Report and Accounts 2018
53
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CORPORATE GOVERNANCE REPORT CONTINUED
Effectiveness
COMPOSITION OF AND APPOINTMENTS
TO THE BOARD
The Board is comprised of eight independent
Non-Executive Directors and two Executive Directors,
whose biographies are given on pages 48 to 49.
Nigel Northridge completed nine years’ service in
July 2018. The Board agreed that Nigel would remain
on the Board until May 2019 to assist with the Chairman
transition. He will retire from the Board following the AGM.
Nigel Stein was considered independent on his
appointment as Chairman. All other Non-Executive
Directors are considered independent in accordance
with the UK Corporate Governance Code.
Non-Executive Directors are appointed for a period
of three years. After each three-year period the
performance of the Director is reviewed by the Chairman,
and the Nomination Committee approves any further
terms. All appointments are subject to annual re-election
at the AGM. Details of the Board succession planning
process can be found in the Nomination Committee
Report on pages 65 to 66.
COMMITMENT
The Directors are required to allocate sufficient time to
the Company to discharge their responsibilities and
Board dates are agreed two years in advance to ensure
that Directors are able to plan accordingly and for other
commitments to be taken into account.
Non-Executive Directors are informed of the time
commitment expected from them upon appointment
and this is reviewed annually to ensure that the time
expected is still relevant in light of the Company’s
strategic agenda.
The Non-Executive Directors’ letters of appointment are
available for inspection at the Company’s registered
office and at the AGM.
The Board understands that the Executive Directors can
gain valuable business experience as a Non-Executive
Director of another company. The Group’s policy is to
limit Non-Executive Directorships within a FTSE 100
company to one appointment only. Stefan Bomhard is
also a Non-Executive Director of Compass Group PLC.
Details of the fees paid to him are given on page 87
of the Directors’ Report on Remuneration.
Induction process
The Inchcape framework
The first step in the Directors’,
induction is making sure that
they have all the information
and support to enable them
to carry out their duties.
This includes Board processes,
Group structures, strategy,
Code of Conduct, other
policies and procedures,
risk footprint.
Meet key management /
advisors
Meeting key management
and advisors allows the
Directors to gain a broader
understanding of the day-to-
day operations and head
office functions such as legal,
compliance, treasury, finance
Visit the businesses
Visiting the businesses gives
the Directors a unique
opportunity to see the Ignite
strategy in action, meet
colleagues and seek their
views on the business and
to understand the culture
of the Group
As Jane is new to the industry,
her induction was tailored to
ensure that she received
in-depth sessions with
key employees
In addition to management,
Jane also met with
Mercer | Kepler, to gain
an understanding of the
Company’s remuneration
framework and culture
In addition to the Board’s
Singapore visit, Jane also met
with the UK CEO at VW
Chiswick, to learn about the
UK automotive industry
Nigel’s induction involved
several overseas visits to
enable him to gain a deeper
understanding of the Group’s
operations, culture, risks
and opportunities
Nigel undertook a schedule
of shareholder meetings
upon appointment as
Chairman to listen to their
views on the business and its
longer-term opportunities
Nigel visited our operations
in Russia, Australia and Asia
to learn more about the
differences, challenges
and opportunities for
the Distribution and
Retail businesses
Jane Kingston
Nigel Stein
54
Inchcape Annual Report and Accounts 2018
DEVELOPMENT
All Directors receive a tailored induction programme
upon appointment designed to ensure that they have
sufficient knowledge of the business and the context in
which it operates. The induction consists of one-to-one
meetings with the Group Executive Committee members
and other key members of the management team and
site visits designed to give the Director an in-depth
understanding of the Retail and Distribution businesses.
To ensure that the Directors have the appropriate
knowledge to support their decision making, regular
presentations from management are included in each
Board meeting, along with industry updates and insights
into trends affecting the industry.
Regional updates, designed to give a deeper view of the
markets, are given throughout the year by the relevant
market Chief Executive Officers. Details of the Board’s
activities are given on page 53. The Non-Executive
Directors are expected to update their knowledge and
skills regularly and training is provided for the Board and
individual Directors as required.
INFORMATION AND SUPPORT
The Group Company Secretary is responsible for
ensuring the Board has access to relevant and accurate
information. The Board agendas are agreed in advance
by the Chairman and the Group Chief Executive Officer
and include regular items such as reports from the Group
Chief Executive Officer, the Chief Financial Officer and
Investor Relations.
The information supplied to the Board and its
Committees allows the Board to scrutinise the
performance of management and to monitor
performance against objectives. In addition to
regular reports from key management, the Board
also receives information on operational matters,
financial performance and strategic developments.
The Group Company Secretary also supports the Board
by providing advice and services, including access to
independent advice, and ensures that an accurate
record of the meeting is taken.
BOARD EVALUATION
The 2017 Board evaluation was externally facilitated, and the table below sets out the progress against the actions
raised from that process. The 2018 Board evaluation was an internally facilitated evaluation led by the Company
Secretary. The results were similar to those of 2017 as many of the action points will be continuous improvement.
Areas of focus during 2019 will be the Non-Executive Director appointment process and the remit of the CSR Committee
in light of the new Code provision on workforce engagement.
Action from 2017
Ensuring that future Board composition always
maximises challenge to management as they
crystallise the longer-term strategy beyond Ignite,
by keeping Board skills and terms under regular review
and in line with strategy.
Expanding the work of the Nomination Committee to
enable broader discussions amongst Board members
about NED and executive succession, development
and learning, and maintain the balance between
experienced Directors, future Chairs and newer
‘PLC’ NEDs.
Expanding the work of the Nomination Committee
to cover items of governance to ensure appropriate
focus for the Group.
Reviewing the Board pack to broaden the spectrum
of information provided to the Board, for example on
competitors, or international territories, especially
as future strategy discussions develop.
Progress in 2018
The Nomination Committee considered the future skills
requirement for the Board.
Please see the Nomination Committee Report on
page 66 for further details.
In addition to the annual senior management talent
planning session carried out by the Board, it was
agreed that an informal session take place each year
to allow the Board to discuss with the CEO the
performance of the Group Executive Committee.
The Nomination Committee is considering how to add
value to the Board’s deliberations and will review its
terms of reference to ensure they are appropriate.
An effective Board report is a strategic extension of
day-to-day information-gathering and provides the
platform on which boards can work with management
to add real value and to gain a critical understanding
of the business. The information provided to the
Board has been reviewed to ensure that it
remains appropriate.
Inchcape Annual Report and Accounts 2018
55
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
CORPORATE GOVERNANCE REPORT CONTINUED
Accountability
FINANCIAL AND BUSINESS REPORTING
The Board is responsible for presenting a fair, balanced
and understandable assessment of the Group’s position
and prospects in the Annual Report and Accounts,
the interim financial statements and the trading updates.
The Board is satisfied that appropriate processes are in
place to provide the necessary information on position
and performance, business model and strategy to allow
users to make a fair assessment of the business and to
enable the Board to make this statement.
The Board considers the information received and
discussions and decisions made throughout the year
when asking the following questions:
Has equal weight been given to all messages and is any
information omitted?
Is the narrative reporting consistent with the financial
statements?
Are the principal risks, business model and strategy in line
with the Board’s understanding of the business?
RISK MANAGEMENT AND INTERNAL CONTROL
The Board carried out a robust assessment of the Group’s
principal risks including those that would threaten its
business model, future performance, solvency or liquidity
during the year. Following this review, the Board agreed
changes to the articulation of certain risks which had
previously been reviewed and approved by the Group
Executive Committee.
The Board also considered the impact of Brexit on the
business and a statement of its findings in relation to
Brexit and the Group’s principal risks is given on pages 35
to 46.
The Board also discussed, and agreed, its risk appetite
in relation to each of the principal risks. Consideration
was given to:
– The description of the risk;
– The current risk footprint showing gross risk, net risk and
the target position;
– Background information that underpins the risk;
Are the key performance indicators appropriate?
– Key mitigation actions; and
Are the Strategic Report, governance report and financial
statements balanced?
Will stakeholders be able to understand the business, its
position and prospects from reading the Annual Report?
Do the significant issues referred to in the Audit
Committee Report reflect those considered by
the auditor?
The Board also satisfies itself that the statements made
are supported by verification documents, monthly
performance reports and the annual operating plan.
A statement of the Directors’ responsibilities is set out on
pages 91 to 92. The going concern statement is set out
on page 92 and the strategy and business model are set
out on pages 2 to 18.
– The risk appetite statement for each of the risks.
A description of risks, an explanation of how they are
being managed and mitigated and the Board’s viability
statement can be found in the Risk Management Report
on pages 35 to 46. The Board also reviewed and
approved the viability statement including its assessment
of the methodology used by management to reach
its conclusion.
The Board has delegated responsibility for reviewing
the effectiveness of the system of internal controls to the
Audit Committee. Further information can be found in
the Audit Committee Report on pages 58 to 64.
The risk management and internal controls processes
are designed to manage rather than eliminate the risk
of failure to achieve business objectives. In establishing
and reviewing the system of internal control, the Directors
have regard to the nature and extent of the relevant risks,
the likelihood of loss being incurred and the costs
of control. The system can only provide a reasonable
but not absolute assurance against any material
misstatement or loss and cannot eliminate business risk.
The Board has determined that there were no significant
failings or weaknesses identified during the review of the
risk management and internal control processes during
the year and further confirms that these systems were in
place during 2018 and up to the date of this report.
The Directors are satisfied that the Group’s risk
management and internal control systems accord with
the FRC’s Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting.
56
Inchcape Annual Report and Accounts 2018
Relations with Shareholders
The Head of Investor Relations, Group Chief Executive
Officer and Chief Financial Officer met with approx.
270 investors and potential investors during the year
at roadshows, investor events and one-to-one meetings.
Nigel Stein also met with several major shareholders
to discuss various strategic and governance topics
as part of the Chairman induction programme.
A dialogue with shareholders ensures that the Company
is fully aware of shareholders’ views and their
expectations of the Group’s strategy and performance
both in the short and long-term. The views of shareholders
are communicated to the Board after each meeting and
through regular Investor Relations reports, and analysts
and brokers briefings.
Capital Markets Day
A Capital Markets Day was held on 6 June 2018. The
aim of the investor day was to give an in-depth view
of the business, the drivers of growth and future trends.
There were presentations on the Distribution business
model, operational excellence, consolidation, future
trends and opportunities and multi-layered earnings
growth. In addition, Mr Yoshi Inaba, Special Advisor
to Toyota Motor Corporation, spoke to investors about
the long-standing relationship with Inchcape, Toyota’s
view on distribution and the strength of Inchcape’s
business model.
The Capital Markets Day presentations can be found on
the Company’s website www.inchcape.com/investors/
CapitalMarketsDay
CONSTRUCTIVE USE OF GENERAL MEETINGS
The AGM gives shareholders an opportunity to meet the
Board and ask any questions they have regarding the
Group, its performance and its strategy.
The Board encourages participation of private
shareholders at the AGM, however, the Board
understands that it is not always possible for
shareholders to attend in person. Shareholders are
encouraged to contact the Company with any
questions they wish to raise with the Board of Directors
via the Company Secretary.
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 the
Committee Chairs at the AGM. Details of the votes
received for the resolutions put to shareholders at the
AGM are available on the Company’s website.
The Company’s registrars, Computershare, act as
scrutineers at the AGM and ensure that the votes are
correctly counted and recorded.
All Directors are required to attend the AGM.
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 shareholders to receive
communications in the form most appropriate
to their needs and they can change the way
they receive information at any time.
Inchcape Annual Report and Accounts 2018
57
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS AUDIT COMMITTEE REPORT
ENSURING INTEGRITY AND
CONTROLS
JOHN
LANGSTON
Chair of the
Audit Committee
DEAR SHAREHOLDER
I am pleased to present the report of the Audit
Committee for the year ended 31 December 2018.
The aim of the report is to provide an overview of the
significant issues considered by the Committee during
the year, how the Committee has discharged its
responsibilities, and to highlight some of the matters
presented by management on various aspects of the
business. These presentations from management ensure
that the Committee can assess the risks and the
effectiveness of any mitigating actions and challenge
management on the control environment and
any failures.
External auditor
Following the successful external audit tender in 2017,
I am pleased that shareholders supported the
appointment of Deloitte LLP as the Group’s auditor.
Deloitte took over the role from PwC in May 2018
however the team had shadowed PwC during the 2017
year-end audit and spent time with management getting
to know the business. As part of the transition programme
the team visited a number of businesses across various
markets to enhance their understanding of the business
and assessment of audit risks and focus.
Anna Marks is the lead audit partner.
58
Inchcape Annual Report and Accounts 2018
Non-audit services
There were certain non-permitted non-audit services fees
accrued by Deloitte during the year, which relate to tax
compliance and computations for 2017 in relation to
Guam, Saipan and Macau where Deloitte had already
been engaged to perform the work prior to their
appointment as Group auditor. The Committee reviewed
the provision of these services and concluded that it
would not be likely to affect their objectivity and
independence. The Committee kept the non-audit
services under review during the year and further details
are given on page 63.
Accounting standards
Several new accounting standards have been
introduced with IFRS 9, Financial Instruments and IFRS 15,
Revenue Recognition effective from 1 January 2018,
both of which were disclosed in last year’s Annual Report
and IFRS 16, Leases, effective from 1 January 2019. The
Committee spent considerable time with management
and the external auditor assessing the accounting
impacts, transition options, and relevant disclosures.
The management team are also working with the Group
Reward team to assess the impact of IFRS 16 on the key
remuneration performance metrics. Further details on
IFRS 9, 15 and 16 are given in the notes to the financial
statements on pages 107 to 110. The Committee’s
consideration of IFRS 16 is also given on the significant
issues disclosure on page 64.
The key activities of the Committee are given in the table
on page 60 and the following pages set out the work
carried out by the Committee during the year, the
significant issues considered, and the key decisions
made by the Committee.
John Langston
Chair of the Audit Committee
COMMITTEE MEMBERS AND ATTENDANCE AT MEETINGS
John Langston
Rachel Empey
Nigel Northridge
Committee Chair
Independent Non-Executive Director
Independent Non-Executive Director
Feb
May
Jul
Nov
The Audit Committee consists of three independent
Non-Executive Directors. John Langston and Rachel
Empey are qualified chartered accountants and are
considered to have recent and relevant financial
experience. In addition, the Committee as a whole
has competence in Retail which is the sector in which
the Company operates.
The Committee met four times during the year to
coincide with the financial calendar. Only members
of the Committee are entitled to attend Committee
meetings. However, the Chairman, Group Chief Executive
Officer, Chief Financial Officer, Group Financial Controller
and Group Head of Internal Audit attend the Committee
meetings along with the external auditor. Other senior
executives, such as the Group Tax Director and Group
General Counsel, attend during the year to present to
the Committee.
The Committee regularly meets with the auditor without
the presence of management to discuss any areas of
concern they might have. John Langston also meets
with the Chief Financial Officer and Head of Internal
Audit at one-to-one meetings which enable him
to fully understand the key issues ahead of
Committee meetings.
It is the role of the Audit Committee to ensure the integrity
of the financial reporting and audit processes, to ensure
the internal control and risk management systems are
effective, to review the Group’s whistleblowing
procedures and to establish and maintain an
appropriate relationship with the external auditor.
The Committee’s terms of reference can be found on
www.inchcape.com/governance
The Committee is supported by a number of sources
of internal assurance from within the Group in order to
review the control environment. The Committee also
assesses the effectiveness of the system of internal control
on an annual basis by considering any material control
weaknesses identified by the external auditor as a result
of their audit. There have been no significant changes
to the control environment and the Audit Committee has
concluded that the Group’s internal system of controls
was effective during the year.
The significant issues considered by the Committee are
given on page 64.
Financial reporting
The role of the Committee in relation to financial reporting
is to review with both management and the external
auditor the appropriateness of the half year and annual
financial statements taking into account:
– The quality and acceptability of accounting policies
and practices
– Material areas in which significant judgements have
been applied or where significant issues have been
discussed with the external auditor
– The clarity of the disclosures and compliance with
financial reporting standards and relevant financial
and governance reporting requirements including
the Code
– Any correspondence from regulators in relation to the
Group’s financial reporting
– Reviewing assumptions and providing assurance
to support the long-term viability statement
Fair, balanced and understandable
The Board assesses the Annual Report and Accounts to
ensure that it is a fair, balanced and understandable
assessment of the Group. The Audit Committee, however,
also carries out its own assessment of the financial
statements, and the Annual Report as a whole, and is
satisfied that it provides the necessary information for
shareholders to assess the Group’s position and
performance, business model and strategy.
The Company confirms that it complied with the provisions of the Competition and Markets Authority’s Order for the financial year
under review.
Inchcape Annual Report and Accounts 2018
59
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
AUDIT COMMITTEE REPORT CONTINUED
Our 2018 objectives
Annual Report and Accounts
including financial statements,
accounting judgements,
impairment review, going
concern, viability statement
PwC audit report,
PwC independence review
What we achieved
The Committee considered all key audit
issues, accounting treatment and judgements
in relation to the financial statements. This
includes challenging management on the
assumptions used and the judgements that
have been applied, with assurances given from
both external and internal sources.
The information supplied also allows the
Committee to assess key disclosures to ensure
adequacy, clarity and completeness. Key
disclosures include the viability statement on
page 46, going concern, which can be found
on page 92, and goodwill, which can be found
on pages 139 to 140.
Particular attention was given to the application
and impact of the new accounting standards
which have been or will be adopted by
the Group.
The Committee considered the report from the
auditor in relation to the financial statements
and the 2017 Annual Report and Accounts.
Focus for 2019
– Impacts of new accounting
standards
– Review of key assumptions used by
management on key accounting
standards
– Deloitte audit report
– Deloitte independence report
– Deloitte report on internal controls
Deloitte 2018 Audit Plan
The Committee discussed the audit plan and
agreed materiality, scope and fees.
– Review of the effectiveness of the
external audit
Internal Audit Report
The Committee reviewed and monitored:
– Monitor progress against 2019 plan
– progress against the 2018 plan throughout
– Progress made in resolving open
the year;
audit issues
– the status of open audit issues;
– any internal control failings; and
– the appropriateness of mitigation actions put
in place by management.
– Monitor improvement plans in
relation to identified internal
control gaps
Risk Management Report
Non-Audit Services Policy and
review of non-audit services
Tax update and
litigation update
The Committee also reconfirmed the Internal
Audit Strategy and the Internal Audit Charter
and approved the 2019 Internal Audit Plan.
Further details can be found on pages
61 to 62.
The Committee consider the risk management
environment, major whistleblowing reports and
any mitigating plans implemented by
management throughout the year. Progress
against plans is monitored closely and
management are challenged appropriately
on areas where a satisfactory outcome is not
evident. Further details can be found on
pages 35 to 46.
Due to the change of auditor, the Committee
undertook a comprehensive review of the
non-audit services supplied by the external
auditor. Further details can be found on
page 63.
The Committee reviewed the Group’s tax costs,
tax risks, efficiency and effectiveness of tax
policies along with updates on tax audits.
It also reviewed any significant litigation issues.
– Monitoring of whistleblowing
cases and actions implemented
to resolve issues
– Review of non-audit services supplied
– Application of the Non-Audit
Services Policy
– Monitor the tax strategies within
markets and at Group level
– Monitor the level, frequency and
type of litigation within the Group
60
Inchcape Annual Report and Accounts 2018
RISK MANAGEMENT AND INTERNAL CONTROL
The Board is responsible for reviewing and agreeing the
Group’s principal risks and for considering its risk appetite
in relation to those risks. However, the Audit Committee
has delegated responsibility for ensuring that:
– There is an appropriate mechanism in place to identify
the risks the Group faces;
– Management teams have the correct focus on those
risks and the action plans in place to mitigate or
respond to those risks;
– A compliance programme is in place in all markets
that meets or exceeds external benchmarks and is
appropriate in terms of legal requirements, content,
sector, cost and resources;
– Internal controls are appropriate, well designed and
operating consistently across the Group; and
– The Group’s whistleblowing programme is
appropriately managed to reduce the risk of fraud or
respond quickly and decisively in the event the Group
falls victim to fraud.
The Audit Committee considers the risk management
framework, any internal control issues which have arisen
and all whistleblowing reports, and the mitigating
actions, at each meeting. The reports provided to the
Committee give an insight into the culture within the
organisation and allow the Committee to assess progress
against and effectiveness of any mitigation plans
implemented by management.
The Group has adopted the three lines of defence
model. The first line of defence is the Group’s
organisational activities, policies and procedures
implemented by local management teams. The second
line of defence comprises oversight functions and Group
or regional management who set direction and define
policy. The third line of defence is Internal Audit,
supported, if necessary, by external experts. Each
function provides independent challenge to the levels of
assurance provided by the first two lines of defence.
Further information on risk management and the Group’s
principal risks can be found in the Risk Management
Report on pages 35 to 46 and the Corporate
Governance Report on page 56.
WHISTLEBLOWING
SpeakUp, the Group’s externally hosted whistleblowing
line, is a compliance and ethics reporting solution which
allows both hotline and web reporting capabilities in
multiple languages, integrated with case management
software to support efficient and effective investigation,
remediation and reporting.
The Head of Corporate Assurance reports to the
Committee at each meeting on fraud and whistleblowing
claims that have been received since the last Audit
Committee meeting, and significant currently open
issues. The new and open cases which are reported to
the Committee are those of sufficient significance to
warrant attention, however a list of all reports is also
provided to the Committee along with a breakdown
by market, report type and source.
INTERNAL AUDIT
The aim of the Internal Audit function is to provide
independent objective assurance and advisory services
designed to add value and improve the Company’s
operations, by bringing a systematic and disciplined
approach to evaluate the effectiveness of the risk
management, governance, control and compliance
processes and support management in their
continuous improvement.
The Committee assesses the effectiveness of the Internal
Audit function by reviewing progress against plans and
also reviews the experience and expertise of the Internal
Audit team to ensure the right people are recruited to
carry out the function.
As part of its remit, the Internal Audit team regularly
assesses the effectiveness of internal controls over
financial reporting as well as the preparation of financial
statements based on the framework contained in the
FRC Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting and the
UK Corporate Governance Code and reports its findings
to the Audit Committee on a regular basis. The Group’s
Minimum Control Framework (MCF) ensures facilitation of
this process across its broad range of operations globally.
The Audit Committee agreed that a review of the
effectiveness of the Internal Audit function should take
place in 2019.
A new Internal Audit strategy was rolled out at the
beginning of the year with a focus on internal control
governance, implementation of regional internal audit
functions and audit process improvements, which are
aligned to the Ignite strategy and key risks. The key
components of the improved Internal Audit model,
and progress made during the year, are detailed
on page 62.
Inchcape Annual Report and Accounts 2018
61
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
AUDIT COMMITTEE REPORT CONTINUED
Key components of Internal Audit model
Regional delivery
– Introduction of the regional operating model
– Small but focused base for independent assurance
located closer to the business
– Shifting of the execution from the centre
– Building partnership with the business
Internal controls custodianship
– Focused internal controls team
– Alignment with second line of defence
– Centrally led team of experts
– Alignment, support and collaboration
– Transparency of risk mitigations
Global Audit Centre of Excellence
– Central team re-positioned to provide guidance
and expertise
– Assurance over Group risks and centrally led project
– Focus on disruptive risks and strategy support
– Training and upskilling hub
Progress during 2018
– New regional Internal Audit employees recruited
– One fully resourced regional team in South America
integrated and extended to Central America
– Shifting ownership of audit and related matters to new
regional functions
– Good progress facilitated through participation in
Group-led projects by business and finance teams
– A central point of focus for internal controls
– Building partnerships with IT and Finance functions
– Designing the mandate of internal controls functions in
the markets
– Creating a reliable self assessment toolset for the
Minimum Control Framework
– One central team, under one leadership
– Refreshing of the methodology and implementation of
the new toolset
– Implementation of regional ways of working
– Training and upskilling commenced
2019 Internal Audit Plan
The Committee reviewed the 2019 Internal Audit Plan which will continue to deliver assurance for the control
environment, based on MCF testing as well as key regulatory risks pertinent to the Group.
The 2019 plan will also incorporate an operational risk universe development with a pilot in Latin America, to prepare
the foundations for the risk-based planning process. The Committee approved the planning approach, resourcing,
the risk-based reviews (anti-money laundering, risk management and data protection) and IT audit.
The key elements of the 2019 plan are:
Assurance theme
Compliance
Risk-based reviews
IT audit
Management assistance
Advisory activities
Overview
Testing compliance against the Minimum Control Framework
and expected controls
Performing global and local reviews to evaluate how the business
manages key risks outside MCF
Reviewing how the business manages key risks around IT
Internal Audit’s input on fraud investigations and direct requests
from management for assistance
Assurance activities in new areas not previously covered by
Internal Audit but which represent either key strategic priorities or
emerging risks
Proportion of audit time
40%
35%
11%
14%
62
Inchcape Annual Report and Accounts 2018
EXTERNAL AUDIT
Auditor effectiveness and independence
The Committee assesses the robustness of the external
audit process by:
– Monitoring the implementation and fulfilment of the
audit plan.
– Reviewing and assessing the auditor reports on the
significant accounting judgements and its challenge
to management.
– Reviewing the level of support and service provided
by the auditor.
– Reviewing the results of the external audit effectiveness
survey.
The Committee satisfies itself that the auditor remains
independent and objective by:
– Reviewing the safeguards operating within the
audit firm.
– Considering the Independence Report presented
to the Committee.
– Assessing the level and type of non-audit services
provided by the auditor.
Due to the change in auditor, the effectiveness review will
take place in 2019 once Deloitte have completed their
first audit.
The review is designed to provide the Committee with
information on the overall efficiency, integrity and
effectiveness of the external audit, with the views of senior
finance personnel in each of the Group’s principal
territories together with Group Finance, Tax and
Company Secretariat taken into account.
When assessing the effectiveness of the external audit the
Committee considers:
Audit planning and design
– Audit team structure and leadership
– The approach to the audit
– Sources of assurance
– Key risks to the audit quality
Audit policies and procedures
– Independence and quality control procedures
– Review of non-audit services provided
Audit execution
– Professional judgement, mindset and culture of
audit firm
– Technical excellence, skills and judgement
Role of management
NON-AUDIT SERVICES
The policy for non-audit services sets out the permitted
and non-permitted non-audit services as well as the
approval levels required by the Audit Committee.
The policy is designed to ensure that the external
auditor’s objectivity is not compromised by earning
a disproportionate level of fees for non-audit services or
by performing work that, by its nature, may compromise
the auditor’s independence. However, using advisors
who have an understanding of the Group’s business can
be a benefit and the Committee will consider non-audit
services supplied on an ongoing basis. The provision of
permitted non-audit services will only be approved by the
Audit Committee if:
– Engagement of the auditor to provide the services
does not impair the independence or objectivity of the
external auditor;
– The skills and experience of the external auditor make
it the most suitable supplier of the non-audit service;
– The auditor does not have a conflict of interest due
to a relationship with another entity; and
– The aggregate fees incurred for permitted non-audit
services relative to the audit fee do not exceed 70%
of the average audit fee over the previous three years.
Permitted non-audit services above a certain level are
approved on a case-by-case basis by the Audit
Committee. The fee paid to the auditor for audit-related
services was £0.1m, and for permitted non-audit services
was £0.4m. The ratio for audit/non-audit work is 0.12:1.
Deloitte continually monitor their independence and
ensure that appropriate safeguards are in place
including but not limited to the rotation of senior partners
and staff and the involvement of other partners and staff
to carry out reviews of the work performed and to
otherwise advise if necessary. The following services were
supplied during the year:
Permitted non-audit services
– Assistance with GDPR compliance
– Australia Retail review
Non-permitted non-audit services
– Guam, Saipan and Macau – assistance with tax
compliance and computations for 2017.
Deloitte had already been engaged to perform the tax
work prior to their appointment as Group auditor and
although these services are not permitted under our
policy, they are permitted under the Audit regulation as
they are non-EU countries. In addition, separate teams
were engaged and used to provide all non-audit
services and appropriate safeguards were
implemented to ensure that there was no threat
to Deloitte’s independence.
Inchcape Annual Report and Accounts 2018
63
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS AUDIT COMMITTEE REPORT CONTINUED
SIGNIFICANT ISSUES
The following issues were identified by the Committee as being significant in the context of the financial statements or
as matters of significance to the Group and were debated by the Committee during the year.
Acquisition
accounting
(see note 28
on page 161)
Goodwill/Asset
impairment
(see notes 11
and 12 on
pages
139 to 141)
Minimum
Control
Framework
(“MCF”)
IFRS 16
(see pages 109
and 110 )
The issue and management’s view
Management presented details on the acquisition accounting for the Central American business
acquired in March 2018, and the judgements applied in preparing the Group’s results for the year ended
31 December 2018 and the period ended 30 June 2018. These judgements included the initial purchase
price allocation, the alignment of accounting policies and the determination of any associated fair value
adjustments.
Conclusion reached by the Committee
The Committee concluded that the business combination had been accounted for appropriately and in
line with the principles set out in IFRS 3, Business Combinations.
Rationale for the Committee’s conclusion
The Committee received reports from management which covered the acquisition accounting process
and which demonstrated how the accounting principles had been applied. The Committee reviewed the
judgements made and considered the application of the accounting principles to be appropriate.
The issue and management’s view
Management presented a detailed overview of impairment testing to the Committee covering goodwill;
a number of properties; and the indefinite life intangibles arising as a result of business acquisitions. The
Committee reviewed and challenged value-in-use calculations, sensitivity analysis and a review of the
draft disclosure in the financial statements.
Conclusion reached by the Committee
The Committee concluded that an impairment of UK goodwill of £175m and of site based assets in the UK
and Europe of £23.2m was required. Further details can be found on pages 139 to 141.
Rationale for the Committee’s conclusion
The Committee reviewed the outlook for the UK business which had declined during 2018. Management
kept the Committee updated throughout the year with regular reports on goodwill and site based asset
assumptions being considered. The Committee concluded that the sensitivity analysis prepared by
management on the UK goodwill value-in-use model incorporated reasonably possible changes to the
key assumptions and that the outcome of the sensitivity analysis indicated that an impairment was
required.
The issue and management’s view
The Committee reviews control issues identified by the MCF on a regular basis with management reporting
on any significant issues and the actions taken to resolve the control gaps.
Conclusion reached by the Committee
The Committee satisfied itself that management had taken the appropriate action for any significant
issues identified during the year and received regular updates on progress against plan. The Committee
concluded that engagement with underlying adherence to the MCF standards was improving across the
Group.
Rationale for the Committee’s conclusion
The Committee received updates from the Group Head of Internal Audit at each meeting setting out the
compliance across the Group, detailed findings from audits and recommended mitigation plans for
identified control gaps. The regional Finance Directors report to the Committee on any specific issues
throughout the year.
The issue and management’s view
During the year, management presented to the Committee on the implications of IFRS 16 and the
accepted approaches to transition. Management carried out a comprehensive awareness programme
globally to ensure that the markets were informed of the new standard.
Conclusion reached by the Committee
The Committee was regularly informed of the Group’s position and the transition approaches
recommended by the IASB and management provided a detailed analysis of each. After due
consideration, the Committee agreed to adopt a fully retrospective transition approach to IFRS 16.
Rationale for the Committee’s conclusion
The Committee reviewed the accounting and reporting implications from the perspective of the balance
sheet, income statement and cash flow. The Committee also considered other implications including net
debt and gearing, net assets, EBITDA and ROCE which contributed to the Committee’s decision on the
accounting treatment for IFRS16.
64
Inchcape Annual Report and Accounts 2018
NOMINATION COMMITTEE REPORT
CREATING AN
EFFECTIVE BOARD
NIGEL STEIN
Chair of the
Nomination
Committee
DEAR SHAREHOLDER
I am pleased to present the report of the Nomination
Committee for the year ended 31 December 2018.
During the year the focus of the Committee was
on Non-Executive Director succession planning and Jane
Kingston was appointed in July 2018. Jane brings a
wealth of remuneration experience and joined the
Remuneration Committee upon appointment. Jane will
succeed Coline McConville as Chair of the Remuneration
Committee when Coline steps down from the Committee
and the Board in July 2019 and I am sure that the
Committee will be in good hands.
Nigel Northridge, the Senior Independent Director,
will retire in 2019 after more than nine years’ service.
Nigel agreed to stay on the Board to assist me in settling
into the chairmanship role and I appreciate his support
during that time. Nigel has been a valuable asset to the
Board and we wish him success in the future.
The Board approved the appointment of Jerry Buhlmann
to succeed Nigel Northridge as Senior Independent
Director. Further details are given on page 66.
As a Board we have agreed not to set targets within our
Diversity Policy Statement however we aim to achieve the
guidelines set out in both the Hampton-Alexander Report
and the Parker Review. We will work with the recruitment
consultants to ensure that the Board is informed of a wide
range of potential candidates.
Nigel Stein
Chairman
COMMITTEE MEMBERS AND ATTENDANCE AT MEETINGS
Nigel Stein
Jerry Buhlmann
Rachel Empey
Jane Kingston*
John Langston
Coline McConville
Nigel Northridge
Till Vestring
Chairman
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Feb
Nov
–
*Jane Kingston joined in July 2018
Focus for 2018 What we achieved in 2018
Board succession
planning
Successful integration of Board Chairman
Appointment of Jane Kingston in July 2018
Governance
External
evaluation actions
The Committee discussed the new UK Corporate
Governance Code and the provisions which impacted
the Committee
There were several actions arising from the 2017
external evaluation
Focus for 2019
– Review of selection process to ensure wide
range of candidates is presented to the
Board for consideration
– Review of policy on multiple board
appointments to avoid ‘overboarding’
– Focus on Board composition and skills
required to support long-term strategy
Inchcape Annual Report and Accounts 2018
65
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
the skills and capability to perform the role effectively. As
Senior Independent Director, he will serve as a sounding
board for the Chairman and act as an intermediary for
other Directors. He will also be responsible for holding
annual meetings with Non-Executives, without the
Chairman present, to appraise the Chairman’s
performance, and will be available as an alternative
point of contact for investors.
DIVERSITY POLICY STATEMENT
The Committee recognises the benefits of having
a diverse Board and sees this as an essential element
in delivering the Group’s strategic objectives. We value
diversity of skills and industry experience as well as
background, race, age, gender, educational and
professional background as we believe this adds fresh
perspectives which enrich our decision making and the
aim of the policy is to reflect this ethos.
The Board’s policy on diversity is a verbally agreed
principles-based policy. It is clearly understood by our
recruitment consultants and is taken into account when
considering succession planning and external hires. The
Board considers all aspects of diversity to be relevant and
all Board appointments are made on merit and in the
context of the skills and experience needed for the Board
to be effective. The Board has not set specific targets,
however aims to achieve the recommendations set
out in the Hampton-Alexander and Parker Reviews.
During 2018, Jane Kingston was appointed to the Board,
therefore as at the date of this report women represent
30% of the Board membership.
The Board philosophy on diversity is also reflected
throughout Inchcape where we employ a diverse
workforce across 32 countries. We value the unique
contribution that each person brings to Inchcape and
we aim to employ people who reflect the diverse nature
of society, regardless of age, sex, disability, sexual
orientation, race, colour, religion, ethnic origin and
political belief.
The Committee’s terms of reference can be found
at www.inchcape.com/governance.
NOMINATION COMMITTEE REPORT CONTINUED
BOARD SKILLS AND EXPERIENCE
The review of skills and experience is carried out by the
Committee annually by way of a skills assessment
completed by the Board members.
The Board has a broad range of skills and experience
covering automotive, retail, reward and human
resources, finance, consultancy, strategy and media.
The skills review identified digital / technology as an area
which could be further strengthened on the Board as
digital is a rapidly evolving area for the automotive
industry and as such is a key consideration for succession
planning. The future trends affecting the industry are
given on page 11.
The experience of the Board members covers a wide
range of sectors and industries and in addition we also
have several Board members from outside the traditional
UK plc background and this diversity of thought adds to
our decision making. However, we recognise that this is
a constantly evolving environment and ensuring that we
have the right mix of individuals to support and challenge
management, to avoid group think and to make the
right decisions to facilitate the long-term success of the
Group remains paramount.
APPOINTMENT PROCESS
The Inzito Partnership was appointed to assist with
the search for Non-Executive Directors during the year.
The team at Inzito has worked with the Group for several
years and is familiar with the current Board’s skills set and
the potential requirements for the future.
During the recruitment process, I meet with the
consultants to review our needs and to draw up
a long-list of suitable candidates for consideration.
When a short-list has been established, potential
candidates will meet with other Board members, after
which the Committee will decide on the most suitable
candidate and recommend the appointment of the
Non-Executive Director to the Board for its approval.
The Inzito Partnership is a signatory to the Voluntary Code
of Conduct for Executive Search Firms and does not have
any other connection to the Company.
The Company continually updates its list of potential
candidates, taking into account the Ignite strategy,
the business needs of the Group and the Board’s diversity
policy, and should the situation arise when a Director
departs unexpectedly, the recruitment process can
begin immediately.
The Chairman led the recruitment process for the new
Senior Independent Director and met with a broad range
of candidates. The short-list was discussed in detail with
the Committee members and ultimately it was agreed
that Jerry Buhlmann was the most suitable candidate.
The Committee believes that Jerry’s recent CEO and
international board experience is an asset and he has
66
Inchcape Annual Report and Accounts 2018
CR COMMITTEE REPORT
BUILDING SUSTAINABILITY
TILL
VESTRING
Chair of the
CSR Committee
DEAR SHAREHOLDER
I am pleased to present the report of the CSR Committee
for the year ended 31 December 2018.
During the year, the Committee reviewed progress on
our three core pillars, our people, health & safety and the
environment. I am pleased that progress is being made
on the people and health & safety agendas and we also
continue to work on minimising our environmental
footprint. Further information can be found in the CSR
Report on pages 28 to 33.
The Committee also looked at each of our key
stakeholders, how we create value for each of them, how
we engage with them and the outcome of the
engagement processes. Creating dialogue with
stakeholders enables us to build on our vision to be the
world’s most trusted automotive Distributor and Retailer
and we will continue to build on this during 2019.
Further details are given on page 29.
Another area of consideration for the Committee
has been the new UK Corporate Governance Code
requirement for engagement with the workforce. I am
pleased to report that the Board has agreed to delegate
responsibility to the CSR Committee with myself as the
designated Non-Executive Director. The Committee will
spend the first few months of 2019 agreeing actions,
processes and reporting procedures to ensure that we
are in a good position to engage with the workforce in
a meaningful way. Our employee experience surveys
and focus groups will go some way to provide valuable
information but we feel this would be enhanced by other
mechanisms such as Board members’ attendance at
town hall meetings and further site visits to meet
employees and listen to their views.
I am excited for the opportunities this presents for the
Committee and I look forward to reporting on our
activities in next year’s Annual Report and Accounts.
Till Vestring
Chair of the CR Committee
COMMITTEE MEMBERS AND ATTENDANCE AT MEETINGS
Feb
Nov
Till Vestring
Jerry Buhlmann
Stefan Bomhard
Alison Clarke
Coline McConville
Nigel Stein
Focus for 2018
CSR strategy
Stakeholder
engagement
Committee Chair
Independent Non-Executive Director
Group Chief Executive Officer
Chief Human Resources Officer
Independent Non-Executive Director
Chairman
Progress made
A review of the CSR strategy was undertaken during
the year by an employee working group to determine
whether the strategy was still relevant to the
changing business.
After receiving feedback from investors and
customers we participated in the 2018 CDP
climate change project.
Focus for 2019
– Workforce engagement
– Stakeholder engagement
– 2019 CDP submission
– Review of areas for improvement and
subsequent action plans
Inchcape Annual Report and Accounts 2018
67
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
DIRECTORS’ REPORT ON REMUNERATION
ALIGNING PERFORMANCE
AND REWARD
COLINE
MCCONVILLE
Chair of the
Remuneration
Committee
DEAR SHAREHOLDER
I am pleased to present the Directors’ Report on
Remuneration (“DRR”) for the year ended 31 December
2018. The first part of this report gives details of the
remuneration policy which was approved by
shareholders at the 2017 Annual General Meeting
(“AGM”) and part two of the report gives details
of how the policy was implemented during 2018.
Jane Kingston was appointed to the Board and to the
Committee on 25 July 2018. Jane brings a wealth of
remuneration experience and her biography is given on
page 49. After almost five years on the Board and three
years as Chair of the Committee, I have decided to retire
from Inchcape and will be stepping down from the Board
in July 2019. By that time, Jane will have served on the
Committee for 12 months and we will have completed
a comprehensive handover prior to the policy review
in 2020.
2018 PERFORMANCE OUTCOMES AND AWARDS
The Group delivered sales of £9.3bn, operating profit
before exceptional items of £385.1m, EPS of 65.0p
(adjusted) and ROCE of 28%. The performance
resulted in 62.3% of the 2016 performance share plan
(“PSP”) and the 2016 co-investment plan (“CIP”) vesting
and a 2018 annual bonus payment of 57.7% for salary for
Stefan Bomhard and 66.7% of salary for Richard Howes.
The various elements of remuneration paid to Directors
are set out on the following pages, with a summary on
page 70. This includes a 4.0% and 2.5% salary increase
for Stefan Bomhard and Richard Howes respectively,
which took effect from 1 April 2018. The Committee took
into account the average salary increase across the
Group when determining the 2018 Executive Directors’
salaries, along with performance, delivery of the Ignite
strategy and external and internal market practices, and
concluded these increases to be appropriate. In 2018,
the average salary increase across the Group was 2.5%.
The Committee is satisfied that the total remuneration
received by Executive Directors in 2018 appropriately
reflects the Company’s performance over the year and
is consistent with the approach taken for other
employees. The Committee is also satisfied that the
approach to setting the remuneration underpins the
effective and proper management of risk by rewarding
fairly for sustainable profit growth and long-term returns
for shareholders. The Committee did not exercise any
discretion on reward outcomes for 2018.
68
Inchcape Annual Report and Accounts 2018
2018 UK CORPORATE GOVERNANCE
CODE
The new Corporate Governance Code was published in
July 2018. The Committee has considered its obligations
under the new Code which is effective from 1 January
2019. Some of the new provisions have already been
adopted by the Company such as holding periods for
long-term incentive plans and malus and clawback
provisions, however there are certain actions the
Committee will undertake during 2019 as part of
the remuneration policy review:
– A review of the information provided to the
Committee in respect of workforce remuneration
and related policies;
– A review of the alignment of pay structures with
desired Company culture (as well as performance);
– Consideration of a post-employment
shareholding policy;
– Review of cash supplements offered to Executive
Directors as part of the pension contributions;
– Consideration of the use of discretion to override
formulaic outcomes beyond what is already permitted
in the policy and relevant plan rules.
The Committee, in particular, notes the views of
remuneration governance bodies and investor guidelines
on pensions paid to executive directors. At the last policy
review in 2017, the Committee reduced the maximum
pension contributions from 40% to 30% of salary for the
Executive Directors and will review the maximum
contribution again as part of the upcoming policy review.
The Committee also updated its terms of reference
to align with the new Code. Its terms of reference can
be found at www.inchcape.com/governance and
details of the remuneration consultants can be found
on page 87.
REGULATORY REPORTING REQUIREMENTS
The Companies (Miscellaneous Reporting) Regulations
2018 (the Regulations) were published in June 2018.
The Committee has reviewed the revised reporting
requirements which are effective from 1 January 2019.
The Committee has decided to implement the following
reporting requirements early: the disclosure of any use
of discretion by the Committee in the Annual Statement,
the additional pay scenario of maximum vesting under
the long-term incentives plus a 50% share price
appreciation to the performance scenario charts and an
additional note in the single figure table detailing how
much of the Executive Director’s vested long-term
incentives for that year are attributable to share price
appreciation. The Committee also reviewed the feasibility
of disclosing the CEO pay ratio in this report however the
Committee concluded that it would be appropriate to
disclose in next year’s report in line with regulations.
During 2019, the Committee will review relevant
processes, procedures and policies to ensure that they
are aligned with the new reporting and governance
regulations and will report to shareholders on these
aspects in next year’s DRR.
2019 REMUNERATION
During 2018 and at the beginning of 2019, the
Committee reviewed the impact of new accounting
standard IFRS 16, which is effective from 1 January 2019,
on the performance targets for the 2019 incentives as
well as the targets for the outstanding 2017 and 2018
long-term incentive awards. For 2019, the bonus and
long-term incentive awards will be set taking into account
the new standard to ensure targets and actual
performance are measured on a consistent basis. For the
outstanding 2017 and 2018 long-term incentive awards,
the Committee intends to make adjustments to targets
as appropriate and will disclose in the relevant DRR.
The Committee considered salary increases for Stefan
Bomhard and Richard Howes and approved an increase
of 2.0% each. The salary increases will take effect from
1 April 2019.
2019 REMUNERATION POLICY REVIEW
Jane Kingston will lead the remuneration policy review
during 2019 with a view to consulting with shareholders
before the end of the year. Along with a comprehensive
review of the policy the Committee will also consider how
it can engage with the wider workforce on how decisions
on executive pay reflect wider pay policies and
alignment across the Group.
The Committee values the opportunity to engage with
stakeholders as it allows the Company to be transparent
around its remuneration decisions. Engagement also
allows stakeholders to express their views on the clarity,
appropriateness and simplicity of its remuneration policy.
The remuneration policy will be put to shareholders for
approval at the 2020 Annual General Meeting.
We look forward to engaging with shareholders
throughout the year and at the Company’s Annual
General Meeting in May 2019.
Coline McConville
Chair of the Remuneration Committee
Inchcape Annual Report and Accounts 2018
69
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS DIRECTORS’ REPORT ON REMUNERATION CONTINUED
REMUNERATION
AT A GLANCE
WHAT EXECUTIVE DIRECTORS EARNED DURING 2018 (£’000)
£2,269
858
430
222
16
739
4
£1,447
579
284
127
3
423
31
– 4.0% and 2.5% salary
increase in 2018 for CEO
and CFO respectively
– 30% pension supplement
– Benefits include medical
cover, company car and
life assurance
– LTIP – the figures are based
on the value of awards using
the average share price from
1 October 2018 to 31
December 2018 of 563.5p
– 62.3% of the PSP and CIP
awards vested
Stefan
Bomhard
Richard
Howes
Base salary
Benefits
Other
Pensions
Annual bonus
LTIP
Details of actual performance achieved are given on pages 79 to 82.
ALIGNMENT OF PERFORMANCE AND REMUNERATION FOR 2018
Annual bonus
To motivate and reward the achievement of the
Company’s strategic and operational objectives
Long-term incentives
To motivate and reward performance linked
to long-term success
DRIVE
GROWTH
KPI: Revenue
£9.3bn
DRIVE
PERFORMANCE
KPI: Operating Profit
£385.1m
INCREASE EARNINGS AND RETURNS
KPI: EPS
65p
KPI: ROCE
28%
DELIVER STRATEGY
KPI: annual objectives
Progress of Ignite
LONG-TERM PERFORMANCE
Performance Period
2016 – 2018
REWARD
57.7% of salary – CEO
66.7% of salary – CFO
REWARD
PSP
62.3%
CIP
1.25:1 match
Further information on annual bonus and long-term incentive plans can be found on pages 80 to 82.
70
Inchcape Annual Report and Accounts 2018
Part 1 —
DIRECTORS’
REMUNERATION POLICY
This section of the report sets out the remuneration policy approved by shareholders at the AGM on 25 May 2017.
There are three minor changes/clarifications: confirmation that it is current practice for any dividends accrued over the
vesting of PSP and CIP awards to be paid in shares, a statement of the Committee’s commitment to consult employees
on executive remuneration in the future and additional detail on the term of appointment for the Non-Executive
Directors. The performance scenario charts also include an additional scenario of maximum vesting under long-term
incentives plus a 50% share price appreciation.
REMUNERATION POLICY FOR EXECUTIVE DIRECTORS
Operation and performance metrics
Element
Objective and link to
strategy
Base salary
To pay a competitive
salary which attracts,
retains and motivates
talent to make decisions
which drive the
Company’s strategy
and create value
for stakeholders.
Salaries are reviewed annually and any increases typically take
effect from 1 April of each year.
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; and
– Changes in responsibilities or scope of the role.
Opportunity
Increases are not expected
to exceed average increase
for senior management,
unless a change in scope
or complexity of role applies.
Annual bonus To motivate and reward
for the achievement
of the Company’s
strategic annual
objectives.
Performance
Share Plan
(PSP)
Co-
Investment
Plan (CIP)
To provide a meaningful
reward to senior
executives linked to the
long-term success of the
business.
The use of performance
shares enables the
delivery of median
pay for median
performance and
upper quartile pay
for upper quartile
performance.
To encourage executive
share ownership and
reinforce long-term
success.
A voluntary investment
opportunity in return for
a performance-based
match.
Any annual 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.
Based at least 70% on annual financial performance. Financial
measures may include (but are not limited to) revenue and
operating profit. Non-financial measures may include strategic
measures directly linked to the Company’s priorities.
150% of salary maximum
payable for achieving
stretch performance against
all measures.
Any annual bonus earned above 100% of salary is paid in shares
which are automatically invested in the CIP.
60% of salary payable for
target performance.
Bonus payouts are subject to malus and clawback provisions.
12% of salary payable for
entry level performance.
Vesting of the PSP awards is based on performance measures
linked to the Group’s strategic priorities and may vary year-on-year.
PSP opportunities will be
180% of salary.
For awards granted to the Executive Directors from 2017, vested
awards will be subject to an additional two-year holding period.
Any dividends paid would accrue over the vesting period and
would be paid only on those shares that vest. Dividends can be
paid in cash or shares. Current practice is for dividends to be paid
as shares.
Award levels are subject to
an individual limit of 300%
of salary.
Threshold level performance
will result in 25% vesting of
the PSP award.
PSP awards granted from 2017 are subject to malus and
clawback provisions.
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 the CIP awards is based on performance measures
linked to the Group’s strategic priorities and may vary year-on-year.
For awards granted to the Executive Directors from 2017, vested
awards will be subject to an additional two-year holding period.
Any dividends paid would accrue over the vesting period and
would be paid only on those shares that vest. Dividends can be
paid in cash or shares. Current practice is for dividends to be paid
as shares.
CIP awards granted from 2017 are subject to malus and
clawback provisions.
Executive Directors may
invest up to an overall
maximum of 50% of salary.
Maximum match of 2:1,
threshold of 0.5:1.
Maximum matching award
is therefore 100% of salary
in any year, and threshold
matching award is 25%
of salary.
Inchcape Annual Report and Accounts 2018
71
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS DIRECTORS’ REPORT ON REMUNERATION CONTINUED
REMUNERATION POLICY FOR EXECUTIVE DIRECTORS CONTINUED
Element
Operation and performance metrics
Objective and link to strategy
Save As You Earn
(SAYE)
To encourage share
ownership.
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.
Opportunity
Participation limits are those
set by the UK tax authorities
from time to time.
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 Group’s pension scheme, Cash+, is a cash balance
retirement scheme which accrues 16% of earnings
(capped at £250,000 p.a.) paid as a lump sum at the
age of 65.
Eligibility to join the Cash+
scheme at a minimum level
to meet regulatory
requirements.
Members are required to contribute 7% of
pensionable salary.
Executive Directors may also receive a salary supplement
in lieu of pension contributions.
Benefits currently include (but are not limited to):
– Company cars;
– Medical care; and
– Life assurance premiums.
Cash supplement up to
30% of base salary for
Executive Directors.
It is not anticipated that the
costs of benefits provided
will materially exceed 5%
of salary for existing
Executive Directors.
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 number of shares equivalent to 200% of base salary. Executive Directors have five
years from the date of appointment to reach this shareholding.
NOTES TO THE POLICY
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.
Selection of performance measures and target setting
The Committee regularly reviews the appropriateness
of performance measures used by the Group.
– The annual bonus measures have been selected to
incentivise sustainable growth in profits. The matrix
structure provides a balanced focus between
commercial and cash initiatives. A basket of strategic
measures will be selected each year to reinforce the
Group’s strategic objectives.
– The Committee believes that EPS continues to be the
best measure of long-term performance for the Group
and is currently therefore 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.
– The Committee has considered the use of other
performance measures to reinforce the Company’s
long-term objectives, including relative TSR and cash
flow. However, given the diversity of the Group’s
operations, it would be difficult to set a relevant and
robust comparator group for assessing relative TSR
performance and there would be some difficulty in
cascading many of the other measures appropriately
down the organisation.
– Targets are set taking into account a range of
reference points including the Ignite strategy and
broker forecasts for the Group. The Committee believes
that the performance targets set are appropriately
stretching, and that the maximum will only be
achievable for truly outstanding performance.
Please see pages 80 to 83 for further details on the
target ranges.
– The Committee retains discretion to adjust the annual
bonus outcome up or down to ensure that it is a fair
reflection of the Group’s underlying performance.
72
Inchcape Annual Report and Accounts 2018
– The Committee also has the discretion to adjust the
performance conditions for long-term incentive plans
in exceptional circumstances, provided the new
conditions are no tougher or easier than the
original conditions.
– Any discretion exercised by the Committee in the
adjustment of performance conditions will be fully
explained to shareholders in the relevant Annual
Report on Remuneration. If the discretion is material
and upwards, the Committee will consult with major
shareholders in advance.
Malus and clawback
These provisions allow the Committee in certain
circumstances (such as gross misconduct or a material
misstatement of the Group financial statements) the
discretion to:
– reduce bonus, PSP and/or CIP;
– cancel entitlement of bonus;
– prevent vesting of the PSP and/or CIP; or
– allow the Company within two years of payment/
vesting of award to claim back up to 100% of
the award.
Composition of remuneration arrangements
A significant proportion of Executive Directors’ pay is variable, long term and remains ‘at risk’
(i.e. subject to malus and clawback provisions).
Charts are based on maximum payout scenarios for Executive Directors.
Fixed vs. variable (%)
23%
77%
Fixed: base salary, benefits and pension
Variable: annual bonus, PSP and CIP
Short-term vs. long-term (%)
41%
59%
Short-term: fixed plus annual bonus paid as cash
Long-term: PSP, CIP and annual bonus deferred into CIP
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 (using remuneration
surveys, where appropriate) and the Company’s ability
to pay.
Senior managers (c. 400 individuals) 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 country and
organisational level, with business unit-specific metrics
incorporated where appropriate. Commission-based
arrangements are also operated for certain roles.
Senior managers also receive PSP awards while
participation in the CIP is limited to Executive Directors,
Group Executive Committee members and the next level
of executives (c. 20 individuals). Performance conditions
are consistent for all participants while award sizes vary
by organisational level. Share ownership guidelines
apply to Executive Directors and Group Executive
Committee members.
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.
Inchcape Annual Report and Accounts 2018
73
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS DIRECTORS’ REPORT ON REMUNERATION CONTINUED
REMUNERATION POLICY FOR NON-EXECUTIVE DIRECTORS
Objective and link to strategy
Operation and performance metrics
Opportunity
To provide fair
remuneration, reflecting
the time commitment
and responsibilities
of the role.
Non-Executive Directors receive a fixed fee and do not participate in any
incentive schemes or receive any other benefits, except the Chairman who
receives medical cover.
Appropriate adjustments may
be made to fee levels, taking
account of:
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 Nomination
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 their net fees p.a.
as Company shares.
– increases awarded across
the Group as a whole and
conditions elsewhere in the
Group;
– fee levels within organisations
of a similar size, complexity
and type; and
– changes in complexity,
responsibility or time
commitment required for
the role.
Fees paid to Non-Executive Directors are within the limits set by shareholders from time to time. This limit, currently at an
aggregate of £1,000,000, was last approved by shareholders at the 2015 AGM.
Non-Executive Directors’ term of appointment
The Non-Executive Directors are appointed for an initial three-year term which can be terminated by either party on one
months’ notice (six months for the Chairman).
Name
Jerry Buhlmann
Rachel Empey
Jane Kingston
John Langston
Coline McConville
Nigel Northridge
Nigel Stein
Till Vestring
Date of appointment
01 March 2017
26 May 2016
25 July 2018
01 August 2013
01 June 2014
01 July 2009
08 October 2015
01 September 2011
Notice period
One month
One month
One month
One month
One month
One month
Six months
One month
CONSIDERATION OF CONDITIONS ELSEWHERE
IN THE GROUP
Prior to the annual salary review, the Committee receives
an update from the Chief Human Resources Officer on
the average salary increases across the Group. This is
considered by the Committee when determining salary
increases for the Executive Directors and the Group
Executive Committee.
The Company has a diverse international spread of
businesses as well as a wide variety of roles from petrol
pump attendants and valeters through to Chief
Executives 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 executive
remuneration, it does comply with local regulations and
practices regarding employee consultation more
broadly. The Board is reviewing how it consults with its
employees on its employment policies including all
employee and executive remuneration and will report on
this in the relevant sections of next year’s Annual Report.
CONSIDERATION OF SHAREHOLDER VIEWS
When determining remuneration, the Committee takes
into account the guidelines of representative investor
bodies and shareholder views.
The Committee is always open to feedback from
shareholders on remuneration policy and arrangements.
We are committed to undertaking shareholder
consultation in advance of any proposed changes to
remuneration policy, as evidenced by the consultation
in 2016/2017 with shareholders representing two-thirds
of the Company’s issued share capital. 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.
74
Inchcape Annual Report and Accounts 2018
PERFORMANCE SCENARIOS
The charts below show the remuneration that Executive Directors could expect 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 actual changes in share price and the
vesting periods of awards. The charts have been updated for 2019 salaries and also include an additional scenario
consistent with the new remuneration reporting regulations which came into effect for accounting periods starting
1 January 2019. The scenario ‘Maximum with share price growth’ is based on the same assumptions as used in the
‘Maximum’ scenario but also assuming the share price increases by 50%.
Stefan Bomhard – Group Chief Executive
Richard Howes – Chief Financial Officer
Total remuneration (£’000s)
Total remuneration (£’000s)
£5,343
60%
£4,278
50%
£1,995
27%
23%
50%
£1,005
100%
27%
21%
23%
19%
Minimum
On-target
Fixed remuneration
Annual bonus
Long-term incentives (PSP and CP)
Maximum Maximum
with share
price growth
£3,041
60%
£2,433
50%
27%
21%
23%
19%
Maximum Maximum
with share
price growth
£1,131
27%
23%
50%
£567
100%
Minimum
On-target
Fixed remuneration
Annual bonus
Long-term incentives (PSP and CP)
Notes on the performance scenarios:
Element
Assumptions
Fixed
remuneration
Total remuneration comprises base salary, benefits and pensions
Base salary – effective from 1 April 2019
Benefits – as provided in the single figure table on page 79, excluding one-off relocation allowance
Pension – cash in lieu of pension
Variable pay Annual bonus No payout
Minimum
On-target
Target payout (40% of maximum)
No vesting Assumes full voluntary investment
CIP
Maximum
Maximum payout
Maximum with share
price growth
Threshold match of 0.5:1
Maximum vesting Maximum vesting +
50% share price
growth
PSP
No vesting Threshold vesting (25% of maximum) Maximum vesting Maximum vesting +
50% share price
growth
Inchcape Annual Report and Accounts 2018
75
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
DIRECTORS’ REPORT ON REMUNERATION CONTINUED
APPROACH TO RECRUITMENT REMUNERATION
External appointments
When appointing a new Executive Director, the Committee may make use of any of the existing components
of remuneration, as follows:
Component
Approach
Maximum annual grant value
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’s 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 management, including (but not limited to) company cars,
medical care and life assurance.
n/a
n/a
n/a
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 on the same terms as other
Executive Directors as described in the policy table.
New appointees will be granted awards on the same terms as other
Executive Directors as described in the policy table.
150% of salary
300% of salary
100% of salary
The Committee will consider on a case-by-case basis if all or some of the
incentives forfeited on leaving a previous employer will be ‘bought-out’.
n/a
If the Committee decides to buy-out forfeited awards, the award 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 the discretion to make use of the relevant Listing
Rule to facilitate such a buy-out.
The combined
maximum is not
intended to exceed
400% of salary
Notes to recruitment remuneration policy
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 employees below Board level are typically no higher than for Executive Directors.
Non-Executive Directors
In recruiting a new Non-Executive Director, the Committee will use the policy as set out in the table on page 74.
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 the Chairman of Audit, Remuneration and CSR Committees
as appropriate.
76
Inchcape Annual Report and Accounts 2018
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 Company retains discretion to settle any other amount reasonably due to the Executive Director,
for example, to meet 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:
Component
Circumstance
Treatment
Annual bonus
Resignation.
Bonus will lapse unless the date of leaving is after
the year end and not serving notice period. The
bonus will only be paid to the extent the targets set
at the beginning of the year have been achieved.
Payment/vesting date
(if relevant)
Either the end of the
performance period or at the
Committee’s discretion.
Death, ill-health, redundancy,
retirement or any other reason
which the Committee may, in
its absolute discretion, permit.
Change of control.
The bonus will only be paid to the extent the
targets set at the beginning of the year have
been achieved.
Either the end of the
performance period or at the
Committee’s discretion.
Any bonus payment will be pro-rated for time
served during the year.
The bonus will only be paid to the extent the
targets set at the beginning of the year have been
achieved.
Either the end of the
performance period or at the
Committee’s discretion.
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.
Any bonus payment will be pro-rated for time
served during the year.
Unvested awards will lapse on date of leaving. Any
vested awards can be exercised.
Any unvested awards will be pro-rated for time
and performance.
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.
Any unvested awards will be pro-rated for time
and performance.
Either the end of the
performance period or at the
Committee’s discretion.
SERVICE CONTRACTS
The Company’s policy is for Executive Directors’ service contract notice periods to be no longer than 12 months,
except in exceptional circumstances. All current contracts contain notice periods of 12 months.
Name
Stefan Bomhard
Date of contract
1 April 2015
Notice period
12 months
Unexpired term
To retirement age
Richard Howes
11 April 2016
12 months
To retirement age
The Company may terminate an Executive Director’s contract by paying a sum equal to base salary and, in certain
circumstances, benefits including pension and life assurance, company car and entitlement to holiday pay for the
12-month period. Executive Directors’ service contracts are available to view at the Company’s registered office.
Inchcape Annual Report and Accounts 2018
77
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
DIRECTORS’ REPORT ON REMUNERATION CONTINUED
Part 2 —
ANNUAL REPORT ON
REMUNERATION
The following section provides details of how the Company’s remuneration
policy was implemented during the financial year to 31 December 2018
and how it will be implemented in the financial year to 31 December 2019.
COMMITTEE MEMBERSHIP AND ATTENDANCE AT MEETINGS
Coline McConville
Jerry Buhlmann
Jane Kingston*
Nigel Northridge
Nigel Stein
Till Vestring
Committee Chair
Independent Non-Executive Director
Independent Non-Executive Director
Senior Independent Director
Chairman
Independent Non-Executive Director
*Jane Kingston joined the Committee in July 2018.
Feb
May
Nov
–
–
The Remuneration Committee consists of five independent Non-Executive Directors and the Chairman, who was
independent on appointment. The Committee invites other individuals such as the Group Chief Executive, Chief Human
Resources Officer and external consultants to attend its meetings. No Director takes any part in any decision affecting
his or her own remuneration. The table below details the decisions the Committee made in 2018 and its focus for 2019.
2018 objectives
Bonus scheme
Long-term incentives
Progress made
2019 focus
The Committee reviewed the outcome of the 2017
bonus scheme and set targets for the 2018 bonus
scheme. Details are given on pages 80 to 81
The Committee reviewed the outcome of the 2015
PSP and CIP awards and agreed the grants for 2018.
Details are on page 83
The Committee will review the bonus structure as
part of the remuneration policy review
The Committee will review the appropriateness
of the long-term incentive structure as part of the
remuneration policy review, taking into account
strategy, culture and stakeholder views
Executive Directors’
remuneration
The Committee approved the overall 2018
remuneration for the Executive Directors. Further
details are given on pages 79 to 83
The Committee will set targets for performance-
related remuneration and consider appropriate
salary levels and other benefits
Group Executive Committee
remuneration
The Committee reviewed the remuneration for senior
executives taking into account pay for employees
across the Group
The Committee will set targets for performance-
related remuneration and consider salary levels and
other benefits
Chairman’s fee
Share plan rule change
The Committee considered the Chairman’s fee
upon the appointment of Nigel Stein. It agreed
that the fee remained appropriate and no changes
were made
The Committee approved amendments to share
plan rules on leaver provisions and to incorporate
GDPR requirements. These changes did not
benefit participants therefore did not require
shareholder approval
The Chairman’s fee will be reviewed in
November 2019
The Committee will review the share plan rules to
ensure they comply with best practice, regulation
and governance practices
Committee evaluation
The Committee reviewed the results of the 2017
external evaluation and agreed actions for 2018
An internal evaluation of the Committee’s
performance in 2018 will take place in early 2019
Remuneration trends update
The external advisors updated the Committee on
governance and remuneration trends
Gender pay gap report
Terms of reference
The Committee reviewed the gender pay gap
results and the initiatives being introduced to
close the gap. The report can be found on
www.inchcape.co.uk
The terms of reference were updated to
reflect the provisions of the new UK Corporate
Governance Code
The Committee will review and approve the
disclosures for the CEO pay ratio, pay scenarios and
impact of share price appreciation
The Committee will review the impact of the
initiatives and the results of the 2019 gender
pay analysis
The terms of reference are effective from
1 January 2019
78
Inchcape Annual Report and Accounts 2018
SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED)
The table below sets out the total remuneration received by the Directors for the year ended 31 December 2018:
Name
2018 2017 2018 2017
2018 2017
2018 2017 2018 2017 2018 2017
2018 2017
Base
salary/fees
£’000
Taxable
benefits (a)
£’000
Single-year
variable (b)
£’000
Multiple-year
variable (c)
£’000
Pension (d)
£’000
Other (e)
£’000
Total
£’000
Current Executive Directors
Stefan Bomhard
Richard Howes
739
423
713
412
16
3
19
2
430
284
728
421
858 1,332 222
127
579
–
214
124
4
0 2,269 3,006
31 391 1,447 1,350
Current Non-Executive Directors (f)
Nigel Stein
Jerry Buhlmann
Rachel Empey
Jane Kingston*
John Langston
Coline McConville
Nigel Northridge
Till Vestring
217
60
60
26
75
75
81
70
60
50
60
–
75
75
81
70
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Previous Non-Executive Directors
Ken Hanna*
Total
128
320
1,954 1,916
1
21
3
24
–
–
714 1,149 1,437 1,332 349
–
–
–
–
–
–
–
–
–
–
–
–
338
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
218
60
60
26
75
75
81
70
60
50
60
–
75
75
81
70
–
–
323
35 391 4,510 5,150
129
* Ken Hanna left during the year and Jane Kingston was appointed during the year.
a. Taxable benefits comprise car allowance, medical cover and mileage allowance.
b. Payment for performance during the year under the annual bonus, including amounts paid in shares.
c. The 2018 figures include the 2016 PSP and CIP which will vest in April 2019 based on performance over the three-year period ended 31 December 2018. These figures
have been valued using the average share price from 1 October 2018 to 31 December 2018 of 563.5p. Actual performance against targets is given on page 82.
For Stefan Bomhard the 2018 value includes a movement of -£213,156 which is due to a reduction in the share price over the vesting period. For Richard Howes,
the 2018 value is -£145,782. The 2017 figure for Stefan Bomhard has been revised from last year’s report to reflect the share price on the date of vesting (valued using
the market price at the date of vesting of 705.0p) and includes dividend equivalent of £91,100. Full details of the awards exercised in 2018 are given on page 84.
d. During the year the Executive Directors received a cash supplement of 30% of base salary in lieu of pension contributions.
e. The 2017 figure for Richard Howes has been revised from last year’s report to reflect the share price on vesting of the RH award which was granted to him as a buyout
on joining the Company. The share price used is 702.0p and includes dividend equivalent of £23,517. In 2018 he received a one off payment of £28,288 in lieu of
a cancelled holiday. The 2018 figure for both Stefan Bomhard and Richard Howes includes the value of the 2018 SAYE and is based on the embedded value at date
of grant.
f. The fees of the Chairman, Non-Executive Directors and the Senior Independent Director are given on page 79.
BASE SALARY
Salaries are reviewed annually and typically take effect from 1 April each year. The quantum of total executive
remuneration was reviewed against four comparator groups: retailers, distributors, companies of a similar market cap,
and companies with similar revenues.
Salaries for 2019 were determined taking into account this benchmarking data, as well as the other factors detailed in
the policy table.
The salaries for 2017, 2018 and 2019 are set out below, together with the average increases across the Group.
Name
Stefan Bomhard
Richard Howes
Average increase across Group
1 April 2017
£717,500
£415,125
2.18%
1 April 2018
£746,200
£425,503
2.5%
1 April 2019
£761,124 – 2.0% increase
£434,013 – 2.0% increase
2.43%
CHAIRMAN’S AND NON-EXECUTIVE DIRECTORS’ FEES
The Chairman receives a fee of £320,000 p.a. The Senior Independent Director receives a fee of £81,000 p.a. The
Non-Executive Directors receive a fee of £60,000 p.a. with an additional £15,000 p.a. for the chair of the Audit and
Remuneration Committees and an additional £10,000 p.a. for the chair of the CSR Committee.
The Board agreed a £2,000 increase p.a. with effect from 1 January 2019 for all Non-Executive Directors. The CSR chair
also received an increase of £2,000 p.a. for performing this role. The fee for the Chairman, Senior Independent Director
and fees for the Audit and Remuneration chair remained the same.
Inchcape Annual Report and Accounts 2018
79
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
DIRECTORS’ REPORT ON REMUNERATION CONTINUED
ANNUAL BONUS
The annual bonus is based on annual financial
performance measures and non-financial measures.
The non-financial measures may include personal
objectives linked to the delivery of the Ignite strategy.
The measures are selected to incentivise sustainable
growth and the financial matrix is designed to provide
a balanced focus between commercial and cash
initiatives. The non-financial measures are selected each
year to reinforce the Group’s strategic objectives.
The principles for setting the new framework are such
that it:
– Drives the desired behaviours underpinned by our
performance drivers
– May be easily cascaded through the organisation
to reinforce alignment of our collective goals
– Has clear measures and targets
2018 BONUS
For 2018, 80% of the bonus is based on financial
performance via a matrix of revenue and operating profit
with the remaining 20% of the bonus based on strategic
objectives, therefore linking an individual’s bonus
outcome to their contribution to the Ignite strategy.
The maximum opportunity was 150% of salary which
is payable for achieving stretch performance against
all measures.
In line with the Committee’s commitment to disclose
bonus targets, the table on page 81 illustrates targets,
performance and resulting bonus outcomes for the
Executive Directors for the 2018 bonuses.
THE STRUCTURE OF THE 2018 BONUS
Up to 80% of total bonus or 120% of salary is earned according to the following matrix:
Revenue
STRETCH
TARGET
THRESHOLD
24%
16%
12%
72%
48%
36%
120%
96%
72%
THRESHOLD
TARGET
STRETCH
Operating profit
Up to 20% of total bonus or 30% of salary is earned for the achievement of strategic measures linked to
the Ignite strategy which are as follows:
Lead in customer experience
Customer service innovation, including
progress on the digital customer journey
Become the OEM partner of choice
Improving strategic business partnerships
with our OEM brand partners
Deliver full potential on all our
revenue streams
Developing business opportunities and
improving focus on all our revenue streams
Leverage our global scale
Improvement in business processes
80
Inchcape Annual Report and Accounts 2018
ACTUAL PERFORMANCE AGAINST BONUS TARGETS
Achievement of financial targets (80% of total bonus or 120% of salary)
In 2018, the level of performance for revenue was between target and stretch and for operating profit was between
threshold and target on the matrix, which resulted in 36.7% of salary paying out for both the CEO and CFO under this
element of the bonus. The table below provides further detail on the revenue and operating profit targets. Actual
performance for determining bonus outcomes has been calculated using the same currency rates as used to set
the bonus target. This ensures that bonus outcomes are linked to, and reward for, underlying financial performance.
Measure
Revenue
Operating profit
Threshold
£8,810.7m
£377.6m
Target
Stretch
Actual performance
£9,274.4m
£419.5m
£9,738.1m
£461.4m
£9,476.7m
£396.1m
Targets
Outcome for element of bonus
% of salary
36.7%
Achievement of strategic targets (20% of total bonus or 30% of salary)
Below we provide as much detail as commercially appropriate on the objectives linked to the strategic part of the 2018
bonus arrangements and the resulting outcomes. For 2018, Stefan Bomhard had three bonus objectives linked to the
Ignite strategy and Richard Howes had two bonus objectives linked to the Ignite strategy.
Lead in customer experience
For Stefan Bomhard, this objective was focused on stretching targets linked to the improvement of the Inchcape
customer experience, which included the development of a new customer-centric omni-channel (which we
have started to successfully pilot in Australia) and improvement of the 360 degree view of the customer journey
across the Group (for which the Group developed and rolled out Salesforce CRM, Brightedge SEO and review
aggregator reputation.com). The Committee concluded that Stefan Bomhard fully achieved the targets set
for the year and as a result received a bonus equating to 15% of base salary for this element.
Deliver full potential on all our revenue streams
For Stefan Bomhard, this objective was focused on maximising our performance against all of our value drivers,
with particular focus on improving our Aftersales position. Over the period we reduced the span of performance
across the Group, increased capacity in Singapore and leveraged processes in South America. As a result the
Group delivered growth in Aftersales gross profit. The Committee concluded that this objective had been partly
achieved therefore a bonus equating to 3% of base salary was awarded.
For Richard Howes, this objective was focused on improvement in our F&I activities in key markets. We have
continued the rollout of proprietary products, improvements in selling processes and the re-tendering of
contracts. The Committee concluded that this objective had been fully achieved, with £15m of incremental
profit delivered from this value driver. Therefore 15% of base salary was awarded.
Leverage our global scale
For Richard Howes, this objective was focused on a savings goal in procurement to leverage our scale. During
the year the Group set up a global team to drive savings in a number of key categories, which has delivered
a cumulative £32m of savings to date. The Committee concluded that this objective had been fully achieved
and therefore an award of 15% of base salary was awarded.
OEM Partner of Choice
For Stefan Bomhard, this objective was focused on strengthening our relationships with our OEMs, entering into
new partnerships and integrating new businesses into our portfolio. Key achievements included the successful
integration of Grupo Rudelman and the award of Distribution contracts for JLR in Kenya and Colombia and for
BMW in Lithuania and Guam. The Committee concluded that Stefan had partially met this objective leading
to a payout of 3% of base salary.
OVERALL 2018 BONUS OUTCOME
Therefore, as a result, the overall 2018 bonus outcomes are as follows:
Stefan Bomhard
Richard Howes
Payment for financial targets
(% of salary)
Payout for strategic targets
(% of salary)
36.7%
36.7%
21.0%
30.0%
Total payment
% of salary
57.7%
66.7%
£
£430,492
£283,773
The Committee concluded that the overall bonus outcome was reflective of the Company’s financial and operational
performance and therefore did not make any discretionary adjustments.
Inchcape Annual Report and Accounts 2018
81
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
DIRECTORS’ REPORT ON REMUNERATION CONTINUED
ANNUAL BONUS FOR 2019
The maximum annual bonus opportunity in 2019 will remain unchanged from previous years and will be 150% of salary.
For the Executive Directors, 80% of the bonus will be based on the same financial performance matrix as 2018 which
is linked to revenue and operating profit, and 20% of the bonus will be based on a basket of specific, measurable
objectives that relate to the Ignite strategy.
Given the close link between performance targets, the longer-term strategy, and the advantage this may give
competitors, the 2019 targets are not disclosed in this report because of their commercial sensitivity. The Committee
intends to publish the financial targets and provide more details of the strategic measures in next year’s DRR.
PSP AND CIP AWARDS VESTING IN RESPECT OF THE YEAR
In 2016, Inchcape granted awards under the PSP and CIP schemes which vested dependent on certain performance
targets over three years to 31 December 2018.
2016 Normal PSP/CIP
Three-year EPS growth p.a. (75% weighting)
Less than 5%
5%
13%
Between 5% and 13%
2016 Enhanced PSP
Three-year EPS growth p.a.
Less than 13%
18%
Between 13% and 18%
Vesting %
0%
25%
100%
Straight line basis
Three-year average ROCE (25% weighting)
Less than 21%
21%
25%
Between 21% and 25%
Vesting %
0%
25%
100%
Straight line basis
Vesting %
0%
100%
Straight line basis
2016 vesting of PSP/CIP
Over the performance period an EPS growth of 7.6% and three-year average ROCE of 29.2% was achieved, which
resulted in the following vesting outcomes:
Award
Normal PSP
Enhanced PSP
Total (overall vesting outcome of normal PSP)
CIP
Total (overall vesting outcome of CIP)
Performance measure
Wtg.
Vesting outcome (% of element)
EPS
ROCE
EPS
Performance measure
EPS
ROCE
75%
25%
100%
Wtg.
75%
25%
49.7%
100%
0%
62.3%
Vesting outcome (% of element)
49.7%
100%
62.3% = 1.25:1 match
Stefan Bomhard and Richard Howes were granted PSP and CIP awards in 2016 and are therefore entitled to the
following shares on vesting:
Interest held
Vesting %
Interest vesting
Vesting date
Assumed
market price (p)1
Estimated value
Stefan Bomhard
Normal PSP
Enhanced PSP
CIP
Richard Howes
Normal PSP
Enhanced PSP
CIP
143,734
15,971
100,603
62.3%
0.0%
62.3%
89,546
0
62,676
13 April 2019
13 April 2019
22 April 2019
563.5p
563.5p
563.5p
£504,593
£0
£353,177
Interest held
Vesting %
Interest vesting
Vesting date
Assumed
market price (p)1
Estimated value
106,719
11,858
58,206
62.3%
0.0%
62.3%
66,486
0
36,262
13 April 2019
13 April 2019
22 April 2019
563.5p
563.5p
563.5p
£374,648
£0
£204,338
1. As the market price on the date of vesting is unknown at the time of reporting, the value is estimated using the average market share price of the last three months of 2018.
82
Inchcape Annual Report and Accounts 2018
PREVIOUSLY GRANTED RECRUITMENT AWARDS VESTING IN RESPECT OF THE YEAR
SB award
Stefan Bomhard received an award of 205,125 nil-cost options when he joined the Group on 1 April 2015. These options
were in lieu of forfeited incentives from his previous employer and have an exercise price of 10.0p. Vesting is dependent
on continued employment. On 1 April 2018, the final tranche (68,375 options) vested at a share price of 691.0p.
RH award
Richard Howes received an award in lieu of forfeited incentives from his previous employer when he joined the
Group on 11 April 2016. This award consists of 124,909 nil-cost options with an exercise price of 10.0p and has the
following conditions:
– 51,759 nil-cost options: half of this award vested on each of the first and second anniversaries of the grant date
(i.e. 11 April 2017 and 2018). This award is in lieu of forfeited incentives from his previous employer which did not
have any performance conditions attached to the awards. On 11 April 2018, the final tranche (25,880 options)
vested at a share price of 702.0p. During the year he exercised the final tranche of the award. Further details are
given on page 84.
– 73,150 nil-cost options: the option was structured as the PSP with 90% as ‘normal’ awards and 10% as ‘enhanced’
awards and 52,404 options vested on 11 April 2018 in accordance with the 2015 PSP performance outcomes which
were disclosed last year. This award is in lieu of forfeited incentives from his previous employer which had
performance conditions attached to the award.
PSP AND CIP AWARDS MADE DURING THE YEAR
Awards were made to the Executive Directors and other senior executives under the PSP and CIP. The PSP awards were
granted as a percentage of salary and both Stefan Bomhard and Richard Howes were granted PSP awards at 180%
of salary.
Under the CIP, Stefan Bomhard and Richard Howes invested 50% of salary and received an award of 100% of salary.
Performance conditions for awards made in 2018 are as follows:
2018 PSP/CIP
Three-year EPS growth p.a. (60% weighting)
Less than 4%
4%
12%
Between 4% and 12%
Vesting %
0%
25%
100%
Straight line basis
Three-year average ROCE (40% weighting)
Less than 22%
22%
26%
Between 22% and 26%
Vesting %
0%
25%
100%
Straight line basis
Threshold level performance will result in 25% of the 2018 PSP and CIP awards vesting. As referenced on page 69, the
Committee is reviewing how these targets may need to be revised to take into account the new accounting standard
IFRS16, and the outcome will be disclosed in the relevant DRR.
Awards made during the year are:
Stefan Bomhard
PSP
CIP
SAYE
Richard Howes
PSP
CIP
SAYE
Date of grant
Share
price
(p)1
Number of
shares/options
awarded
Face value
at grant2
Performance period
Exercise period
10 April 2018
10 April 2018
24 Sept 2018
708.0p
708.0p
688.5p
189,819
102,499
3,249
£1,343,919
£725,693
£22,369
Jan 2018 – Dec 2020
Jan 2018 – Dec 2020
N/A
Apr 2021 – Apr 2022
Apr 2021 – Oct 2021
Nov 2021 – Apr 2022
10 April 2018
10 April 2018
24 Sept 2018
708.0p
708.0p
688.5p
108,239
58,419
1,624
£766,332
£413,607
£11,181
Jan 2018 – Dec 2020
Jan 2018 – Dec 2020
N/A
Apr 2021 – Apr 2022
Apr 2021 – Oct 2021
Nov 2021 – Apr 2022
1. Mid-market share price on date of grant.
2. Face value has been calculated using the share price at date of grant.
Inchcape Annual Report and Accounts 2018
83
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
DIRECTORS’ REPORT ON REMUNERATION CONTINUED
LONG-TERM INCENTIVES FOR 2019
In line with policy, Stefan Bomhard and Richard Howes will both be granted PSP to the value of 180% of salary and will
be invited to participate in the CIP. As per the 2018 awards, 60% will be based on EPS growth and 40% will be based on
three-year average ROCE. The targets will take into account the new IFRS 16 accounting standard and will be disclosed
as appropriate at the time of award and in next year’s DRR.
PENSION
During 2018 the Executive Directors received a cash supplement of 30% of base salary and were eligible to join the
Cash+ pension scheme. Neither Stefan Bomhard nor Richard Howes participated in the pension scheme. For 2019,
this arrangement remains unchanged.
EXECUTIVE SHARE OWNERSHIP AND DIRECTORS’ INTERESTS (AUDITED)
The table below shows the total number of shares, options and awards held by each Director at 31 December 2018.
Stefan Bomhard
Jerry Buhlmann
Rachel Empey
Richard Howes
Jane Kingston
John Langston
Coline McConville
Nigel Northridge
Nigel Stein
Till Vestring
Share awards held
Options held
Shares held at
31 December
2018
Subject to
performance
conditions
Subject to
deferral
Not subject to
performance
targets
Subject to
deferral
Vested but
not yet
exercised
Guideline met
288,548
15,000
6,760
103,131
-
5,463
4,267
28,391
36,834
42,417
795,855
n/a
n/a
484,166
n/a
n/a
n/a
n/a
n/a
n/a
0
n/a
n/a
0
n/a
n/a
n/a
n/a
n/a
n/a
68,735
n/a
n/a
0
n/a
n/a
n/a
n/a
n/a
n/a
3,249
n/a
n/a
3,222
n/a
n/a
n/a
n/a
n/a
n/a
1,557
n/a
n/a
0
n/a
n/a
n/a
n/a
n/a
n/a
Yes
n/a
n/a
No
n/a
n/a
n/a
n/a
n/a
n/a
There have been no changes to the number of shares held by the Directors between 31 December 2018 and 27
February 2019.
SHARE OWNERSHIP POLICY
The Executive Directors are required to hold a fixed number of shares equivalent to 200% of base salary. They have five
years from the date of appointment to reach this shareholding. Stefan Bomhard and Richard Howes held 214% and
134% of salary respectively as at 31 December 2018, using the share price as at 31 December 2018 of 551.5p.
AWARDS EXERCISED DURING THE YEAR
Richard Howes exercised his RH award on 4 May 2018. He sold enough shares to cover costs and tax and retained the
remaining shares.
Plan
Shares exercised
Dividend shares
Share price
Shares sold
Shares retained
RH award
RH award
RH award
25,879
25,880
52,404
-
1,654
3,350
£7.413
£7.413
£7.413
12,373
13,165
26,657
13,506
14,369
29,097
Stefan Bomhard exercised the award granted to him under the 2015 Performance Share Plan and Share Matching Plan
on 21 August 2018. He sold enough shares to cover costs and tax and retained the remaining shares.
Plan
Shares exercised
Dividend shares
Share price
Shares sold
Shares retained
PSP
CIP
114,412
61,616
8,400
4,522
£6.99
£6.99
57,838
31,148
64,974
34,990
84
Inchcape Annual Report and Accounts 2018
PERCENTAGE CHANGE IN GROUP CHIEF
EXECUTIVE REMUNERATION
The table shows the percentage change in Group Chief
Executive remuneration from 2017 to 2018 compared
with the average percentage change in remuneration
for senior management. For the purposes of this
disclosure, remuneration comprises salary, benefits
(excluding pension) and annual bonus only.
Change in remuneration from 2017 to 2018
Group Chief Executive
Senior management
Salary
Taxable benefits
Single-year variable
Total
3.6%
-15.8%
-40.9%
-18.8%
3.6%
0.00%
-17.1%
-4.1%
Employees representing the most senior executives (c.90)
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 chart shows the percentage change in total
employee pay expenditure and shareholder distributions
(i.e. dividends and share buybacks) from 2017 to 2018.
Relative importance of spend on pay (£M)
+6.4%
647.4
608.4
Employee
remuneration
+12.2%
102.7 115.2
50.2
0
Dividend
Share buyback
2017
2018
The Directors are proposing a final dividend for 2018
of 17.9p per share (2017: 18.9p).
DILUTION LIMITS
During the year, options and awards granted under the
Group’s incentive plans were 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
Investment Association.
Issued share capital as at 31 December 2018
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
415m
41m
28m
20m
11m
Inchcape Annual Report and Accounts 2018
85
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
DIRECTORS’ REPORT ON REMUNERATION CONTINUED
PAY FOR PERFORMANCE
The graph below shows the Total Shareholder Return (TSR) of the Company over the 10-year period to 31 December 2018.
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 10 years to 31 December 2018
Value of £100 invested at 1 January 2009
1,600
1,200
800
400
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Inchcape
FTSE mid 250 excluding investment trusts
CEO single figure of
remuneration (£’000)
Annual bonus outcome
(% of maximum)
LTI vesting3 outcome
(% of maximum)
Group Chief Executive
2009
2010
2011
2012
2013
André Lacroix
Stefan Bomhard
1,984
n/a
1,984
n/a
2,993
n/a
2,165
n/a
4,400
n/a
5,265
2014
2015
2941
n/a 2,9062
2016
2017
2018
n/a
1,403
n/a
3,006
n/a
2,269
100% 100%
52%
68%
48% 100% 56.8% 40.3% 67.6%
38.5%
0%
0% 100%
100%
66%
68%
n/a4
n/a5
79.6%
62.3%
1. The amount for André Lacroix reflects remuneration received until he left the Group in March 2015.
2. The amount for Stefan Bomhard is pro-rated for time in role and includes relocation allowance and the share award made in lieu of his forfeited awards.
3. LTI includes CIP, ‘normal’ PSP, ‘enhanced’ PSP and options prior to 2013.
4. Neither André Lacroix nor Stefan Bomhard received a vested award under the 2013 PSP or CIP. However, for those participants who did receive an award, 65.5% of the
2013 normal PSP vested and there was a 1.31 match for each share invested into the 2013 CIP.
5. Stefan Bomhard did not receive an award under the 2014 PSP or CIP. However, for those participants who did receive an award, 86.5% of the normal PSP vested and
there was a 1.73:1 match for each share invested into the CIP.
86
Inchcape Annual Report and Accounts 2018
SHAREHOLDER CONTEXT
The table below shows the advisory vote on the
Remuneration Report at the 2018 AGM.
For (including discretionary)
Against
Total votes cast
(excluding votes withheld)
Votes withheld1
Total votes cast
(including votes withheld)
Total number
of votes
286,366,463
19,466,498
305,832,961
5,365,570
311,198,531
The table below shows the binding vote on the
Remuneration Policy at the 2017 AGM
For (including discretionary)
Against
Total votes cast
(excluding votes withheld)
Votes withheld1
Total votes cast
(including votes withheld)
Total number
of votes
337,335,918
11,173,431
348,509,349
408,954
348,918,303
% of
votes cast
93.63%
6.37%
100%
% of
votes cast
96.79%
3.21%
100%
1. Withheld votes are not included in the final proxy figures as they are not
recognised as a vote in law.
EXIT PAYMENTS DURING THE YEAR
None.
PAYMENTS TO PAST DIRECTORS
No payments were made to past Directors in 2018.
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 and is approved in advance by the
Nomination Committee.
Stefan Bomhard is a Non-Executive Director of Compass
Group PLC, for which he received a fee of £84,500
during 2018.
ADVISORS TO THE COMMITTEE
Mercer|Kepler, a brand of Mercer (and part of the MMC
group), acted as the independent remuneration advisor
to the Committee during the year. Mercer|Kepler attends
Committee meetings and provides advice on
remuneration for executives, analysis of the remuneration
policy and regular market and best practice updates.
Mercer|Kepler reports directly to the Committee Chair
and is a signatory and adheres to the Code of Conduct
for Remuneration Consultants (which can be found at
www.remunerationconsultantsgroup.com).
Mercer|Kepler was appointed by the Committee in 2010
after a comprehensive tendering process carried out by
the Committee.
Mercer also supplies unrelated services to the Group
in relation to IAS 19. The Committee is satisfied that the
advice it receives from Mercer|Kepler is objective and
independent and that Mercer|Kepler does not have any
connection with the Company that may impair its
independence. Mercer|Kepler’s fees are charged at an
hourly rate in accordance with the terms and conditions
set out in the engagement letter. Mercer|Kepler was
paid fees of £49,615 for its services during the year,
excluding expenses and VAT.
The Directors’ Report on Remuneration was approved by
the Board and has been signed by Coline McConville on
its behalf.
Coline McConville
Chair of the Remuneration Committee
Inchcape Annual Report and Accounts 2018
87
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
DIRECTORS’ REPORT
DIRECTORS’ REPORT
The Directors’ Report for the year ended 31 December
2018 comprises pages 88 to 92 of this report (together
with sections incorporated by reference). Information
required in the Management Report under DTR4.1.8R
can be found in the following sections:
– A review of the business and future developments –
pages 1 to 33
– Principal risks and uncertainties – pages 35 to 46.
CORPORATE GOVERNANCE STATEMENT
The statement of compliance with the 2016 UK Corporate
Governance Code is given on page 51. The Code
is published on the Financial Reporting Council’s website
www.frc.org.uk. Information required under DTR7 is given
in the Corporate Governance Report on pages 50
to 87.
BOARD OF DIRECTORS
The Directors of the Company who were in office during
the year and up to the date of signing the financial
statements were:
Nigel Stein
Stefan Bomhard
Jerry Buhlmann
Rachel Empey
Richard Howes
John Langston
Coline McConville
Nigel Northridge
Till Vestring
Jane Kingston – appointed 25 July 2018
Ken Hanna – retired 25 May 2018
In accordance with the 2016 UK Corporate Governance
Code, all the Directors will stand for election or re-election
at the Annual General Meeting (AGM) on 23 May 2019,
apart from Nigel Northridge who will retire from the Board
following the AGM. Jane Kingston, who was appointed
during 2018, will stand for election for the first time.
The Chairman has reviewed the performance of each
Director and is satisfied that each continues to be
effective and demonstrates commitment to the role.
The appointment and replacement of Directors is
governed by the Company’s Articles of Association
(the Articles), the UK Corporate Governance Code,
the Companies Act 2006 and related legislation.
Subject to the Articles, the UK Corporate Governance
Code and relevant legislation, the business of the
Company is managed by the Board which may exercise
all the powers of the Company.
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 conflicted
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
be permitted neither 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.
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. The indemnity has
been in force for the financial year ended 31 December
2018 and until the date of approval of this report.
RESULTS AND DIVIDENDS
The Group’s audited consolidated financial statements
for the year ended 31 December 2018 are shown
on pages 94 to 183. The level of distributable reserves
is sufficient to pay a dividend. The Board recommends
a final ordinary dividend of 17.9p per ordinary share.
If approved at the 2019 AGM, the final ordinary dividend
will be paid on 21 June 2019 to shareholders registered in
the books of the Company at the close of business on 17
May 2019. Together with the interim dividend of 8.9p per
ordinary share paid on 5 September 2018, this makes a
total ordinary dividend for the year of 26.8p per ordinary
share (2017: 26.8p).
The Company may, by ordinary resolution, declare
a dividend not exceeding the amount recommended by
the Board. Subject to the Companies Act 2006, the Board
may pay interim dividends when the financial position of
the Company, in the opinion of the Board, justifies its
payment. See page 16 for more information on the
dividend policy.
SHARE CAPITAL
As at 31 December 2018, the Company’s issued share
capital of £41,512,745.30 comprised 415,127,453 ordinary
shares of 10.0p. Holders of ordinary shares are entitled to
receive the Company’s Report and Accounts, to attend
and speak at General Meetings and to appoint proxies
and exercise voting rights. The shares do not carry any
special rights with regard to control of the Company.
The rights are set out in the Articles of Association of
the Company.
88
Inchcape Annual Report and Accounts 2018
RESTRICTIONS ON TRANSFER OF SECURITIES
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 24 May 2018, the Company
was authorised to make market purchases of up to
41,501,828 ordinary shares (representing approximately
10.0% of its issued share capital).
The Directors have authority to issue and allot ordinary
shares pursuant to article 9 of the Articles of Association
and shareholder authority is requested at each AGM.
The Directors have authority to make market purchases
for ordinary shares and this authority is also renewed
annually at the AGM.
INTERESTS IN VOTING RIGHTS
During the year, the Company had been notified of the
following interests pursuant to the Financial Conduct
Authority’s Disclosure and Transparency Rules. The
information below was correct at the date of notification.
It should be noted that these holdings are likely to have
changed since notified to the Company. However, further
notification of any change is not required until the next
threshold is crossed.
Shareholder
BlackRock Inc
Norges Bank
Standard Life
Aberdeen plc
Number of
shares
Date notified
20,711,753 11/12/2018
12,682,169 27/11/2018
Percentage
notified
4.98%
3.06%
48,736,361 22/11/2018
11.74%
There have been no changes to the number of shares
held by Directors between 31 December 2018 and
27 February 2019.
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 OEM brand partners
are managed at Group level, but the relevant contracts
are entered into at a local level with day-to-day
management being led by each operating business.
Certain of the contracts may terminate on a change
of control of the local contracting company.
The Company does not have agreements with any
Director or employee providing compensation for loss of
office or employment that occurs because of a takeover
bid, except for provisions in the rules of the Company’s
share schemes which may result in options or awards
granted to employees to vest on a takeover.
TRANSACTIONS WITH DIRECTORS
No transaction, arrangement or agreement, other than
remuneration, required to be disclosed in terms of the
Companies Act 2006 and IAS 24, ‘Related Parties’ was
outstanding at 31 December 2018, or was entered into
during the year for any Director and/or connected
person (2017: none).
OTHER INFORMATION – LISTING RULES
For the purposes of LR 9.8.4 R, the information required to
be disclosed by LR 9.8.4 R can be found on the pages set
out below:
Source TR-1 notifications. These are updated on the Company’s website.
Section Information
Interest capitalised
Page
Not material to the
Group
RESTRICTIONS ON VOTING RIGHTS
There are no restrictions on voting rights.
EMPLOYEE BENEFIT TRUST
The Executive Directors of the Company, together with
other employees of the Group, are potential beneficiaries
of the Inchcape Employee Trust (the “Trust”) and,
as such, are deemed to be interested in any ordinary
shares held by the Trust. At 31 December 2018, the
Trust’s shareholding totalled 777,211 ordinary shares.
In respect of LR 9.8.4R(12) and (13), the trustee of the
Trust agrees to waive dividends payable on the shares it
holds for satisfying awards under the various share plans.
DIRECTORS’ INTERESTS
The table showing 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 2018 is shown in the Directors’
Report on Remuneration on page 84.
1
2
4
5
6
7
8
9
10
11
12
13
14
Publication of unaudited financial information 86 (TSR Graph)
Details of long-term incentive schemes
82-83
Waiver of emoluments by a director
Not applicable
Waiver of future emoluments by a director
Not applicable
Non pre-emptive issues of equity for cash
Not applicable
Non pre-emptive issue by a major subsidiary
undertaking
Not applicable
Parent participation in a placing by a listed
subsidiary
Not applicable
Contracts of significance
Provision of services by a controlling
shareholder
Shareholder waiver of dividends
Shareholder waiver of future dividends
Not applicable
Not applicable
89
89
Agreements with controlling shareholders
Not applicable
Inchcape Annual Report and Accounts 2018
89
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS DIRECTORS’ REPORT CONTINUED
GREENHOUSE GAS EMISSIONS
As a Distributor and Retailer Inchcape has no
manufacturing footprint to minimise, however we
collect data for all material emissions for which we
deem ourselves to be responsible and look for ways
in which to minimise our footprint. Data is collected
for three key performance indicators:
– Energy – our global gas and electricity usage.
– Transport – the movement of cars and parts from
the point of ownership (which means legal and
contractual ownership) to the point we cease
to have legal ownership.
– Travel – the movement of our people.
Methodology
The methodology used the calculate the Group’s
greenhouse gas emissions is based on the GHG Protocol
Corporate Accounting and Reporting Standard,
and Mandatory Greenhouse Gas Reporting in line with
HM Government guidance. The methodology uses
conversion factors as published by the Department
for Business, Energy and Industrial Strategy in 2018 and
international electricity emission factors as published in
the International Energy Agency’s ‘CO2 Emissions from
Fuel Combustion (2018 edition)’.
Data collection and reporting period
Data has been collected for all markets from 1 January
2018 to 31 December 2018. The level at which we report
is by business unit for each market. This covers our Retail
operations, Distribution operations and business
service operations, which fall within our operational
control boundary.
Intensity ratio
The Group’s intensity ratio is revenue per tonne of CO2e.
This allows for a fair comparison over time of CO2e
emissions given the growth trajectory envisaged for
the Group and cyclical variations in business activity.
EMPLOYEES AND EMPLOYEE INVOLVEMENT
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.
Our performance and talent framework, DRIVE5, sets
performance expectations, behaviours and values
for our people. It was developed using inputs from
colleague and customer focus groups and incorporates
our OEM brand partners’ existing frameworks of skills and
behaviours to ensure that we can deliver against our
stakeholders’ expectations in support of our ambition
to be the world’s most trusted Distributor and Retailer.
The Company has various employee policies in place
covering a wide range of issues such as family friendly
policies, employment rights and equal opportunities.
Policies are implemented at a local level and comply
with any relevant legislation in that market. All policies
are available on the Group’s intranet and compliance
is monitored at local level.
Town Hall meetings are held in each market on a regular
basis and also following the release of any financial
updates by the Company. The Town Hall meetings
provide employees with information on the Group’s
performance, and provide an opportunity for consulting
employees on new initiatives or other matters that
concern them.
Total greenhouse gas emissions in 2018
GHG emissions
Scope 1 and 2 emissions
Scope 1 (Direct emissions from combustion of fuels and operation of facilities)
Scope 2 (Electricity, heat, steam and cooling purchased for own use)
Total Scope 1 and 2 emission
Operational emissions intensity
Intensity metric – total revenue (£m)
Total scope 1 and 2 emissions (tonnes CO2e)
Scope 1 and 2 emissions per £m (tCO2e/£m)
Total emissions (tonnes CO2e)
Year ended
31 Dec 2018
Year ended
31 Dec 2017
Change in
emissions
10,815
46,073
56,888
12,083
48,562
60,645
-10.0%
-5.0%
-6.0%
9,277
56,888
6.1
7,838
60,645
7.7
+18.0%
-6.0%
-21.0%
90
Inchcape Annual Report and Accounts 2018
In 2018, an online ‘employee experience’ survey was
rolled out and in smaller businesses, focus groups were
established as an opportunity to learn more about how
employees feel about working for Inchcape and to gain
an understanding of how the employee experience can
be enhanced so that employees feel challenged,
excited, engaged and supported in their roles.
The Group’s bonus and long-term incentive schemes are
designed to encourage involvement in the Company’s
performance. UK employees are eligible to join the SAYE
scheme, which is offered annually. Further details can be
found in the Directors’ Report on Remuneration on pages
68 to 87.
DIVERSITY
The breakdown of 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 2018 is as follows:
Board
Senior management
All employees
7
77
13,687
Male
70.0%
82.8%
73.1%
3
16
5,047
Female
30.0%
17.2%
26.9%
Total
10
93
18,734
The Nomination Committee is responsible for succession
planning on the Board and as such considers the
recommendations of the Hampton-Alexander Review
and Parker Review as part of the recruitment process.
The Board has decided not to set targets but aims to
achieve the recommendation of 33% female
representation by 2020.
To help achieve these goals, the Nomination Committee
is reviewing its selection processes to ensure that a broad
mix of suitable candidates is being put forward for
consideration. Management are also focusing on
diversity as part of the talent planning process to
strengthen diversity within the talent pipeline.
The Diversity Policy Statement is given on page 66.
PRINCIPAL FINANCIAL RISK FACTORS
These risks are shown on pages 35 to 46.
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 pages 151 to 157.
BRANCHES OUTSIDE THE UK
The Company does not have any branches
outside the UK.
EVENTS AFTER THE REPORTING PERIOD
None.
POLITICAL DONATIONS
The Company did not make any political donations in
2018 and does not intend to make any political
donations in 2019.
DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable law and regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the
Directors have prepared the Group financial statements
in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union
and parent company financial statements in
accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 101 “Reduced Disclosure
Framework”, and applicable law). 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 parent company
and of the profit or loss of the Group and parent
company for that period. In preparing the financial
statements, the Directors are required to:
– select suitable accounting policies and then apply
them consistently;
– state whether applicable IFRSs as adopted by the
European Union have been followed for the Group
financial statements and United Kingdom Accounting
Standards, comprising FRS 101, have been followed for
the Company financial statements, subject to any
material departures disclosed and explained in the
financial statements;
– make judgements and accounting estimates that are
reasonable and prudent; and
– prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Group and parent company will continue in business.
Inchcape Annual Report and Accounts 2018
91
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Following this review, the Directors consider, when taken
as a whole, that the Annual Report and Accounts is fair,
balanced and understandable and provides the
information necessary for shareholders to assess the
Company’s position and performance, business model
and strategy.
GOING CONCERN
Having assessed the principal risks and the other matters
discussed in connection with the viability statement on
page 46, the Directors consider it appropriate to adopt
the going concern basis of accounting in the financial
statements for the next 12 months.
AUDITOR AND DISCLOSURE OF INFORMATION
TO THE AUDITOR
The auditors, Deloitte LLP, have indicated their willingness
to continue in office. A resolution to reappoint them as
auditors will be proposed at the AGM.
So far as the Directors are aware there is no relevant
audit information of which the Company’s auditor is
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 auditor is aware
of that information.
ANNUAL GENERAL MEETING
The AGM will be held at 11.00 a.m. on Thursday,
23 May 2019 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 Directors’ Report was approved by the Board and
has been signed by the secretary of the Company.
Tamsin Waterhouse
Group Company Secretary
DIRECTORS’ REPORT CONTINUED
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Group and parent company’s transactions
and disclose with reasonable accuracy at any time the
financial position of the Group and parent company and
enable them to ensure that the financial statements and
the Directors’ Remuneration Report comply with the
Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the
assets of the Group and parent company 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 parent company’s website. Legislation in
the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
The Directors consider that the Annual Report and
Accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary
for shareholders to assess the Group and parent
company’s performance, business model and strategy.
Each of the Directors, whose names and functions are
listed in Board of Directors, confirm that, to the best of
their knowledge:
– the parent company financial statements, which have
been prepared in accordance with United Kingdom
Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, comprising FRS 101
“Reduced Disclosure Framework”, and applicable law),
give a true and fair view of the assets, liabilities,
financial position and loss of the Company;
– the Group financial statements, which have been
prepared in accordance with IFRSs as adopted by the
European Union, give a true and fair view of the assets,
liabilities, financial position and profit of the Group; and
– the Directors’ Report includes a fair review of the
development and performance of the business and
the position of the Group and parent company,
together with a description of the principal risks
and uncertainties that it faces.
The Directors considered the key messages contained
in the Strategic Report along with the disclosures made
throughout to ensure that they are consistent,
transparent and a true reflection of the business.
The Directors also reviewed supporting documentation
which addresses specific statements made in the report
and the evidence to support those statements.
92
Inchcape Annual Report and Accounts 2018
FINANCIAL STATEMENTS
Independent auditor’s report to the members of Inchcape plc
94
102 Consolidated income statement
103 Consolidated statement of comprehensive income
104 Consolidated statement of financial position
105 Consolidated statement of changes in equity
106 Consolidated statement of cash flows
107 Accounting policies
118 Notes to the financial statements
165 Alternative performance measures
166 Five year record
167 Company statement of financial position
168 Company statement of changes in equity
169 Company accounting policies
171 Notes to the Company financial statements
OTHER INFORMATION
184 Shareholder information
Inchcape Annual Report and Accounts 2018
93
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Independent auditor’s report to the members of Inchcape plc
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
In our opinion:
• the financial statements of Inchcape plc (the ‘parent company’) and its subsidiaries (the ‘Group’) give a true and fair view
of the state of the Group’s and of the parent company’s affairs as at 31 December 2018 and of the Group’s profit for the year
then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework” and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company statements of financial position;
• the consolidated and parent company statements of changes in equity;
• the consolidated statement of cash flows;
• accounting policies; and
• the related notes 1 to 34 of the consolidated financial statements and notes 1 to 15 of the parent company financial
statements.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable
law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation
of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101
“Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard
as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the
Group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Goodwill impairment assessment
• Acquisition accounting
• Inventory valuation
Acquisition accounting is a new key audit matter this year following the acquisition of Grupo Rudelman
in March 2018.
The previous auditor’s report included a key audit matter related to manufacturers’ bonuses and rebates.
We concluded this was not a key audit matter given low levels of management judgement and
estimation, and the formulaic nature of the majority of the rebate and bonus calculations.
Materiality
The materiality that we used for the Group financial statements was £18.0 million which was determined
on the basis of 5% of profit before taxation and exceptional impairment, pension and finance costs.
Scoping
We conducted our work in 17 countries, with 26 reporting units subject to full-scope audit procedures.
The reporting units where we conducted our audit work accounted for 89% of the Group’s revenue,
93% of the Group’s profit before taxation and exceptional costs and 88% of the Group’s net assets.
94
94
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
First year audit transition
We developed a detailed audit transition plan, designed to deliver an effective transition from the Group’s predecessor auditor,
PWC. Our transition activities were performed across the Group and focused on obtaining an understanding of the Group’s
system of internal control, evaluating the Group’s accounting policies and areas of accounting judgement and meeting with
Group and business unit management.
The key transition activities included (but were not limited to) the following:
1. In November 2017 we developed an initial audit transition plan as part of the tender process. The transition plan was finalised
in January 2018 in conjunction with Group management, including setting key milestone dates to monitor transition progress;
2. We ensured we were independent during the tender process and reconfirmed independence to the Audit Committee on
12 May 2018;
3. Senior members of the audit team visited key markets as part of onboarding and transition;
4. We reviewed PWC’s 2017 audit work papers and met with relevant partners and senior staff from PWC to further our
understanding of the predecessor auditor’s approach and assess audit procedures performed on opening balances; and
5. We shadowed PWC throughout the 2017 year-end audit and attended key audit meetings. This included, but was not
limited to, attendance at significant market year-end audit close meetings in January 2018 and the Audit Committee
meeting in February 2018 where the final report on the audit was presented.
This transition process helped us build an understanding of the Group, which, in turn, informed our risk assessment process
and identification of the risks of material misstatement to the Group’s financial statements.
CONCLUSIONS RELATING TO GOING CONCERN, PRINCIPAL RISKS AND VIABILITY STATEMENT
We confirm that we have
nothing material to report,
add or draw attention to
in respect of these matters.
We confirm that we have
nothing material to report,
add or draw attention to
in respect of these matters.
Going concern
We have reviewed the Directors’ statement in the accounting policies on page 107 of the
financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them and their identification of any material
uncertainties to the Group’s and parent company’s ability to continue to do so over a period
of at least twelve months from the date of approval of the financial statements.
We considered as part of our risk assessment the nature of the Group, its business model and
related risks including where relevant the impact of Brexit, the requirements of the applicable
financial reporting framework and the system of internal control. We evaluated the Directors’
assessment of the Group’s ability to continue as a going concern, including challenging the
underlying data and key assumptions used to make the assessment, and evaluated the
Directors’ plans for future actions in relation to their going concern assessment.
We are required to state whether we have anything material to add or draw attention to in
relation to that statement required by Listing Rule 9.8.6R(3) and report if the statement is
materially inconsistent with our knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the Directors’ statements and considering whether they were
consistent with the knowledge we obtained in the course of the audit, including the
knowledge obtained in the evaluation of the Directors’ assessment of the Group’s and
the parent company’s ability to continue as a going concern, we are required to state
whether we have anything material to add or draw attention to in relation to:
• the disclosures on pages 39-46 that describe the principal risks and explain how they are
being managed or mitigated;
• the Directors’ confirmation on page 56 that they have carried out a robust assessment of the
principal risks facing the Group, including those that would threaten its business model,
future performance, solvency or liquidity; or
• the Directors’ explanation on page 46 as to how they have assessed the prospects of the
Group, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they fall due over
the period of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
We are also required to report whether the Directors’ statement relating to the prospects of the
Group required by Listing Rule 9.8.6R (3) is materially inconsistent with our knowledge
obtained in the audit.
95
Inchcape Annual Report and Accounts 2018
www.inchcape.com
95
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Independent auditor’s report to the members of Inchcape plc continued
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Goodwill impairment assessment
Key audit matter
description
How the scope
of our audit
responded to the
key audit matter
The Group has goodwill across seven cash generating units (“CGUs”) at 31 December 2018: £259.8 million
(2017: £391.8 million). The largest balance relates to the UK Retail CGU: £90.3 million after an impairment
charge of £175 million was recognised (2017: £265.7 million).
Management identified an impairment indicator related to the carrying value of goodwill in the UK Retail
business due to recent performance combined with a challenging trading environment.
The Group’s assessment of impairment in accordance with IAS 36 Impairment of Assets is a judgemental
process which requires estimating future cash flows based on management’s view of future business
prospects. Our key audit matter focuses on the robustness of the revenue and profit forecasts of the UK
Retail business.
Given the significant level of judgement involved, we identified this key audit matter as a potential fraud risk.
Refer to page 62 (Audit Committee report) and note 11 to the consolidated financial statements.
We performed the following procedures in response to the key audit matter identified:
• Completed a walkthrough of the impairment process and assessed the design and implementation of
the key controls addressing the risk;
• Met with UK Retail and Group management to understand and critically challenge the key underlying
assumptions used in the forecasts that form the basis of the Group’s impairment review;
• Performed an assessment of the accuracy of previously prepared forecasts; this included reviewing trading
performance in 2018 to determine management’s ability to forecast accurately and understand the
reasons for any material variances;
• Performed additional sensitivities, including running weighted-probability analyses, to assess the robustness
of the model; this involved running combined sensitivities, using industry growth trends, and modelling the
potential impacts of Brexit;
• Performed a model integrity check, including reviewing the model for mathematical and clerical accuracy;
• Performed an assessment of contradictory information, including a review of external industry growth
forecasts; and
• Reviewed the disclosures in the financial statements, including the disclosure of the events and
circumstances that led to the recognition of the impairment charge and sensitivities.
Key observations
Based on the audit procedures performed we are satisfied that the impairment charge recognised and
the valuation of goodwill at year end is appropriate.
Acquisition accounting
Key audit matter
description
How the scope
of our audit
responded to the
key audit matter
The Group acquired 100% of the share capital of Grupo Rudelman on 26 March 2018 for £155.5 million
resulting in goodwill of £42.1 million. This transaction falls under the scope of IFRS 3 Business Combinations
which requires significant management judgement in determining the fair value of assets acquired,
including intangible assets which are inherently judgemental.
Our key audit matter focuses on the valuation of assets acquired (including intangibles) and the
completeness of liabilities associated with the Grupo Rudelman acquisition, including the valuation of
the distribution agreement.
Given the significant level of judgement involved, we identified this key audit matter as a potential fraud risk.
The Group elected to continue recording the acquisition related entries as provisional as at 31 December
2018 as permitted under IFRS 3. The final entries will be presented in the 30 June 2019 half yearly report.
Refer to page 64 (Audit Committee report) and note 28 to the consolidated financial statements.
We performed the following procedures in response to the key audit matter identified:
• Completed a walkthrough of the acquisition process and assessed the design and implementation
of the key controls addressing the risk;
• Evaluated management’s assessment of the due diligence findings and the actions taken;
• Risk assessed, appropriately scoped and tested the opening balance sheet for the acquired business;
• Engaged our valuation specialists to review the intangible valuation report, including attending a series
of calls with the Group’s advisors to critically challenge the valuation methodology, key underlying
assumptions and understand subsequent adjustments made to the model;
• Tested and challenged the inputs used in the valuation model; and
• Reviewed the disclosures in the financial statements.
96
96
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
Key observations
Based on the audit procedures performed we are satisfied the carrying value of assets recorded is
appropriate.
Inventory valuation
Key audit matter
description
The Group recorded inventory of £1,851.9 million at 31 December 2018 (2017: £1,768.6 million), which is
held across multiple locations. IAS 2 Inventories states inventories should be recognised at the lower of
cost and net realisable value (“NRV”), being selling price less estimated selling costs.
A provision of £49.9 million (2017: £56.5 million) is held at year end. The overall provision percentage
as a proportion of the gross value of inventory fell from 3.1% at 31 December 2017 to 2.6% at
31 December 2018.
Management has a formal provisioning policy based on historical performance, future trading forecasts
and market data.
As gross margins on sales of vehicle inventory can be low and inventory is sometimes sold at a loss,
provisions are recorded against inventory to write it down to the Group’s best estimate of its recoverable
amount.
Given the significant level of judgement involved, we identified this key audit matter as a potential
fraud risk.
Refer to note 17 to the consolidated financial statements.
How the scope of
our audit
responded to the
key audit matter
We performed the following procedures in response to the key audit matter identified:
• Completed a walkthrough of the inventory valuation process and assessed the design and
implementation of the key controls addressing the risk;
• Challenged the provisioning policy set by the Group with reference to past data and industry knowledge;
• Benchmarked inventory valuations to third party external valuation data;
• Tested the underlying data used to calculate the provision;
• Recalculated the provision in local markets using location specific industry knowledge; and
• Evaluated how the Group has adequately assessed whether the carrying value exceeds the NRV and,
if not, whether appropriate provisions have been recorded.
Key observations
Based on the audit procedures performed we are satisfied that the valuation of inventory is appropriate.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
£18.0 million (2017: £19.1 million)
£17.7 million (2017: £20.6 million)
Basis for determining
materiality
We determined materiality to be £18.0 million based
on 5% of profit before taxation and exceptional
impairment, pension and finance costs. See note 2.
The predecessor auditor determined materiality using
5% of profit before taxation and exceptional items.
Parent company materiality equates to
1% of net assets.
Rationale for the
benchmark applied
Profit before taxation is considered to be the
most relevant benchmark. We have excluded
exceptional impairment, pension and finance
costs as this provides the most stable and
comparable profit metric.
As the parent company of the Group it does
not generate significant revenues but instead
holds investments and incurs costs such that
net assets are an appropriate base to use to
determine materiality.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.9 million
(2017: £1 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of
the financial statements.
97
Inchcape Annual Report and Accounts 2018
www.inchcape.com
97
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Independent auditor’s report to the members of Inchcape plc continued
An overview of the scope of our audit
The parent company is audited directly by the Group audit team.
We conducted our work in 17 countries, engaging 18 component audit teams with 26 reporting units subject to full-scope
audit procedures. The previous auditor conducted work in 20 countries covering 28 reporting units.
The reporting units where we conducted our audit work accounted for 89% of the Group’s revenue, 93% of the Group’s profit
before taxation and exceptional costs and 88% of the Group’s total assets.
11
7
12
Revenue %
89
Profit before
tax and
exceptional
items %
93
Total
assets %
88
– Full audit scope
– Full audit scope
– Full audit scope
– Review at Group level
– Review at Group level
– Review at Group level
We engaged component auditors from Deloitte member firms to perform procedures at these components under our direction
and supervision. This approach also allows us to engage local auditors who have appropriate knowledge of local regulations
to perform the audit work, under a common Deloitte audit approach. The range of component materialities applied, excluding
the parent company, is £7.6 million to £12.6 million.
We issued detailed instructions to the component auditors, and directed and supervised their work. Senior members of the
audit team visited 13 countries during the transition, planning and performance stages of our audit. In addition we attended
the planning and close meeting calls for all full-scope components, engaged in frequent remote communication and reviewed
significant component working papers.
In addition to the work performed at a component level, at Group level we have audited the consolidation process and
carried out analytical procedures over the countries not subject to full-scope audits. At a Group level we also performed
audit procedures on centrally held balances including goodwill, retirement benefit obligations, tax, treasury, head office costs
and litigation.
98
98
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
OTHER INFORMATION
The Directors are responsible for the other information. The other information comprises the information
included in the Annual Report, other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
We have nothing to
report in respect of
these matters.
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the Directors that they consider the
Annual Report and financial statements taken as a whole is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Group’s position and performance,
business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit Committee reporting – the section describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the
Directors’ statement required under the Listing Rules relating to the parent company’s compliance with
the UK Corporate Governance Code containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R (2) do not properly disclose a departure from a relevant provision
of the UK Corporate Governance Code.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent company’s ability
to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to liquidate the Group or the parent company or to cease operations,
or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
99
Inchcape Annual Report and Accounts 2018
www.inchcape.com
99
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Independent auditor’s report to the members of Inchcape plc continued
EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES,
INCLUDING FRAUD
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and
then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient
and appropriate to provide a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance
with laws and regulations, our procedures included the following:
• enquiring of management, internal audit, the Group General Counsel and the Audit Committee, including obtaining
and reviewing supporting documentation, concerning the Group’s policies and procedures relating to:
• identifying, evaluating and complying with laws and regulations and whether they were aware of any instances
of non-compliance;
• detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or
alleged fraud;
• the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations;
• discussing among the engagement team including component audit teams and involving relevant internal specialists,
including tax, valuations, pensions, IT, and industry specialists regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud. As part of this discussion, we identified potential for fraud in relation to
the level of judgement involved in assessing goodwill impairment, acquisition accounting and inventory valuation; and
• obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and
regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the
Group. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pension
legislation and tax legislation.
Audit response to risks identified
As a result of performing the above, we identified goodwill impairment, acquisition accounting and inventory valuation as
key audit matters. The key audit matters section of our report explains the matters in more detail and also describes the
specific procedures we performed in response to those key audit matters.
In addition to the above our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with relevant
laws and regulations discussed above;
• enquiring of management, the Audit Committee and the Group General Counsel concerning actual and potential litigation
and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing
correspondence with HMRC; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries
and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a
potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the
normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and component audit teams, and remained alert to any indications of fraud or non-compliance
with laws and regulations throughout the audit.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Report on Remuneration to be audited has been properly prepared in accordance with
the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and of the parent company and their environment obtained
in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
100
100
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
Adequacy of explanations received and accounting records
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 parent company, or returns
adequate for our audit have not been received from branches not visited by us; or
• the parent company financial statements are not in agreement with the accounting records
and returns.
We have nothing to report
in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain
disclosures of Directors’ remuneration have not been made or the part of the Directors’ Report
on Remuneration to be audited is not in agreement with the accounting records and returns.
We have nothing to report
in respect of these matters.
OTHER MATTERS
Auditor tenure
Following the recommendation of the Audit Committee, we were appointed by the members on 25 May 2018 to audit the
financial statements for the year ending 31 December 2018 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is therefore one year.
Consistency of the audit report with the additional report to the Audit Committee
Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance
with ISAs (UK).
Use of our report
This report is made solely to the parent company’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the parent company’s members those
matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the parent company and the parent company’s members as
a body, for our audit work, for this report, or for the opinions we have formed.
Anna Marks FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London
27 February 2019
Inchcape Annual Report and Accounts 2018 101
www.inchcape.com
101
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Consolidated income statement
For the year ended 31 December 2018
Revenue
Cost of sales
Gross profit
Net operating expenses
Operating profit
Before
exceptional
items
2018
£m
Exceptional
items
(note 2)
2018
£m
Notes
Before
exceptional
items
2017
(Restated)1
£m
Exceptional
items
(note 2)
2017
£m
Total
2018
£m
Total
2017
(Restated)1
£m
1, 3
9,277.0
– 9,277.0
8,953.3
(7,975.7)
1,301.3
– (7,975.7) (7,702.1)
– 1,301.3
1,251.2
–
8,953.3
– (7,702.1)
–
1,251.2
3
(916.2)
(210.8) (1,127.0)
(844.6)
(12.6)
(857.2)
385.1
(210.8)
174.3
406.6
(12.6)
394.0
Share of profit after tax of joint ventures and associates
13
0.1
–
0.1
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 32.
6
7
8
9
9
385.2
(210.8)
174.4
19.3
–
19.3
(47.7)
(13.9)
(61.6)
(39.6)
–
406.6
14.6
–
–
(12.6)
394.0
–
–
14.6
(39.6)
356.8
(224.7)
132.1
381.6
(12.6)
369.0
(80.2)
3.3
(76.9)
(96.1)
2.7
(93.4)
276.6
(221.4)
55.2
285.5
(9.9)
275.6
48.2
7.0
55.2
11.6p
11.5p
267.7
7.9
275.6
64.3p
63.6p
The notes on pages 118 to 164 are an integral part of these consolidated financial statements.
102
102
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
Consolidated statement of comprehensive income
For the year ended 31 December 2018
Profit for the year
Other comprehensive income / (loss):
Items that will not be reclassified to the consolidated income statement
Defined benefit pension scheme remeasurements
Current tax recognised in consolidated statement of comprehensive income
Deferred tax recognised in consolidated statement of comprehensive income
Notes
5
16
Items that may be or have been reclassified subsequently to the consolidated income statement
Cash flow hedges
Effect of foreign exchange rate changes
Current tax recognised in consolidated statement of comprehensive income
Deferred tax recognised in consolidated statement of comprehensive income
16
Other comprehensive income / (loss) for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
– Owners of the parent
– Non-controlling interests
1. See note 32.
The notes on pages 118 to 164 are an integral part of these consolidated financial statements.
2018
£m
2017
(Restated)1
£m
55.2
275.6
36.4
(6.1)
(0.1)
30.2
37.9
–
(5.5)
32.4
25.4
15.5
(10.1)
(68.0)
(0.6)
(5.8)
8.9
39.1
94.3
–
(5.0)
(57.5)
(25.1)
250.5
85.6
8.7
94.3
242.2
8.3
250.5
Inchcape Annual Report and Accounts 2018 103
www.inchcape.com
103
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Consolidated statement of financial position
As at 31 December 2018
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
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Current tax liabilities
Provisions
Borrowings
Non-current liabilities
Trade and other payables
Provisions
Deferred tax liabilities
Borrowings
Retirement benefit liability
Total liabilities
Net assets
Equity
Share capital
Share premium
Capital redemption reserve
Other reserves
Retained earnings
Equity attributable to owners of the parent
Non-controlling interests
Total equity
1. See note 32.
Notes
2018
£m
2017
(Restated)1
£m
11
12
13
14
15
16
5
606.0
822.9
4.3
6.6
70.9
30.8
116.5
639.5
788.4
4.2
7.3
59.0
36.7
105.9
1,658.0
1,641.0
17 1,851.9
512.8
15
0.8
14
92.1
23
22.6
589.3
18
1,768.6
465.0
0.2
52.4
10.1
926.9
3,069.5
3,223.2
19
8.9
13.8
3,078.4
3,237.0
4,736.4
4,878.0
20 (2,356.5) (2,234.6)
23
(21.6)
(73.7)
(21.2)
(534.5)
(13.3)
(86.4)
(18.5)
(417.1)
21
22
(2,891.8) (2,885.6)
20
21
16
22
5
(67.3)
(14.5)
(100.7)
(211.7)
(34.6)
(58.9)
(11.5)
(78.6)
(361.9)
(33.6)
(428.8)
(544.5)
(3,320.6) (3,430.1)
1,415.8
1,447.9
24
41.6
146.7
139.0
(76.3)
25
26 1,141.3
41.6
146.7
139.0
(83.5)
1,183.5
1,392.3
1,427.3
23.5
20.6
1,415.8
1,447.9
The notes on pages 118 to 164 are an integral part of these consolidated financial statements. The consolidated financial
statements on pages 102 to 164 were approved by the Board of Directors on 27 February 2019 and were signed on its behalf by:
Stefan Bomhard,
Group Chief Executive
Richard Howes,
Chief Financial Officer
104
104
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
Consolidated statement of changes in equity
For the year ended 31 December 2018
Share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Other
reserves
(note 25)
£m
Retained
earnings
(note 26)
£m
Notes
Equity
attributable
to owners of
the parent
£m
Non-
controlling
interests
£m
Total
shareholders’
equity
£m
At 1 January 2017
Adjustment for IFRS 15
42.2
146.7
138.4
(25.6) 1,042.2
1,343.9
18.6
1,362.5
32
–
–
–
–
(5.8)
(5.8)
–
(5.8)
At 1 January 2017 (restated)
42.2
146.7
138.4
(25.6) 1,036.4
1,338.1
18.6
1,356.7
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 buyback programme
Net purchase of own shares by the
Inchcape Employee Trust
Dividends:
– Owners of the parent
– Non-controlling interests
4,16
24
10
–
–
–
–
(0.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.6
–
–
–
–
267.7
267.7
7.9
275.6
(57.9)
32.4
(25.5)
0.4
(25.1)
(57.9)
300.1
242.2
8.3
250.5
–
–
–
–
–
11.0
11.0
(50.2)
(50.2)
(11.1)
(11.1)
(102.7)
(102.7)
–
–
–
–
11.0
(50.2)
(11.1)
(102.7)
–
–
(6.3)
(6.3)
At 1 January 2018 (restated)
41.6
146.7
139.0
(83.5) 1,183.5 1,427.3
20.6
1,447.9
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Share-based payments, net of tax
4,16
Net purchase of own shares by the
Inchcape Employee Trust
Dividends:
– Owners of the parent
– Non-controlling interests
At 31 December 2018
10
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7.2
7.2
48.2
30.2
78.4
48.2
37.4
85.6
7.2
7.2
(12.6)
(12.6)
(115.2)
(115.2)
–
–
–
–
7.0
1.7
8.7
–
–
–
55.2
39.1
94.3
7.2
(12.6)
(115.2)
41.6
146.7
139.0
(76.3) 1,141.3 1,392.3
23.5
1,415.8
–
–
(5.8)
(5.8)
The notes on pages 118 to 164 are an integral part of these consolidated financial statements.
Share-based payments include a net tax charge of £0.3m (current tax charge of £0.1m and a deferred tax charge of £0.2m)
(2017 – net tax credit of £0.8m (current tax credit of £0.4m and a deferred tax credit of £0.4m)).
Inchcape Annual Report and Accounts 2018 105
www.inchcape.com
105
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Consolidated statement of cash flows
For the year ended 31 December 2018
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
Purchase of available for sale financial assets
Proceeds from disposal of available for sale financial assets
Net cash used in investing activities
Cash flows from financing activities
Share buyback programme
Net purchase of own shares by the Inchcape Employee Trust
Cash inflow from Private Placement loan notes
Repayment of Private Placement loan notes
Net cash inflow / (outflow) from other borrowings
Payment of capital element of finance leases
Equity dividends paid
Dividends paid to non-controlling interests
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
Cash and cash equivalents consist of:
– Cash at bank and cash equivalents
– Short-term deposits
– Bank overdrafts
The notes on pages 118 to 164 are an integral part of these consolidated financial statements.
106
106
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
Notes
2018
£m
2017
£m
27a
501.5
500.4
28
28
(98.7)
(85.9)
17.1
14.6
(44.2)
(39.6)
375.7
389.5
(152.7)
(23.7)
13.4
5.6
(90.8)
(103.2)
(34.4)
(24.0)
25.9
(0.6)
0.5
25.8
–
–
(238.7)
(119.5)
–
(12.6)
–
–
(50.2)
(11.1)
210.0
(138.5)
35.6
(119.3)
(1.8)
(1.4)
10
(115.2)
(102.7)
27b
(5.8)
(6.3)
(99.8)
(219.5)
37.2
416.6
9.6
463.4
50.5
416.0
(49.9)
416.6
Notes
2018
£m
2017
£m
18
18
22
370.3
219.0
820.0
106.9
(125.9)
(510.3)
463.4
416.6
Accounting policies
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union and IFRS Interpretations Committee (IFRS IC) interpretations and with those parts
of the Companies Act 2006 applicable to companies reporting under IFRS. Inchcape Plc is a public company limited by shares,
registered in England and Wales.
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
Having assessed the principal risks and the other matters discussed in connection with the viability statement, the Directors
have considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements.
CHANGES IN ACCOUNTING POLICY AND DISCLOSURES
The accounting policies have been applied consistently throughout the reporting period, other than in respect of the following
standards which have been newly adopted with effect from 1 January 2018:
IFRS 9 Financial instruments
IFRS 9 brings together the classification and measurement, impairment and hedge accounting aspects of the International
Accounting Standards Board’s project to replace IAS 39.
Classification and measurement
IFRS 9 amends the classification and measurement of financial assets:
• Financial assets are measured at amortised cost, fair value through other comprehensive income (FVTOCI) or fair
value through profit or loss (FVTPL);
• Financial assets are measured at amortised cost or FVTOCI if certain restrictive conditions are met. All other financial assets
are measured at FVTPL; and
• All investments in equity instruments are measured at fair value. For those investments in equity instruments that are not held
for trading, there is an irrevocable election to present gains and losses in other comprehensive income (OCI). Dividends are
recognised in profit or loss.
The adoption of IFRS 9 has had no impact on the classification and measurement of the Group’s financial assets or financial liabilities.
Impairment
The new impairment model in IFRS 9 is now based on an ‘expected loss’ model rather than an ‘incurred loss’ model. Under
the impairment approach in IFRS 9, it is not necessary for a credit event to have occurred before credit losses are recognised.
Instead, an entity should account for expected credit losses and changes in those expected credit losses. A simplified
impairment model is applicable to trade and other contractual receivables with maturities that are less than 12 months. For
trade and other contractual receivables with maturity longer than 12 months, entities have a choice of applying the complex
three-stage model or the simplified model. The Group has applied the simplified approach to the recognition of lifetime
expected credit losses for its trade receivables and the calculation of the loss allowance for these assets as at 1 January 2018
was broadly in line with the loss allowance calculated under IAS 39.
Hedge accounting
On initial application of IFRS 9, an entity may choose, as its accounting policy, to continue to apply the hedge accounting
requirements of IAS 39 instead of the hedge accounting requirements of IFRS 9. The Group has elected to apply IFRS 9 hedge
accounting requirements because they are more closely aligned with the way that the Group manages its risks. Under the
new hedge accounting requirements:
• The 80-125% highly effective threshold has been removed;
• Risk components of non-financial items can qualify for hedge accounting provided that the risk component is separately
identifiable and reliably measurable;
• An aggregated position (i.e. combination of a derivative and a non-derivative) can qualify for hedge accounting provided
that it is managed as one risk exposure;
• When entities designate the intrinsic value of options, the initial time value is deferred in Other Comprehensive Income (OCI)
and subsequent changes in time value are recognised in OCI;
• When entities designate only the spot element of a forward contract, the forward points can be deferred in OCI and
subsequent changes in forward points are recognised in OCI. Initial foreign currency basis spread can also be deferred
in OCI with subsequent changes recognised in OCI; and
• Net foreign exchange cash flow positions can qualify for hedge accounting.
Inchcape Annual Report and Accounts 2018 107
www.inchcape.com
107
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Accounting policies continued
IFRS 9 Financial instruments continued
The Group currently applies hedge accounting to:
• the Group’s cross currency interest rate swaps that are used to hedge the fixed interest rate risk and the forward
foreign currency risks associated with the Group’s Private Placement loan notes denominated in US dollars; and
• the transactional currency exposures on the purchases of vehicles and parts in a currency other than an operating
unit’s functional currency.
An assessment of the Group’s hedging relationships under IFRS 9 has been performed and it has been determined that the
relationships qualify as continuing hedging relationships under the new standard and therefore the application of IFRS 9 has
not had a material impact on the Group’s consolidated financial statements.
The Group has elected not to restate comparatives on initial application of IFRS 9.
IFRS 15 Revenue from contracts with customers
IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with
customers. It supersedes the previous revenue recognition guidance including IAS 18 Revenue and IAS 11 Construction
contracts, and has been effective for the Group from 1 January 2018.
The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. Specifically, the standard introduces a five-step approach to revenue recognition:
• Step 1: Identify the contract(s) with a customer
• Step 2: Identify the performance obligations in the contract
• Step 3: Determine the transaction price
• Step 4: Allocate the transaction price to the performance obligations in the contract
• Step 5: Recognise revenue when (or as) each performance obligation is satisfied
The following revenue streams have been identified as being impacted by the adoption of the new standard:
Area
The provision of extended
warranties to customers over and
above the OEM warranty where the
Group acts as the principal in the
supply of the warranty service.
Previous treatment
The Group provides an
estimate of the cost of
fulfilling the future obligation
on the sale of the vehicle.
The cost of fulfilling the
obligation when it arises
is then charged against
the provision.
New treatment under IFRS 15
A proportion of revenue will be allocated to the extended
warranty obligation and deferred to the balance sheet. The
revenue will subsequently be recognised over time along
with the costs incurred in fulfilling any warranty obligations.
The sale of vehicles which are
subject to a buyback commitment
and the possibility of the buyback
being exercised by the customer
is not highly likely as the buyback
price set is below the expected
market value.
Payments made by a Distribution
business to a dealer in the form
of a discount, rebate, credit note
or some other form of incentive.
Additional services included in the
sale of a vehicle to a customer as
part of the total vehicle package
(e.g. free servicing, roadside
assistance, fuel coupons etc)
where the Group is acting as a
principal in the fulfilment of the
service at a future date, rather
than simply as an agent in selling
the additional service and with
no continuing obligation.
Revenue and profit
associated with vehicles
sold subject to a buyback
commitment are deferred
and recognised over the
period of the commitment.
Revenue is recognised in full when the vehicle is sold.
However, an estimate of the value of the buyback
payments is deducted from revenue and deferred
to the balance sheet. Similarly, an estimate of the
value of the vehicles to be returned is deducted from
cost of sales and also deferred to the balance sheet.
In most cases, these are
deducted from revenue.
Varies dependent on the
conclusions reached with
regards to whether the
Group is acting as principal
or agent. Where the Group
is acting as an agent,
revenue is recognised in
full on the sale of a vehicle.
Where the Group is acting
as principal, revenue is
deferred.
The new standard clarifies that all transactions that fall
within this category should be accounted for as a reduction
in revenue by the Distributor and not as an expense within
cost of sales.
The new standard sets out more comprehensive guidance
on principal and agent relationships.
Where the Group acts as principal, the value of the
additional services should be separately identified,
deducted from revenue, recognised as deferred revenue
on the balance sheet and subsequently recognised as
revenue when the service is provided, or over the period
to which the service relates.
Where the Group acts as an agent, the net amount
retained after the deduction of any costs paid to the
principal is recognised as revenue. If a product or service
is provided free to a customer, then the costs paid to the
principal should be deducted from revenue rather than
charged to cost of sales.
108
108
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
Area
Vehicle registration and similar fees
which are charged to the customer
on the sale of a vehicle and which
are collected by the Group on
behalf of an authority.
Previous treatment
In most, but not all, cases
these are excluded from
revenue.
New treatment under IFRS 15
The new standard sets out more comprehensive guidance
on principal and agent relationships.
As a consequence of the new guidance, where it is
concluded that the Group is acting as an agent of a
government in the collection of such fees, the amount
of the vehicle registration fee should be excluded
from revenue.
The Group has elected to apply the new standard retrospectively to each prior reporting period, and has accordingly restated
the comparative information for the immediately preceding periods in accordance with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors. Further details of the restatement can be seen in note 32.
Standards not effective at the balance sheet date
The following standards were in issue but were not yet effective at the balance sheet date. These standards have not yet been
early adopted by the Group, and will be applied for the Group’s financial years commencing on or after 1 January 2019:
• IFRS 16, Leases
• Amendments to IFRS 3 – Definition of a Business
• Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 issued in the Annual Improvement Cycle 2015-2017
• Amendments to IAS 1 and IAS 8 – Definition of Material
• Amendments to IAS 19 – Plan Amendment, Curtailment or Settlement
• Amendments to IAS 28 – Long-term interests in Associates and Joint Ventures
• Amendments to References to the Conceptual Framework in IFRS Standards
• IFRIC 23 – Uncertainty over Income Tax Treatments
Management are currently reviewing the new standards to assess the impact that they may have on the Group’s reported
position and performance. Management do not expect that the adoption of the standards listed above will have a material
impact on the financial statements of the Group, except as noted below:
IFRS 16 Leases
IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both
lessees and lessors. IFRS 16 will supersede the current guidance on leases including IAS 17 and the related interpretations when
it becomes effective for the Group’s financial year commencing 1 January 2019. The Group has assessed the estimated impact
that the application of IFRS 16 will have on its consolidated financial statements, and these are described below.
Under IFRS 16, the distinction between operating leases (off balance sheet) and finance leases (on balance sheet) is removed
for lessee accounting and replaced with a model where a right-of-use asset and a corresponding liability are recognised for all
leases by lessees. As a result, all leases will be on balance sheet except for short-term leases and leases of low value assets.
The right-of-use asset is initially measured at cost and subsequently measured at cost less accumulated depreciation. The lease
liability is initially measured at the present value of the lease payments. Subsequently, the lease liability is adjusted for interest and
lease payments. As a consequence, earnings before interest, depreciation, amortisation and tax (EBITDA) will increase because
operating lease expenses currently included in EBITDA will be replaced with a depreciation charge in respect of the right-of-use
asset and an interest expense on the lease liability. However, there will be an overall reduction in profit before tax in the early years
of a lease because the depreciation and interest charges will exceed the current straight-line expense incurred under IAS 17.
In addition, the classification of cash flows will also be affected because operating lease payments under IAS 17 are presented
within operating cash flows, whereas under IFRS 16 the payments will be split into a principal and interest portion which will be
presented as financing and operating cash flows respectively.
Leases in which the Group is a lessee
The Group will recognise new right-of-use assets and lease liabilities for all its operating leases in the consolidated statement
of financial position, initially valued at the present value of the future lease payments. Operating leases which will be now
recognised on balance sheet include various dealerships, offices, warehouses and equipment, except for short-term leases
and leases of low value assets.
The nature of expenses related to those leases will now change because the Group will recognise a depreciation charge for
right-of-use assets and interest expense on lease liabilities. Previously, the Group recognised operating lease expense on a straight
‑line basis over the term of the lease, and recognised assets and liabilities only to the extent that there was a timing difference
between actual lease payments and the expense recognised. In addition, the Group will no longer recognise provisions for
vacant leasehold properties as described in note 21. Instead, the right-of-use assets will be tested for impairment in accordance
with IAS 36 Impairment of Assets.
Lease incentives will be recognised as part of the measurement of the right-of-use assets and lease liabilities, whereas under IAS
17 they resulted in the recognition of a lease liability incentive; this was amortised as a reduction of rental expense on a straight-
line basis. For short‑term leases (lease term of 12 months or less) and leases of low‑value assets (such as personal computers
and office furniture), the Group will opt to recognise a lease expense on a straight‑line basis as permitted by IFRS 16. The Group
has previously classified certain vehicles and buildings as finance leases. The adoption of IFRS 16 is not expected to have a
material impact on these leases.
Inchcape Annual Report and Accounts 2018 109
www.inchcape.com
109
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Accounting policies continued
IFRS 16 Leases continued
The Group plans to apply a fully retrospective approach to leases where the Group is the lessee. Therefore, the cumulative effect
of adoption of IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2018, with
restatement of comparative information. The Group is currently finalising its assessment of the IFRS 16 and estimates that the
impact on initial application will be as follows:
Recognition of right-of-use asset
Recognition of lease liability
As at
31 December
2018
As at
1 January
2018
£410m to £430m
£380m to £400m
£450m to £470m
£420m to £440m
Leases in which the Group is a lessor
Under IFRS 16, a lessor continues to classify leases as either finance leases or operating leases and account for those two types of
leases differently. To classify each lease, the Group makes an assessment of whether the lease transfers to the lessee substantially
all the risks and rewards of ownership incidental to the ownership of the underlying asset. As part of this assessment the Group
considers whether the lease is for a major part of the economic life of the asset.
The Group has reassessed the classification of sub-leases in which the Group is a lessor. When the Group is an intermediary lessor
it will account for its interests in the head lease and sub-lease separately. It will assess the lease classification of a sub-lease with
reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. Cash flows received
from the principal and interest on finance lease receivables will be classified as cash flows from investing activities. As required
by IFRS 9 an allowance for expected credit losses will be recognised on finance lease receivables where appropriate.
The Group expects to reclassify certain sub‑leases as finance leases under IFRS 16, resulting in the recognition of a finance lease
receivable of c£6m and c£5m as at 1 January 2018 and 31 December 2018 respectively.
Following the adoption of IFRS 16 the new right-of-use asset will be subject to the impairment requirements of IAS 36 Impairment
of Assets. Management is currently assessing how the right-of-use assets should be tested for impairment and consequently the
impact, if any, on the financial statements at adoption.
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 newly acquired 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.
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.
110
110
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
REVENUE, OTHER INCOME AND COST OF SALES
Revenue is measured at the fair value of consideration receivable, net of any discounts, rebates, trade allowances, incentives,
or amounts collected on behalf of third parties. It is recognised to the extent that the transfer of promised goods or services to
a customer has been satisfied and the revenue can be reliably measured. Revenue excludes sales-related taxes and intra-
group transactions. In practice this means that:
Revenue from the sale of goods is recognised when the obligation to transfer the goods to the customer has been satisfied
and the revenue can reliably be measured. The obligation to transfer goods to the customer is considered to have been
satisfied when the vehicles or parts are invoiced and physically dispatched or collected.
Revenue from the rendering of services to the customer is considered to have been satisfied when the service has
been undertaken.
Where the Group acts as an agent on behalf of a principal in relation to finance, insurance and similar products, the
associated commission income is recognised within revenue in the period in which the related finance or insurance product
is sold and receipt of payment can be assured.
Where a vehicle is sold to a leasing company and the Group undertakes to repurchase the vehicle for a specified value at a
predetermined date, the sale is not recognised on the basis that the possibility of the buyback being exercised is highly likely.
Consequently, such 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. The difference between the initial amounts
received from the leasing company and the repurchase commitment is recognised 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 repurchase 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.
Where a vehicle is sold subject to a buyback commitment and the possibility of the buyback being exercised by the customer
is not highly likely as the buyback price set is below the expected market value, revenue is recognised in full when the vehicle
is sold. However, an estimate of the value of the buyback payments is deducted from revenue and deferred to the balance
sheet. Similarly, an estimate of the value of the vehicles to be returned is deducted from cost of sales and also deferred to the
balance sheet. These balances are considered to be contract liabilities.
Where additional services are included in the sale of a vehicle to a customer as part of the total vehicle package (e.g.
extended warranty, free servicing, roadside assistance, fuel coupons etc) and the Group is acting as a principal in the fulfilment
of the service, the value of the additional services should be separately identified, deducted from revenue, recognised as
deferred revenue on the balance sheet and subsequently recognised as revenue when the service is provided, or over the
period to which the service relates. These balances are considered to be contract liabilities.
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.
Dividend income is recognised when the right to receive payment is established.
Cost of sales includes the expense relating to the estimated cost of self-insured product warranties offered to customers. These
warranties form part of the package of goods and services provided to the customer when purchasing a vehicle and are not
a separable product.
SHARE-BASED PAYMENTS
The Group operates various share-based award schemes. The fair value at the date at which the share-based awards are
granted is recognised in the consolidated income statement (together with a corresponding credit 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.
Inchcape Annual Report and Accounts 2018 111
www.inchcape.com
111
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Accounting policies continued
INCOME TAX
The charge for current income tax is based on the results for the period as adjusted for items which are not taxed or 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
In order to facilitate comparability with other companies, certain items which are material 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 and is used by management to facilitate
internal performance analysis. Examples of events which may give rise to the classification of items as exceptional include gains
or losses on the disposal of businesses, acquisition costs, 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 functional 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. Cost comprises the 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 eight years. Amortisation is recognised in the
consolidated income statement within ‘net operating expenses’.
Intangible assets acquired as part of a business combination are capitalised separately from goodwill if the benefit of the
intangible asset is obtained through contractual or other legal rights and the fair value can be measured reliably on initial
recognition. The principal intangible assets are agreements with manufacturers for the distribution of New vehicles and parts,
which represent the estimated value of distribution rights acquired in business combinations. Such agreements have varying
terms and periods of renewal and have historically been renewed indefinitely without substantial cost. The Group therefore
expects these agreements to be renewed indefinitely and accordingly no amortisation is charged on these assets. The Group
assesses these distribution rights for impairment on an annual basis.
Other intangible assets acquired in a business combination may include order books and customer contracts. These intangible
assets are amortised on a straight line basis over their estimated useful life, which is generally less than a year.
112
112
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
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 not collectible, 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 based on an expected loss model.
The amount of the provision is the difference between the asset’s carrying amount and the expected value of the amounts
to be received.
Inchcape Annual Report and Accounts 2018 113
www.inchcape.com
113
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Accounting policies continued
TRADE PAYABLES
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business. These
are classified as current liabilities if payment is due in one year or less. If payment is due at a later date, they are presented as
non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Trade payables include the liability for vehicles held on consignment, with the corresponding asset included within inventories.
BORROWINGS
Borrowings are recognised initially at fair value, net of transaction costs incurred, and are subsequently stated at amortised cost.
Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated
income statement over the period of the borrowings, using the effective interest method.
PENSIONS AND OTHER POST-RETIREMENT BENEFITS
The Group operates a number of retirement benefit schemes.
The major schemes are defined benefit pension funds with assets held separately from the Group. The cost of providing benefits
under the plans is determined separately for each plan using the projected unit credit actuarial valuation method.
The current service cost and gains and losses on settlements and curtailments are included in ‘cost of sales’ or ‘net operating
expenses’ in the consolidated income statement. Past service costs are similarly recognised in the consolidated income
statement. 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 warranties provided as part of the sale of a vehicle and provide assurance to the
customer that the product will work as sold. 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 or groups
of countries and the market channels, Distribution and Retail. These operating segments are then aggregated into reporting
segments to combine those with similar characteristics.
114
114
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
FINANCIAL INSTRUMENTS
The Group classifies its financial instruments in the following categories: measured at amortised cost; measured at fair value
through profit and loss; and measured at fair value through other comprehensive income. The classification is determined at
initial recognition and depends on the purpose for which the financial instruments are required.
Measured at amortised cost includes non-derivative financial assets and liabilities with fixed or determinable payments that are
not quoted in an active market. Financial assets 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. Financial liabilities are included in current liabilities, except where the maturity date is more than 12 months after the end of
the reporting period. They are initially measured at original cost, less amortisation or provisions raised.
Measured 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.
Measured at fair value through other comprehensive income includes derivative financial assets and liabilities, which are further
explained below, and available for sale financial assets such as bonds and equity investments. Derivative financial assets and
liabilities are included in current assets and liabilities, except where the maturity date is more than 12 months after the end of
the reporting period. Available for sale financial assets 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’.
Inchcape Annual Report and Accounts 2018 115
www.inchcape.com
115
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Accounting policies continued
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.
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.
CRITICAL ACCOUNTING JUDGEMENTS AND SOURCES OF ESTIMATION UNCERTAINTY
The preparation of financial statements in accordance with generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on
management’s best knowledge, actual results may ultimately differ from those estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. 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:
SOURCES OF ESTIMATION UNCERTAINTY
IMPAIRMENT OF GOODWILL AND OTHER INDEFINITE LIFE INTANGIBLE ASSETS
Goodwill and other indefinite life intangible assets are 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).
INCENTIVES AND OTHER REBATES FROM BRAND PARTNERS
The Group receives income in the form of various incentives which are determined by our brand partners. The amount we receive is
generally based on achieving specific objectives, such as a specified sales volume, as well as other objectives including maintaining
brand partner standards which may include, but are not limited to, retail centre image and design requirements, customer
satisfaction survey results and training standards. Objectives are generally set and measured on either a quarterly or annual basis.
Where incentives are based on a specific sales volume or number of registrations, the related income is recognised as a reduction
in cost of sales when it is reasonably certain that the income has been earned. This is generally the later of the date the related
vehicles are sold or registered or when it is reasonably certain that the related target will be met. Where incentives are linked to retail
centre image and design requirements, customer satisfaction survey results or training standards, they are recognised as a reduction
in cost of sales when it is reasonably certain that the incentive will be received for the relevant period.
The Group may also receive contributions towards advertising and promotional expenditure. Where such contributions are received,
they are recognised as a reduction in the related expenditure in the period to which they relate.
116
116
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
PENSIONS AND OTHER POST-RETIREMENT BENEFITS – ASSUMPTIONS
Pension and other post-retirement benefit liabilities are determined based on the actuarial assumptions detailed in note 5.
A number of these assumptions require estimates to be made, including the rate of inflation and expected mortality rates. These
assumptions are subject to a review on an annual basis and are determined in conjunction with an external actuary. The use of
different assumptions could have a material effect on the value of the relevant liabilities and could result in a material change
to amounts recognised in the income statement over time.
In November 2015, the TKM Group Pension Scheme completed a buy-in transaction whereby the assets of the scheme were
invested in a bulk purchase annuity contract that matches the benefits payable to the members of the scheme. The contract
has been structured to enable the scheme, in time, to move to a full buy-out, following which the insurance company will
become directly responsible for the pension payments under the scheme. The scheme has now been fully bought out and it
was formally wound up on 3 August 2018.
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 best estimates of whether additional taxes will be due without taking into account whether tax authorities would
detect any particular issue. The estimate is made separately for each jurisdiction and takes into account management’s view of
the relevant tax laws and environment applicable to the operations of the Group in those jurisdictions. No single item is expected
to give rise to a material adjustment in the following or subsequent years.
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 notes 8 and 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.
IMPAIRMENT OF 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).
REPURCHASE COMMITMENTS
The Group has entered into commitments in relation to certain leased vehicles to repurchase the vehicle for a specified value
at a predetermined date. 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. To the extent that the actual market value
of such vehicles is expected to be less than the repurchase commitment, a provision is recognised and is included with Other
Provisions in note 21. Where the repurchase commitment is in respect of a vehicle sold by the Group to a leasing company,
the repurchase commitment is held within ‘trade and other payables’. Where the Group has entered into a repurchase
commitment in respect of vehicles that have not been sourced from within the Group, then the repurchase commitment is
included as a purchase commitment (see note 30).
CRITICAL ACCOUNTING JUDGEMENTS
PENSIONS – DISCOUNT RATE
The Group’s defined benefit obligations are discounted at a rate set by reference to market yields at the end of the reporting
period on high quality corporate bonds. Significant judgement is required when setting the criteria for bonds to be included in
the population from which the yield curve is derived. The most significant criteria considered for the selection of bonds include
the issue size of the corporate bonds, quality of the bonds and the identification of outliers which are excluded.
Inchcape Annual Report and Accounts 2018 117
www.inchcape.com
117
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements
1 SEGMENTAL ANALYSIS
The Group has eight reportable segments which have been identified based on the operating segments of the Group that
are regularly reviewed by the chief operating decision-maker, which has been determined to be the Executive Committee,
in order to assess performance and allocate resources. Operating segments are then aggregated into reporting segments
to combine those with similar economic characteristics. During the year, the Group has reviewed the operating segments and
determined that in those regions where we are the Distributor and manage a network that includes dealerships that we own
and operate, the results of those retail operations are better reflected as part of the results from Distribution. This has resulted
in the results from our Subaru, Peugeot and Citroen retail operations in Australia and Toyota retail operations in Europe being
reported as part of Australasia and UK and Europe Distribution. The following summary describes the operations of each of the
Group’s reportable segments:
Distribution
Australasia
UK and Europe
Asia
Emerging Markets
Retail
Australasia
UK and Europe
Emerging Markets
Central
Distribution of new vehicles and parts in Australia and New Zealand together with
associated marketing and logistics operations. Sale of New and Used vehicles in
Australia where the Group is also the Distributor of those vehicles, together with
associated Aftersales activities of service, bodyshop repairs and parts sales.
Distribution of New vehicles and parts, together with associated marketing activities,
in mature European markets. Sale of New and Used vehicles in Europe where the Group
is also the Distributor of those vehicles, together with associated Aftersales activities of
service, bodyshop repairs and parts sales.
Exclusive distribution and sale of New vehicles and parts in Asian markets, together
with associated Aftersales activities of service and bodyshop repairs.
Distribution of New vehicles and parts in growing markets, together with associated
Aftersales activities of service and bodyshop repairs.
Sale of New and Used vehicles in Australia together with associated Aftersales activities
of service, bodyshop repairs and parts sales.
Sale of primarily New and Used premium vehicles in mature markets, together
with associated Aftersales activities of service, bodyshop repairs and parts sales.
Sale of New and Used vehicles in growing markets together with associated Aftersales
activities of service, bodyshop repairs and parts sales.
Comprises the Group’s head office function and includes all central activities
including the Board, finance, human resources, marketing, governance and
global information services.
The Group has also refined the methodology for allocating gross profit between Vehicles and Aftersales and the apportionment
of certain Central costs to the segments. Comparatives have been restated accordingly.
Australasia
£m
UK
and Europe
£m
Asia
£m
Emerging
Markets
£m
1,145.5
–
1,145.5
33.3
(4.5)
1,687.7
–
1,687.7
169.6
–
956.5
–
956.5
84.2
(1.8)
1,198.4
–
1,198.4
87.8
–
87.8
28.8
169.6
82.4
368.6
Distribution
Total
Distribution
£m
4,988.1
–
4.988.1
374.9
(6.3)
2018
Revenue
Total revenue
Inter-segment revenue
Revenue from third parties
Results
Trading profit / (loss)
Operating exceptional items
Operating profit / (loss) after
exceptional items
Share of profit after tax of joint ventures
and associates
Profit before finance and tax
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
118
118
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
1 SEGMENTAL ANALYSIS CONTINUED
2018
Revenue
Total revenue
Inter-segment revenue
Revenue from third parties
Results
Trading profit / (loss)
Operating exceptional items
Operating profit / (loss) after
exceptional items
Share of profit after tax of joint
ventures and associates
Profit before finance and tax
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Australasia
£m
UK
and Europe
£m
Emerging
Markets
£m
Retail
Total
Retail
£m
Total pre
Central
£m
Central
£m
Total
£m
382.2
–
382.2
3,057.6
–
3,057.6
849.1
–
849.1
4,288.9
–
4,288.9
9,277.0
–
9,277.0
–
–
–
9,277.0
–
9,277.0
(7.7)
–
14.8
(193.7)
19.4
–
26.5
(193.7)
401.4
(200.0)
(16.3)
(10.8)
385.1
(210.8)
(7.7)
(178.9)
19.4
(167.2)
201.4
(27.1)
174.3
0.1
174.4
19.3
(61.6)
132.1
(76.9)
55.2
Net finance costs of £42.3m are not allocated to individual segments and include an exceptional charge of £13.9m which
represents a non-recurring correction to the fair value basis of assessment of the Group’s Private Placement Loan notes relating
to prior periods.
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. Revenue is further analysed as follows:
2018
UK
Rest of the world
Group
Gross profit for Distribution and Retail activities is analysed as follows:
2018
Distribution
Retail
Group
£m
2,892.5
6,384.5
9,277.0
Vehicles
£m
Aftersales
£m
Total
£m
544.1
265.6
809.7
325.6
166.0
491.6
869.7
431.6
1,301.3
Inchcape Annual Report and Accounts 2018 119
www.inchcape.com
119
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
1 SEGMENTAL ANALYSIS CONTINUED
2018
Segment assets and liabilities
Segment assets
Other current assets
Other non-current assets
Segment liabilities
Other liabilities
Net assets
Australasia
£m
UK
and Europe
£m
Asia
£m
Emerging
Markets
£m
Distribution
Total
Distribution
£m
298.4
335.2
373.2
381.1
1,387.9
(428.0)
(282.5)
(429.5)
(297.1)
(1,437.1)
Segment assets include net inventory, receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
2018
Other segment items
Capital expenditure:
– Property, plant and equipment
– Interest in leased vehicles
– Intangible assets
Depreciation:
– Property, plant and equipment
– Interest in leased vehicles
Amortisation of intangible assets
Impairment of goodwill
Impairment of Property, plant and
equipment
Net provisions charged / (credited)
to the consolidated income statement
Australasia
£m
UK
and Europe
£m
Asia
£m
Emerging
Markets
£m
Distribution
Total
Distribution
£m
8.7
1.9
3.0
4.6
–
2.9
–
–
2.1
6.3
0.4
4.4
3.1
0.1
1.8
–
4.5
4.5
8.6
8.0
2.5
8.6
3.6
2.0
–
–
1.6
14.0
2.4
3.6
8.0
0.8
1.5
–
–
0.6
37.6
12.7
13.5
24.3
4.5
8.2
–
4.5
8.8
Net provisions include inventory, trade receivables impairment and other liability provisions.
120
120
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
1 SEGMENTAL ANALYSIS CONTINUED
2018
Segment assets and liabilities
Segment assets
Other current assets
Other non-current assets
Segment liabilities
Other liabilities
Net assets
Australasia
£m
UK
and Europe
£m
Emerging
Markets
£m
Retail
Total
Retail
£m
Total
£m
104.5
830.1
131.0
1,065.6
2,453.5
(114.4)
(791.8)
(83.8)
(990.0)
695.9
1,587.0
(2,427.1)
(893.5)
1,415.8
Segment assets include net inventory, receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
2018
Other segment items
Capital expenditure:
– Property, plant and equipment
– Interest in leased vehicles
– Intangible assets
Depreciation:
– Property, plant and equipment
– Interest in leased vehicles
Amortisation of intangible assets
Impairment of goodwill
Impairment of property, plant and
equipment
Net provisions charged / (credited)
to the consolidated income statement
Australasia
£m
UK
and Europe
£m
Emerging
Markets
£m
Retail
Total
Retail
£m
Total pre
Central
£m
Central
£m
Total
£m
0.4
–
–
–
–
0.7
–
48.5
6.0
3.1
15.8
2.7
3.2
175.0
3.6
–
0.4
3.7
–
1.3
–
52.5
6.0
3.5
19.5
2.7
5.2
175.0
90.1
18.7
17.0
43.8
7.2
13.4
175.0
–
–
16.7
0.1
–
0.8
–
90.1
18.7
33.7
43.9
7.2
14.2
175.0
–
18.7
–
18.7
23.2
–
23.2
1.5
54.1
0.7
56.3
65.1
(2.2)
62.9
Net provisions include inventory, trade receivables impairment and other liability provisions.
Inchcape Annual Report and Accounts 2018 121
www.inchcape.com
121
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
1 SEGMENTAL ANALYSIS CONTINUED
Australasia
£m
UK
and Europe
£m
Asia
£m
Emerging
Markets
£m
1,237.8
–
1,237.8
1,068.4
–
1.068.4
1,692.6
–
1,692.6
34.5
(5.2)
154.2
(0.1)
92.2
(0.1)
92.1
794.7
–
794.7
85.9
(2.4)
29.3
154.1
83.5
359.0
Distribution
Total
Distribution
£m
4,793.5
–
4,793.5
366.8
(7.8)
2017
Revenue
Total revenue
Inter-segment revenue
Revenue from third parties
Results
Trading profit / (loss)
Operating exceptional items
Operating profit / (loss) after
exceptional items
Share of loss after tax of joint ventures
and associates
Profit before finance and tax
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
122
122
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
1 SEGMENTAL ANALYSIS CONTINUED
2017
Revenue
Total revenue
Inter-segment revenue
Revenue from third parties
Results
Trading profit / (loss)
Operating exceptional items
Operating profit / (loss) after
exceptional items
Share of loss after tax of joint ventures
and associates
Profit before finance and tax
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Australasia
£m
UK
and Europe
£m
Emerging
Markets
£m
Retail
Total
Retail
£m
401.6
–
401.6
3,174.4
–
3,174.4
583.8
–
583.8
4,159.8
–
4,159.8
Total pre
Central
£m
8,953.3
–
8,953.3
Central
£m
Total
£m
–
–
–
8,953.3
–
8,953.3
9.4
–
9.4
52.0
(2.8)
3.6
(1.1)
65.0
(3.9)
431.8
(11.7)
(25.2)
(0.9)
406.6
(12.6)
49.2
2.5
61.1
420.1
(26.1)
394.0
–
394.0
14.6
(39.6)
369.0
(93.4)
275.6
Net finance costs of £25.0m are not allocated to individual segments.
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. Revenue is further analysed as follows:
2017
UK
Rest of the world
Group
Gross profit for Distribution and Retail activities is analysed as follows:
2017
Distribution
Retail
Group
£m
3,047.5
5,905.8
8,953.3
Vehicles
£m
Aftersales
£m
Total
£m
514.1
270.3
784.4
308.7
158.1
466.8
822.8
428.4
1,251.2
Inchcape Annual Report and Accounts 2018 123
www.inchcape.com
123
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
1 SEGMENTAL ANALYSIS CONTINUED
2017
Segment assets and liabilities
Segment assets
Other current assets
Other non-current assets
Segment liabilities
Other liabilities
Net assets
Australasia
£m
UK
and Europe
£m
Asia
£m
Emerging
Markets
£m
Distribution
Total
Distribution
£m
240.9
317.0
350.6
282.6
1,191.1
(424.4)
(266.0)
(362.4)
(235.5)
(1,288.3)
Segment assets include net inventory, receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
2017
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 other intangible assets
Net provisions charged / (credited)
to the consolidated income statement
Australasia
£m
UK
and Europe
£m
12.1
0.1
4.3
3.8
–
1.9
–
–
1.0
10.7
–
3.8
2.4
0.3
0.8
–
–
3.5
Emerging
Markets
£m
Distribution
Total
Distribution
£m
17.0
0.8
1.5
6.8
0.2
0.9
–
–
0.3
49.5
10.8
9.9
23.7
5.3
6.2
–
–
9.6
Asia
£m
9.7
9.9
0.3
10.7
4.8
2.6
–
–
4.8
Net provisions include inventory, trade receivables impairment and other liability provisions.
124
124
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
1 SEGMENTAL ANALYSIS CONTINUED
2017
Segment assets and liabilities
Segment assets
Other current assets
Other non-current assets
Segment liabilities
Other liabilities
Net assets
Australasia
£m
UK
and Europe
£m
Emerging
Markets
£m
Retail
Total
Retail
£m
Total
£m
142.6
833.2
124.3
1,100.1
2,291.2
(144.9)
(820.9)
(69.0)
(1,034.8)
1,004.8
1,582.0
(2,323.1)
(1,107.0)
1,447.9
Segment assets include net inventory, receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
2017
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 other intangible assets
Net provisions charged / (credited)
to the consolidated income statement
Australasia
£m
UK
and Europe
£m
Emerging
Markets
£m
0.4
–
–
0.9
–
–
–
–
2.7
47.1
7.8
1.8
14.5
3.6
4.2
–
–
39.3
7.3
–
0.3
4.3
–
2.6
–
–
1.6
Retail
Total
Retail
£m
54.8
7.8
2.1
19.7
3.6
6.8
–
–
43.6
Total pre
Central
£m
Central
£m
Total
£m
104.3
18.6
12.0
43.4
8.9
13.0
–
–
53.2
0.1
–
14.2
0.4
–
0.8
–
–
104.4
18.6
26.2
43.8
8.9
13.8
–
–
(2.0)
51.2
Net provisions include inventory, trade receivables impairment and other liability provisions.
Inchcape Annual Report and Accounts 2018 125
www.inchcape.com
125
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
2 EXCEPTIONAL ITEMS
Goodwill impairment (see note 11)
Other asset impairment (see note 12)
Acquisition of businesses
Restructuring costs
Other operating exceptional items
Total exceptional operating items
Exceptional finance costs (see note 7)
Total exceptional items before tax
Exceptional tax (see note 8)
Total exceptional items
2018
£m
(175.0)
(23.2)
(7.2)
–
(5.4)
(210.8)
(13.9)
(224.7)
3.3
(221.4)
2017
£m
–
–
(2.1)
(10.5)
–
(12.6)
–
(12.6)
2.7
(9.9)
During the period exceptional operating costs of £7.2m have been incurred in connection with the acquisition and integration
of businesses, primarily the Grupo Rudelman business in Central America.
Other operating exceptional items of £5.4m represents the cost of equalising Guaranteed Minimum Pensions in the Group's
UK pension schemes following a ruling in the High Court in October 2018.
Exceptional items also include asset impairments of £23.2m following an impairment review of certain site-based assets in
the UK and Europe.
In 2017 the Group incurred restructuring costs of £10.5m as part of a Group-wide programme commenced in 2016 to better
align the organisation with the Ignite strategy. The costs incurred comprised headcount reduction and costs associated with
the redevelopment of the third party Retail network in certain markets. Exceptional costs of £2.1m were also incurred in relation
to the 2016 acquisition of the Subaru, Hino and associated Distribution businesses in South America.
3 REVENUE AND EXPENSES
a. Revenue
An analysis of the Group’s revenue for the year is as follows:
Sale of goods
Provision of services
b. Analysis of net operating expenses
Distribution costs
Administrative expenses
Other operating (income) / expense
2018
£m
8,500.3
776.7
9,277.0
2017
£m
8,231.8
721.5
8,953.3
Net operating
expenses before
exceptional
items
2018
£m
Exceptional
items
2018
£m
507.5
415.8
(7.1)
916.2
–
210.8
–
210.8
Net
operating
expenses
2018
£m
507.5
626.6
(7.1)
1,127.0
Net operating
expenses before
exceptional
items
2017
£m
Exceptional
items
2017
£m
483.3
375.2
(13.9)
844.6
–
12.6
–
12.6
Net
operating
expenses
2017
£m
483.3
387.8
(13.9)
857.2
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 goodwill
Impairment of property, plant and equipment
Impairment of trade receivables
Profit on sale of property, plant and equipment
Operating lease rentals
2018
£m
2017
£m
43.9
7.2
14.2
175.0
23.2
1.3
(2.1)
81.0
43.8
8.9
13.8
–
–
1.6
(10.6)
71.3
Profit on the sale of property, plant and equipment in 2018 relates to the sale of surplus assets in Latvia, the UK and Russia. In
2017, the Group disposed of surplus assets in Australia and Russia.
126
126
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
3 REVENUE AND EXPENSES CONTINUED
d. Auditor’s remuneration
During the year the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor at costs
as detailed below:
Audit services:
Fees payable to the Company’s auditor and its associates for the audit of the parent company and the
consolidated financial statements
Fees payable to the Company’s auditor and its associates for other services:
– The audit of the Company’s subsidiaries
– Audit related assurance services
– All other services
Total fees payable to the Company’s auditor
Audit fees – firms other than the Company’s auditor
e. Staff costs
Wages and salaries
Social security costs
Other pension costs
Share-based payment charge
2018
£m
2017
£m
0.4
2.5
0.1
0.4
3.4
0.2
2018
£m
558.6
53.8
27.4
7.6
647.4
0.5
2.1
0.1
0.1
2.8
0.4
2017
£m
524.2
50.5
23.5
10.2
608.4
Other pension costs correspond to the current service charge and contributions to the defined contribution schemes
(see note 5).
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 68 to 87 of this document. Information
on compensation of key management personnel is set out in note 31b.
f. Average monthly number of employees
Australasia
UK and Europe
Asia
Emerging Markets
Total operational
Central
Distribution
2018
Number
2017
Number
2018
Number
1,182
1,434
2,645
3,828
9,089
1,128
1,298
2,742
2,903
8,071
567
5,938
–
2,401
8,906
Retail
2017
Number
574
6,277
–
1,718
8,569
2018
Number
1,749
7,372
2,645
6,229
17,995
155
18,150
Total
2017
Number
1,702
7,575
2,742
4,621
16,640
149
16,789
Inchcape Annual Report and Accounts 2018 127
www.inchcape.com
127
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
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 awards granted under share-based payment plans was £7.5m (2017 – £10.2m), all of which
was equity-settled.
The Other Share Plan’s 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:
2018
Outstanding at 1 January
Granted
Exercised
Lapsed
Outstanding at 31 December
Exercisable at 31 December
2017
Outstanding at 1 January
Granted
Exercised
Lapsed
Outstanding at 31 December
Exercisable at 31 December
Weighted average
exercise price*
Performance
Share Plan
Executive Share
Option Plan
Save As You
Earn Plan
Other
Share Plans
£5.36
£5.54
£2.30
£5.89
£5.61
£4.96
4,345,679
1,939,671
(1,081,742)
(495,199)
4,708,409
69,066
–
(63,225)
–
5,841
1,898,273
1,338,942
(78,916)
(582,070)
2,576,229
1,385,836
408,323
(455,255)
(84,975)
1,253,929
237,158
5,841
453,464
74,504
Weighted average
exercise price*
Performance
Share Plan
Executive Share
Option Plan
4,630,496
1,457,828
(1,082,419)
(660,226)
4,345,679
355,159
–
(284,480)
(1,613)
69,066
£4.48
£6.66
£3.41
£5.74
£5.36
£3.33
Save As You
Earn Plan
2,051,995
675,726
(441,502)
(387,946)
1,898,273
Other
Share Plans
1,286,746
637,223
(423,530)
(114,603)
1,385,836
410,145
69,066
77,365
34,346
* The weighted average exercise price excludes nil cost awards made under the Performance Share Plan and Other Share Plans.
The weighted average remaining contractual life for the awards outstanding at 31 December 2018 is 2.4 years (2017 – 2.7 years).
The range of exercise prices for options outstanding at the end of the year was £0.10 to £6.66 (2017 – £0.10 to £6.66). See note
24 for further details.
The fair value of options granted under the Save As You Earn Plan and Other Share Plans 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 nil cost awards granted under the Performance Share Plan and Other Share Plans 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 2018 and 31 December 2017:
Performance
Share Plan
Save As You
Earn Plan
Other
Share Plans
2018
2017
2018
2017
2018
2017
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 award
Weighted average risk free rate
Expected dividend yield
Weighted average fair value per option
£7.08
£7.15
n/a
3.0 years
n/a
3.0 years
n/a
n/a
£7.08
£8.46
£8.15
n/a
3.0 years
n/a
3.0 years
n/a
n/a
£8.46
£6.89
£7.25
£5.54
3.0 years
22.2%
3.2 years
1.0%
4.0%
£1.28
£8.44
£7.74
£6.66
3.0 years
23.0%
3.2 years
0.5%
2.9%
£1.81
£7.07
£7.11
n/a
2.8 years
n/a
2.8 years
n/a
n/a
£7.07
£7.82
£8.16
n/a
2.5 years
n/a
2.5 years
n/a
n/a
£7.82
* The weighted average exercise price excludes nil cost awards made under the Performance Share Plan and Other Share Plans.
No options were granted under the Executive Share Option Plan in 2018 or 2017.
The expected life and volatility of the options are based upon historical data.
128
128
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
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 Inchcape Motors Pension Scheme (comprising the Group, Motors, Normand and Cash+ sections) in the UK is the main
defined benefit final salary pension scheme. The Group, Motors and Normand sections are closed to new employees and
largely closed to future benefit accrual. The Cash+ section is a defined benefit cash balance scheme, open to accrual for
current and new employees, which is designed to meet regulatory requirements for auto-enrolment legislation. The Group
also operates the Inchcape Overseas Pension Scheme which is non-UK registered.
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 Cash+ 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. Across the schemes a number of exercises have been undertaken to
significantly mitigate these key funding risks.
Governance
Our UK schemes are registered with HMRC and comply fully with the regulatory framework published by the UK
Pensions Regulator.
Benefits under the Inchcape Motors Pension Scheme are paid to members from separate funds administered by a trustee
board comprised of two independent trustee companies (the Trustees) 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
Group, Motors and Normand sections (closed sections)
The latest actuarial valuations for these sections were carried out at 5 April 2016 on a market-related basis and determined
in accordance with the advice of independent professionally qualified actuaries based on the defined accrued benefit
method. The actuarial valuation determined that the duration of the liabilities was approximately 18 years and that a small
surplus existed. The Group contributes £0.6m p.a. towards the administrative costs of running these sections and no further
review is scheduled until April 2019. For the Normand section, the Group also currently pays deficit reduction contributions
of £1.1m p.a., rising by 3.05% p.a. up until 5 April 2026 (at which point the funding shortfall is expected to be eliminated).
Each section’s investment strategy sees it holding a proportion of its assets in matching assets (75% for the Group section,
45% for the Motors section and 46% for the Normand section) with the remainder in growth assets. The matching assets
are invested in a liability-driven investment solution complemented with absolute return bonds. They are designed to hedge
inflation and interest rate risk in a capitally efficient manner. The growth assets are invested in assets that are expected to
grow at rates significantly faster than each section’s liabilities and include equities, diversified growth funds and property.
Cash+ section
This scheme is a defined benefit scheme under which members accrue benefits with effect from 1 January 2013, or date
of joining if later. The latest actuarial valuation was carried out at 5 April 2016 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 valuation showed the funding level to be 98%, with the Trustee expecting the small shortfall to be removed by the ongoing
pension contributions and returns on the assets held. The Group contributes £0.2m p.a. towards the administrative costs of
running the scheme and the next review is in April 2019.
The investment strategy is to be 60% 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. The remaining 40% is to be split
equally between multi-factor equities and emerging market multi-asset funds.
The next actuarial valuations for the four sections of the Inchcape Motors Pensions Scheme will be carried out as at 5 April 2019.
Inchcape Annual Report and Accounts 2018 129
www.inchcape.com
129
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS CONTINUED
Inchcape Overseas Pension Scheme
This scheme is managed from Guernsey and is subject to regulations similar to the UK. 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 2015 and determined
in accordance with the advice of independent professionally qualified actuaries based on the attained age method. The
actuarial valuation determined that the duration of the liabilities was approximately 11 years and that the scheme was
approximately 86% funded on a prudent funding basis. The Group contributes £0.8m p.a. towards scheme administrative
costs and improving the funding ratio. The investments are managed under a Fiduciary Management arrangement with
the level of investment risk inherent in the investment arrangements reducing as and when the funding level improves. The
scheme’s actuarial valuation as at 31 March 2018 is currently in progress.
TKM Group Pension Scheme (closed scheme)
In November 2015, the trustees of the TKM Group Pension Scheme completed a buy-in transaction whereby the assets of
the scheme were used to acquire a bulk purchase annuity policy with Aviva under which the benefits payable to the members
of the scheme are now fully insured. The insurance policy was purchased using the existing assets of the scheme with no
additional funding required from the Group. The insurance policy was structured to enable the scheme, in time, to move to full
buy-out, following which Aviva would become directly responsible for the pension payments under the scheme. The scheme
has now been fully bought out and it was formally wound up on 3 August 2018. All liability for member benefits now lie with
Aviva and the duties of the Group and the trustee have been discharged.
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 £7.0m (2017 – £6.2m). There are no outstanding
contributions at 31 December 2018 (2017 – £0.2m).
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.
130
130
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
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
2018
%
3.1
3.0
2.9
3.2
2.1
2017
%
3.1
3.0
2.5
3.2
2.1
2018
%
4.0
1.8
1.9
1.8
n/a
2017
%
3.8
2.3
1.9
2.1
n/a
The rate of increase in healthcare costs is 5.4% (2017 – 5.4%) 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 23.8 years (2017 – 23.9 years) for current pensioners and 25.3
years (2017 – 25.8 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
Net surplus / (deficit) in funded obligations
Present value of unfunded obligations
The net pension asset is analysed as follows:
Schemes in surplus
Schemes in deficit
United Kingdom
Overseas
2018
£m
(727.0)
816.0
89.0
(0.6)
88.4
2017
£m
(1,007.2)
1,083.0
75.8
(0.7)
75.1
2018
£m
(50.9)
45.0
(5.9)
(0.6)
(6.5)
2017
£m
(47.6)
46.2
(1.4)
(1.4)
(2.8)
2018
£m
(777.9)
861.0
83.1
(1.2)
81.9
Total
2017
£m
(1,054.8)
1,129.2
74.4
(2.1)
72.3
116.2
(27.8)
88.4
105.5
(30.4)
75.1
0.3
(6.8)
(6.5)
0.4
(3.2)
(2.8)
116.5
(34.6)
81.9
The amounts recognised in the consolidated income statement are as follows:
Current service cost
Past service cost
Scheme expenses
Interest expense on plan liabilities
Interest income on plan assets
United Kingdom
Overseas
2018
£m
(17.5)
(5.4)
(1.5)
(22.3)
24.1
(22.6)
2017
£m
(14.2)
–
(1.6)
(27.7)
29.2
(14.3)
2018
£m
(2.9)
–
(0.1)
(0.8)
0.7
(3.1)
2017
£m
(3.1)
–
(0.1)
(0.9)
0.8
(3.3)
2018
£m
(20.4)
(5.4)
(1.6)
(23.1)
24.8
(25.7)
105.9
(33.6)
72.3
Total
2017
£m
(17.3)
–
(1.7)
(28.6)
30.0
(17.6)
Inchcape Annual Report and Accounts 2018 131
www.inchcape.com
131
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS CONTINUED
The amounts recognised in the consolidated statement of comprehensive income are as follows:
Actuarial gains / (losses) on liabilities:
– Experience (losses) / gains
– Changes in demographic assumptions
– Changes in financial assumptions
Actuarial gains on assets:
– Experience (losses) / gains
Analysis of the movement in the net asset / (liability):
At 1 January
Amount recognised in the consolidated income statement
Contributions by employer
Taxes paid from plan assets
Actuarial gains / (losses) recognised in the year
Effect of foreign exchange rates
At 31 December
United Kingdom
Overseas
2018
£m
2017
£m
2018
£m
2017
£m
2018
£m
(0.2)
29.4
63.6
(54.5)
38.3
4.2
12.3
(0.6)
13.7
29.6
(0.3)
–
0.5
(2.1)
(1.9)
1.4
–
(0.1)
(0.5)
29.4
64.1
7.0
8.3
(56.6)
36.4
United Kingdom
Overseas
2018
£m
75.1
(22.6)
3.5
(5.9)
38.3
–
88.4
2017
£m
47.3
(14.3)
12.5
–
29.6
–
75.1
2018
£m
(2.8)
(3.1)
1.4
–
(1.9)
(0.1)
(6.5)
2017
£m
(10.0)
(3.3)
1.7
–
8.3
0.5
(2.8)
2018
£m
72.3
(25.7)
4.9
(5.9)
36.4
(0.1)
81.9
Changes in the present value of the defined benefit obligation are as follows:
United Kingdom
Overseas
Total
2017
£m
5.6
12.3
(0.7)
20.7
37.9
Total
2017
£m
37.3
(17.6)
14.2
–
37.9
0.5
72.3
Total
2017
£m
2017
£m
2018
£m
(56.6) (1,056.9) (1,138.6)
(20.4)
(17.3)
(5.4)
–
(23.1)
(28.6)
(3.1)
–
(0.9)
1.4
–
(0.1)
–
5.6
–
4.7
(49.0)
(0.5)
29.4
64.1
(0.2)
36.3
199.9
(2.3)
5.6
12.3
(0.7)
(0.1)
54.6
51.2
4.7
(779.1) (1,056.9)
At 1 January
Current service cost
Past service cost
Interest expense on plan liabilities
Actuarial gains / (losses):
– Experience (losses) / gains
– Changes in demographic assumptions
– Changes in financial assumptions
Contributions by employees
Benefits paid
Plan settlements
Effect of foreign exchange rate changes
At 31 December
2018
£m
2017
£m
(1,007.9) (1,082.0)
(14.2)
–
(27.7)
(17.5)
(5.4)
(22.3)
(0.2)
29.4
63.6
(0.2)
33.0
199.9
–
4.2
12.3
(0.6)
(0.1)
49.0
51.2
–
(727.6) (1,007.9)
2018
£m
(49.0)
(2.9)
–
(0.8)
(0.3)
–
0.5
–
3.3
–
(2.3)
(51.5)
132
132
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
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 (losses) / gains
Contributions by employer
Contributions by employees
Benefits paid
Plan settlements
Taxes paid from plan assets
Effect of foreign exchange rate changes
At 31 December
United Kingdom
Overseas
2018
£m
1,083.0
24.1
(1.5)
(54.5)
3.5
0.2
(33.0)
(199.9)
(5.9)
–
816.0
2017
£m
1,129.3
29.2
(1.6)
13.7
12.5
0.1
(49.0)
(51.2)
–
–
1,083.0
2018
£m
46.2
0.7
(0.1)
(2.1)
1.4
–
(3.3)
–
–
2.2
45.0
2017
£m
46.6
0.8
(0.1)
7.0
1.7
–
(5.6)
–
–
(4.2)
46.2
2018
£m
1,129.2
24.8
(1.6)
(56.6)
4.9
0.2
(36.3)
(199.9)
(5.9)
2.2
861.0
At the end of the reporting period, the percentage of the plan assets by category were as follows:
Equities (quoted)
Equities (unquoted)
Corporate bonds (quoted)
Government bonds (quoted)
Investment funds (quoted)
Investment funds (unquoted)
Bulk purchase annuity
Other (quoted)
Other (unquoted)
United Kingdom
Overseas
2018
2017
2018
2017
2018
5.2%
–
–
–
–
66.3%
–
–
28.5%
100.0%
4.2%
–
–
–
–
53.6%
18.9%
–
23.3%
100.0%
73.3%
2.7%
13.3%
–
0.2%
–
–
3.8%
6.7%
100.0%
75.9%
–
18.2%
0.5%
–
–
–
–
5.4%
100.0%
8.8%
0.1%
0.7%
–
–
62.8%
–
0.2%
27.4%
100.0%
Total
2017
£m
1,175.9
30.0
(1.7)
20.7
14.2
0.1
(54.6)
(51.2)
–
(4.2)
1,129.2
Total
2017
7.1%
–
0.7%
–
–
51.4%
18.2%
–
22.6%
100.0%
The investments shown as quoted equities and bonds are held through funds where the underlying investments of the fund
are quoted. Investment funds and other assets include equities, bonds, property, derivatives and liability driven investments.
Virtually all the equities and bonds held within the investment funds have prices in active markets. Derivatives and liability
driven investments can be classified as Level 2 instruments and property as Level 3 instruments.
The schemes had no directly held employer related investment during the reporting period. The schemes’ investment managers
may potentially hold a small investment in Inchcape plc either through index weightings or stock selection (less than 0.5% of
their respective fund values).
Inchcape Annual Report and Accounts 2018 133
www.inchcape.com
133
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
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 assets as defensive
assets (liability driven investment solutions, absolute return bonds and annuity policies) 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 Trustees reduce investment risk by increasing the allocation to defensive assets, which are
designed to better match scheme liabilities. However, the Trustees believe 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.
The Group’s investment strategy across the schemes is to mitigate inflation risk through holding inflation-linked assets.
Life expectancy
Where relevant, 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 schemes 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%
Life expectancy + 1 year
United Kingdom
2018
£m
+31.2
-29.3
-17.8
+19.8
+29.4
2017
£m
+44.8
-42.1
-28.8
+29.6
+39.3
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 £2.8m to its UK defined benefit plans in 2019 on top of the ongoing employer
contributions for the open Cash+ section. 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.
134
134
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
6 FINANCE INCOME
Bank and other interest receivable
Net interest income on post-retirement plan assets and liabilities
Other finance income
Total finance income
7 FINANCE COSTS
Interest payable on bank borrowings
Interest payable on Private Placement
Interest payable on other borrowings
Fair value adjustment on Private Placement
Fair value (gain) / loss on cross currency interest rate swaps
Stock holding interest (see note 20)
Other finance costs
Capitalised borrowing costs
Total finance costs
Total finance costs are analysed as follows:
Finance costs before exceptional finance costs
Exceptional finance costs1
Total finance costs
2018
£m
12.7
1.7
4.9
19.3
2018
£m
11.5
7.1
0.2
17.1
(2.6)
25.2
3.6
(0.5)
61.6
47.7
13.9
61.6
2017
£m
7.2
1.4
6.0
14.6
2017
£m
7.7
6.0
0.2
(34.3)
33.1
24.3
2.7
(0.1)
39.6
39.6
–
39.6
1.
Included within finance costs is a fair value adjustment in relation to the Group’s Private Placement Loan Notes of £17.1m. Included within this
is a charge of £13.9m which represents a non-recurring correction to the fair value basis of assessment relating to prior periods. This amount has
been reported as an exceptional item in order to provide additional useful information regarding the Group’s underlying business performance.
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% (2017 – 2.0%).
Inchcape Annual Report and Accounts 2018 135
www.inchcape.com
135
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
8 TAX
Current tax:
– UK corporation tax
– Overseas tax
Adjustments to prior year liabilities:
– UK
– Overseas
Current tax
Deferred tax (note 16)
Total tax charge
The total tax charge is analysed as follows:
– Tax charge on profit before exceptional items
– Tax credit on exceptional items
Total tax charge
2018
£m
0.1
80.5
80.6
0.2
(1.4)
79.4
(2.5)
76.9
80.2
(3.3)
76.9
2017
£m
3.9
98.3
102.2
2.2
(0.5)
103.9
(10.5)
93.4
96.1
(2.7)
93.4
Details of the exceptional items for the year can be found in note 2. Not all of the exceptional items will be allowable for
tax purposes. Therefore the tax credit on exceptional items represents the total of the current and deferred tax on only
those elements that are assessed as allowable.
Factors affecting the tax expense for the year
The effective tax rate for the year after exceptional items is 58.2% (2017 – 25.3% restated). The underlying effective tax rate before
the impact of exceptional items is 22.5% (2017 – 25.2% restated). The weighted average tax rate is 29.7% (2017 – 24.0%). The
weighted average tax rate comprises the average statutory rates across the Group, weighted in proportion to accounting
profits and losses.
The table below explains the differences between the expected tax expense at the weighted average tax rate and the Group’s
total tax expense.
Profit before tax
Profit before tax multiplied by the weighted average tax rate of 29.7% (2017 – 24.0%)
Non-exceptional items
– Permanent differences
– Non-taxable income
– Prior year items
– (Recognition) / Derecognition of deferred tax assets
– Overseas tax audits and settlements
– Taxes on undistributed earnings
– Other items (including tax rate differentials and changes)
Exceptional items
– Goodwill impairment (see note 11)
– Restructuring costs
– Acquisition of businesses
– Exceptional finance costs (see note 7)
– Other asset impairment (see note 12)
Total tax charge
2018
£m
132.1
39.2
2017
£m
369.0
88.6
8.4
(4.7)
(1.5)
(3.1)
(3.6)
2.5
0.5
33.3
–
1.1
2.1
2.7
76.9
3.4
(3.5)
(0.8)
2.1
1.3
5.1
(3.2)
–
0.2
0.2
–
–
93.4
136
136
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
8 TAX CONTINUED
Factors affecting the tax expense of future years
Factors that could affect the Group’s future tax expense include the resolution of audits and disputes, changes in tax laws or
tax rates, the ability to utilise brought forward losses and business acquisitions and disposals. In addition, a change in profit mix
between low and high taxed jurisdictions will impact the Group’s future tax expense.
In October 2017 the EU Commission opened a formal State Aid investigation into an exemption within the UK’s current
Controlled Foreign Company (CFC) regime (introduced in 2013) for certain finance income. The investigation is ongoing, but if
the Commission ultimately concludes that the provisions do constitute State Aid then they would require the UK to recover any
such aid from affected parties. The Group has claimed the benefit of this exemption, and therefore may be adversely affected
by the outcome of the investigation. If the Commission were to conclude that the finance exemption within the UK’s CFC regime
constitutes State Aid and no other exemptions were available to the Group then, as at 31 December 2018, an estimated tax
liability of £5.0m plus interest would arise unless such a decision could be successfully challenged in the EU Courts. However,
no provision has been made in respect of this investigation since we believe that it is more likely than not that no additional
tax will ultimately be due.
The utilisation of brought forward tax losses or the recognition of deferred tax assets associated with such losses may also give
rise to tax charges or credits. The recognition of deferred tax assets, particularly in respect of tax losses, is based upon an
assessment of whether it is probable that there will be sufficient and suitable taxable profits in the relevant legal entity or tax
group against which to utilise the assets in the future. Judgement is required when determining probable future taxable profits.
More detail of the Group’s tax losses and deferred tax assets can be found in note 16.
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 Inchcape Employee Trust
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
2018
£m
55.2
(7.0)
48.2
221.4
269.6
11.6p
11.5p
65.0p
64.6p
2017
£m
275.6
(7.9)
267.7
9.9
277.6
64.3p
63.6p
66.7p
66.0p
2018
number
2017
number
415,090,366
417,209,998
(611,860)
414,478,506
2,883,558
(1,181,859)
416,028,139
4,735,677
417,362,064
420,763,816
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 Inchcape Employee Trust.
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 Inchcape
Employee Trust.
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.
Inchcape Annual Report and Accounts 2018 137
www.inchcape.com
137
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
10 DIVIDENDS
The following dividends were paid by the Group:
Interim dividend for the six months ended 30 June 2018 of 8.9p per share
(30 June 2017 – 7.9p per share)
Final dividend for the year ended 31 December 2017 of 18.9p per share
(31 December 2016 – 16.8p per share)
2018
£m
2017
£m
36.9
32.7
78.3
115.2
70.0
102.7
A final proposed dividend for the year ended 31 December 2018 of 17.9p per share amounting to £74.3m is subject to approval
by shareholders at the Annual General Meeting and has not been included as a liability as at 31 December 2018.
11 INTANGIBLE ASSETS
Cost
At 1 January 2017
Businesses acquired (see note 28)
Businesses sold
Additions
Disposals
Retirement of fully amortised assets not in use
Effect of foreign exchange rate changes
At 1 January 2018
Businesses acquired (see note 28)
Businesses sold
Additions
Disposals
Retirement of fully amortised assets not in use
Effect of foreign exchange rate changes
At 1 December 2018
Accumulated amortisation and impairment
At 1 January 2017
Amortisation charge for the year
Businesses sold
Disposals
Retirement of fully amortised assets not in use
Effect of foreign exchange rate changes
At 1 January 2018
Amortisation charge for the year
Impairment charge for the year
Disposals
Retirement of fully amortised assets not in use
Effect of foreign exchange rate changes
At 31 December 2018
Net book value at 31 December 2018
Net book value at 31 December 2017
Goodwill
£m
Distribution
agreements
£m
Computer
software
£m
Other
intangible
assets
£m
599.0
8.0
–
–
–
–
(2.0)
605.0
43.7
(0.7)
–
–
–
(13.8)
634.2
(214.0)
–
–
–
–
0.8
(213.2)
–
(175.0)
–
–
13.8
(374.4)
259.8
391.8
162.4
9.2
–
–
–
–
(0.9)
170.7
80.1
–
–
–
–
(1.0)
249.8
–
–
–
–
–
–
–
–
–
–
–
–
–
249.8
170.7
163.1
(0.4)
(0.3)
26.1
(0.2)
(4.3)
(1.8)
182.2
0.2
(0.1)
33.7
(0.3)
(0.3)
(1.3)
214.1
(96.9)
(13.8)
0.2
0.1
4.3
0.8
(105.3)
(14.1)
–
0.1
0.3
1.3
(117.7)
96.4
76.9
0.9
(0.9)
–
0.1
–
–
–
0.1
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
(0.1)
–
–
–
–
(0.1)
–
0.1
Total
£m
925.4
15.9
(0.3)
26.2
(0.2)
(4.3)
(4.7)
958.0
124.0
(0.8)
33.7
(0.3)
(0.3)
(16.1)
1,098.2
(310.9)
(13.8)
0.2
0.1
4.3
1.6
(318.5)
(14.2)
(175.0)
0.1
0.3
15.1
(492.2)
606.0
639.5
As at 31 December 2018, capitalised borrowing costs of £nil (2017 – £nil) were included within ‘computer software’. No
borrowing costs were capitalised during the year (2017 – £nil).
138
138
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
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.
The carrying amount of goodwill has been allocated to CGU groups within the following reporting segments:
Reporting segment
UK and Europe Retail
Emerging Markets Distribution
Asia
Australasia Retail
Australasia Distribution
Discount rate
Long-term
growth rate CGU group
9.8%
12.9%
to
14.8%
9.5%
2.0%
UK Retail
2.5%
South America
Central America
Kenya
2.0%
Singapore
10.5%
2.0%
Australia Retail
Peugeot Citroën Australia
2018
£m
90.3
51.4
46.6
1.1
23.3
45.2
1.9
2017
£m
265.7
54.7
–
–
22.4
47.0
2.0
259.8
391.8
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 2018.
The recoverable amounts of all CGU groups were determined based on the higher of the fair value less costs to sell and 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, the level of working capital
required to support trading and capital expenditure, and have been based on past experience, recent trading and expectations
of future changes in the operation of the business and changes in the relevant markets. They also reflect expectations about
continuing relationships with key brand partners.
For CGU groups in Emerging Markets, cash flows after the five-year period are extrapolated for a further five years using declining
growth rates which reduces the year five growth rate down to the long-term growth rate of 2.5%, to better reflect the medium-term
growth expectations for those markets. A terminal value calculation is used to estimate the cash flows after year ten using these
long-term growth rates. For all other markets, a terminal value calculation is used to estimate the cash flows after year five.
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.
Impairment
The Group has previously reported that the headroom attributable to the UK Retail CGU group was 24% (£144m) as at
31 December 2017 and that this had declined to 8% (£46m) as at 30 June 2018. During 2018, the UK New car market declined
by 6.8% (source: SMMT), continuing the weak trend from 2017, with the sale of diesel vehicles down 29.6%. In addition, the supply
imbalance and the elevated level of pre-registration activity resulted in pressure on both New and Used margins.
In light of this and the recent performance of the Retail business in the UK, the Board has reassessed its short and medium-term
forecasts and has updated the impairment test for the UK Retail CGU group based on a value in use calculation. This calculation
used cash flow projections based on revised five-year financial forecasts prepared by management. The key assumptions for
these forecasts were those relating to volumes, gross margins, the level of working capital required to support trading and capital
expenditure and have been based on past experience, recent trading and expectations of future changes in the market,
consistent with external sources of information. Due to significant uncertainty around the mechanisms for the UK leaving the
European Union, these forecasts assume a non-disorderly exit. The medium-term forecast for UK Retail assumes that the New
vehicle gross margin will increase to 7.2% by 2023 consistent with the average achieved over the period 2013 to 2017.
A terminal value calculation was used to estimate the cash flows after year five using a long-term growth rate of 2.0% (2017 – 2.0%).
These cash flows were then discounted back to present value using a pre-tax risk adjusted discount rate of 9.8% (2017 – 9.8%).
Inchcape Annual Report and Accounts 2018 139
www.inchcape.com
139
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
11 INTANGIBLE ASSETS CONTINUED
The results of the impairment review indicated that the value in use calculation was less than the carrying value of the assets
attributable to the UK Retail CGU group and an impairment charge of £175m should be recognised. The forecasts are sensitive
to changes in the key assumptions used. In addition, they are sensitive to a more disruptive consequence on the industry
following a disorderly exit from the European Union. The table below shows the sensitivity of the value in use calculations to
possible changes in the more sensitive assumptions while holding all other assumptions constant.
New vehicle margins
Used vehicle margins
Aftersales gross margins
Overheads
Increase /
(decrease) in
assumption
+/-20bps
+/-20bps
+/-150bps
+/-50bps
Effect on
value-in-use
calculation
£m
+/-£40m
+/-£35m
+/-£40m
-/+£20m
In light of the sensitivity of the value in use calculations to changes in the key assumptions, the Directors intend to review the
carrying value of UK Retail goodwill on a regular basis.
Sensitivities
The Group’s value in use calculations for the remaining CGU groups are sensitive to a change in the key assumptions
used. However, with the exception of UK Retail, a reasonably possible change in a key assumption will not cause a material
impairment of goodwill in any of the CGU groups.
Distribution agreements
Distribution agreements with indefinite useful lives are also subject to impairment testing annually, or more frequently
where there are indications that they may be impaired.
The recoverable amounts of the Distribution agreements 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 and 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 for each market using declining growth rates which reduces the year five
growth rate down to the long-term growth rate for each market of between 2.5% and 2.0%. A terminal value calculation is used
to estimate the cash flows after year ten using these long-term growth rates.
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 15% and reflect long-term country risk.
140
140
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
12 PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 January 2017
Adjustment for IFRS 15
At 1 January 2017 (restated)
Businesses acquired
Businesses sold
Additions
Disposals
Transferred to inventory
Retirement of fully depreciated assets not in use
Reclassified to assets held for sale (note 19)
Effect of foreign exchange rate changes
At 1 January 2018 (restated)
Businesses acquired
Businesses sold
Additions
Disposals
Reclassifications
Transferred to inventory
Retirement of fully depreciated assets not in use
Reclassified to assets held for sale (note 19)
Effect of foreign exchange rate changes
At 31 December 2018
Accumulated depreciation and impairment
At 1 January 2017
Adjustment for IFRS 15
At 1 January 2017 (restated)
Businesses sold
Depreciation charge for the year
Disposals
Transferred to inventory
Retirement of fully depreciated assets not in use
Reclassified to assets held for sale (note 19)
Effect of foreign exchange rate changes
At 1 January 2018 (restated)
Businesses sold
Depreciation charge for the year
Impairment charge for the year
Disposals
Reclassifications
Transferred to inventory
Retirement of fully depreciated assets not in use
Effect of foreign exchange rate changes
At 31 December 2018
Net book value at 31 December 2018
Net book value at 31 December 2017
Plant,
machinery
and
equipment
£m
Land and
buildings
£m
799.3
–
799.3
0.8
(3.4)
68.0
(12.9)
–
–
(16.1)
(12.6)
823.1
40.5
(5.7)
54.0
(16.7)
7.2
–
(0.3)
(4.9)
(7.9)
889.3
(160.9)
–
(160.9)
1.3
(19.3)
3.3
–
–
4.4
2.1
(169.1)
0.8
(19.9)
(23.2)
6.7
–
–
0.3
0.8
236.7
–
236.7
(0.4)
(0.8)
36.4
(15.0)
(1.4)
0.4
–
(8.8)
247.1
2.7
(1.2)
36.1
(17.9)
(6.5)
(1.4)
(1.8)
–
1.0
258.1
(151.4)
–
(151.4)
0.6
(24.5)
10.5
0.7
(0.4)
–
5.2
(159.3)
0.6
(24.0)
–
13.3
(0.4)
0.7
1.8
(0.5)
Subtotal
£m
1,036.0
–
1,036.0
0.4
(4.2)
104.4
(27.9)
(1.4)
0.4
(16.1)
(21.4)
1,070.2
43.2
(6.9)
90.1
(34.6)
0.7
(1.4)
(2.1)
(4.9)
(6.9)
1,147.4
(312.3)
–
(312.3)
1.9
(43.8)
13.8
0.7
(0.4)
4.4
7.3
(328.4)
1.4
(43.9)
(23.2)
20.0
(0.4)
0.7
2.1
0.3
(203.6)
(167.8)
(371.4)
685.7
654.0
90.3
87.8
776.0
741.8
Interest
in leased
vehicles
£m
76.4
(7.1)
69.3
–
–
18.6
–
(21.8)
–
–
(1.7)
64.4
3.7
–
18.7
–
(0.7)
(23.4)
–
–
1.4
64.1
(21.5)
0.8
(20.7)
–
(8.9)
–
11.1
–
–
0.7
(17.8)
–
(7.2)
–
–
0.4
7.9
–
(0.5)
(17.2)
46.9
46.6
Total
£m
1,112.4
(7.1)
1,105.3
0.4
(4.2)
123.0
(27.9)
(23.2)
0.4
(16.1)
(23.1)
1,134.6
46.9
(6.9)
108.8
(34.6)
–
(24.8)
(2.1)
(4.9)
(5.5)
1,211.5
(333.8)
0.8
(333.0)
1.9
(52.7)
13.8
11.8
(0.4)
4.4
8.0
(346.2)
1.4
(51.1)
(23.2)
20.0
–
8.6
2.1
(0.2)
(388.6)
822.9
788.4
The asset impairments of £23.2m, which arose following an impairment review of certain site-based assets in the UK and Europe,
are included within exceptional items (refer note 2).
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.
Inchcape Annual Report and Accounts 2018 141
www.inchcape.com
141
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
12 PROPERTY, PLANT AND EQUIPMENT CONTINUED
Assets held under finance leases have the following net book values:
Leasehold buildings
Plant, machinery and equipment
The book value of land and buildings is analysed between:
Freehold
Leasehold with over 50 years unexpired
Short leasehold
2018
£m
0.8
0.4
1.2
2018
£m
484.9
47.4
153.4
685.7
2017
£m
0.9
–
0.9
2017
£m
445.8
43.8
164.4
654.0
Land and buildings includes properties with a net book value of £12.3m (2017 – £10.8m) that are let to third parties on a short-
term basis.
As at 31 December 2018, £5.6m (2017 – £5.1m) of capitalised borrowing costs were included within ‘land and buildings’, £0.5m
of which was capitalised in 2018 (2017 – £0.1m).
13 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
Details of the interests held by the Group in joint ventures and associates can be found in note 15 to the Inchcape Plc
Company financial statements on pages 175 to 183. Amounts recognised in the statement of financial position in respect
of joint ventures and associates are as follows:
2018
£m
4.2
0.1
–
4.3
2018
£m
–
10.1
10.1
(1.5)
–
(1.5)
8.6
2018
£m
0.2
–
0.2
–
0.2
2017
£m
4.1
–
0.1
4.2
2017
£m
–
9.9
9.9
(1.5)
–
(1.5)
8.4
2017
£m
–
–
–
–
–
At 1 January
Share of profit after tax of joint ventures and associates
Effect of foreign exchange rate changes
At 31 December
Net assets of joint ventures and associates
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Results of joint ventures and associates
Revenue
Expenses
Profit before tax
Tax
Profit after tax of joint ventures and associates
142
142
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
13 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES CONTINUED
Summarised financial information of joint ventures and associates
Opening net assets at 1 January
Profit for the year
Other comprehensive income for the year
Closing net assets at 31 December
Carrying value of interest in joint ventures and associates
2018
£m
8.4
0.2
–
8.6
2017
£m
8.2
–
0.2
8.4
4.3
4.2
As at 31 December 2018, no guarantees were provided in respect of joint ventures and associates’ borrowings (2017 – £nil).
14 AVAILABLE FOR SALE FINANCIAL ASSETS
At 1 January
Businesses acquired
Additions
Disposals
Effect of foreign exchange rate changes
At 31 December
Analysed as:
Current
Non-current
Assets held are analysed as follows:
Equity securities
Bonds
Other
2018
£m
7.5
–
0.6
(0.5)
(0.2)
7.4
2018
£m
0.8
6.6
7.4
2018
£m
7.2
–
0.2
7.4
2017
£m
3.8
4.4
–
(0.1)
(0.6)
7.5
2017
£m
0.2
7.3
7.5
2017
£m
6.3
0.5
0.7
7.5
‘Equity securities’ includes a 15% equity interest in Hino Motors Manufacturing Company SAS.
‘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.
Inchcape Annual Report and Accounts 2018 143
www.inchcape.com
143
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
15 TRADE AND OTHER RECEIVABLES
Trade receivables
Less: provision for impairment of trade receivables
Net trade receivables
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:
Current
2017
(Restated)
£m
309.4
(10.2)
299.2
123.2
42.6
465.0
2018
£m
337.4
(11.4)
326.0
127.5
59.3
512.8
Non-current
2017
(Restated)
£m
–
–
–
51.1
7.9
59.0
2017
£m
(8.6)
(1.9)
(1.6)
0.3
1.2
0.4
(10.2)
2018
£m
10.0
–
10.0
49.8
11.1
70.9
2018
£m
(10.2)
(1.7)
(1.3)
1.2
0.7
(0.1)
(11.4)
2018
2017
Neither past
due nor
impaired
£m
252.4
195.1
Total
£m
347.4
309.4
Past due but not impaired
0 – 30 days
£m
30 – 90 days
£m
> 90 days
£m
Impaired
£m
47.0
54.0
21.9
29.0
14.7
21.1
11.4
10.2
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.
144
144
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
16 DEFERRED TAX
Net deferred tax (liability) / asset
At 1 January 2018
Adjustment for IFRS 15
At 1 January 2018 (restated)
Credited / (Charged) to the
consolidated income statement
(Charged) / credited to equity and
other comprehensive income
Businesses acquired / disposed
Effect of foreign exchange rate
changes
At 31 December 2018
Analysed as:
Deferred tax assets
Deferred tax liabilities
Pension and
other post-
retirement
benefits
£m
Cash flow
hedges
£m
Share-based
payments
£m
(16.6)
2.7
3.2
Tax
losses
£m
8.2
Accelerated
tax
depreciation
£m
(2.8)
(16.6)
2.7
3.2
8.2
(2.8)
Provisions
and other
timing
differences
£m
Distribution
agreements
£m
13.7
(0.4)
13.3
(49.9)
(49.9)
Total
£m
(41.5)
(0.4)
(41.9)
2.3
(0.2)
(1.0)
3.7
0.7
(3.0)
–
2.5
(0.1)
–
–
(14.4)
(5.8)
–
(0.1)
(3.4)
(0.2)
–
–
(0.5)
–
2.0
(0.3)
11.1
–
(2.7)
–
(4.8)
–
2.6
–
(23.6)
(6.1)
(24.2)
(0.2)
12.7
0.4
(73.1)
(0.2)
(69.9)
2018
£m
30.8
(100.7)
(69.9)
2017
(Restated)
£m
36.7
(78.6)
(41.9)
Measured at relevant local statutory rates, the Group has an unrecognised deferred tax asset of £29m (2017 – £36m) relating
to tax relief on trading losses. The unrecognised asset represents £140m (2017 – £174m) of losses which exist within legal entities
where forecast taxable profits are not probable in the foreseeable future.
The Group has unrecognised deferred tax assets of £23m (2017 – £23m) relating to capital losses. The asset represents £136m
(2017 – £136m) of losses at the UK standard rate of 17.0% (2017 – 17.0%). The key territory holding the losses is the UK.
No deferred tax is recognised on unremitted earnings of overseas subsidiaries on the basis that the Group can control the
timing of dividends. In addition, the 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. This principally relates to Ethiopia where dividend tax
of £2.5m (2017 – £3.3m) is accrued based on current year after tax earnings.
The net deferred tax asset on provisions and other timing differences is principally made up of a deferred tax liability on
non-qualifying property £12.5m (2017 – £13.8m) offset by deferred tax assets on trade related accounting provisions in
the Group’s operating companies £25.2m (2017 – £27.1m restated).
The deferred tax liability on distribution agreements of £73.1m (2017 – £49.9m) has been recorded as a result of the business
acquisitions during 2016 & 2018.
The deferred tax asset on tax trading losses of £11.1m (2017 – £8.2m) relates to territories and entities where future taxable
profits are considered probable.
Inchcape Annual Report and Accounts 2018 145
www.inchcape.com
145
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
17 INVENTORIES
Raw materials and work in progress
Finished goods and merchandise
2018
£m
31.0
1,820.9
1,851.9
2017
£m
20.3
1,748.3
1,768.6
Vehicles held on consignment which are in substance assets of the Group amount to £205.6m (2017 – £189.5m). These have
been included in ‘finished goods and merchandise’ with the corresponding liability included within ‘trade and other payables’.
Payment becomes due when title passes to the Group, which is generally the earlier of six months from delivery or the date
of sale.
An amount of £49.9m (2017 – £56.5m) 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 £7,466.7m (2017 – £7,173.0m). The write-down of inventory to net realisable
value recognised as an expense during the year was £57.9m (2017 – £47.7m). 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
2018
£m
370.3
219.0
589.3
2017
£m
820.0
106.9
926.9
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 2018, the weighted
average floating rate was 0.45% (2017 – 0.3%).
£100.1m (2017 – £67.3m) of cash and cash equivalents is held in countries where prior approval is required to transfer funds
abroad, and currency may not be available locally to effect such transfers.
At 31 December 2018, short-term deposits have a weighted average period to maturity of 20 days (2017 – 21 days).
19 ASSETS HELD FOR SALE
Assets held for sale
2018
£m
8.9
2017
£m
13.8
Assets held for sale relate to surplus properties within the UK, Russia and Colombia which are actively marketed with a view to sale.
146
146
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
20 TRADE AND OTHER PAYABLES
Trade payables
Payments received on account
Vehicle funding agreements
Other taxation and social security payable
Accruals and deferred income
Amounts payable to related parties
Other payables
Current
2017
(Restated)
£m
232.4
75.6
1,547.8
58.2
302.1
0.1
18.4
2,234.6
2018
£m
225.0
87.7
1,621.6
62.7
339.9
0.1
19.5
2,356.5
Non-current
2017
(Restated)
£m
4.0
1.0
–
–
50.8
–
3.1
58.9
2018
£m
3.5
3.7
–
–
58.0
–
2.1
63.7
The Group finances the purchase of New vehicles for sale and a portion of Used vehicle inventories using vehicle funding
facilities provided by various lenders including the captive finance companies associated with brand partners. Such
arrangements generally are uncommitted facilities, have a maturity of 90 days or less and the Group is normally required to
repay amounts outstanding on the earlier of the sale of the vehicles that have been funded under the facilities or the stated
maturity date. Related cash flows are reported within cash flows from operating activities within the consolidated statement
of cash flows.
Vehicle funding facilities are subject to LIBOR-based (or similar) interest rates. The interest incurred under these arrangements is
included within finance costs and classified as stock holding interest (see note 7). At 31 December 2018, amounts outstanding
under vehicle funding facilities and on which interest was payable were subject to a weighted average interest rate of 2.5%
(2017 – 2.3%).
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.
Included within accruals and deferred income are the following balances:
Extended warranties
Service packages
Other services
Analysed as:
Current
Non-current
2018
£m
42.0
34.0
45.7
121.7
2018
£m
63.7
58.0
121.7
2017
£m
31.2
29.9
26.9
88.0
2017
£m
37.2
50.8
88.0
Extended warranties
Certain Group companies provide extended warranties to customers over and above those provided by the manufacturer
and act as the principal in the supply of the warranty service. The periods covered are up to six years and / or specific mileage
limits. A proportion of revenue is allocated to the extended warranty obligation and deferred to the balance sheet. The revenue
is subsequently recognised over time along with the costs incurred in fulfilling any warranty obligations.
Service packages
Certain Group companies provide service packages to customers as part of the total vehicle package. Where the Group
acts as principal, the value of the additional services is separately identified, deducted from revenue and recognised as
deferred income on the balance sheet. It is subsequently recognised as revenue when the service is provided.
Other services
Certain Group companies provide other services as part of the total vehicle package (e.g. road side assistance, fuel coupons
etc). Where the Group acts as principal, the value of the additional services is separately identified, deducted from revenue
and recognised as deferred income on the balance sheet. It is subsequently recognised as revenue over the period to which
the service relates.
Inchcape Annual Report and Accounts 2018 147
www.inchcape.com
147
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
21 PROVISIONS
At 1 January 2018
Adjustment for IFRS 15
At 1 January 2018 (restated)
Businesses acquired
Charged to the consolidated income statement
Released to the consolidated income statement
Effect of unwinding of discount factor
Utilised during the year
Effect of foreign exchange rate changes
At 31 December 2018
Analysed as:
Current
Non-current
Product
warranty
£m
Vacant
leasehold
£m
Litigation
£m
37.3
(26.8)
10.5
–
3.2
(2.3)
0.1
(2.2)
(0.3)
9.0
1.7
–
1.7
–
0.8
(0.4)
–
(1.4)
–
0.7
1.6
–
1.6
–
0.3
(0.1)
–
(0.3)
–
1.5
Other
£m
18.9
–
18.9
2.5
5.0
(2.1)
–
(3.0)
0.5
21.8
2018
£m
18.5
14.5
33.0
Total
£m
59.5
(26.8)
32.7
2.5
9.3
(4.9)
0.1
(6.9)
0.2
33.0
2017
(Restated)
£m
21.2
11.5
32.7
Product warranty
Certain Group companies provide assurance warranties as part of the sale of a vehicle. These are not separable products.
The warranty periods covered are up to three 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, Australia and Hong Kong. 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 ten years.
Litigation
This includes a number of litigation provisions in respect of claims that have been brought against various Group companies.
The claims are generally expected to be concluded within the next three 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.
148
148
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
22 BORROWINGS
2018
Current
Bank overdrafts
Bank loans
Private Placement
Other loans
Finance leases
Non-current
Bank loans
Private Placement
Finance leases
Total borrowings
Floating rate
Weighted
average
effective
interest rate
%
0.8
1.0
1.5
–
–
1.1
–
–
–
–
1.1
£m
125.9
163.6
127.4
–
–
416.9
–
–
–
–
416.9
£m
–
–
–
–
0.1
0.1
–
210.0
1.7
211.7
211.8
Fixed rate
Weighted
average
effective
interest rate
%
Total interest
bearing
£m
On which
no interest
is paid
£m
–
–
–
–
7.0
7.0
–
3.0
7.0
3.0
3.0
125.9
163.6
127.4
–
0.1
417.0
–
210.0
1.7
211.7
628.7
–
–
–
0.1
–
0.1
–
–
–
–
0.1
Bank overdrafts include £125.9m (2017 – £508.0m) held in cash pooling arrangements which have not been offset in the
consolidated statement of financial position (see note 23b).
2017
Current
Bank overdrafts
Bank loans
Finance leases
Non-current
Bank loans
Private Placement
Finance leases
Total borrowings
Floating rate
Weighted
average
effective
interest rate
%
0.5
1.1
–
0.5
0.9
1.1
–
1.0
0.6
£m
510.3
19.9
–
530.2
37.0
109.4
–
146.4
676.6
Fixed rate
Weighted
average
effective
interest rate
%
Total interest
bearing
£m
On which
no interest
is paid
£m
–
5.3
3.7
4.7
5.3
3.0
7.0
3.1
3.1
510.3
22.5
1.7
534.5
41.1
319.4
1.4
361.9
896.4
–
–
–
–
–
–
–
–
–
£m
–
2.6
1.7
4.3
4.1
210.0
1.4
215.5
219.8
2018
Total
£m
125.9
163.6
127.4
0.1
0.1
417.1
–
210.0
1.7
211.7
628.8
2017
Total
£m
510.3
22.5
1.7
534.5
41.1
319.4
1.4
361.9
896.4
The above analysis is presented after taking account of the cross currency fixed to floating interest rate swap on the US dollar
Private Placement loan notes of US$161m (2017 – US$161m).
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 £210m Sterling Private Placement loan notes are held at amortised cost. They have a fair value of £208.6m (2017 – £215.0m)
calculated from discounted cashflow techniques obtained using discount rates from observable market data, which is a level 2
Valuation technique. The fair values of the Group's other borrowings are not considered to be materially different from their
book value.
£38.2m of the Group’s bank loans are secured by term deposits placed under a standby letter of credit and related facility
arrangements (2017 – £15.6m). The Group’s bank overdrafts are secured by related offsetting cash balances held under
pooling arrangements. The Group’s remaining borrowings are unsecured.
At 31 December 2018, the committed funding facilities of the Group comprised a syndicated revolving credit facility of
£400m (2017 – £400m), bilateral revolving credit facilities of £221m (2017 – £101m), US dollar Private Placement loan notes
totalling US$161m (2017 – US$161m) and sterling Private Placement loan notes totalling £210m (2017 – £210m).
The £400m syndicated revolving credit facility was entered into in January 2015 and after exercising extension options the expiry
date is January 2022. At 31 December 2018, £nil of the £400m was drawn down (2017 – £25m). Three bilateral revolving credit
facilities totalling £101m were entered into in 2017, with expiry dates of January 2022, and were undrawn as at 31 December
2018 (2017 – £12m drawn). In March 2018, a further bilateral revolving credit facility totalling £120m was entered into with an
expiry date of September 2019 and this facility was fully drawn at 31 December 2018.
Inchcape Annual Report and Accounts 2018 149
www.inchcape.com
149
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
22 BORROWINGS CONTINUED
In February 2019, the syndicated revolving credit facility and the three bilateral revolving credit facilities totalling £101m
were replaced with a syndicated revolving credit facility of £700m with an initial expiry date of February 2024 and options
to renew until 2026.
In December 2016, the Group concluded a US Private Placement transaction raising £210m to refinance existing US Private
Placement borrowings which matured in May 2017. The amounts drawn under these facilities are as follows:
Maturity date
Amount drawn
Fixed rate coupon
May 2024
£70m
2.85%
May 2027
£30m
3.02%
May 2027
£70m
3.12%
May 2029
£40m
3.10%
All of the Group’s remaining US$161m US dollar Private Placement loan notes are swapped into Sterling and are all repayable in
May 2019.
The table below sets out the maturity profile of the Group’s existing borrowings that are exposed to interest rate risk. This analysis
is presented after taking account of the cross currency fixed to floating interest rate swap on US$161m (2017 – US$161m) of the
Private Placement.
2018
Fixed rate
Bank loans
Private Placement
Finance leases
Floating rate
Bank overdrafts
Bank loans
Private Placement
2017
Fixed rate
Bank loans
Private Placement
Finance leases
Floating rate
Bank overdrafts
Bank loans
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
–
–
0.1
121.7
163.6
127.4
–
–
0.1
–
–
–
–
–
0.1
–
–
–
–
–
0.3
–
–
–
–
–
1.2
–
–
–
–
210.0
–
–
–
–
–
210.0
1.8
121.7
163.7
127.4
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
2.6
–
1.7
510.3
19.9
–
2.8
–
–
–
–
109.4
1.3
–
0.1
–
–
–
–
–
0.1
–
–
–
–
–
0.1
–
37.0
–
–
210.0
1.1
–
–
–
6.7
210.0
3.1
510.3
56.9
109.4
150
150
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
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. Group policy is that there is no trading or speculation in derivatives.
The main risks arising from the Group’s financial instruments are interest rate risk, currency risk, credit risk and liquidity risk.
a. Classification of financial instruments
2018
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
2017
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
Measured at
fair value
through other
comprehensive
income
£m
Measured at
fair value
through profit
or loss
£m
Measured at
amortised cost
£m
–
397.6
–
589.3
986.9
(2,225.7)
–
(628.8)
(2,854.5)
(1,867.6)
7.4
–
16.8
–
24.2
–
(1.2)
–
(1.2)
23.0
–
419.0
–
926.9
1,345.9
(2,068.2)
–
(896.4)
(2,964.6)
(1,618.7)
7.5
–
0.8
–
8.3
–
(7.4)
–
(7.4)
0.9
Total
£m
7.4
397.6
92.1
589.3
1,086.4
–
–
75.3
–
75.3
–
(12.1)
–
(12.1)
63.2
(2,225.7)
(13.3)
(628.8)
(2,867.8)
(1,781.4)
Total
£m
7.5
419.0
52.4
926.9
1,405.8
–
–
51.6
–
51.6
–
(14.2)
–
(14.2)
37.4
(2,068.2)
(21.6)
(896.4)
(2,986.2)
(1,580.4)
Measured at
fair value
through other
comprehensive
income
£m
Measured at
fair value
through profit or
loss
£m
Measured at
amortised cost
£m
Inchcape Annual Report and Accounts 2018 151
www.inchcape.com
151
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
23 FINANCIAL INSTRUMENTS CONTINUED
b. Offsetting financial assets and financial liabilities
The following financial assets are subject to offsetting, enforceable netting arrangements and similar agreements:
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
Financial
instruments
Related amounts not set off
in the statement of
financial position
As at 31 December 2018
Derivative financial assets
Cash and cash equivalents
Other receivables
Total
As at 31 December 2017
Derivative financial assets
Cash and cash equivalents
Other receivables
Total
£m
£m
£m
£m
98.4
589.3
–
687.7
56.9
926.9
1.0
984.8
(6.3)
–
–
(6.3)
(4.5)
–
(0.3)
(4.8)
92.1
589.3
–
681.4
52.4
926.9
0.7
980.0
(11.9)
(125.9)
–
(137.8)
(2.7)
(508.0)
–
(510.7)
The following financial liabilities are subject to offsetting, enforceable netting arrangements and similar agreements:
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
Financial
instruments
Related amounts not set
off in the statement of
financial position
As at 31 December 2018
Derivative financial liabilities
Bank overdrafts
Other payables
Total
As at 31 December 2017
Derivative financial liabilities
Bank overdrafts
Other payables
Total
£m
£m
£m
£m
(19.5)
(125.9)
–
(145.4)
(26.1)
(510.3)
(0.3)
(536.7)
6.3
–
–
6.3
4.5
–
0.3
4.8
(13.2)
(125.9)
–
(139.1)
(21.6)
(510.3)
–
(531.9)
11.9
125.9
–
137.8
2.7
508.0
–
510.7
Cash
collateral
received
£m
–
–
–
–
–
–
–
–
Net
amount
£m
80.2
463.4
–
543.6
49.7
418.9
0.7
469.3
Cash
collateral
paid
£m
Net
amount
£m
–
–
–
–
–
–
–
–
(1.3)
–
–
(1.3)
(18.9)
(2.3)
–
(21.2)
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.
152
152
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
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 Japanese yen exchange rate with both the Australian dollar and
Chilean peso.
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; and
• 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.
Instruments approved for the purpose of hedging interest rate risk 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 loan notes that expire in 2019, bank borrowings, supplier-related finance and the returns available
on surplus cash. In December 2016 the Group entered into agreements to issue new 3.0% fixed interest rate Private Placement
loan notes to refinance the floating rate loan notes that matured in May 2017 (see note 22).
Interest rate risk table
The following table demonstrates the sensitivity of the Group’s profit before tax to a reasonably possible change in interest rates
on bank borrowings, supplier related finance and cash balances as at 31 December 2018 with all other variables held constant.
2018
Sterling
Euro
Russian rouble
Australian dollar
US Dollar
2017
Sterling
Euro
Russian rouble
Australian dollar
Increase
in basis
points
Effect on profit
before tax
£m
75
50
500
100
75
75
50
500
100
(9.6)
0.1
0.4
1.2
0.9
(4.8)
–
(0.9)
(2.7)
Inchcape Annual Report and Accounts 2018 153
www.inchcape.com
153
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
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 in
that unit’s reporting currency. For a significant proportion of the Group these exposures are removed as trading is denominated
in the relevant local currency. In particular, local billing arrangements are in place for many of our businesses with our brand
partners. The principal exception is for our business in Australia which purchases vehicles in Japanese yen and our South and
Central American businesses which purchase vehicles in Japanese yen and US dollars.
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 IFRS 9 hedges are documented
and tested for the 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$161m
Private Placement (2017 – US$161m). The effective portion on the gain or loss of 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.
2018
Yen
Yen
2017
Yen
Yen
Increase /
(decrease) in
exchange
rate
Effect on
equity
£m
+10%
-10%
+10%
-10%
–
(0.1)
–
(0.1)
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 counterparty
AA-
A+
A
A-
BBB+
BBB-
No rating*
Derivative
assets
£m
43.4
32.5
–
12.0
0.9
0.1
3.2
92.1
2018
Short-term
deposits
£m
–
68.1
–
32.0
0.7
19.9
98.3
219.0
Derivative
assets
£m
2017
Short-term
deposits
£m
29.5
22.5
–
–
0.4
–
–
52.4
3.1
–
37.8
–
0.6
12.0
53.4
106.9
* Counterparties in certain markets in which the Group operates do not have a credit rating.
154
154
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
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, receivables and other financial assets is represented by their
carrying amount.
Total cash at bank of £370.3m (2017 – £820.0m) 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.
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.
The table below summarises the maturity profile of the Group's financial assets and liabilities at 31 December 2018 based on
contractual expected undiscounted cash flows:
2018
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
2017
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
573.7
356.2
0.2
24.7
954.8
(164.6)
(1,913.6)
(13.4)
(2,091.6)
(1,136.8)
Less than
3 months
£m
895.3
390.7
–
1.7
1,287.7
15.6
31.1
–
141.8
188.5
(253.6)
(299.2)
(76.4)
(629.2)
(440.7)
Between
3 to 12
months
£m
31.6
19.0
0.2
10.8
61.6
(516.0)
(1,981.1)
(12.5)
(2,509.6)
(1,221.9)
(31.9)
(79.5)
(12.4)
(123.8)
(62.2)
–
10.3
7.2
–
17.5
(25.9)
(12.9)
–
(38.8)
(21.3)
–
–
–
–
–
589.3
397.6
7.4
166.5
1,160.8
(229.7)
–
–
(229.7)
(229.7)
(673.8)
(2,225.7)
(89.8)
(2,989.3)
(1,828.5)
Between
1 to 5 years
£m
Greater than
5 years
£m
Total
£m
–
8.2
–
178.3
186.5
(173.2)
(7.6)
(131.4)
(312.2)
(125.7)
–
1.1
7.3
–
8.4
926.9
419.0
7.5
190.8
1,544.2
(242.5)
–
–
(242.5)
(234.1)
(963.6)
(2,068.2)
(156.3)
(3,188.1)
(1,643.9)
Inchcape Annual Report and Accounts 2018 155
www.inchcape.com
155
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
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
Level 3
£m
–
0.5
0.5
92.1
–
92.1
–
6.9
6.9
2018
Total
£m
92.1
7.4
99.5
Level 1
£m
Level 2
£m
Level 3
£m
–
1.3
1.3
52.4
–
52.4
–
6.2
6.2
2017
Total
£m
52.4
7.5
59.9
–
(13.3)
–
(13.3)
–
(21.6)
–
(21.6)
Level 1 represents the fair value of financial instruments that are traded in active markets and is based on quoted markets 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 2018.
The Group’s derivative financial instruments comprise the following:
Cross currency interest rate swaps
Forward foreign exchange contracts
2018
£m
52.2
39.9
92.1
Assets
2017
£m
49.7
2.7
52.4
2018
£m
–
(13.3)
(13.3)
Liabilities
2017
£m
–
(21.6)
(21.6)
The ineffective portion recognised in the consolidated income statement that arises from fair value hedges amounts to a loss
of £0.6m (2017 – Gain of £1.2m). The ineffective portion recognised in the consolidated income statement that arises from
cash flow hedges amounts to a gain of £nil (2017 – £nil).
156
156
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
23 FINANCIAL INSTRUMENTS CONTINUED
Cash flow hedges
The Group principally uses forward foreign exchange contracts to hedge purchases in a non-functional currency against
movements in exchange rates. The cash flows relating to these contracts are generally expected to occur within 12 months
(2017 – 12 months) of the end of the reporting period.
The nominal principal amount of the outstanding forward foreign exchange contracts relating to transactional exposures
at 31 December 2018 was £810.5m (2017 – £910.4m).
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 2018 are expected to be released to the consolidated income statement within
12 months of the end of the reporting period (2017 – 12 months).
Fair value hedge
At 31 December 2018, the Group had in place three cross currency interest rate swaps. Two of these total US$200m which
hedge changes in the fair value of the Group’s 12-year loan notes that are due to mature in May 2019. Under these swaps
the Group receives fixed rate US dollar interest of 6.04% on US$200m and pays LIBOR +90bps.
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 swaps. Under this swap the Group pays US dollar interest of 6.04% on US$39.2m and receives
LIBOR +214bps. 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 Group uses return on capital employed (ROCE) as a measure of its ability to drive better returns on the capital invested in
the Group’s operations.
Return on capital employed
2018
27.8%
2017
30.1%
The committed bank facilities and Private Placement borrowings are subject to the same interest cover covenant based on an
adjusted EBITA measure to interest on consolidated borrowings. The Group is required to maintain a ratio of not less than three
to one and was compliant with this covenant throughout the year.
The Group monitors Group leverage by reference to three tests: Adjusted EBITA interest cover, the ratio of net debt to EBITDA and
the ratio of net debt to market capitalisation.
Adjusted EBITA interest cover (times)*
Net debt to EBITDA (times)**
Net debt / market capitalisation (percentage)***
* Calculated as Adjusted EBITA / interest on consolidated borrowings.
** Calculated as net debt / earnings before exceptional items, interest, tax, depreciation and amortisation.
*** Calculated as net debt / market capitalisation as at 31 December.
2018
62.0
n/a
n/a
2017
60.0
n/a
n/a
Inchcape Annual Report and Accounts 2018 157
www.inchcape.com
157
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
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 buyback
At 31 December
2018
Number
2017
Number
415,018,286
109,167
–
415,127,453
421,004,809
142,505
(6,129,028)
415,018,286
2018
£m
41.6
–
–
41.6
2017
£m
42.2
–
(0.6)
41.6
b. Share buyback programme
During the year, there were no repurchases of own shares. In 2017, the Group repurchased 6,129,028 of its own shares through
purchases on the London Stock Exchange at a cost of £49.8m. The shares repurchased during the year were cancelled, with
none held within treasury shares at the end of the reporting period. An amount of £0.6m, equivalent to the nominal value of the
cancelled shares, was transferred to the capital redemption reserve. Costs of £0.4m associated with the transfer to the Group
of the repurchased shares and their subsequent cancellation were 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 27 February 2019
under the provisions of the Companies Act 2006 have been disclosed in the significant shareholdings section of the Corporate
Governance Report.
d. Share options
At 31 December 2018, 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)
2
3
19 May 2019
7 April 2020
– unapproved (Part I – UK)
1,000
1,612
– unapproved overseas (Part I – Overseas)
3,224
19 May 2019
7 April 2020
7 April 2020
The Inchcape SAYE Share Option Scheme
– approved
2.00 453,464
3.10 438,351
410,683
1,273,731
Recruitment and Retention Plan
1 May 2019
1 May 2020
1 May 2021
1 May 2022
2.00 74,504
3.10
3.10
10 April 2026
5.78
5.63
6.66
5.54
0.10
Included within the retained earnings reserve are 771,211 (2017 – 493,012) ordinary shares in the Company held by the
Inchcape Employee 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 2018 was £5.1m (2017 – £3.5m). The market
value of these shares at 31 December 2018 and 27 February 2019 was £4.3m and £4.6m respectively (31 December 2017 –
£3.9m, 26 February 2018 – £3.5m).
158
158
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
25 OTHER RESERVES
At 1 January 2017
Cash flow hedges:
– Fair value movements
– Reclassified and reported in inventories
– Tax on cash flow hedges
Effect of foreign exchange rate changes
At 1 January 2018
Cash flow hedges:
– Fair value movements
– Reclassified and reported in inventories
– Tax on cash flow hedges
Effect of foreign exchange rate changes
At 31 December 2018
1. See note 32.
Translation
reserve
(Restated)1
£m
Hedging
reserve
£m
Total other
reserves
(Restated)1
£m
0.2
(25.8)
(25.6)
–
–
–
(67.2)
(67.0)
–
–
–
(10.5)
(77.5)
30.5
(16.5)
(4.7)
–
(16.5)
38.7
(15.3)
(5.7)
–
1.2
30.5
(16.5)
(4.7)
(67.2)
(83.5)
38.7
(15.3)
(5.7)
(10.5)
(76.3)
The effect of foreign exchange rate changes includes a gain of £2.8m (2017 – gain of £2.0m) on the sale and liquidation of
overseas subsidiaries that has been reclassified to the consolidated income statement in accordance with IAS 21 The effects
of changes in foreign exchange rates.
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
Total comprehensive income attributable to owners of the parent for the year:
– Profit for the year
– Actuarial losses on defined pension benefits (note 5)
– Tax credited to reserves
Total comprehensive income for the year
Share-based payments, net of tax
Share buyback programme
Net purchase of own shares by Inchcape Employee Trust
Dividends paid (note 10)
At 31 December
1. See note 32.
2018
£m
2017
(Restated)1
£m
1,183.5
1,036.4
48.2
36.4
(6.2)
78.4
7.2
–
(12.6)
(115.2)
1,141.3
267.7
37.9
(5.5)
300.1
11.0
(50.2)
(11.1)
(102.7)
1,183.5
Inchcape Annual Report and Accounts 2018 159
www.inchcape.com
159
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
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 (see note 2)
Amortisation
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
Increase / (decrease) in provisions
Pension contributions less than the pension charge for the year*
Decrease / (increase) in interest in leased vehicles
Payments in respect of operating exceptional items
Other non-cash items
Cash generated from operations
*
Includes additional payments of £2.7m (2017 – £2.7m) and a return of surplus of £16.8m (2017 – £nil).
b. Reconciliation of net cash flow to movement in net funds
Net increase in cash and cash equivalents
Net cash (inflow) / outflow from borrowings and finance leases
Change in net cash and debt resulting from cash flows
Effect of foreign exchange rate changes on net cash and debt
Net movement in fair value
New finance leases
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 and cash equivalents as per the statement of financial position
Borrowings – disclosed as current liabilities
Add back: amounts treated as debt financing (see below)
Cash and cash equivalents as per the statement of cash flows
Debt financing
Borrowings – disclosed as current liabilities and treated as debt financing (see above)
Borrowings – disclosed as non-current liabilities
Fair value of cross currency interest rate swaps
Debt financing
Net funds
2018
£m
2017
£m
174.3
210.8
14.2
43.9
(2.1)
7.5
(41.5)
(14.2)
95.0
0.6
21.3
2.9
(10.1)
(1.1)
501.5
2018
£m
37.2
(33.8)
3.4
5.3
(14.5)
(0.5)
(61.2)
(67.5)
80.2
12.7
2018
£m
589.3
(417.1)
291.2
463.4
(291.2)
(211.7)
52.2
(450.7)
12.7
394.0
12.6
13.8
43.8
(10.6)
10.2
(239.6)
(36.1)
350.8
(6.1)
3.1
(1.4)
(32.1)
(2.0)
500.4
2017
£m
50.5
49.2
99.7
(47.2)
1.2
–
–
53.7
26.5
80.2
2017
£m
926.9
(534.5)
24.2
416.6
(24.2)
(361.9)
49.7
(336.4)
80.2
160
160
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
28 ACQUISITIONS AND DISPOSALS
a. Acquisitions
On 26 March 2018 the Group acquired the full share capital of Grupo Rudelman, an automotive Distribution business in
Central America focused on Suzuki, for a total cash consideration of £155.5m. The business was acquired to establish the
Group’s presence in markets with structural growth potential and to expand the partnership with Suzuki in a strategically
important region, adjacent to existing South American operations. The goodwill arising on the acquisition represents intangible
assets that do not qualify for separate recognition and the premium paid to establish the Group’s presence in Panama and
Costa Rica in order to provide a platform to deliver growth and returns far quicker than would otherwise have been achievable.
None of the goodwill is expected to be deductible for tax purposes.
Details of the provisional fair values of the identifiable assets and liabilities as at the date of acquisition are set out below:
Assets and liabilities acquired
Intangible assets
Distribution agreements recognised on acquisition (see note 11)
Property, plant and equipment
Tax assets
Inventory
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Provisions
Borrowings
Tax liabilities1
Net assets acquired
Goodwill
Purchase consideration
Acquisition book
values
Fair value
adjustments
Final fair values
£m
£m
£m
0.2
–
38.2
0.3
58.0
29.3
8.5
(17.0)
(0.9)
(61.2)
(1.7)
53.7
–
80.1
6.6
1.4
(1.6)
11.5
–
(2.1)
(1.6)
–
(34.6)
59.7
0.2
80.1
44.8
1.7
56.4
40.8
8.5
(19.1)
(2.5)
(61.2)
(36.3)
113.4
42.1
155.5
1
Includes deferred tax liabilities arising in connection with the Distribution agreements recognised on acquisition.
The acquired business contributed £140.4m revenue and £12.2m operating profit before exceptional items to the Group's
reported figures between the date of acquisition and 31 December 2018.
If the acquisition had occurred on 1 January 2018, the approximate revenue and operating profit before exceptional items
for the year ended 31 December 2018 of the Group would have been £9,322.4m and £387.2m respectively.
b. Other acquisitions
During the year, the Group also entered into a Distribution contract with Jaguar Land Rover to distribute the Jaguar and Land
Rover brands in Kenya, acquired one Lexus site in the UK and made a completion payment in relation to the acquisition of BMW
operations in Estonia. The total cost of these acquisitions was £5.7m with total goodwill arising on the transactions of £1.5m.
c. Disposals
In 2018, the Group disposed of its Jaguar Land Rover operations in Shaoxing and a dealership in the UK generating disposal
proceeds of £13.4m.
d. 2017 acquisitions and disposals
In 2017 the Group acquired premium automotive operations in Estonia, focused on exclusive distribution for BMW Group, from
United Motors AS, and entered into a Distribution contract with Groupe PSA to distribute the Peugeot and Citroen brands in
Australia. The total cost of these acquisitions was £19.3m. In addition, the Group also made a completion payment of £4.4m
in relation to the Subaru and Hino business in South America. The Group also disposed of its Lexus operations in Shanghai
generating disposal proceeds of £5.6m.
Inchcape Annual Report and Accounts 2018 161
www.inchcape.com
161
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
29 GUARANTEES AND CONTINGENCIES
Guarantees, performance bonds and contingent liabilities
2018
£m
77.4
2017
£m
101.4
Guarantees and contingencies largely comprise letters of credit issued on behalf of the Group in the ordinary course
of business.
The Group also has, in the ordinary course of business, commitments under foreign exchange instruments relating to the
hedging of transactional exposures (see note 23).
Franked Investment Income Group Litigation Order
Inchcape is a participant in an action in the United Kingdom against HM Revenue and Customs (HMRC) in the Franked
Investment Income Group Litigation Order (FII GLO). There are 25 corporate groups in the FII GLO. The action concerns
the treatment for UK corporate tax purposes of profits earned overseas and distributed to the UK.
As reported previously, the resolution of the test case in the FII GLO remains incomplete. Inchcape has in the meantime
joined an action at the High Court to establish whether judgment should be entered for non-test claims, also involving the
determination of some issues that do not arise in the test case. A positive judgment would result in the recovery by Inchcape
of amounts claimed from HMRC. However, this judgment would remain subject to the final conclusion of the test case and so
could be amended resulting in a reduction of the non-test case recoveries and thus a repayment to HMRC.
As at 31 December 2018, no further receipts have been recognised in relation to the balance of Inchcape’s claim in the FII GLO
due to the uncertainty of the eventual outcome given the test case has not yet completed nor has Inchcape’s specific claim
been heard by the Courts. In addition, following the judgment of the Supreme Court in Prudential Assurance Company Limited
v The Commissioners for HM Revenue and Customs in July 2018, there is uncertainty regarding the value of the claim and it is
likely to be lower than the previously reported amount (£35.8m).
Other matter
While this does not represent a contingent liability, we note that a class action has been brought against our subsidiary, Subaru
(Australia) Pty Limited, in connection with the global Takata airbag inflator recall. Subaru (Australia) Pty Limited is one of a
number of named defendants and is, along with others, taking steps to defend the action.
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
Computer software
2018
£m
20.6
0.4
2017
£m
41.3
–
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. None of these leases are considered to be individually significant.
Future minimum lease payments under non-cancellable operating leases are as follows:
Within one year
Between one and five years
After five years
2018
£m
67.6
177.5
185.1
430.2
2017
£m
70.7
171.2
168.8
410.7
Operating lease commitments – Group as lessor
The Group has entered into non-cancellable operating leases on a number of its vehicles and certain properties. 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
162
162
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
2018
£m
5.1
6.8
4.8
16.7
2017
£m
5.1
9.5
5.1
19.7
30 COMMITMENTS CONTINUED
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
2018
£m
0.2
1.0
1.9
3.1
(1.3)
1.8
2017
£m
1.8
0.6
1.9
4.3
(1.2)
3.1
c. Residual value commitments
The Group has entered into agreements with leasing companies and other third parties to repurchase vehicles for a specified
value at a predetermined date as follows:
Vehicles subject to residual value commitments
2018
£m
81.9
2017
£m
88.0
Residual value commitments comprise the total repurchase liability on all vehicles where the Group has a residual value
commitment. These commitments are largely expected to be settled over the next three years.
Where the repurchase commitment is in respect of a vehicle sold by the Group, the repurchase commitment is included
within ‘trade and other payables’. Included within the above are £6.8m (2017 – £12.8m) of residual value commitments
that are included within ‘trade and other payables’.
31 RELATED PARTY DISCLOSURES
a. 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:
Other income paid to related parties
Transactions
Amounts outstanding
2018
£m
0.8
2017
£m
0.6
2018
£m
0.1
2017
£m
0.1
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 (2017 – £nil).
b. 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
2018
£m
5.9
0.6
2.4
8.9
2017
£m
6.7
0.6
4.0
11.3
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.
Inchcape Annual Report and Accounts 2018 163
www.inchcape.com
163
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
32 RESTATEMENT ON INITIAL ADOPTION OF IFRS 15
The principal restatements as a result of the initial adoption of IFRS 15 Revenue from contracts with customers are set out in
the following tables.
The impacts on the consolidated income statement are:
Increase in revenue
Increase in cost of sales
Net decrease in gross profit, operating profit and profit before tax
Increase in tax charge
Decrease in profit for the period
Attributable to:
Owners of the parent
Non-controlling interests
The impacts on the consolidated statement of financial position are:
Increase in non-current assets
Increase in current assets
Increase in total assets
Decrease in current liabilities
Increase in non-current liabilities
Increase in total liabilities
Decrease in net assets and total equity
Attributable to:
Owners of the parent
Non-controlling interests
Year to
31 Dec 2017
£m
4.1
(5.0)
(0.9)
(0.3)
(1.2)
(1.2)
–
As at
31 Dec 2017
£m
0.3
1.5
1.8
6.9
(15.6)
(8.7)
(6.9)
(6.9)
–
Refer to Note 1 for details of the change in accounting policies arising from the adoption of IFRS 15.
33 FOREIGN CURRENCY TRANSLATION
The main exchange rates used for translation purposes are as follows:
Australian dollar
Chilean peso
Euro
Hong Kong dollar
Russian rouble
Singapore dollar
US dollar
Average rates
Year end rates
2018
2017
2018
2017
1.79
853.58
1.13
10.45
83.14
1.80
1.33
1.69
843.40
1.15
10.11
75.56
1.79
1.30
1.81
885.33
1.11
9.99
88.48
1.74
1.28
1.73
832.35
1.13
10.57
77.88
1.81
1.35
34 EVENTS AFTER THE REPORTING PERIOD
In February 2019, the syndicated revolving credit facility and the three bilateral revolving credit facilities totalling £101m were
replaced with a syndicated revolving credit facility of £700m with an initial expiry date of February 2024 and options to renew
until 2026.
Also in February 2019, the Group became the Distributor for BMW in Lithuania.
164
164
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
Alternative performance measures
ALTERNATIVE PERFORMANCE MEASURES
The Group assesses its performance using a variety of alternative performance measures which are not defined under
International Financial Reporting Standards. These provide insight into how the Board and Executive Committee monitor
the Group’s strategic and financial performance, and provide useful information on the underlying trends, performance
and position of the Group.
Performance measure
Definition
Why we measure it
Trading profit
Operating profit (before exceptional items) and
unallocated central costs. Refer to note 1.
A measure of the contribution of the Group’s
segmental performance.
Operating profit before
Exceptional items
Operating profit before exceptional items. Refer
to the consolidated income statement.
A key metric of the Group’s underlying business
performance.
Operating margin
Operating profit (before exceptional items)
divided by revenue.
Profit before tax &
exceptional items
Exceptional items
Represents the profit made after operating
and interest expense excluding the impact of
exceptional items and before tax is charged.
Refer to consolidated income statement.
Items that are charged or credited in the
consolidated income statement which are
material and non-recurring in nature. Refer
to note 2.
A key metric of operational efficiency, ensuring
that we are leveraging global scale to translate
sales growth into profit.
A key driver of delivering sustainable and
growing earnings to shareholders.
The separate reporting of exceptional items
helps provide additional useful information
regarding the Group’s underlying business
performance and is consistent with the way
that financial performance is measured by
the Board and the Executive Committee.
Free cash flow
Net cash flows from operating activities, before
exceptional cash flows, less normalised net
capital expenditure and dividends paid to non-
controlling interests. Refer to page 26.
A key driver of the Group’s ability to ‘Invest to
Accelerate Growth’ and to make distributions
to shareholders.
Return on capital
employed (ROCE)
Operating profit (before exceptional items)
divided by the average of opening and closing
capital employed, where capital employed is
defined as net assets less net funds.
A key measure of Ignite (Invest to Accelerate
Growth), ROCE is a measure of the Group’s ability
to drive better returns for investors on the capital
we invest.
Net funds / (debt)
Cash and cash equivalents less borrowings
adjusted for the fair value of derivatives that
hedge interest rate or currency risk on
borrowings. Refer to note 27.
A measure of the Group’s net indebtedness
that provides an indicator of the overall balance
sheet strength.
Net capital
expenditure
Cash outflows from the purchase of property,
plant, equipment and intangible assets less the
proceeds from the disposal of property, plant,
equipment and intangible assets. Refer to
page 26.
A measure of the net amount invested in
operational facilities in the period.
Constant currency
Presentation of reported results translated using
constant rates of exchange.
A measure of underlying business performance
which excludes the impact of changes in
exchange rates used for translation.
165
Inchcape plc Annual Report and Accounts 2018
Inchcape Annual Report and Accounts 2018 165
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Five year record
The information presented in the table below is prepared in accordance with IFRS, as in issue and effective at that year end date.
Consolidated income statement
Revenue
2018
£m
2017
£m
2016
£m
2015
£m
2014
£m
9,277.0
8,953.3
7,838.4
6,836.3
6,702.7
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
Exceptional finance costs
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
385.1
(210.8)
174.3
0.1
174.4
(28.4)
(13.9)
132.1
(80.2)
3.3
55.2
(7.0)
48.2
132.1
11.6p
356.8
65.0p
26.8p
406.6
(12.6)
394.0
–
394.0
(25.0)
–
369.0
(96.1)
2.7
275.6
(7.9)
267.7
369.0
64.6p
381.6
66.7p
26.8p
359.1
(81.6)
277.5
(0.1)
277.4
(9.6)
(9.6)
267.8
(88.0)
11.5
191.3
(6.9)
184.4
267.8
43.2p
349.4
59.6p
23.8p
324.7
(49.5)
275.2
0.7
275.9
(13.3)
(13.3)
262.6
(74.9)
(4.8)
182.9
(7.1)
175.8
262.6
39.8p
312.1
52.1p
20.9p
318.4
(47.4)
271.0
(1.9)
269.1
(13.3)
(13.3)
255.8
(68.6)
–
187.2
(7.6)
179.6
255.8
39.7p
303.2
50.2p
20.1p
1,658.0
(254.9)
1,403.1
12.7
1,415.8
1,641.0
(266.1)
1,374.6
80.2
1,447.9
1,563.4
(227.4)
1,336.0
26.5
1,362.5
1,259.1
(183.6)
1,075.5
166.4
1,241.9
1,341.2
(233.3)
1,107.9
210.2
1,318.1
Equity attributable to owners of the parent
Non-controlling interests
Total equity
1,392.3
23.5
1,415.8
1,427.3
20.6
1,447.9
1,343.9
18.6
1,362.5
1,219.0
22.9
1,241.9
1,292.9
25.2
1,318.1
166
Inchcape Annual Report and Accounts 2018
www.inchcape.com
166
Company statement of financial position
As at 31 December 2018
Non-current assets
Intangible assets
Property, plant and equipment
Investment in subsidiaries
Trade and other receivables – amounts falling due after more than one year
Current assets
Trade and other receivables – amounts due within one year
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables – amounts falling due within one year
Non-current liabilities
Trade and other payables – amounts falling due after more than one year
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium
Capital redemption reserve
Retained earnings
Total shareholders’ funds
Notes
2018
£m
2017
£m
3
4
5
6
6
7
8
9
11
13
13.8
1.5
1,576.9
211.1
1,803.3
176.4
0.9
177.3
1,980.6
20.1
1.5
1,649.1
330.2
2,000.9
54.2
6.3
60.5
2,061.4
(135.1)
(135.1)
(20.6)
(20.6)
–
(1,099.6) (1,145.5)
–
(1,099.6) (1,145.5)
(1,234.7) (1,166.1)
895.3
745.9
41.6
146.7
139.0
418.6
745.9
41.6
146.7
139.0
568.0
895.3
The Company reported a loss for the financial year ended 31 December 2018 of £29.1m (2017 – a loss of £13.0m). The financial
statements on pages 167 to 183 were approved by the Board of Directors on 27 February 2019 and were signed on its behalf by:
Stefan Bomhard
Group Chief Executive
Registered Number: 609782
Inchcape plc
Richard Howes
Chief Financial Officer
Inchcape Annual Report and Accounts 2018 167
www.inchcape.com
167
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Company statement of changes in equity
For the year ended 31 December 2018
At 1 January 2017
42.2
146.7
138.4
Notes
Share capital
£m
Share premium
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
734.8
Total
£m
1,062.1
(13.0)
(13.0)
(13.0)
(13.0)
(102.7)
(102.7)
(11.1)
(50.2)
10.2
568.0
(29.1)
(29.1)
(11.1)
(50.2)
10.2
895.3
(29.1)
(29.1)
(115.2)
(115.2)
–
–
–
–
–
–
146.7
–
–
–
–
–
–
–
0.6
–
139.0
–
–
–
–
–
146.7
–
–
139.0
(12.6)
7.5
418.6
(12.6)
7.5
745.9
Loss for the year
Total comprehensive loss for the year
Dividends
Net purchase of own shares by the Inchcape
Employee Trust
Share buyback programme
Share-based payments, net of tax
At 1 January 2018
Loss for the year
Total comprehensive loss for the year
Dividends
Net purchase of own shares by the Inchcape
Employee Trust
Share-based payments, net of tax
At 31 December 2018
14
13
14
–
–
–
–
(0.6)
–
41.6
–
–
–
–
–
41.6
Share-based payments include a net tax charge of £nil (2017 – £nil).
168
168
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
Accounting policies
GENERAL INFORMATION
These financial statements are prepared for Inchcape plc (the Company) for the year ended 31 December 2018.
The Company is the ultimate parent entity of the Inchcape Group (the Group).
BASIS OF PREPARATION
These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101).
The financial statements are prepared under the historical cost convention modified for fair values in accordance with
the Companies Act 2006. As permitted by Section 408 of the Companies Act 2006, no separate profit and loss account
is presented for the Company.
The preparation of financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates.
The Directors of Inchcape plc manage the Group’s risks at a group level rather than an individual business unit or company
level. Further information on these risks and uncertainties, in the context of the Group as a whole, are included within the
Group disclosures on pages 40 to 46.
The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements,
in accordance with FRS 101:
• Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payment’ (details of the number and weighted average exercise
price of share options, and how the fair value of goods and services received was determined)
• IFRS 7, ‘Financial Instruments: Disclosures’
• Paragraphs 91 to 99 of IFRS 13, ‘Fair value measurement’ (disclosure of valuation techniques and inputs used for fair
value measurement of assets and liabilities)
• Paragraph 38 of IAS 1, ‘Presentation of financial statements’ comparative information requirements in respect of:
• paragraph 73(e) of IAS 16, ‘Property, plant and equipment’;
• paragraph 118(e) of IAS 38, ‘Intangible assets’ (reconciliations between the carrying amount at the beginning and
end of the period)
• The following paragraphs of IAS 1, ‘Presentation of financial statements’:
• 10(d) (statement of cash flows),
• 10(f) (a statement of financial position as at the beginning of the preceding period when an entity applies an accounting
policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in
its financial statements),
• 16 (statement of compliance with all IFRS),
• 38A (requirement for minimum of two primary statements, including cash flow statements),
• 38B-D (additional comparative information),
• 40A-D (requirements for a third statement of financial position),
• 111 (cash flow statement information), and
• 134-136 (capital management disclosures)
• IAS 7, ‘Statement of cash flows’
• Paragraph 30 and 31 of IAS 8, ‘Accounting policies, changes in accounting estimates and errors’ (requirement for
the disclosure of information when an entity has not applied a new IFRS that has been issued but is not yet effective)
• Paragraph 17 of IAS 24, ‘Related party disclosures’ (key management compensation)
• The requirements in IAS 24, ‘Related party disclosures’ to disclose related party transactions entered into between two
or more members of a group.
GOING CONCERN
Having assessed the principal risks and the other matters discussed in connection with the viability statement, the Directors
have considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements.
FOREIGN CURRENCIES
Monetary assets and liabilities in foreign currencies are translated into Sterling at closing rates of exchange and differences
are taken to the income statement.
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.
Inchcape Annual Report and Accounts 2018 169
www.inchcape.com
169
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Accounting policies continued
OTHER INTANGIBLE ASSETS
Intangible assets, when acquired separately from a business (including computer software), are carried at cost less
accumulated amortisation and impairment losses. Costs comprise purchase price from third parties as well as internally
generated development costs where relevant. Amortisation is provided on a straight line basis to allocate the cost of the
asset over its estimated useful life, which in the case of computer software is eight years.
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 provided on a straight line basis to allocate the cost of the asset over its estimated useful life, which in the
case of computer hardware is five years.
DEFERRED TAX
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 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 Company 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 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.
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 income statement (together with a corresponding credit 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 Company revises its estimates of the number of awards that are expected to vest. The impact of any
revision is recognised in the 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 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.
FINANCIAL INSTRUMENTS
The Company’s policies on the recognition, measurement and presentation of financial instruments under IFRS 7 are the same
as those set out in the Group’s accounting policies on pages 107 to 117.
JUDGEMENTS AND SOURCES OF ESTIMATION UNCERTAINTY
The preparation of the Company financial statements for the financial year did not require the exercise of any critical
accounting judgements or significant estimates.
170
170
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
Notes to the financial statements
1 AUDITOR’S REMUNERATION
The Company incurred £0.1m (2017 – £0.1m) in relation to UK statutory audit fees for the year ended 31 December 2018.
2 DIRECTORS’ REMUNERATION
Wages and salaries
Social security costs
Pension costs
2018
£m
3.1
0.3
0.3
3.7
2017
£m
4.4
0.3
0.3
5.0
Further information on Executive Directors’ emoluments and interests is given in the Directors’ Report on Remuneration which
can be found on pages 68 to 87.
3 INTANGIBLE ASSETS
Cost
At 1 January 2018
Additions
Transfer to Group companies
At 31 December 2018
Accumulated amortisation and impairment
At 1 January 2018
Amortisation charge for the year
At 31 December 2018
Net book value at 31 December 2018
Net book value at 31 December 2017
4 PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 January 2018
Additions
At 31 December 2018
Accumulated depreciation and impairment
At 1 January 2018
Depreciation charge for the year
At 31 December 2018
Net book value at 31 December 2018
Net book value at 31 December 2017
Computer
software
£m
39.6
4.6
(10.5)
33.7
(19.5)
(0.4)
(19.9)
13.8
20.1
Plant,
machinery
and
equipment
£m
1.8
–
1.8
(0.3)
–
(0.3)
1.5
1.5
Total
£m
39.6
4.6
(10.5)
33.7
(19.5)
(0.4)
(19.9)
13.8
20.1
Total
£m
1.8
–
1.8
(0.3)
–
(0.3)
1.5
1.5
Inchcape Annual Report and Accounts 2018 171
www.inchcape.com
171
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
5 INVESTMENT IN SUBSIDIARIES
Cost
At 1 January
Disposals
At 31 December
Provisions
At 1 January
Provisions for impairment
Reversal of provisions for impairment
At 31 December
Net book value
2018
£m
2017
£m
1,711.0
–
1,711.0
1,711.0
–
1,711.0
(61.9)
(72.2)
–
(134.1)
(81.6)
(0.3)
20.0
(61.9)
1,576.9
1,649.1
The Directors believe that the carrying value of the individual investments is supported by their underlying net assets.
An impairment charge of £72.2m in relation to Inchcape Finance (Ireland) Ltd has been recognised in the year (2017 – £0.3m)
following a capital reduction, to ensure that the carrying value of the individual investments is stated at the lower of cost and
estimated recoverable amount. In 2017, the reversal of impairment charge of £20.0m arose as a result of an increase in the
underlying net assets of the relevant subsidiaries.
6 TRADE AND OTHER RECEIVABLES
Amounts due within one year
Current tax asset
Amounts owed by Group undertakings
Amounts due after more than one year
Deferred tax asset (note 10)
Amounts owed by Group undertakings
2018
£m
2.1
174.3
176.4
1.1
210.0
211.1
2017
£m
–
54.2
54.2
0.3
329.9
330.2
Amounts owed by Group undertakings that are due within one year consist of current account balances that are interest free
and repayable on demand, as well as intercompany loans that bear interest at rates linked to source currency base rates.
Amounts owed by Group undertakings that are due after more than one year bear interest at rates linked to source currency
base rates.
7 CASH AND CASH EQUIVALENTS
Cash and cash equivalents
8 TRADE AND OTHER PAYABLES – AMOUNTS FALLING DUE WITHIN ONE YEAR
Amounts owed to Group undertakings
Private Placement
Other taxation and social security payable
Other creditors
2018
£m
0.9
2018
£m
5.5
124.8
2.7
2.1
135.1
2017
£m
6.3
2017
£m
16.5
–
2.3
1.8
20.6
Amounts owed to Group undertakings are interest free and repayable on demand.
The Company has an amount of US$160.8m under the Private Placement which bears interest at a fixed rate of 6.04% per
annum and is repayable in 2019.
172
172
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
9 TRADE AND OTHER PAYABLES – AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Amounts owed to Group undertakings
Private Placement
2018
£m
889.6
210.0
1,099.6
2017
£m
817.3
328.2
1,145.5
Amounts owed to Group undertakings are repayable in more than one year and bear interest at rates linked to source currency
base rates.
In December 2016, the Group concluded a US Private Placement transaction raising £210m to refinance existing US Private
Placement borrowings which matured in May 2017. The amounts drawn under these facilities are as follows:
Maturity date
Amount drawn
Fixed rate coupon
10 DEFERRED TAX
Net deferred tax asset
At 1 January 2018
Credited / (Charged) to the income statement
At 31 December 2018
11 PROVISIONS FOR LIABILITIES
At 1 January
Released to the income statement
At 31 December
May 2024
£70m
2.85%
May 2027
£30m
3.02%
May 2027
£70m
3.12%
May 2029
£40m
3.10%
Accelerated
tax
depreciation
Other timing
differences
£m
Tax losses
–
0.8
0.8
–
(0.1)
(0.1)
0.3
0.1
0.4
2018
£m
–
–
–
Total
£m
0.3
0.8
1.1
2017
£m
2.0
(2.0)
–
12 CONTINGENT LIABILITY
The Company is party to composite cross guarantees between banks and its subsidiaries. The Company’s contingent liability
under these guarantees at 31 December 2018 was £0.9m (2017 – £6.3m), equal to the carrying value of its cash and cash
equivalents at the end of the period (see note 7).
In addition, the Company has given performance guarantees in the normal course of business in respect of the obligations
of Group undertakings amounting to £94.7m (2017 – £84.7m).
13 SHARE CAPITAL
a. Allotted, called up and fully paid up
Ordinary shares
At 1 January
Allotted under share option schemes
Cancelled under share buyback
At 31 December
2018
Number
2017
Number
2018
£m
2017
£m
415,018,286 421,004,809
142,505
(6,129,028)
415,127,453 415,018,286
109,167
–
41.6
–
–
41.6
42.2
–
(0.6)
41.6
b. Share buyback programme
During 2017, the Company repurchased 6,129,028 of its own shares through purchases on the London Stock Exchange, at a
cost of £49.8m. The shares repurchased during the year were cancelled, with none held within treasury shares at the end of
the reporting period. An amount of £0.6m, equivalent to the nominal value of the cancelled shares, has been transferred to
the capital redemption reserve. Costs of £0.4m 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 27 February 2019
under the provisions of the Companies Act 2006 have been disclosed in the significant shareholdings section of the Corporate
Governance Report.
Inchcape Annual Report and Accounts 2018 173
www.inchcape.com
173
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
13 SHARE CAPITAL CONTINUED
d. Share options
At 31 December 2018, 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
2
3
19 May 2019
7 April 2020
2.00 453,464
3.10 438,351
410,683
1,273,731
1 May 2019
1 May 2020
1 May 2021
1 May 2022
5.78
5.63
6.66
5.54
– unapproved (Part I – UK)
Recruitment and Retention Plan
1,000
1,612
19 May 2019
7 April 2020
2.00 74,504
3.10
10 April 2026
0.10
– unapproved overseas (Part I – Overseas)
3,224
7 April 2020
3.10
Included within the retained earnings reserve are 777,211 (2017 – 493,012) ordinary shares in the Company held by the
Inchcape Employee 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 2018 was £5.1m (2017 – £3.5m). The market value of
these shares at both 31 December 2018 and 27 February 2019 was £4.3m and £4.6m respectively (31 December 2017 – £3.9m,
28 February 2018 – £3.5m).
e. Share-based remuneration
Inchcape plc has two employees, the Group Chief Executive and the Chief Financial Officer.
The terms and conditions of the Company’s share-based payment plans are detailed in the Directors’ Report on Remuneration.
The charge arising from share-based transactions during the year was £1.2m (2017 – £2.1m), all of which is equity-settled.
The weighted average exercise price of shares exercised during the period was £0.10 (2017 – £0.10).
The weighted average remaining contractual life for the share options outstanding at 31 December 2018 is 5.9 years (2017 – 7.8
years) and the range of exercise prices for options outstanding at the end of the year was £0.10 to £5.63 (2017 – £0.10 to £6.66).
14 DIVIDENDS
The following dividends were paid by the Company:
Interim dividend for the six months ended 30 June 2018 of 8.9p per share
(30 June 2017 – 7.9p per share)
Final dividend for the year ended 31 December 2017 of 18.9p per share
(31 December 2016 – 16.8p per share)
2018
£m
2017
£m
36.9
32.7
78.3
115.2
70.0
102.7
A final proposed dividend for the year ended 31 December 2018 of 17.9p per share amounting to £74.3m is subject to
approval by shareholders at the Annual General Meeting and has not been included as a liability as at 31 December 2018.
174
174
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
15 RELATED UNDERTAKINGS
In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, associates and joint ventures as at
31 December 2018 is shown below:
Subsidiaries
Name and address
Argentina
Entre Ríos 2550, Martínez, Buenos Aires
Distribuidora Automatriz Argentina SA
Inchcape Argentina SA
Australia
Level 2, 4 Burbank Place, Baulkham Hills, NSW 2153
AutoNexus Pty Ltd
Bespoke Automotive Australia Pty Ltd
Inchcape Australia Ltd
Trivett Automotive Retail Pty Ltd
Inchcape European Automotive Pty Ltd
SMLB Pty Ltd
Subaru (Aust) Pty Ltd
TCH Unit Trust
Trivett Automotive Group Pty Ltd
Trivett Bespoke Automotive Pty Ltd
Trivett Classic Garage Pty Ltd
Trivett Classic Group Finance Pty Ltd
Trivett Classic Holdings Pty Ltd
Trivett Classic Pty Ltd
Trivett Motorcycles Pty Ltd
Trivett P/L
Trivett Tyres Pty Ltd
Belgium
Leuvensesteenweg 369, 1932 Sint-Stevens-Woluwe
Autoproducts NV
Car Security NV
Toyota Belgium NV/SA
Boulevard Industriel 198, 1070 Anderlecht
Garage Francorchamps SA
Inchcape Retail Belgium
Brunei
KM3.6, Jalan Gadong, Bandar Seri Begawan
Champion Motors (Brunei) Sdn Bhd
NBT (Brunei) Sdn Bhd
NBT Services Sdn Bhd
Bulgaria
163 Tsarigradsko Shosse Str, Sofia
Inchcape Brokerage Bulgaria EOOD
TM Auto EOOD
Toyota Balkans EOOD
(i)
(ii)
(iii)
(iv)
Percentage owned
100%
100%
100%
100%
100%
100%
100%
100%
90%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
70%
70%
70%
100%
100%
100%
Inchcape Annual Report and Accounts 2018 175
www.inchcape.com
175
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
15 RELATED UNDERTAKINGS CONTINUED
Name and address
Chile
Av. La Dehesa 265, Santiago, Región Metropolitana
Mobility Services Chile SpA
Universal Motors SpA
Williamson Balfour Motors SpA
Williamson Balfour SA
19 Ruta 5 Norte, 100, Lampa
Inchcape Automotriz Chile SA
Hino Chile SA
Inchcape Camiones y Buses SA
455 Santa Rosa, Santiago
Inchcape Latam Internacional SA
537 Santa Rosa, Santiago
Subaru Chile SA
Apoquindo 3721, Piso 13, Las Condes, Santiago
Indigo Chile Holdings SpA
Inchcape Commercial Chile SA
China
405 Shi Guang Road, Yang Pu District, Shanghai
Inchcape Investment Holding (China) Ltd
4109, Wu Gong Shan Avenue, Wang Cheng District, Nanchang, Jiangxi
Jiangxi Inchcape Auto Sales & Services Co Ltd
110 Jiurui Avenue, International Auto Park, Kiujiang Economic & Technological Development Zone, Jiujiang City, Jiangxi
Jiujiang Inchcape Premium Auto Sales & Service Co Ltd
755 Gaoxin Avenue, Nanchang, Jiangxi
Nanchang Inchcape Premium Auto Sales & Service Co Ltd
Suite 208, Tower 1, 1135 Bo Tou Road, Yang Pu District, Shanghai
Shanghai Hongshi Consultancy Co Ltd
Suite 319, Tower A, 169 Taigu Road, China (Shanghai) Pilot Free Trade Zone, Shanghai
Shanghai Bell Rock Auto Sales & Service Co Ltd
6 Yu Yue Middle Road, Dou Men Town, Paojiang Industrial Zone, Shaoxing
Shaoxing Inchcape Lexus Auto Sales & Service Co Ltd
QC-1, Keqiao Economic Development Zone, East of Jin Keqiao Avenue, South of Kehai, Shaoxing
Shaoxing Inchcape Premium Auto Sales & Service Co Ltd
176
176
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
Percentage
owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
15 RELATED UNDERTAKINGS CONTINUED
Name and address
Colombia
78-20 Avenida el Dorado, Bogotá
Distribuidora Hino de Colombia SAS
Impoquing Motor SAS
Matrase SAS
Praco Didacol SAS
Cook Islands
First Floor, BCI House, Avarua, Rarotonga
IB Enterprises Ltd
Costa Rica
Distrito Automotriz, La Uruca, San Jose, Costa Rica
3-101-647375 SA
3-101-665052 SA
3-101-692077 SA
3-101-719581 SA
3-101-727047 SA
Arienda Express SA
Autos Preferidos La Uruca SA
Comericio de las Americas SA
Inchcape Protection Insurance
Sun Motors SA
Vehiculos de Trabajo SA
Vento Sem Forma SA
Vistas de Guanacaste Orquideas SA
YRR Comercializadora SA
Djibouti
Route de Venise – Djibouti Free Zone – LOB 124, PO Box 2645
Red Sea Automotive FZCO
Estonia
Läike tee 38, Peetri küla, Rae vald, Harjumaa 75312
Inchcape Motors Estonia OÜ
Ethiopia
Bole Sub City, Kebele 03, H.Nr. 2441, Addis Ababa
The Motor & Engineering Company Of Ethiopia (Moenco) S.C.
Finland
Ansatie 6 a C, 01740 Vantaa, Kotipaikka, Helsinki
Inchcape Motors Finland Oy
Greece
48 Ethnikis Antistaseos Street, Halandri 15231
British Providence SA
Eurolease Fleet Services SA
Toyota Hellas SA
11th Km, National Road Thessaloniki-Airport, Thessaloniki 60371
Polis Inchcape Thessaloniki SA
517 Vouliagmenis Avenue, Hlioupoli, Athens 16341
Polis Inchcape Athens SA
Percentage
owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
94%
100%
100%
100%
100%
100%
100%
Inchcape Annual Report and Accounts 2018 177
www.inchcape.com
177
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
15 RELATED UNDERTAKINGS CONTINUED
Name and address
Guam
443 South Marine Corps Drive, Tamuning, Guam 96913
Atkins Kroll Inc
Hong Kong
22nd Floor, Citicorp Centre, 18 Whitfield Road, North Point
British Motors Ltd
Crown Motors Ltd
Future Motors Ltd
Inchcape Asia Pacific Ltd
Inchcape Finance (HK) Ltd
Inchcape Hong Kong Ltd
Inchcape Mobility Limited
Inchcape Motor Services Ltd
Mega EV Ltd
Nova Motors Ltd
Ireland
7th Floor, Hume House, Ballsbridge, Dublin 4
Inchcape Finance (Ireland) Ltd
Ivory Coast
01 BP 3893, Abidjan O1
Distribution Services Cote d’Ivoire SA
Toyota Services Afrique SA
Latvia
4a Skanstes Street, Riga, LV-1013
Baltic Motors Imports SIA
Baltijas Ipasumu Fonds SIA
BM Lizings SIA
Ermans SIA
Inchcape Motors Latvia SIA
Paula Stradina 29, Ventspils, LV-3602
Ventmotors SIA
Lithuania
Laisves av. 137, Vilnius, LT-06118
UAB Autovista
UAB Autovytaras
UAB Inchcape Motors
Inchcape Lithuania UAB
Luxembourg
6 ZAI Bourmicht L-8070, Bertrange
Grand Garage de Luxembourg
193 Route d’Arlon, L-1150
Jaguar Luxembourg
178
178
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
Percentage
owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
(v)
100%
100%
100%
100%
100%
100%
100%
100%
100%
67%
67%
67%
100%
100%
100%
15 RELATED UNDERTAKINGS CONTINUED
Name and address
Macau
No. 223-225, Av. Do Dr. Rodrigo Rodrigues, 8/F Nam Kwong Building, Apt B-C
Nova Motors (Macao) Ltd
Yat Fung Motors Ltd
Macedonia
21 8th September Boulevard, 1000 Skopje
Toyota Auto Center DOOEL
Percentage
owned
100%
100%
100%
Netherlands
Strawinskylaan 3127, Atrium Building, 8th Floor, 1077 ZX Amsterdam
Inchcape International Group BV
(i)
100%
New Zealand
C/- Bell Gully, Level 22, Vero Centre, 48 Shortland Street, Auckland
Inchcape Motors NZ Ltd
Panama
Vía General Nicanor A. de Obarrio (Street 50), Plaza Bancomer
lIaother SA
Ilachile SA
PH Arifa 9th -10th Floors, West Boulevard, Santa Maria Business District, Panama City
Arrendadora Automotriz SA
Bielesfield Corp
Edenborn Trading Inc
Goltex Commerce Inc
Inmuebles Comerciales SA
Iron Crag Corporation
Motors Japoneses SA
Sun Motors SA
Peru
Av. Republica de Panama 3330, San Isidro 15047, Lima 27
Inchcape Motors Peru SA
IMP Distribuidora SA
Av. Morro Solar 812, Santiago de Surco
Autocar del Peru SA
Distribuidora Automotriz del Peru SA
Inchcape Latam Peru SA
Rentas e Inmobiliaria Sur Andina SA
Poland
Al. Prymasa Tysiąclecia 64, 01-424 Warszawa
Inchcape Motors Polska Sp z.o.o
Al. Karkonoska 61, 53-015 Wroclaw
Interim Cars Sp z.o.o
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Inchcape Annual Report and Accounts 2018 179
www.inchcape.com
179
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
15 RELATED UNDERTAKINGS CONTINUED
Name and address
Romania
Pipera Boulevard No 1, Voluntari, Ilfov, 077190
Inchcape Motors Srl
Inchcape Real Estate Srl
Toyota Romania Srl
Russia
Building 1, 18 2-ya Magistralnaya street, Moscow 123290
LLC Inchcape Management Services Rus
LLC Inchcape Holding
31 Litera A, Rustaveli Street, St Petersburg 195273
LLC Inchcape Olimp
Building 8, Kievskoe Shosse 24 km, Kartmazovo Village, Settlement Moskovskiy, Moscow 142784
LLC Inchcape T
10 Seslavinskaya Street, Moscow 121309
LLC Autoproject
36 Yaroslavskoe Shosse, Moscow 129337
LLC Borishof 1
87 Litera A, ul. Sofiyskaya, St Petersburg 192289
LLC Concord
Building 22, 18 2-ya Magistralnaya Street, Moscow 123290
LLC Musa Motors JLR
LLC Musa Motors Volvo
41 ul. Kuznetsovskaya, St Petersburg 196105
LLC Orgtekhstroy
Saipan
PO Box 500267, MP 96950-0267
Atkins Kroll (Saipan) Inc
Singapore
33 Leng Kee Road, 159102
Borneo Motors (Singapore) Pte Ltd
Century Motors (Singapore) Ltd
Champion Motors (1975) Pte Ltd
Inchcape Automotive Services Pte Ltd
Inchcape Motors Private Ltd
Spain
C.Monte Esquinza, 26-2º dcha , 28010 Madrid
Inchcape Inversiones España, SLu
Thailand
No. 4332 Rama IV Road, Prakhanong Sub-District, Klongtoey District, Bangkok
Inchcape (Thailand) Company Ltd
Inchcape Services (Thailand) Co Ltd
180
180
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
Percentage
owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
15 RELATED UNDERTAKINGS CONTINUED
Name and address
United Kingdom
Inchcape House, Langford Lane, Kidlington, Oxford OX5 1HT
Armstrong Massey (York) Ltd
Armstrong Massey Holdings Ltd
Autobytel Ltd
Automobiles of Distinction Ltd
Bates Motors (Belcher) Ltd
Casemount Holdings Ltd
Castle Motors (York) Ltd
Chapelgate Holdings Ltd
Chapelgate Motors Ltd
D J Smith Ltd
Dane Motor Company (Chester) Ltd
European Motor Holdings Ltd
Ferrari Concessionaires Ltd
Gerard Mann Ltd
H A Fox Ltd
Inchcape East (2) Ltd
Inchcape East (Acre) Ltd
Inchcape East (Brook) Ltd
Inchcape East (Hill) Ltd
Inchcape East (Holdings) Ltd
Inchcape East (Properties) Ltd
Inchcape East Ltd
Inchcape Estates Ltd
Inchcape Fleet Solutions Ltd
Inchcape Motors International Ltd
Inchcape Motors Pension Trust Ltd
Inchcape Midlands Ltd
Inchcape North West Group Ltd
Inchcape North West Ltd
Inchcape Park Lane Ltd
Inchcape Retail Ltd
Inchcape Trade Parts Ltd
Inchcape Transition Ltd
Inchcape UK Ltd
Inchcape UK Corporate Management Ltd
James Edwards (Chester) Ltd
L&C Auto Services (Croydon) Ltd
L&C Auto Services Ltd
L&C Banstead Ltd
Malton Motors Fleet Ltd
Malton Motors Ltd
Mann Egerton & Co Ltd
Mill Garages Ltd
Nexus Corporation Ltd
Normand Heathrow Ltd
Normand Ltd
Normand Motor Group Ltd
Percentage
owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
(vi)
(vii)
(vii)
Inchcape Annual Report and Accounts 2018 181
www.inchcape.com
181
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
15 RELATED UNDERTAKINGS CONTINUED
Name and address
Normand Trustees Ltd
Northfield Garage (Tetbury) Ltd
Notneeded No. 144 Ltd
Notneeded No. 145 Ltd
Packaging Industries Ltd
Penta Watford Ltd
Smith Knight Faye (Holdings) Ltd
Smith Knight Faye Ltd
The Cooper Group Ltd
Tozer International Holdings Ltd
Tozer Kemsley Millbourn Automotive Ltd
Wyvern (Wrexham) Ltd
22a St James’s Square, London, SW1Y 5LP
Cavendish 1 Ltd
Inchcape Baltic Motors Ltd
Inchcape (Belgium) Ltd
Inchcape BMI Ltd
Inchcape Corporate Services Ltd
Inchcape Finance plc
Inchcape Hellas Funding (unlimited)
Inchcape Hellas UK (unlimited)
Inchcape Imperial (unlimited)
Inchcape Investments (no 1) Ltd
Inchcape Investments (no 2) Ltd
Inchcape International Holdings Ltd
Inchcape Latvia Ltd
Inchcape Management (Services) Ltd
Inchcape Overseas Ltd
Inchcape Russia (UK) Ltd
Inchcape (Singapore) Ltd
Kenning Motor Group Ltd
St Mary Axe Securities Ltd
PO Box 33, Maison Trinity, Trinity Square, St Peter Port, Guernsey, Channel Islands GY1 4AT
St James’s Insurance Ltd
4th Floor 115 George Street, Edinburgh EH2 4JN
Inchcape Investments & Asset Management Ltd
United States of America
The Corporation Company, 30600 Telegraph Road Bingham Farms, MI 48025
Baltic Motors Corporation
Corporation Trust Center, 1209 Orange Street, Wilmington DE 19801
SS Acquisition Corporation
182
182
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
(vii)
(vii)
Percentage
owned
100%
100%
100%
100%
100%
88%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
15 RELATED UNDERTAKINGS CONTINUED
Joint ventures
Name and address
Greece
48 Ethnikis Antistaseos Street, Halandri 15231
Tefin SA
United Kingdom
116 Cockfosters Road, Barnet, Hertfordshire, EN4 0DY
Enterprise Car Finance Ltd
Charterhall House, Charterhall Drive, Chester, Cheshire CH88 3AN
Inchcape Financial Services Ltd
Unless stated below, all holdings have one type of ordinary share capital:
(i) Ordinary A and Ordinary B shares
(ii) Ordinary shares, B Class shares, J Class shares and L Class shares
(iii) Ordinary shares and E Class shares
Percentage
owned
50%
49%
49%
(i)
(i)
(iv) Ordinary shares, A Class shares, C Class shares, D Class shares and E Class shares
(v) Ordinary shares, redeemable cumulative preference shares and non-redeemable preference shares
(vi) Ordinary shares, Ordinary A shares and 8% non-cumulative redeemable preference shares
(vii) Ordinary shares and redeemable cumulative preference shares
Inchcape Annual Report and Accounts 2018 183
www.inchcape.com
183
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Shareholder information
REGISTERED OFFICE
Inchcape plc
22a St James’s Square
London SW1Y 5LP
Tel: +44 (0) 20 7546 0022
Fax: +44 (0) 20 7546 0010
Registered number: 609782
Registered in England and Wales
ADVISORS
Independent Auditor
Deloitte
Chartered Accountants and
Statutory Auditor
SHARE REGISTRARS
Computershare Investor Services PLC
Registrar’s Department, The Pavilions
Bridgwater Road
Bristol BS99 7NH
Tel: +44 (0) 370 707 1076
SOLICITORS
Slaughter and May
Herbert Smith Freehills
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
23 May 2019
Announcement of 2019 Interim Results
25 July 2019
184
184
Inchcape Annual Report and Accounts 2018
Inchcape plc Annual Report and Accounts 2018
EXPLORE OUR WEBSITE FOR ACCESS TO OUR
LATEST ANNUAL REPORT AND MORE.
The 2018 Online Annual Report includes:
• 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
Design and production by Black Sun Plc (London),
+44 (0) 20 7736 0011
This report has been printed on Essential Offset and
Magno Satin. Both are FSC® Mix Credit papers
manufactured at mills accredited with the ISO 14001
and EMAS environmental standards.
Printed at Principal Colour Ltd. ISO 14001 certified,
Alcohol Free and FSC® Chain of Custody certified.
I
N
C
H
C
A
P
E
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
8
INCHCAPE PLC
22A ST JAMES’S SQUARE
LONDON SW1Y 5LP
T +44 (0) 20 7546 0022
WWW.INCHCAPE.COM
REGISTERED NUMBER 609782