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Annual Report and Accounts 2019
Bringing
the best loved
automotive
brands to
the world
Strategic report
2 Chairman’s welcome
4 Chief Executive’s review
8 Our business model
8 How we generate value
8 Our routes to market
9 Our value chain
13 Where we operate
14 OEM partnerships
16 Stakeholder engagement
18 Our strategy
21 Our investment proposition
22 Capital Allocation Framework
24 Key Performance Indicators
26 Operating and financial review
34 Corporate social responsibility
38 Risk management
Governance
54 Chairman’s statement
56 Board of Directors
58 Corporate Governance Report
76 Directors’ Report on Remuneration
98 Directors’ Report
Financial statements
104 Independent auditor’s report to the members of Inchcape plc
112 Consolidated income statement
113 Consolidated statement of comprehensive income
114 Consolidated statement of financial position
115 Consolidated statement of changes in equity
116 Consolidated statement of cash flows
117 Accounting policies
126 Notes to the financial statements
177 Alternative performance measures
178 Five year record
179 Company statement of financial position
180 Company statement of changes in equity
181 Company Accounting policies
184 Notes to the Company financial statements
Other information
197 Shareholder information
Highlights
Revenue
£9.4bn
2018: £9.3bn
Dividend per share1
26.8p
2018: 26.8p
Cash returned to shareholders
£210.5m
2018: £115.2m
Return on capital employed1
22%
2018: 22%2
1. APM (alternative performance measures) page 177
2. 28% in 2018, pre-IFRS16 restatement
VISIT OUR WEBSITE FOR ADDITIONAL INFORMATION
AND INTERACTIVE FEATURES INCHCAPE.COM
Cover image: Roza Amberber Teshome,
Junior Auto Technician II
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
£m Use of metric
Gross Profit
Less: Segment operating expenses
1,272.1
(881.8)
Direct profit contribution from Value Drivers (e.g. Vehicles and
Aftersales)
Trading Profit
Less: Central Costs
Operating Profit (pre-exceptional Items)
Less: Exceptional Items
Operating Profit
Less: Net Finance Costs and JV profit
(inc exceptional items)
Profit before Tax
Add back: Exceptional Items
Profit Before Tax & Exceptional Items
390.3 Underlying profit generated by our segments
(17.2)
373.1 Underlying profit generated by the Group
75.5
448.6 Statutory measure of Operating Profit
(46.8)
401.8 Statutory measure of profit after the costs of financing the Group
(75.5)
326.3 One of the Group’s KPIs
As an independent, multi-brand
automotive distributor and retailer,
we bring the best loved brands to
customers throughout the world.
We bring this to life through a
combination of long-standing
partner relationships, a growing
global footprint, a unique business
model and a long-term strategy.
Inchcape Annual Report and Accounts 2019
1
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Chairman’s welcome
Strategic progress made amidst
short-term challenges
Nigel Stein
Chairman
Electrification of the drivetrain is the most
advanced of these, driven by regulation in many
markets. We believe Inchcape’s partnerships with
some of the most technically advanced global
car manufacturers position us well for this more
electrified world.
The increasing use of digital platforms for
customers to choose and buy their cars online
is another trend taking rapid hold in the industry.
We are aligned with this development and are
investing significantly in a class-leading end-to-
end digital offering.
The Ignite strategy continued to be at the heart
of the Group’s activities. As well as successfully
positioning the business to leverage the Group’s
competitive advantages, it has further embedded
relationships with our OEM partners. Ignite is
also driving everyday efficiency. Our focus, for
example, on delivering the full potential on all
our revenue streams saw good growth across
our Aftersales and Finance & Insurance activities.
Our Ignite strategy plays a key role in ensuring
that Inchcape remains a sustainable business
in the long term.
Board
We welcomed Gijsbert de Zoeten to the Board
as Chief Financial Officer, with effect from 1
September 2019, in succession to Richard
Howes. Gijsbert was, until 2018, CFO at
LeasePlan Corporation NV, an international fleet
management and mobility services company
with a turnover of €9bn and a 1.7m strong
car fleet, so brings excellent knowledge of our
industry. Previously, Gijsbert had a successful 27-
year career at Unilever plc where he held a range
of senior financial and operational positions.
Nigel Northridge and Coline McConville both
stepped down as Non-Executive Directors during
the year. Nigel served on the Board for over nine
years and provided invaluable support to me in
his role as Senior Independent Director. Coline led
our last remuneration policy review in 2017 in her
role as Remuneration Committee Chair which
was well received by shareholders.
I would like to thank Nigel, Coline and Richard for
their contributions to the Group.
I am pleased that Jerry Buhlmann accepted
the position as Senior Independent Director and
Jane Kingston assumed the role of Remuneration
Committee Chair and is leading the current
remuneration policy review. This will be put to
shareholders for approval at the forthcoming
2020 AGM.
Dear Shareholders,
I am pleased to report on a year of significant strategic
progress that saw the business further refocused around
its core Distribution activities. We entered a number of new
markets, realised significant value through the disposal of
non-core assets and have announced a share buyback
programme, returning £150m to shareholders.
Performance
The overall trading result for the year was in
line with expectations and reflected a resilient
underlying performance despite weaker markets
and some unexpected challenges, including the
impact of political unrest in Hong Kong and Chile.
This resilience is, in part, reflective of our exposure
to a broad spread of markets and to the
Distribution business model which now accounts
for some 91% of Group profit.
Automotive markets generally remain
challenging. Firm actions to improve efficiency
and performance were undertaken during 2019,
and will continue into 2020, to ensure the Group
optimises its cost base both for the current and
future years. This will place Inchcape in a strong
position for all its stakeholders when markets
stabilise or recover.
Future trends and strategy
The Board continues to closely monitor the
adoption and impact of several disruptive
trends taking place in the industry, including
the electrification of drivetrains, connected cars,
shared ownership models and autonomous,
“self- driving” vehicles.
2
Inchcape Annual Report and Accounts 2019
The Committee spent significant time considering
all aspects of the policy and had detailed
consultations with shareholders to ensure that
it aligns with both shareholders’ latest thinking on
remuneration and the continuing incentivisation
and retention of Executives. I am grateful to
Jane for the considerable work this policy
review entailed.
In February 2020, Alex Jensen joined the Board as
a Non-Executive Director. Alex’s experience at BP,
where she is Chief Marketing Officer, Global Retail
and Senior Vice President, European Retail, will
bring very relevant experience to the Board and
we are delighted to have her as a Director.
Also in February, we accepted with regret the
resignation of our Group CEO, Stefan Bomhard
who will become CEO of the FTSE100 company
Imperial Brands plc. Stefan has done an
excellent job in his near five years at Inchcape
and I thank him for his significant contribution to
Inchcape’s success.
The Board has enacted a succession
process to choose Stefan’s replacement
and an announcement will be made at the
appropriate time.
Returning to shareholders
The Board is recommending a final ordinary
dividend of 17.9p per ordinary share (2018: 17.9p)
which, if approved at the forthcoming Annual
General Meeting, will give a total dividend for the
year of 26.8p per ordinary share (2018: 26.8p).
The dividend will be paid on 19 June 2020 to all
shareholders on the register of members on 15
May 2020. A Dividend Reinvestment Plan (DRIP) is
available to Ordinary shareholders and the final
date for receipt of elections to participate in the
DRIP is 29 May 2020.
We have a disciplined approach to capital
and cash allocation and in 2019 we completed
a buyback of £100m, ensuring that we have
continued with our policy of returning surplus
cash to you, our shareholders. I am also pleased
to announce a share buyback of £150m to be
completed over the next 12 months.
People
Inchcape is a truly international business with
over 17,300 people across 33 countries. The
success of the business is down to everyone who
works at Inchcape and, on behalf of the Board, I
would like to thank all of them for their efforts and
commitment over the last year.
Statement on section 172
As a Board, we are mindful of the need to create value and
deliver benefit to all stakeholders. In considering our purpose
together with our strategic vision and commercial priorities,
we balance outcomes for our OEM brand partners, customers,
employees and the impact on local communities and the
environment, as well as delivering long-term sustainable growth
for our shareholders.
Section 172 states that:
A director of a company must act in the way he/she considers,
in good faith, would be most likely to promote the success of
the company for the benefit of its members as a whole, and in
doing so have regard (amongst other matters) to:
a. the likely consequences of any decision in the long term
b. the interests of the company’s employees
c. the need to foster the company’s business relationships
with suppliers, customers and others
d. the impact of the company’s operations on the community
and the environment
e. the desirability of the company maintaining a reputation
for high standards of business conduct, and
f. the need to act fairly as between members of the
company
The factors listed in the S172 statement are integral to most
of the significant decisions taken by the Board. The Board is
satisfied that the information provided by management, and
other stakeholders, via reporting, performance updates and
key performance measures is of sufficient quality to allow the
Board to have due regard for each of the factors. Throughout
this report we have given examples of how the Board has
demonstrated its regard for the factors above during the year.
PLEASE REFER TO PAGE 61 FOR CASE STUDIES PERTAINING TO SECTION 172, TO
PAGE 16 FOR OUR APPROACH TO STAKEHOLDER ENGAGEMENT, AND TO THE
GOVERNANCE SECTION ON PAGE 60 FOR THE BOARD’S ENGAGEMENT WITH
STAKEHOLDERS.
Looking ahead
We see our markets remaining challenging, with
coronavirus restricting activity with a consequent
impact on trading. However, in the longer term,
we remain excited about the Group’s prospects
and continue to focus on further strengthening
our position in the automotive value chain. We
are confident of further strategic progress and
underlying operational improvement in 2020,
maintaining Inchcape's position as the world’s
leading independent multi-brand automotive
distributor with global scale.
Nigel Stein
Chairman
Inchcape Annual Report and Accounts 2019
3
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Chief Executive’s review
Underlying strength delivering
long-term value
Stefan Bomhard
Chief Executive
Whilst the trading environment was challenging
across a number of markets, our 2019 results
were in line with the expectations we set at the
beginning of the year, once again demonstrating
the resilience of our Distribution model.
Against the impact of disruption in the Hong Kong
and Chilean markets and the ongoing AUD/JPY
headwind, we saw a normalisation of the Subaru
supply in Australasia, which impacted the first half
of the year, and improved currency availability
in Ethiopia.
With a stronger underlying H2 over H1
performance, we delivered flat pre-exceptional
profit year-on-year, excluding the AUD/JPY
headwind. With the AUD/JPY a drag to profit, we
delivered Distribution trading profit of £354.2m
(2018: £382.8m).
Whilst we expect a number of headwinds to
continue into 2020, we remain focused on our
Ignite initiatives which will support our medium-
term growth aspirations as our Distribution
activities drive the performance of the Group.
A unique and sustainable business model
Inchcape has a unique business model; we are
the only independent automotive Distributor
and Retailer with global scale. Our underlying
organisational strength is the foundation of
Inchcape’s resilience to the effect of cyclical
changes in the automotive industry.
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.
Whilst we continued to experience a range of short-term
headwinds and market fluctuations, the story of 2019
was really about the actions taken to position the business
for growth.
A FULL REVIEW OF
HOW OUR MARKETS
PERFORMED IN 2018
CAN BE FOUND ON
PAGES 20-26 IN THE
OPERATING REVIEW.
1. Denotes alternative
performance
measure,
see note 177
It is my pleasure to present this review of 2019, a
year in which we continued to deliver significant
progress towards achieving our strategic
objective of transforming the Group around our
proven Distribution model.
We entered two brand new markets as a
distributor for Daimler and extended our
representation with them into a third in January
2020. This represents an exciting development in
our platform strategy with a core OEM partner in
the high growth potential LatAm region. We sold
several sites across Australia, China and the UK
that were outside our core focus on Distribution
activities, realising value of around £250m. We
also maintained focus on our policy of efficient
allocation of capital with the completion of a
£100m share buyback in the year.
Overall, the actions taken during the year, in line
with our Ignite strategy, have further reinforced
the trajectory of the Group, positioning it for
sustainable growth over the longer term.
A resilient performance
Group revenue was £9.4bn (2018: £9.3bn)
including £5.0bn in our Distribution business.
Group Profit Before Tax (pre exceptionals) was
£326.3m (2018: £350.6m) with Distribution now
accounting for 91% of profits.
4
Inchcape Annual Report and Accounts 2019
Group revenue
£9.4bn
Group profit
before tax and
exceptional
items
£326.3m
Completion of
share buyback
£100m
Plus announcement of
£150m share buyback to
take place in 2020
The diversity of our global portfolio of 33 markets
and over 30 OEM partners provides a high level
of defence against the fluctuating volatility of
the automotive industry, and this organisational
strength is enhanced by the Ignite strategy.
Ignite-driven portfolio development
Our Ignite strategy is the enabler that drives our
inorganic growth objective.
Over the year, we made significant strategic
progress on our transformation journey by
further optimising our portfolio through selective
Retail disposals. This reflects our strategy to focus
on businesses that support global Distribution
activities and on the optimal deployment
of capital.
In the UK, our actions have been centred on
optimising our portfolio of Retail sites where
we were less able to leverage costs efficiently
through a local scale presence. Consequently,
we disposed of several Retail centres as well
as Inchcape Fleet Solutions (IFS). In the case
of IFS, we were able to agree the sale with the
European arm of our core OEM partner, Toyota,
supporting their ambition to become a leader
in the mobility space. Fleet capability remains of
importance to Inchcape as we seek to develop
the revenue streams of the future, however we
see the major opportunity for Inchcape where we
control the end-to-end value chain in Distribution
markets such as in Singapore and Hong Kong.
Additionally, we disposed of our remaining
Retail sites in China and the majority of our non-
Subaru Retail businesses in Australia, significantly
reducing our exposure where we were less able
to leverage a scale Retail position.
It is important to note that divesting of Retail sites
in any territory does not necessarily mean that
we are exiting that market. Indeed, in Australia,
we see a market with an exciting future where
we can, through optimally deploying our capital,
reconfigure our activities there around our
Distribution model. We remain excited around the
prospects for our Subaru and Peugeot Citroen
Distribution contracts and have reconfigured
our operations in the market, creating a more
efficient and focused business unit.
During the year we were awarded new BMW
Distribution businesses in Lithuania and Kenya,
consolidating our position with BMW in the Baltics
alongside our operations in Estonia and Latvia.
We were also pleased to pioneer our partnership
with BMW in East Africa, where again we see
significant growth potential springing from the
platform we have created.
Continuing on the path to develop our core
higher-margin, capital-light Distribution business,
the Group reinvested some of the proceeds
realised through disposals into the acquisition
of Autolider, a distributor of Daimler brands,
in Uruguay and Ecuador. Subsequently, we
have also been awarded the Mercedes-Benz
passenger vehicles Distribution contract for
Colombia. These acquisitions typify our strategic
rationale and approach.
These Daimler acquisitions were a key milestone
for Inchcape and for our OEM partner of
choice strategy. They saw Inchcape enter new
geographies and, more importantly, extended
our partnership with a core OEM partner. Until
this year, our relationship with Daimler has been
focused on the Mercedes-Benz Retail business in
the UK, and it is partly due to the strength of that
partnership that we have been able to secure
these first Distribution contracts with the OEM.
This expansion represented Inchcape’s 11th and
12th Distribution business win since 2016, and we
have grown from two to eight markets in South
and Central America during that time. As we
increase our presence across LatAm and add
further OEM relationships to an already strong
and balanced portfolio, we have an exciting
opportunity to generate significant economies
of scale, translating a series of acquisitions into a
regional platform for growth.
We have an attractive pipeline of growth
opportunities which meet our strict criteria and will
accelerate the development of major regional
presences across key growth markets.
Ignite-driven business optimisation
Ignite is also the powertrain to maximise our
potential for efficiency to share best practice
across the Group, and to optimise our existing
business and core capabilities.
Of particular note, we saw further progress
in our next generation customer experience,
significant procurement savings, Aftersales gross
profit outperformance and Finance & Insurance
profit growth.
We believe that the key to our long-term success
lies both in providing end-to-end routes to market
for our OEM partners and in owning the life-
cycle customer journey, ensuring that we build
the capability to answer our key stakeholders’
needs, now and for the future. We have made
great headway on the Ignite ‘lead on customer
experience’ objective, for example with the
Inchcape Annual Report and Accounts 2019
5
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Chief Executive’s review continued
omni-channel platform in Subaru Melbourne which is where
we are developing and implementing our future model of how
we interact with our customers, before deploying it to other
markets.
To maximise the potential across all our revenue streams, we
have invested in a range of new and innovative initiatives. We
plan to extend our trial with Grab, the leading shared mobility
services provider in South East Asia, with technology-based
solutions for quick turnaround servicing and parts provision,
and we continued to partner with Easymile on the autonomous
transport trial at the National University of Singapore. Whilst this
is not an immediate driver of profits, it is important that we build
the internal capabilities to future-proof the business in the face
of rapid developments across the automotive industry. We
are therefore investing in areas, and seeking out partnerships,
where we see profit and growth potential in the future.
Aftersales, Parts Distribution and Used car sales provide further
defence against the effects of cyclicality in the New car market
especially in markets where we control more of the value
chain ourselves, as in Ethiopia where Aftersales is a key driver.
Examples of success here include Russia, where a strong
performance in Aftersales, Used and F&I offset the impact
of competitor discounting activities; and in the UK, where
progress in Aftersales was a contributing factor in stabilising
performance. Within Distribution we turned Costa Rica’s used
operation to profitability in our first year of operation and saw
improved parts and accessories sales processes support
Australasia Aftersales.
Additionally, we have achieved our £30m target in Finance &
Insurance products, two years after the target was announced,
helped by continued expansion of vehicle car products, as
well as the implementation of finance retention products in
several markets.
We have also achieved our procurement savings target
of £50m cumulatively, demonstrating a key Ignite focus of
leveraging our scale optimally. We have achieved these
savings since 2016 and over 2019 some key milestones include
50% of our global spend being tracked through our global
procurement system, with 85% targeted by the end of 2020.
More than 20% of 2019’s savings were achieved through
improved vehicle logistics and storage spending, and we were
able to establish a global view of oil spend which has enabled
a 30% reduction in LatAm spend on oil in 2019, with Asia’s oil
spend to be aggregated in 2020.
Investment proposition
Inchcape is well placed to deliver attractive shareholder
value both in-year and for the long term through structured
earnings growth and cash returns.
Whilst we continued to see a number of anticipated challenges
during the year, I absolutely believe that the business will
continue its track record of delivering shareholder value.
The development of our Distribution activities is core to our
investment proposition. This is underpinned by our focus on
ensuring that we are deploying our capital effectively towards
both existing and new opportunities. Through Inchcape’s
weighting to markets with greater structural opportunity, our
focus on optimising performance, our consolidation activity
and our solid cash generation have positioned the business
strongly for the future.
We have a disciplined capital allocation policy targeting an
optimal allocation of funds to enable both the continued
development of the business and the returns we can deliver to
our shareholders.
In line with this policy, given the strength of our cash generation
and strong balance sheet, we embarked on our £100m share
buyback programme, which was successfully completed by
the end of 2019. We have also announced a new buyback to
return £150m of cash to shareholders over the next 12 months.
Inclusive of this buyback, since 2016 we have paid around
£500m in dividends, invested around £550m in acquisitions, and
distributed around £400m of excess cash through buybacks.
Looking ahead
While 2020 is expected to be challenging, a continued focus on
improving operations for the medium term and enhancing the
global footprint through the Ignite strategy, along with ongoing
cost controls, will ensure further meaningful strategic progress.
I am confident that when markets improve we will see
Inchcape delivering on its real potential for sustainable
profitable growth.
This is my last statement as Group CEO. It has been a privilege
to lead such a high-quality organisation as Inchcape in this
exciting and dynamic sector. I would like to offer my sincere
thanks to the many industry-leading vehicle manufacturer
brands with whom Inchcape has built strong partnerships
based on Trust, the central tenet of the Ignite strategy.
I would like to thank the Board for its support and advice
during my tenure, and to acknowledge my Group Executive
colleagues whose talent, experience and capability contribute
so much to the underlying strength of this business. I would also
like to thank all of our employees throughout the Group whose
dedication and expertise are what has made Inchcape so
successful in the past and I am fully confident will continue to
do so for the long term. I wish everyone at Inchcape all the best
for the future.
Stefan Bomhard
Chief Executive Officer
6
Inchcape Annual Report and Accounts 2019
Distribution, our core capability
Inchcape plays a critical role in the
value chain as a ‘route to market’
We provide 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. In many of our markets, this means that
Inchcape is the only direct interface between the customer
and the manufacturer and so our understanding of both our
partners’ brand equity and the local market are paramount.
Advances in technology and its effect on consumer
behaviours are redefining the automotive value
chain and the role of the distributor as a ‘route to
market’ for our OEM partners.
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 role that traditional dealers play 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, the role of the dealer network,
and direct access to their customers; and aggregators that
come between the traditional dealer-customer relationship.
Given our role as both Distributor and Retailer in many markets,
we are ideally placed to redesign how we serve both our
customers and our OEM partners’ need to create a more
efficient and effective route to market. In other words, we can
have a disruptive influence on existing routes to market, to the
mutual benefit of our key stakeholders.
Our Ignite strategy is enabling this transformation.
Our M&A strategy continues to focus on building scale
Distribution presence in key regions such as South and Central
America, Africa and Northern Europe. These Distribution hubs
enable us to create operational synergies across our core
competencies and support processes, enabling a more
efficient operation. Leveraging this core capability to quickly
build scale Distribution platforms in new markets, we can then
build from these hubs to ‘bolt on’ and extend the integration
of additional businesses.
In parallel, our omni-channel pilot in Melbourne Australia is
focused on redesigning our customer journey to deliver a
superior experience at a significantly reduced cost to serve,
while at the same time bringing a more consistent approach
to service by leveraging a curated suite of support systems.
Our proprietary digital platform is a key enabler to this and has
been designed to scale across our existing business portfolio
as well as new acquisitions.
Our goal is a better customer experience at a lower
cost to ourselves, our OEMs and the environment.
We are combining our deep local expertise and knowledge
with our OEMs’ global expertise to create a route to market
which delights our customers today and in the future, enabling
us to remain a key value chain partner for our OEMs by
delivering their products and services in the most efficient and
effective way possible.
Additionally, our approach to developing new routes to market
for our OEM partners to reach their customers has the potential
to reduce our physical footprint through providing a wider
range of access points, both on- and offline, supporting our own
and our partners’ commitments to lowering the environmental
impact of the vehicles we sell and service.
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Inchcape Annual Report and Accounts 2019
7
Our business model
How we generate value
Our business model is unique in our industry, with our distinct routes to market and
global footprint leveraged across the full Distribution value chain to deliver sustainable
value to our stakeholders and superior returns to our shareholders. Throughout the
following pages, we explore our business model to demonstrate how we bring the best
loved automotive brands to the world.
Our routes to
market
Our global
footprint
Our value
chain
Our OEM
partnerships
Delivering
for our
stakeholders
SEE PAGE 8
SEE PAGE 13
SEE PAGE 9
SEE PAGE 14
SEE PAGE 16
Our routes to market
Inchcape’s organisational strength comes from a combination of parts that forms our business
model: diversified revenue streams, our global portfolio of operations, our value chain, our
stakeholders and how we engage them, our long-standing and deeply embedded brand
partner relationships and our operating strategy. These are explained on the following pages.
Distribution 91%
Retail 9%
Trading Profit
Vehicle sales 61%
Aftersales 39%
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.
8
Inchcape Annual Report and Accounts 2019
Our business model: where we operate
A growing global footprint
An independent, multi-brand automotive Distributor and Retailer with
operations that span countries on five continents. A balanced and diverse
portfolio of both mature and emerging markets to provide access and in-country
expertise for some of the world’s leading automotive manufacturers.
17,300+
Employees
33
International
markets
90+ years
Automotive
experience
1,000+
Locations in our
Distribution and
Retail network
Our business is segmented in four regions,
three along geographical lines and Emerging
Markets where we organise our new and
high-growth potential markets.
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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
Asia
Brunei
Guam
Hong Kong
Macau
Saipan
Singapore
Thailand
Australasia
Australia
New Zealand
UK/Europe
Albania
Belgium
Bulgaria
Estonia
Finland
Greece
Latvia
Lithuania
Luxembourg
Macedonia
Poland
Romania
UK
Emerging Markets
Argentina
Chile
Colombia
Costa Rica
Ethiopia & Djibouti
Ecuador
Kenya
Panama
Peru
Russia
Uruguay
Operations in China ended in Q3 2019
Inchcape Annual Report and Accounts 2019
13
Our business model: our value chain
Full spectrum distribution
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.
2
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.
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.
1
3
9
Inchcape Annual Report and Accounts 2019
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.
BUY ONLINE
LA
UNCH
BRAND
BRAND NEW CAR
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.
4
BUY ONLINE
BRAND
LA
UNCH
BRAND NEW CAR
5
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.
Inchcape Annual Report and Accounts 2019
10
LA
LA
UNCH
UNCH
BRAND
BRAND
BRAND NEW CAR
BRAND NEW CAR
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.
6
BUY ONLINE
BUY ONLINE
7
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.
Inchcape Annual Report and Accounts 2019
11
LA
UNCH
BRAND
BRAND NEW CAR
BUY ONLINE
Aftersales and 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.
8
9
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.
Inchcape Annual Report and Accounts 2019
12
Our business model: OEM partnerships
Long-standing partner relationships
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.
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.
Toyota
Jaguar Land Rover
Suzuki
Mercedes Benz
Volkswagen
BMW
Subaru
OEM passenger
relationships
OEM commercial
relationships
14
Inchcape Annual Report and Accounts 2019
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.
52 yrs
49 yrs
42 yrs
32 yrs
31 yrs
30 yrs
27 yrs
Inchcape Annual Report and Accounts 2019
15
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Our business model: stakeholder engagement
Our stakeholders and how
we engage with them
Group
OEMs
Customers
Employees
How we create value
How we engage
Outcomes in 2019
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 Daimler as a
core Distribution partner with
contracts awarded in Uruguay
and Ecuador for passenger
and commercial vehicles, and
in Colombia for passenger
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
– Development and initial rollout
of omni-channel customer
service, sales and marketing
platform in Subaru Melbourne
– Expansion and continued
rollout of reputation.com,
Salesforce and Brightedge
digital CRM tools
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
& pulse surveys
– Employee intranet and
collaborative platforms provide
two-way communications
capability Group-wide
– Prospective employees –
maintain active awareness of
issues to stay relevant
– All markets completed
Employee Experience
consultations as part of
two-year cycle of
engagement and listening
– Senior Leaders Employee
Experience consultation
conducted with in-depth focus
on attitudes to leadership
– Structured action planning put
in place where engagement
gaps identified
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
buyback.
– Regular dialogue with
institutional investors
– AGM
– Annual Report & plc website
– Capital Markets Day held
at regular intervals – last in May
2018
– Media engagement
undertaken to develop strong
relationships with key titles and
further position the business for
financial stakeholders
– 125 management investor
meetings held in 2019
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 the Group.
– Market-specific activity,
– Range of local community
coordinated at local level
– Group-level support for
extraordinary events affecting
our market communities
initiatives and support
schemes, a summary of which
can be found on page 37
16
Inchcape Annual Report and Accounts 2019
Toyota Motor Corporation
Our partnership with Toyota is the biggest and longest
standing in our portfolio, with over 50 years of representation
as a distributor in geographies that now reach from South
East Asia to East Africa and from Europe to the Americas.
Our partnership with TMC includes all variations of our
business models – Distribution with exclusive Retail, such as
in Hong Kong and Singapore; Distribution with a managed
Retail network, such as Greece; and Retail only, such as our
operations in the UK. The partnership also extends to both
passenger and commercial vehicles.
Locations
Distribution
Hong Kong, Macau, Guam, Saipan,
Singapore, Brunei, Greece, Belgium,
Luxembourg, Bulgaria, Macedonia,
Romania, Albania, Ethiopia & Djibouti
Chile & Colombia (Hino only)
Retail
UK, Russia
Inchcape Annual Report and Accounts 2019
17
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Our strategy
Ignite: Our optimisation and growth strategy
Inchcape’s strategic objectives are what drives our 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.
Objective
Priorities
1
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
Progress in 2019
– Omni-channel customer journey launched in Subaru Melbourne with
customers able to trade-in, finance & reserve vehicles online and in-store
– Market improvement in website performance across all markets with improved
speed, structure and search engine navigation, indexing & ranking
– Reputation.com introduced and rolled-out across all markets to measure and
– Significant like for like improvement on reputation.com scores, surpassing our
improve customer experience
annual goal across all regions
2
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
– Increased collaboration with a number of key partners on strategic projects
such as Grab & Uber in Singapore
– Over 20 top-to-top meetings throughout 2019
– Two major acquisitions which build on regional presence in key markets
– The addition of Daimler as a Distribution partner in Ecuador and Uruguay
3
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 &
Insurance (F&I) is another significant focus
for growth
4
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
5
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
18
Inchcape Annual Report and Accounts 2019
– Implementation of Aftersales playbooks in all territories including
– Development and roll-out of common best practices (Aftersales playbook)
new markets
– Strong focus on extending F&I product coverage to more of portfolio
– Deploying proven Used car initiatives to grow GPU
across all regions
– YoY growth in F&I income from roll-out of new finance renewals
strategy (AutoFutura) and fabric & paint protection products
– Costa Rica Used cars turned to profit in first year of ownership
– Development and initial implementation of procure-to-payment
– Implementation of Coupa P2P programme delivering significant benefit in
(P2P) programme
terms of simplification, productivity and cost savings
– Continue to drive savings through extension of procurement initiatives to new
– Achieved F&I income and procurement savings targets in 2019
opportunities for centralised purchasing
– Demonstrate shared best practice globally through extending rollout
of commercially successful initiatives
– 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
– Continued industry consolidation in 2019 through acquisition of exclusive
Distribution for BMW Lithuania and Daimler passenger cars and trucks in
– Further integration of the acquired Rudelman business into our Latin America
Uruguay and Ecuador
platform
Objective
Priorities
Lead in customer experience
As the global automotive industry rapidly
– 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
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
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. 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.
Progress in 2019
– Omni-channel customer journey launched in Subaru Melbourne with
customers able to trade-in, finance & reserve vehicles online and in-store
– Market improvement in website performance across all markets with improved
speed, structure and search engine navigation, indexing & ranking
– Reputation.com introduced and rolled-out across all markets to measure and
improve customer experience
– Significant like for like improvement on reputation.com scores, surpassing our
annual goal across all regions
Become the OEM partner of choice
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
We have a very strong portfolio of brands.
– Understand and support our OEM partners’ objectives
– Increased collaboration with a number of key partners on strategic projects
– 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
such as Grab & Uber in Singapore
– Over 20 top-to-top meetings throughout 2019
– Two major acquisitions which build on regional presence in key markets
– The addition of Daimler as a Distribution partner in Ecuador and Uruguay
The addressable market for Aftersales is set
– Implementation of Aftersales playbooks in all territories including
– Development and roll-out of common best practices (Aftersales playbook)
– Strong focus on extending F&I product coverage to more of portfolio
– Deploying proven Used car initiatives to grow GPU
across all regions
– YoY growth in F&I income from roll-out of new finance renewals
strategy (AutoFutura) and fabric & paint protection products
– Costa Rica Used cars turned to profit in first year of ownership
Deliver the full potential on all our revenue streams
to grow faster than New car sales. The Used
new markets
car market, which is typically a multiple of
that of New cars in most of our territories, is
a further growth opportunity. Finance &
Insurance (F&I) is another significant focus
for growth
Leverage our global scale
We aim to maximise the opportunity of
– Development and initial implementation of procure-to-payment
– Implementation of Coupa P2P programme delivering significant benefit in
our unique position in the automotive
(P2P) programme
terms of simplification, productivity and cost savings
– Continue to drive savings through extension of procurement initiatives to new
– Achieved F&I income and procurement savings targets in 2019
industry to share more expertise and best
practice across our organisation,
leveraging our global scale to improve
collaborative working and cost optimisation
opportunities for centralised purchasing
– Demonstrate shared best practice globally through extending rollout
of commercially successful initiatives
Invest to accelerate growth
markets are highly fragmented; we apply a
disciplined use of capital to fuel further
growth through selective participation in
market consolidation
The automotive Distribution and Retail
– 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
– Continued industry consolidation in 2019 through acquisition of exclusive
Distribution for BMW Lithuania and Daimler passenger cars and trucks in
Uruguay and Ecuador
– Further integration of the acquired Rudelman business into our Latin America
platform
Inchcape Annual Report and Accounts 2019
19
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Subaru Corporation
Inchcape’s Distribution partnership with Subaru is one of
the most important in our portfolio and an example of the
close collaboration between us and our brand partners. 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 first significant expansion
in South America in 2016 which has helped to create a
platform for further growth in the region.
Locations
Distribution
Australia, New Zealand, Chile, Colombia,
Peru, Argentina
20
Inchcape Annual Report and Accounts 2019
Our investment proposition
A multi-layered investment proposition
Well positioned to deliver shareholder value through organic growth,
consolidation and cash returns.
Distribution at our core
Profit contribution evolution: Distribution
Total return components
Multi-layered earnings growth opportunity: annual return consideration
2014
80%
2019
91%
Distribution strengths
– High ROCE
– Lower fixed costs
– High barriers to entry
– Strong cash
generation
Strong and increasing weighting to
high growth markets
Profit contribution evolution: Emerging Markets
2014
10%
2019
19%
Organic
growth
Strategic
options
Dividend
– 40% payout ratio
(targeted)
Market
drivers
– Inchcape
market growth
expectations
– Supported by
40% payout
ratio (targeted)
growth markets
Operational
excellence
– Revenue stream
optimisation
– Global cost
efficiencies and
best practices
Contract wins/
M&A
– Strong balance
sheet, annual
free cash flow
– Large
consolidation
opportunity
– Actively shifting
to higher
growth, cash
generative
businesses
Buybacks
– Excess cash
returned to
shareholders
New contracts since 2016
Argentina, Australia, Chile, Colombia, Costa
Rica, Ecuador, Estonia, Guam, Kenya, Lithuania,
Panama, Peru, Thailand, Uruguay
Attractive total return
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
– Inchcape is the largest global
independent distributor
– 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
Inchcape Annual Report and Accounts 2019
21
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Capital allocation framework
A strong position to grow the business
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 to shareholders
Acquisition spend since 2016
2012
£99m
2013
£175m
£50m
2014
£256m
2015
£348m
2016
£438m
2017
£540m
2018
£656m
2019
£766m
20201
£838m
£150m
£241m
£349m
£399m
£399m
£499m
£99m
£225m
£406m
£589m
£787m
£940m2
£1,055m
£1,265m
£649m
£1,487m
Dividends (cumulative)
Share buyback (cumulative)
1. For final dividend announced with FY19 results
2. Dividends and Share buyback rounded to nearest £m
£564.0m
£295.5m
£208.2m
£60.3m
South American acquisition
Central American acquisition
Other acquisition
Total spend
Progressive dividend strategy
– Target 40% annual payout ratio of 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.
Section 172
When making decisions on capital allocation and dividend policy, the Board considers the interests of the Company’s
shareholders as a whole, whilst having regard for the long-term viability of the Company, the need for capital investment and
interests of other stakeholders (for example, employees and pension trustees). The Board considers both the expectations
of and the impacts to these stakeholders, when agreeing the capital allocation policy which targets an optimal allocation
of funds to enable both the continued development of the business and the returns we can deliver. When interacting with
the Board, shareholders express their view that returns should be made in the absence of any significant M&A. The Board is
therefore recommending a share buyback of £150m with the flexibility to suspend the buyback should the right acquisition
opportunities emerge.
22
Inchcape Annual Report and Accounts 2019
BMW Group
Our partnership with BMW Group is 30 years strong and has
been a key focus for consolidated growth, especially in the
Baltic region where we now represent the brand in all three
countries: Estonia, Latvia and Lithuania. Additionally, in 2019
we were awarded the Distribution contract for Kenya with
a view to creating a BMW platform in East Africa. As well
as holding Distribution contracts in South America, we also
have significant operations of BMW Group’s brands in our
Retail-only markets: UK, Poland and Russia.
Locations
Distribution
Chile, Peru, Latvia, Lithuania, Estonia, Guam,
Kenya
Retail
UK, Russia, Poland
Inchcape Annual Report and Accounts 2019
23
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Key performance indicators
Measuring progress
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 and page 177 provides definitions of Key Performance
Indicators and other Alternative Performance Measures.
Revenue
£9.4bn
2018: £9.3bn
2015
2016
2017
2018
2019
Operating margin2
4.0%
2018: 4.3%
2015
2016
2017
2018
2018
2019
Definition
Why we measure
2019 highlights
Consideration receivable from
the sale of goods and services. It
is stated net of rebates and any
discounts, and excludes sales
related taxes.
Top-line growth is a key financial
metric of both ‘Becoming the
OEMs’ Partner of Choice’ and
‘Leading in Customer Experience’
The Group has delivered
£9.4bn, growth of 1.1% vs. last
year. This was 3% excluding the
impact of announced
disposals.
Definition
Why we measure
2019 highlights
Operating profit (before
exceptional items) divided
by sales.
A key metric of operational
efficiency, ensuring that we
are leveraging global scale
to translate sales growth to
profit.
Operating margin at
4.0% is 30bps lower than
the operating margin
achieved in 2018.
£6.8bn
£7.8bn
£9.0bn
£9.3bn
£9.4bn
4.7%
4.6%
4.5%
4.2%1
4.3%1
4.0%
Profit before tax and exceptional items2
£326.3m
2018: 350.6m
2015
2016
2017
2018
2018
2019
Free cash flow2
£212.9m
2018: £278.9m
2015
2016
2017
2018
2018
2019
Return on capital employed2
22%
2018: 22%
2015
2016
2017
2018
2018
2019
Definition
Why we measure
2019 highlights
Represents the profit made
after operating and interest
expense excluding the
impact of exceptional items
and before tax is charged.
A key driver of delivering
sustainable and growing
earnings to shareholders.
In 2019 this decreased
by 6.9% to £326.3m. The
impact from announced
disposals was immaterial to
profits over 2019.
Definition
Why we measure
2019 highlights
Net cash flows from
operating activities, before
exceptional cash flows, less
net capital expenditure and
dividends paid to non-
controlling interests.
A key driver of the
Group’s ability to ‘Invest to
Accelerate Growth’ and
to make distributions to
shareholders.
The Group delivered free
cash flow of £212.9m, a
24% decrease on 2018.
Definition
Why we measure
2019 highlights
Operating profit (before
exceptional items) divided
by the average of opening
and closing capital
employed, where capital
employed is defined as
net assets add net debt/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.
The Group delivered ROCE
of 22%.
312.1m
349.4m
381.6m
356.8m1
350.6m1
326.3m
117.6m
190.5m
313.9m
280.7m1
278.9m1
212.9m
30%
30%
30%
28%1
22%1
22%
1. 2018 and 2019 are not comparable with prior years due to IFRS 16 restatement.
2. Alternative performance measure see page 177.
24
Inchcape Annual Report and Accounts 2019
Jaguar Land Rover
Inchcape and Jaguar Land Rover’s partnership is our
second longest standing, stretching back nearly 50 years
in total. We have continued our JLR 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 as either a distributor
or retailer in 10 markets on three continents.
Locations
Distribution
Thailand, Hong Kong, Macau, Colombia,
Finland, Estonia, Latvia, Lithuania, Kenya
Retail
UK, Russia
Inchcape Annual Report and Accounts 2019
25
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Operating and financial review
Good distribution growth amidst
challenging headwind
Gijsbert de Zoeten
Chief Financial Officer
During my career with Unilever I developed a love
of consumer brands, and I can see at Inchcape
an appreciation of the importance of brand
equity; our colleagues cherish their responsibility
as custodians of our OEM partners’ brands
wherever in the world we represent them. More
recently, at LeasePlan, I was able to extend this
passion for brands into the automotive industry,
combined with a B2B and B2C mix that is not
dissimilar to Inchcape’s own core capabilities.
I believe that this business is very well positioned
to continue its long-term success story with
diversity in its income streams, geographic
spread and OEM portfolio. Inchcape has a
strong balance sheet and disciplined approach
to capital allocation which adds to its defensibility
in challenging trading environments. I am
looking forward to helping the business develop
in its next phase as we adopt greater process
automation to manage our business more
efficiently, consolidate through selective M&A
and support our OEMs’ ambitions through
providing innovative access to automotive
mobility for consumers globally.
Gijsbert de Zoeten
CONTINUES ON PAGE 28
Year ended
2019
£m
9,379.7
373.1
4.0%
326.3
401.8
212.9
22%
Year ended
2018
(Restated)
£m
9,277.0
398.6
4.3%
350.6
113.0
278.9
22%
% change in
constant
currency
+1.3%
(6.7%)
(0.3ppt)
(7.4%)
% change
+1.1%
(6.4%)
(0.3ppt)
(6.9%)
+256%
(23.7%)
I am pleased to present the end of year Operating
and Financial Review, my first since joining Inchcape
in September 2019.
The focus of my first six months has been to get to know the business from
the inside, to visit as many of our markets as possible and to thoroughly
understand Inchcape’s fundamental strengths and, importantly, its
external challenges. In that time, I have found energy and professionalism
in abundance, and a strong entrepreneurial spirit that stems from a deep
understanding of the Company’s heritage, the industry in general and of
our individual markets specifically.
Key Performance Indicators – results
Revenue
Operating profit before exceptional items1
Operating margin before exceptional items1
Profit before tax and exceptional items1
Profit before tax
Free cash flow1
Return on capital employed
1. See page 177 for definition of Key Performance Indicators and other Alternative Performance Measures.
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 translational exchange rate effects. Unless otherwise stated, changes in sales and trading profit in the operating review are at constant currency.
The 2020 outlook commentary is also referenced at constant currency. IFRS 16 has been adopted with all comparatives restated. See note 33.
2. Segmental detail can also be found in note 1 of the accounts, and our appendix contains the list of markets that fall within each region.
26
Inchcape Annual Report and Accounts 2019
Daimler
In 2019 we signed our first ever Distribution contracts
with Daimler for both passenger and commercial vehicles
in Uruguay and Ecuador, followed swiftly by a further
agreement in January 2020 to become the distributor
for Mercedes-Benz passenger vehicles in Colombia. This
significant expansion of our Daimler relationship was built
on the strong foundations of a long partnership in our UK
Retail market, dating back to 1985.
Locations
Distribution
Uruguay, Ecuador, Colombia
Retail
UK
Inchcape Annual Report and Accounts 2019
27
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Operating and financial review continued
Performance review
Our performance in 2019 was in line with our expectations
for the year, with the pre-exceptional profit decline for the
Group largely driven by an adverse transactional currency
impact. Excluding this currency impact our portfolio of markets
delivered a stable profit performance. Over the year Inchcape
also made significant strategic progress around reshaping the
Inchcape portfolio towards attractive Distribution businesses,
with the disposal of selective Retail operations that were
outside of Inchcape’s Distribution operations. These disposals
included exiting China Retail, largely exiting non-Subaru and
non-Peugeot Citroen Retail in Australia, the sale of UK fleet
operations and the selective sale of less productive UK retail
sites. Given the timing of completion on these disposals they
had an immaterial impact on 2019’s trading profit, although
they have had some impact on 2019 revenue and gross profit.
Group revenue of £9.4bn is up 1.1% year-on-year in actual
currency and 1.3% in constant currency, excluding the impact
of disposals, revenue grew 3% in constant currency. The driver
of this growth was Europe, where there was broad-based
growth across markets outside of the UK, and the Emerging
Markets with Russia’s momentum remaining strong for the
year although with meaningful margin pressure experienced
in the second half. Asia’s revenue declined slightly given
political instability in Hong Kong and market contraction in
Singapore, and Australasia’s revenue decline reflected the
Subaru supply constraints experienced in the first half of the
year, although normalisation from May onwards supported
an improved second half revenue performance despite a
challenging market.
The Group delivered an operating profit before exceptional
items of £373.1m, down 6.4% year-on-year in actual currency
and down 6.7% in constant currency. The impact of a material
second half-weighted transactional AUD/JPY headwind
drove this decline, with the impact falling within Distribution
and the Group’s Distribution’s trading profit correspondingly
declining 7.8% at constant currency. Excluding this currency
impact Distribution’s performance was broadly flat, with the
second half’s performance materially improved on the first
half following normalisation of Subaru supply constraints in
Australia and reduced impact of currency-driven supply
constraints in Ethiopia. Distribution in Europe saw the strongest
growth, with growth broadly based across markets, whilst Asia
saw a small growth despite revenue contraction supported
by good cost control. Australasia’s Distribution profits were
also stable excluding the transactional FX impact, despite
supply constraints in the first half and a challenging market,
similarly with good cost control helping to drive this. Emerging
Markets Distribution was much improved in the second half
with Ethiopia fulfilling two large orders, but the segment was
impacted by the sharp contraction of the Chilean market.
Our Retail trading profit grew 12.1% at constant currency off
a low base, to £36.1m, with a reduction of losses in Australia
over the year supported by cost savings. However, the business
has now largely been sold although given the timing of these
disposals the benefit to 2019’s profit was immaterial. The UK
and Europe business was stable despite continued market
pressures. Russia was also stable over the year, with competitor-
driven pressure impacting margins in the second half.
28
Inchcape Annual Report and Accounts 2019
Overall, our Group operating margin for 2019 was 4.0%
compared with 4.3% in 2018, driven by the yen headwind.
Profit before tax and exceptional items of £326.3m is down 6.9%
year-on-year in actual currency and 7.4% in constant currency.
Excluding the effect of the AUD/JPY impact, Group profit before
tax and exceptionals was stable in comparison to the period
last year. Reported profit before tax grew 256% year-on-year
in actual currency. In 2019 there is a net positive operating
exceptional gain of £75.5m resulting from the profit on
announced disposals, offset to an extent by restructuring costs
and asset write-offs and impairments relating to the disposals,
as well as acquisition costs. In 2018 we saw an operating
exceptional charge of £224m largely relating to impairments
in our UK and Europe Retail segment. 2018 profit before tax
also included a £13.9m exceptional non-cash finance cost
relating to fair value adjustments in respect of US Private
Placement loans.
The Group delivered free cash flow of £213m, compared with
£279m in the prior year. The free cash flow decline year-on-
year reflects lower operating profit, a higher working capital
outflow, and an £11m exceptional pension cash inflow in
2018. The working capital outflow results from the impact of
completing disposals and an acquisition towards year end,
as well as higher receivables in Ethiopia, due to the delivery
of government orders towards the end of the year. In contrast
2018’s working capital had benefited from one-time benefits
of improved net working capital management in our Central
America businesses. 2019’s working capital move was only
partially offset through a lower capex spend year-on-year,
with reductions in tangible investments in the UK in particular.
We achieved a FCF conversion of 57% overall, but excluding
the one-off working capital movements described in 2019 our
conversion would have been above 60%.
After adopting the new accounting standard IFRS 16 that
capitalises leases, we ended the period with net debt of £250m
vs. £446m in 2018, reflecting in part the benefit of cash received
through our disposal programme. Excluding these leases, net
funds of £103m compares to £15m in the prior year. Our ROCE
over the period was 22%, on an IFRS 16 basis, compared to 22%
in the prior year, with lower profits offset by a lower asset base
given impairments at the end of 2018 and disposals over 2019.
Distribution
The Distribution segment delivered year-on-year revenue growth
of 1.2%. Trading profit declined 7.8%. Group Distribution trading
margin declined 70bps to 7.0%, driven by the impact of AUD/
JPY transaction headwind. The impact of announced disposals
on 2019 revenue and trading profit was immaterial. Given its
modest contribution to Asia’s revenue and profit, China Retail
has historically been consolidated into Asia Distribution.
12 months
to 31.12.19
£m
12 months
to 31.12.18
(Restated)1
£m % change
% change in
constant
currency
1,681.9
1,036.3
1,329.6
993.5
5,041.3
1,687.7
1,198.4
1,145.5
956.5
4,988.1
(0.3%)
(13.5%)
+16.1%
+3.9%
+1.1%
+5.6%
(32.0%)
+25.9%
(21.6%)
(7.5%)
(3.7%)
(11.2%)
+17.1%
+6.4%
+1.2%
+2.0%
(30.1%)
+27.1%
(19.6%)
(7.8%)
172.2
89.4
34.7
86.5
382.8
10.2%
0.6ppt
7.5% (1.6ppt)
3.0%
0.3ppt
9.0% (2.2ppt)
7.7% (0.7ppt)
0.6ppt
(1.6ppt)
0.3ppt
(2.2ppt)
(0.7ppt)
181.9
60.8
43.7
67.8
354.2
10.8%
5.9%
3.3%
6.8%
7.0%
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
1. IFRS 16 has been adopted with all 2018 comparatives restated. See note 33.
– Asia revenue declined 3.7% and trading profit grew +2.0%.
Whilst the Singapore market benefited from a Commercial
Vehicle scrappage scheme in the first half of the year, the
market overall contracted 5% in 2019 driven by more limited
permit availability. However, Inchcape’s Passenger Vehicle
sales were supported by product launches, including the
new Toyota Rav4, which helped to drive market share
+70bps. In Hong Kong, although the launch of attractive
new products like the Toyota Rav4 and Toyota CHR, as well
as new taxis, supported performance, the underlying market
was challenging. The Hong Kong market declined 10% over
the year, with an already weak market impacted further by
civil unrest in H2. However, a strong focus on cost enabled
good management of profit in both markets, and the region
as a whole benefited from good growth in Guam, Thailand
and Brunei where we have driven market share growth.
Trading profit margins grew by 60bps to 10.8%, reflecting the
region’s focus on margin against weaker revenue. China,
which has now been disposed, contributed £9m of trading
profit over the period.
– Australasia revenue declined by 11.2% and trading profit
was down 30.1%. Whilst the weakness in the Australian
market persisted over the period, with the market down
8% over 2019, the contraction in profit was driven by the
AUD/JPY. Given the AUD/JPY exchange rate and the lag
generated by our hedging policy, the impact to profit was
£26m. The temporary slowdown in Subaru supply over
the January to April period, which materially impacted
H1, normalised during the second half, resulting in 2019
Australasia profit, excluding the transactional currency
headwind, being broadly flat year-on-year. We started to
raise prices later in the year, where possible, to partially offset
the headwind and we expect this, alongside other mitigating
factors such as product mix, to be a greater benefit in 2020.
Trading profit margins declined 160bps to 5.9%.
– UK & Europe revenue grew 17.1% and trading profit was
up 27.1%, with profit growth broad-based across regions. In
the Balkans we benefited from strong market growth and
market share gains, with Romania’s growth particularly
strong. Performance in the Baltics was similarly supported
by market growth and the inclusion of the new Lithuanian
business. The Greek market’s recovery continues to support
the region, and growth of F&I also provided a tailwind to our
performance.
– Emerging Markets revenue increased 6.4% but trading
profit declined by 19.6%. Within the Emerging Markets
division, we saw strong growth in Ethiopia over the second
half, with the fulfilment of two large orders and improved
currency availability easing supply constraints. Demand
remains very strong in Ethiopia in this high margin Aftersales-
driven business. Our South American business saw good
performance in Peru, following a more challenging 2018.
Good performance in the segment was offset by an 11%
volume contraction in the Chilean market, driven by a
decline in the copper market and civil unrest, after achieving
16% growth in 2018. The Colombian market saw strong
growth in Commercial Vehicles, which benefited Hino
volumes, but passenger volumes were weaker.
– The Central America acquisition made in March 2018
contributed £41m of revenue and £3.5m of trading profit in
the January to March 2019 period, prior to its annualisation
as part of the Group. We continue to make progress with
the business despite the market weakness. We are pleased
with the strategic advantage the business has brought
Inchcape for the longer term through the scale with Suzuki
it has provided and through the market presence in Central
America it has established.
Retail
The Retail segment delivered a solid revenue performance,
growing by 1.4%, and grew 5% when excluding the impact on
2019 revenue growth from announced disposals. Trading profit
increased 12.1% year-on-year, from a low base, with margins up
10bps year-on-year. The impact of disposals on trading profit in
2019 was immaterial.
12 months
to 31.12.19
£m
12 months
to 31.12.18
(Restated)1
£m % change
% change in
constant
currency
306.7
3,004.9
1,026.8
4,338.4
382.2
3,057.6
849.1
4,288.9
(19.8%)
(1.7%)
+20.9%
+1.2%
(17.5%)
(1.6%)
+20.7%
+1.4%
(1.4)
17.5
20.0
36.1
(5.8)
17.7
20.2
32.1
+80.9%
+75.9%
(0.6%)
(1.1%)
(1.0%)
(1.0%)
+12.5% +12.1%
(0.5%)
0.6%
1.9%
0.8%
(1.5%)
+1.0ppt
0.6% +0.0ppt
2.4% (0.5ppt)
0.7% +0.1ppt
+1.0ppt
+0.0ppt
(0.5ppt)
+0.1ppt
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
1. IFRS 16 has been adopted with all 2018 comparatives restated. See note 33
Inchcape Annual Report and Accounts 2019
29
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Operating and financial review continued
– UK & Europe revenue declined 1.6% year-on-year and
trading profit declined 0.6% on a small base. Revenue grew
1% when excluding the 2019 impact of the announced
disposals. The stabilisation of profit was pleasing considering
the declines experienced over 2018 and amidst continuing
UK market pressures. The UK market was down 2% over the
year, with diesel decreasing by a further 22% leading to a
continued oversupply of New car product in the market. An
improved opening inventory position at the start of the year,
a focus on driving all value drivers and a focus on costs
helped to stabilise performance. Poland Retail performed
well over the period. Inchcape Fleet Solutions (UK), which
has now been disposed, contributed £9m of trading profit
over the period.
– Emerging Markets, which for Retail includes only Russia,
saw 20.7% revenue growth in the reporting period although
trading profit decreased 1.0%. The 50bps decline in margins
was largely owing to competitor-discounting activity in New
cars, in the second-half, which we expect to be temporary.
However, over the year performance in Aftersales, Used and
F&I remained strong, offsetting the New car impact.
– Australasia will no longer be disclosed as a Retail segment
as of 2020, following our sale of most of the business in H2
2019, but performance in 2019 was good. Despite revenue
declining 17.5% year-on-year, the business reported a
significantly smaller loss over the period compared to the
prior year.
Value drivers
Our gross profit is split into Aftersales and Vehicle sales as per
the following definition:
– Gross profit attributable to Vehicles – New vehicles, Used
vehicles and the associated F&I income; and
– Gross profit attributable to Aftersales – Service and Parts.
Gross profit
£m % change
% change in
constant
currency
12 months
to 31.12.19
£m
12 months
to 31.12.18
£m
772.3
499.8
1,272.1
809.7
491.6
1,301.3
(4.6%)
+1.7%
(2.2%)
(4.8%)
+1.5%
(2.4%)
Group
Vehicles
Aftersales
Total Retail
Over the reporting period we saw a 4.8% decline in Vehicle
gross profit and a 1.5% increase in Aftersales gross profit. We
operate across the automotive value chain and over 2019
generated 39% of gross profit through Aftersales, compared to
38% in the prior year.
2020 Outlook
We expect profits to be down modestly year-on-year. This
excludes an anticipated transactional AUD/JPY headwind,
profit lost following the disposals in 2019, and any impact from
coronavirus. Key drivers to this include the market contraction
in Singapore, continued political uncertainty in Hong Kong
and weakness in the Australian market. Offsetting factors are
expected to be the continued strength in Europe and solid
growth in Emerging Markets, with support from announced
acquisitions. Looking beyond 2020 we expect the declines in
Singapore to have a lower impact on the Group.
Whilst we also anticipate a gross £25m AUD/JPY headwind over
the year in Australasia we expect to offset this partially through
mitigation factors which should reduce the net headwind to
£15m on profits. Profit attributable to the announced disposals
will reduce trading profit by £18m in 2020.
The effect of coronavirus on demand and supply remains
uncertain and we continue to monitor the situation closely.
In February we have seen a small impact on our Asia business,
with reduced footfall in Hong Kong, Singapore and Macau.
Our primary focus remains the health and safety of our
employees and our customers. One of the attractive qualities
of Inchcape’s business model is the diversification of revenue
streams and geographies, which provide opportunities to
support 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.
Other financial items
Central costs
Unallocated central costs for the year were £17.2m before
exceptional items (FY 18: £16.3m). The small increase in
costs reflects continued cost control, despite the reversal
of one-off benefits seen in the prior year relating to central
insurance operations.
Operating exceptional items
Over 2019, we have benefited from a £75.5m exceptional
operating gain which reflects a £108.8m gain largely relating to
the disposal of our UK fleet business and China Retail business,
offset by some restructuring costs and asset impairments
relating to these disposals, as well as acquisition costs. In 2018,
the Group recorded exceptional operating costs of £223.7m
comprising goodwill and other asset impairments of £211.1m,
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.
Net financing costs
Net financing costs, before exceptional finance costs, were
£47.1m (FY 18: £48.1m). The interest charge is stated on an
IFRS 16 basis and excluding interest relating to leases our net
finance charge was £27.7m vs. £28.1m in the prior year.
In 2018 we incurred an exceptional finance cost of £13.9m.
This represented a one-off correction to the fair value basis of
assessment of the Group’s US$ Private Placement loan notes.
This amount was reported as an exceptional item in order to
provide additional useful information regarding the Group’s
underlying business performance.
We expect net financing costs in 2020 will amount to c£44m.
Tax
The effective tax rate for the period before exceptional items
is 23.2% (FY 18: 22.6%), the increase being primarily due to
the recognition of a provision in respect of the European
Commission’s judgment in respect of the UK’s controlled foreign
company rules.
We expect the effective rate to be 24-25% in 2020 given
profit mix and the impact of unrecognised trading losses
in certain markets.
30
Inchcape Annual Report and Accounts 2019
Non-controlling interests
Profits attributable to our non-controlling interests were £5.8m
(FY 18: 7.0m). The Group’s non-controlling interests principally
comprise a 33% minority holding in UAB Vitvela in Lithuania, a
30% share in NBT Brunei, a 10% share of Subaru Australia and
6% of the Motor Engineering Company of Ethiopia.
Foreign currency
The Group benefited from a gain of £4.5m (FY 18: a loss of
£15.5m) from the translation of its overseas profits before tax
into sterling at the average exchange rate over the 12 months
when compared with the average exchange rates used over
the comparable period for translation in 2018.
Dividend
The Board recommends a final ordinary dividend of 17.9p per
ordinary share which is subject to the approval of shareholders
at the 2020 Annual General Meeting. This gives a total dividend
for the year of 26.8p per ordinary share (2018: 26.8p). The
dividend will be paid on 19 June 2020 to all shareholders
on the register of members on 15 May 2020. A Dividend
Reinvestment Plan (DRIP) is available to Ordinary shareholders
and the final date for receipt of elections to participate in the
DRIP is 29 May 2020.
Pensions
At the end of 2019, the IAS 19 net post-retirement surplus
was £9.5m (2018: £81.9m), with the decrease driven largely
by changes in financial assumptions which were partially
offset by a higher value of plan assets. In line with the funding
programme agreed with the Trustees, the Group made
additional cash contributions to the UK pension schemes
amounting to £2.8m (2018: £2.7m).
The Trustees of the Inchcape Motors Pension Scheme are
currently progressing with the actuarial valuation as at 5 April
2019, and future levels of contributions will be agreed with the
Trustees in due course.
During 2018 the trustees of the TKM pension scheme returned
£16.8m before tax (£10.9m after tax) to the Group following the
wind up of that scheme.
Acquisitions and disposals
During 2019 Inchcape spent a total cash consideration
of £41.2m (net of cash acquired) to purchase the BMW
business in Lithuania from Modus Group and Autolider, the
distributor of certain Daimler brands in Uruguay and Ecuador.
Reconciliation of free cash flow
The acquisition of Daimler’s own Mercedes passenger car
and private vans distribution operations in Colombia was
announced on 22 January 2020.
Over 2019 Inchcape disposed of various businesses that fell
within our Retail-only business for a total of £249.8m (net of cash
within the business).
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 2018 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 also disposed of its Jaguar Land Rover operations
in Shaoxing and a dealership in the UK generating disposal
proceeds of £13.4m.
Financing
Driven by upcoming maturities, in February 2019 we refinanced
our core Revolving Credit Facility (RCF). This has increased our
committed facilities from £620m to £700m at improved rates.
The RCF matures in February 2024 and has an option to renew
until 2026.
Capital expenditure
During 2019 the Group invested £53.9m, significantly lower year-
on-year given a reduction in tangible investments, particularly
in the UK, although our spend on digital investments increased
year-on-year. Key 2019 projects included capacity investments
in Ethiopia and investments around our development of an
omni-channel proposition. During 2018, the Group invested a
total of £99.3m of net capital expenditure, although excluding
exceptional investments in the UK, capex spend was c.£75m in
2018.
In 2020 we expect capex to resume to a more normalised level
of c.£75m.
Cash flow and net debt
The Group generated free cash flow of £212.9m (FY 18:
£278.9m) given a meaningful swing in working capital. After
the acquisition of businesses in the year as well as disposal
proceeds relating to disposals in China, Australia and the UK,
the payment of the final dividend for 2018 and £100m of share
buybacks, the Group had net debt of £249.9m (FY 18: net debt
of £445.9m). Net funds excluding lease liabilities is £102.9m (FY
18: net funds of £14.5m).
12 months to
31 December
2019
£m
12 months to
31 December
2019
£m
12 months to
31 December
2018
(restated)
£m
12 months to
31 December
2018
(restated)
£m
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
Net payment in relation to leases
Dividends paid to non-controlling interests
Free cash flow
Included within Free Cash Flow are movements in restricted cash balances described in note 19.
(44.9)
(24.7)
15.7
327.2
10.5
337.7
(53.9)
(65.1)
(5.8)
212.9
(90.8)
(34.4)
25.9
436.9
10.1
447.0
(99.3)
(63.0)
(5.8)
278.9
Inchcape Annual Report and Accounts 2019
31
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Operating and financial review continued
Regional business models
Business model
Distribution & Exclusive Retail Toyota, Lexus, Hino, Daihatsu, Jaguar, Land Rover, Ford, Maxus
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
Distribution & Exclusive Retail Toyota, Lexus, Hino, Suzuki
Distribution & Exclusive Retail Toyota, Lexus
Distribution & Exclusive Retail Toyota, Lexus, BMW, Chevrolet
Distribution & Exclusive Retail Toyota
Distribution & Exclusive Retail Jaguar, Land Rover
Retail1
Porsche, Lexus, Mercedes
Brands
Australia
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
Business model
Brands
Australia
Distribution & Retail
Retail1
New Zealand
Distribution
Subaru, Peugeot, Citroen
BMW, Jaguar, Land Rover, VW, MINI, Isuzu, Kia, Aston Martin, Bentley, McLaren,
Rolls-Royce, Mitsubishi
Subaru
In Australia we operated BMW, Jaguar, Land Rover, VM, MINI, Honda, Isuzu, Kia, Mitsubishi, Aston Martin, Bentley, McLaren and Rolls-
Royce retail sites until Q3 2019.
UK & 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.
Brands
Country
Business model
Retail1
Distribution & Retail
Toyota, Lexus, Audi, BMW, MINI, Jaguar, Land Rover, Mercedes, VW, Porsche, Smart
Toyota, Lexus
UK
Belgium
Luxembourg
Greece
Romania
Bulgaria
Macedonia
Albania
Finland
Estonia
Latvia
Lithuania
Poland
Distribution
Distribution & Retail
Retail
Distribution & Retail
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
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 partners.
Brands
Country
Business model
Ethiopia & Djibouti Distribution & Exclusive Retail Toyota, Daihatsu, Komatsu, New Holland, Hino
Kenya
Russia
Chile
Peru
Colombia
Argentina
Costa Rica
Panama
Uruguay
Ecuador
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, Jaguar, Land Rover, Daihatsu, BAIC, Mercedes-Benz2
Subaru, Suzuki
Suzuki, BAIC, JAC, Changan, Kubota
Suzuki, JAC, Changan, Great Wall
Mercedes-Benz, Freightliner and Fuso
Mercedes-Benz
Distribution & Retail
Retail
Distribution & Retail
Distribution & Retail
Distribution & Retail
Distribution & Retail
Distribution & Retail
Distribution & Retail
Distribution & Retail
Distribution & Retail
1. The sale of retail operations in China completed on 12 December 2019, whilst the majority disposal of Australia Retail operations completed at various dates over H2 2019 but
with the largest component completing on 2 December 2019. The UK’s Fleet Solutions business disposal completed on 31 December 2019.
2. The acquisition of Mercedes-Benz distribution in Colombia has been announced and is yet to complete.
Inchcape Annual Report and Accounts 2019
32
Our business, our future
CSR is one of the mechanisms that underpins the long-term sustainability and viability
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 comprises three core pillars; our people; health and safety; and sustainability
and the environment.
1
Our people
The knowledge, experience and dedication to excellence
embodied by Inchcape employees is the Company’s greatest
asset. We aim at both a Group and market level to ensure that
our people’s value is recognised and rewarded; that talent is
developed through learning; that our people are engaged
and communicated with effectively; and that all employees are
empowered to achieve their personal goals at each stage of
their career with Inchcape.
We are focused on creating a socially conscious culture based
on inclusivity and learning.
– We believe that the business is strengthened 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,
knowing that their contribution is truly valued.
The approach we take to engaging and developing our
employees is designed to proactively defend against key risk
16, see pages 43 and 50.
2019 progress
Leadership and talent
We have further developed the quality, breadth and depth
of our People data to further support and prioritise our work
in many areas, including talent, leadership development
and effective succession. We have extracted rich insight to
understand where we can make improvements in diversity,
and we have made further progress in identifying high-potential
individuals to support our long-term succession strategy from a
broad pool of diverse talent.
Our 2020 Talent Strategy includes the launch of Careers@
Inchcape – giving individuals improved access to career
development tools to realise their potential, effectively
transition into new roles/opportunities and further develop
our succession pipeline.
Additionally, we have further developed our online
development portal (hive) giving more employees mobile
access to both latest thinking and development and key
market data, trends and insight, aligned to strategic priorities.
‘Employee Experience’ consultation
Understanding employees' 'experience' at Inchcape is key to
ensuring an ongoing cycle of improvements, to drive better
retention, motivation and, ultimately, performance.
The total population Employee Experience consultation
completed its first two-year cycle in 2019, and we also
conducted our first more specific consultation for our senior
leaders population. As well as the standard questions asked
of all employees, the additional focus of this initiative was to
question in greater depth how well our leaders understand
and agree with the strategy and direction of the organisation.
We were pleased with the results of the consultation, with some
headlines shown below.
In addition, these data sets are allowing us to create detailed
action plans across all our teams to improve where there is
a clear gap between expectation and experience. We are
also now able to understand where engagement is strong
and to see where we are creating a positive experience for
our employees.
Percentage of responding employees
All employees
Leadership
79%
All Employee
Leadership
92%
Intention to stay 12 months +
All employees
Leadership
91%
All Employee
Leadership
91%
Intention to recommend
All employees
Leadership
80%
All Employee
Leadership
82%
Inchcape Annual Report and Accounts 2019
33
All Employee
Leadership
All Employee
Leadership
All Employee
Leadership
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Corporate social responsibility
2 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 that are clean, safe and promote healthy work-life balance.
Our ambition is to achieve zero avoidable safety incidents by continually challenging ourselves, sharing best practices and investing
in the systems and structure to support our objectives.
This commitment is underpinned by the creation of a pan-market Group HSE Community of Practice. With operations in 33
international markets and no single standard worldwide HSE guideline to apply to the business, we feel that it is incumbent on us
to build a consistent Inchcape approach with shared best practice and leveraged scale.
The primary function of the HSE Community of Practice is to develop a single direction for Inchcape’s health and safety culture,
with responsibility for implementing it part of every business's day to day activities. During 2019 we conducted over 450 separate
HSE audits.
Main activities
Establishing
performance
transparency
Managing
Communities of
Practice
Codifying
Inchcape
practices and
standards
Coordinating
opportunity
assessments
How we have progressed in 2019
– We now have global HSE KPIs
– We have developed a business intelligence tool to support analysis and established a dashboard
– Developed a full set of global and local policies and procedures which are now being rolled out
– Recruited and trained 42 HSE 'champions' to promote adoption of best practices and improve
standards throughout our global markets
– Established regular Communities of Practice communications to improve the visibility of HSE in
the business, and further improve compliance
– We conducted 457 visits to sales and servicing departments to understand the risk profile of our
businesses, and establish a robust HSE Strategic Plan
– A standard structure for the development of HSE documentation was agreed by the Community
of Practice
– We have developed a range of tools to support an agreed approach to risk and opportunity
assessments including hazard and incident notification reports, daily checklists, management site
reviews, as well as an audit library
– Through established 'Global Safety Alerts' the Communities of Practice share insights on incident and
learning opportunities
Providing expert
support
– The HSE champions are tasked with driving local site engagement which has begun with the rollout
of the first Risk Management Programme
– The champions comprise a key support mechanism to enable managers, supervisors and employees
to extend their knowledge of HSE risk and compliance
Support training
– We have now developed a range of training programmes for all employees to understand the key risks
and mitigation actions
– An internal HSE Diploma is being developed in 2020 to upskill employees to a globally recognised
standard
34
Inchcape Annual Report and Accounts 2019
Governance:
structure and applicable incentives for the management of
climate-related issues
Targets:
science-based targets that are set at least five years from
the start year and include progress percentage of emissions
achieved
Opportunity disclosure:
potential financial impact, time frame, likelihood, and
magnitude of impact for climate-related opportunities
Risk management process:
the process for identifying, assessing and managing physical
and transitional risks and opportunities
Risk disclosure:
descriptions, financial impacts, and management methods
associated with climate-related risks
The GHG emissions for 2019 and for the two years prior are
given on page 100 in the Directors’ Report.
Importantly, our approach to business and environmental
sustainability can be linked to our long-term customer strategy
and the development of our omni-channel platform. This future
model consists of a matrix approach to customer interactions
both on and off-line and the vision is that this will contribute to
a lower carbon intensity with a reduced physical dealership
footprint as, over time, more customer interactions will take
place online and virtually. More details of this project, our
approach and its progress can be found in the Ignite strategy
dashboard on pages 18-19, and in our commentary on the
evolving automotive routes to market on page 7.
3
Environment
We are committed to making continuous improvement in our
emissions however we are also considering whether, in light of
our broad regional spread, adopting a more 'science-based'
target would be appropriate. We are still working closely with
the Carbon Trust to improve in this area and are focused on
delivering effective energy management in all our sites.
As the business continues to develop, for instance including
the implementation of the omni-channel platform as detailed
on page 7, we are evolving our approach to ensure we are
able to build strategic alignment with our business model
and the needs of our OEM partners. In the meantime, we are
developing energy management best practice guidance
to help those working at retail sites to better understand the
concepts of energy management and energy efficiency.
The guidance will focus on key energy using systems and
processes such as lighting, IT server rooms, heating, ventilation
and air conditioning, compressed air and renewables.
In addition to monitoring our energy and emissions we have
also participated in the CDP (previously the Carbon Disclosure
Project) for the last two years after receiving feedback from
investors and customers. We will continue to participate
annually and will endeavour to manage our impact on the
environment. Our score remained the same in 2019 as the
previous year however there was an improvement in our
climate-related risk assessment analysis which we will continue
to focus on in 2020.
As key areas of focus, we continue to review CDP improvement
recommendations in the following areas:
Case study
Current legislation in the UK identifies 2035 as the point by
which sales of new petrol, diesel and hybrid vehicles will
have been phased out, with BEV (battery electric vehicle)
currently the preferred zero emission drivetrain of the future.
As we seek to support both our OEM partners and our
customers in the transition to a significantly lower carbon-
intensive future, we have recently begun marketing the
full electric and hybrid range available in a curated section
of the UK’s consumer website. The ambition is not only to
present the alternative drivetrain offer to customers, but
also to educate them on the environmental and financial
benefits that switching away from ICE (internal combustion
engine) can deliver.
Adoption of reduced emission vehicles in the UK, and
elsewhere, is rising; Inchcape is reskilling its employees
and adapting service bays to manage a higher proportion
of electric vehicles through its Aftersales processes. With
this initiative, we are now also ensuring that we offer our
customers low to zero emission options for their new car
purchases, taking a responsible position in the developing
low carbon society of the future.
Inchcape Annual Report and Accounts 2019
35
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Non-financial information statement
The table sets out the non-financial information as required under the Non-Financial Reporting Directive.
Reporting requirement
Environmental matters
Employees
Social matters
Human rights
Anti-bribery and corruption
Business model
Relevant policy
Code of Conduct
Code of Conduct
Health & Safety Policy
Code of Conduct
Code of Conduct
Modern Slavery Statement
Anti-bribery and Corruption Policy
Gifts and Hospitality Policy
n/a
Where to read more
See below
CSR Report
Directors’ Report
See below
See below
Code of Conduct
See below
Our business model
Page
36
100
www.inchcape.com
Pages 8 to 16
The Group’s business model, including our value chain, is on pages 8 to 16.
The Group’s key stakeholders and how the Group has engaged with them during the year is explained on page 16.
The Group’s principal risks are given on pages 39 to 51.
Code of Conduct
In 2018 we launched a new Code of Conduct across the
business. To further embed the Code and its requirements,
online training was launched in 2019 across the whole
Group, in 18 languages. Topics and scenarios were tailored
to our business ensuring it was relevant and impactful for
our employees.
Over 16,500 employees were assigned the online Code training
and completion rates are monitored by the Group Compliance
Team. Excluding the UK, we achieved 99% completion across
the Group – each market achieved a completion rate of
at least 95%, with most achieving 100%. The UK launched
their training in Q4 of 2019, they are aiming for at least 95%
completion during Q1 of 2020. New joiners across the Group
are also required to undertake the online Code training as part
of their induction.
Where employees do not have access to a computer, we have
ensured that they are made aware of the Code and what is
required of them through various non-digital means.
Environmental matters
The Group’s business model, of Distributing and Retailing
vehicles, is not reliant on natural resources however the
vehicles we sell for our OEM brand partners, are. Each of our
OEM partners has developed comprehensive sustainability
programmes and the automotive industry in general has made
significant progress in reducing vehicle emissions. We work
with OEM partners who are at the forefront of technological
advances to improve fuel efficiency and to develop alternative
powertrains, such as electric and hybrid. We ensure that our
business model and the infrastructure are in place to support
the changing industry and to be able to deliver cleaner
technologies to our customers as their preferences change.
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. We measure and report our
greenhouse gas emissions which are given on page 100. Whilst
we do not have a global environmental policy, each business
is committed to reducing its energy usage and to managing
energy in the most efficient way and the Code of Conduct sets
out the expectation that employees:
– Seek all opportunities to reduce waste and energy usage, to
recycle where possible and to switch off appliances when
not in use;
– Favour the use of environmentally sustainable supplies and
materials; and
– Look for opportunities to reduce business travel where possible.
Employees
Our employees are integral to the delivery of the Ignite
strategy. Failure to attract, retain and develop our people is a
principal risk for the Group and the description, impact and
mitigating actions taken by the Group are given on page 50.
As the industry experiences a period of significant change,
we continually review the skills of our employees to ensure
we can deliver for customers and OEM partners. Training
and development programmes are carried out within each
business and include various initiatives such as technician
programmes and apprenticeships.
An Employee Experience Consultation is carried out globally to
ensure that we understand the views of our employees. Further
information is on page 33. The findings of the consultation are
reviewed by the CSR Committee which then monitors action
plans implemented by management to address any issues. The
Chair of the CSR Committee has designated responsibility for
ensuring that employee views are communicated to the Board
and he reports on a bi-annual basis.
We are making improvements on how we collate and
manage the data on our people and have created a ‘People
Dashboard’ which will enable us to track the employee
journey. This data will allow us to monitor people KPIs to gain an
understanding of where improvements can be made.
Employee-related 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 with appropriate
human rights legislation in the countries in which we operate.
We did not receive any reports of human rights abuses during
2019. We do not use or accept forced, bonded, involuntary
or child labour. We only employ people who choose to work
freely and respect their rights to equal opportunities and
freedom of association.
36
Inchcape Annual Report and Accounts 2019
Social matters
We believe in supporting the different cultures and communities in which we operate, often through sponsorship and support for
local charities or local people. All our colleagues can be involved in such initiatives and can expect to be supported by Inchcape in
their efforts to help local communities.
We do not have a global policy covering specific social matters and any initiatives are governed by the local business. Initiatives
across the Group include:
Market
Russia
Poland
Estonia
Ethiopia
Kenya
Chile
Panama
Romania
Greece
2019 Activity
2019 was fourth year of ongoing employee support for ‘Gift of Life’ children’s cancer charity. Gift giving drive
for children with oncological illnesses.
Several internal initiatives to improve back office sustainability including energy saving measures, reduction
of plastic, paper and print materials.
Regular social initiatives run each summer. 2019 included toy and play area donation drive for hospitalised
children, and coffee facilities for staff.
Employee blood donation drive; support for Government greening campaign by planting trees; financial
support for Mother & Child Rehabilitation Centre.
Donation of new defibrillator to AIC Kijabe Hospital, one of the biggest receivers of road traffic casualties
in Nairobi.
Christmas gift giving in partnership with Development Corporation for Children at Social Risk and San Vicente
Children’s home in Lo Barnechea.
Funds raised to donate Christmas baskets and toys to sponsored children; donated school supplies in Valle
De Antón.
Environment cleaning volunteer days; plastic reduction initiatives; collaboration with key OEM partner as part
of Toyota Green Month.
Beach clean ups in Athens and Thesaloniki; blood donation drives twice in the year; Toyota Hellas’ Running
Team in aid of child welfare charity ‘Together For Children’; food and essentials donated for SOS Childrens’
Villages Greece supporting homeless and abandoned children.
Anti-bribery and corruption
We have a global policy which is available to all Group employees via iConnect, the Group’s global intranet. The policy states
our zero-tolerance stance to bribery and corruption and mandated procedures. In 2020, identified employees will be required to
complete a new online training module. This will also be included in the induction programme for new employees whose role and
remit require additional focus in this area.
Programme 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.
Reports to Speak Up! are monitored by an independent third party. Reports on anti-bribery and corruption matters are escalated
to the iPOM Committee and, if significant in nature, are reported to the Audit Committee. The iPOM and Audit Committees monitor
management’s response to any issues and the implementation of any action plans deemed necessary. See page 40 for details of
the committee's responsibilities.
As part of our monitoring and assurance procedures, the Internal Audit team carried out a global anti-bribery audit, covering eight
markets. The objective of this review was to: understand related risk; assess the effectiveness of the anti-bribery and anti-corruption
programme (including supplier selection and payments, gifts and hospitality monitoring and employee reference checking, for
example); and determine what the organisation can do to further minimise risks in this area. The audit outcomes enabled us to
further strengthen our control framework, particularly in relation to business partner selection and payment approvals.
Inchcape Annual Report and Accounts 2019
37
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Suzuki
We have a long-standing partnership with Suzuki of over 40
years, the majority of that time being in Singapore. However,
we significantly expanded this relationship in 2018 through
acquisition and awarding of the Distribution contracts in
Costa Rica, Panama and Argentina. This expansion added
to our established South America platform with our first
move into Central America and the addition of two brand
new markets to our global portfolio.
Locations
Distribution
Costa Rica, Panama, Singapore, Argentina
38
Inchcape Annual Report and Accounts 2019
Risk management
Our framework and approach
The automotive industry is set to experience a period of rapid and unprecedented change, bringing
both risks and opportunities. We operate in an ever-changing, dynamic environment where economic,
political, environmental, social, legal and technological changes present a complex risk landscape
which could impact our ability to achieve our strategic objectives.
The Board determines the nature and extent of the risks it is
willing to take in order to achieve its objectives and oversees
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’.
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.
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.
Inchcape Peace Of Mind – our approach to risk
Inchcape Peace of Mind (iPOM) is our Group-wide risk
management and governance framework with a focus not
only on a clear and consistent process, but also empowering
each and every one of our colleagues to consider the
risks associated with the decisions they take. Through this
framework, our management teams identify, evaluate and
mitigate their principal risks, and there is a clear reporting and
monitoring process to ensure that this is done effectively.
The Group has a three lines of defence model, with the first
line of defence being our market management teams and
the policies and procedures they have implemented locally;
the second line of defence are the oversight functions together
with regional and Group management; and the third line of
defence is the Internal Audit function.
The Board carries out a robust assessment of principal and
emerging risks which include those that would threaten the
business model, future performance, solvency and liquidity,
during the annual review of the Group principal risk footprint
and during the Board’s consideration of its risk appetite
in relation to those risks. The Board adopts an integrated
approach to risk by discussing the principal risks throughout
the year as part of its decision-making process. The Board is
assisted in this capacity by the Audit Committee, the Group
Executive Committee and the Group iPOM Committee, who
all have specific roles to play in our risk framework.
The Board focuses its review of the principal risks according
to both the potential severity and likelihood of those risks, but
also with regard to the level of influence we are able to exert
over them. In doing so it ensures that the Group’s risk mitigation
activities are centred on those risks where it can have the
greatest influence in the context of its risk appetite.
Continuously reviewing and refining our procedures, processes
and frameworks helps to prevent risks from impacting our
business and enables us to respond promptly and decisively
when they do. This gives us confidence in our ability to achieve
our strategic objectives and supports the long-term sustainable
growth of our business.
– Strategic risks – those risks that are directly addressed by the
Ignite strategy.
– Managed risks – those risks where our ability to influence the
impact and/or likelihood is relatively high.
– Inherent risks – those risks where our ability to influence and/
or likelihood is limited.
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,
some inherent risks are an accepted part of doing business.
In summary, the Board has a very low appetite for risks that
could lead to breaches of legal and regulatory requirements,
in particular any violations of health, safety and environmental
legislation, 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 fraud and internal control, GDPR compliance
processes and data management 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 our recent entry into Uruguay and
Ecuador. Inchcape has experience in successfully managing
operations in volatile markets and believes it has the capability,
governance and control procedures in place to address the
challenges they represent.
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, as evidenced
by the significant investments we are making in the digital
customer journey, and fleet servicing. Emerging Markets offer
potentially higher long-term growth, although carry the risk of
greater short-term volatility.
Inchcape Annual Report and Accounts 2019
39
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Risk management continued
The iPOM framework
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 strategy review process.
Audit Committee
The Audit Committee has delegated responsibility from the Board
for reviewing the effectiveness of risk management, internal controls,
compliance and whistleblowing and receives regular reports from
management, the Head of Corporate Assurance, and the Head of
Internal Audit.
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. It 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; and
– 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 bi annual risk
assessments to the Group
iPOM Committee.
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.
Internal Audit
Provide risk-based
independent assurance
to the Audit Committee
over the effectiveness of
internal controls and risk
management.
Corporate assurance
Oversees and 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.
Internal controls
Oversee the Group
Minimum Control
Framework (MCF),
providing implementation
guidance, ongoing
monitoring and
continuous development.
Market iPOM Committees
In each market, a Market iPOM Committee ensures that risk
management and internal control remains a management priority.
Meetings and outputs are aligned with the Regional/Group iPOM
Committee, Audit Committee and Board meetings.
Direction and oversight
1st line of defence
2nd line of defence
3rd line of defence
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40
Inchcape Annual Report and Accounts 2019
Enterprise risk management
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.
We identify the existing and emerging 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 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.
nitor
o
M
Identify
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.
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.
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v
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The Group Executive
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Board regularly review the
output from the Enterprise
Risk Management process.
a t
T r e
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.
Inchcape Annual Report and Accounts 2019
41
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Risk management continued
Group principal risk footprint
The principal risk footprint comprises the most pressing risks
that the Board believes could 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.
We recognise, and are actively managing, additional risks,
including emerging risks as identified by our comprehensive risk
management process.
However these are deemed less material than the 18 principal
risk factors noted on the footprint below. These risks are
continuously assessed to allow early detection in changes to
both impact and likelihood of the risk crystallising.
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 risk
management processes to ensure we capture as complete a
picture as possible.
h
g
H
i
i
m
u
d
e
M
w
o
L
t
c
a
p
m
I
Note:
1
3
4
5
7
9
10
17
18
2
6
11
15
16
8
12
13
14
Low
Medium
Likelihood
High
The Board reviews its risks according to where we have most influence over the outcome
Meaningful for risk appetite discussion
Less meaningful for risk appetite discussion
STRATEGIC – Risks directly addressed by Ignite
MANAGED – Our ability to influence the impact and/or likelihood is
relatively high
INHERENT – Our ability to influence the impact and/or likelihood is
more limited
Changes to the risk footprint
Following the annual review of the Group’s principal risks, the
Board made certain changes to the risk footprint. New and
removed risks are detailed below. Revisions to other risks are
noted in the commentary on pages 44 to 51.
New risks
Reflecting the Ignite strategy to not only invest in acquisitions
but also to continuously evaluate our existing portfolio, the
following risk has been added to the principal risks:
Failure to optimise our existing portfolio leads to an impact on
profitability (key risk number 17).
Changes to existing risks
Two existing risks are now expressed at a more granular level
to reflect the nature of severity of the underlying component
risks, which will impact over different time periods and require
different responses.
The risk of impact of disruptive technologies and/or new
entrants to the industry threatens our position in the value chain
has been replaced with:
– Growth in new mobility solutions leads to reduction in personal
vehicle ownership and reduces overall units in operation
through greater vehicle utilisation (key risk number six).
– Electrification of the drivetrain reduces demand for our
OEM partners’ product and impacts our ability to generate
revenue from aftersales (key risk number 18).
The risk of major cyber incident or other systems interruption
impacts on ability to service customers and/or operational
efficiency has been replaced with:
– Major systems failure or other service interruption impacts
on ability to service customers and/or operational efficiency
(key risk number nine).
– Major cyber incident leads to fraud, loss of confidential or
sensitive data, or business interruption (key risk number 12).
42
Inchcape Annual Report and Accounts 2019
Removed risks
Following the disposal of our Chinese operations during 2019, the risk of governments increasing cross border currency movements
has been removed. This risk now only relates to our Ethiopian business and the Board is comfortable that the implications can be
managed under normal business operations.
The Group principal risks
Key risks
Link to Ignite
Trend
Loss of one or more Distribution contracts, which individually, or together, account for a material part of
the Group’s revenue or profits.
Significant retrenchment of credit available to customers, and/or our independent dealers leads to a
reduction in demand for new vehicles.
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.
TRUST
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 OEM partners.
Growth in new mobility solutions leads to reduction in personal vehicle ownership and reduces overall UIO
through greater vehicle utilisation.
Increased digitisation of the customer relationship threatens our position in the value chain as new
entrants, OEMs and/or existing competitors provide alternative, digitally based, routes to market.
Fluctuations in exchange rates with negative impact on financial performance.
Major systems failure or other service interruption impacts our 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.
TRUST
Fraud or error of sufficient scale to materially affect financial performance or reputation.
Major cyber incident leads to fraud, business interruption or compromise of data.
Political and social 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 leading to knowledge drain and operational inefficiency.
Failure to optimise our existing portfolio leads to impact on profitability and inefficient capital allocation.
NEW
Increasing electrification of the drivetrain reduces demand for our OEM partner product leading to a
reduction in revenue.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Key
Become the OEM partner of choice
Deliver full potential on all our revenue streams
Invest to accelerate growth
Lead in customer experience
Climate change
Climate change is not included as a standalone risk as in itself it is not a direct risk to the business. Our intention and ambition to be
an environmentally and ethically responsible business is covered throughout the Annual Report and Accounts including the CSR
Report on pages 33 to 35. However, the impact of climate change is regarded as a 'trigger event' that underpins other risks that do
appear on the principal register and as such this is how we consider the risk as a Group.
Climate change impacts a number of risks, in particular risks on pages 45 to 51 as indicated with a .
Inchcape Annual Report and Accounts 2019
43
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Risk management continued
Strategic risks – Risks which are mitigated directly by the implementation of our Ignite strategy
Loss of one or more Distribution contracts which, individually or together,
account for a material part of the Group’s revenue or profits
Impact:
High
Likelihood:
Low
Trend
Description
Impact
Mitigating actions
Distribution contracts are fundamental to our business
model, and our ability to attract and execute future business
development is also dependent on the quality of our OEM
relationships. The focus to 'Become the OEM partner of
choice' is a core part of our strategy designed to improve,
develop and nurture these partnerships to mutual benefit.
Any event which has a negative impact on these
relationships, or could lead to them being cancelled, will
have a significant impact on revenue and profit, as well as
future growth opportunities.
The underlying factors which could contribute to this risk may
include:
– Failure to deliver a sufficiently attractive value proposition
to OEM partners.
– Consistent failure to deliver to targets or standards
(including compliance with the terms of Distribution
agreements) in major markets or across multiple markets.
– Failure to deliver on growth strategy or defend our
business model against new entrants.
– Major fraud, bribery, data security or other systemic
compliance failure.
2019 Update
This risk has been re-articulated to add clarity.
– Non-renewal of, or
– Develop our customer experience to deliver
removal of, Distribution
contract.
and surpass our OEM’s standards for our shared
customers.
– Squeeze on franchise
– Prioritise OEM relationships at all management
margin impacts
profitability.
– Reduced OEM support
further impacts our
ability to achieve
targets or objectives.
levels to become OEM partner of choice.
– Focus on delivering to volume expectations and
improving our business operations.
– Leverage our global scale through Partner
Development Teams to improve relations, and
solve common issues, with each OEM globally.
– Use global scale to drive operational efficiencies
and demonstrate value to our partners.
– Develop new and strengthen existing OEM
relationships through M&A, creating mutual value
and diversifying our OEM partner relationships.
– Strong focus on legal and regulatory
compliance.
– Comprehensive risk management framework
and continued development of risk/compliance/
controls activity.
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 OEM partners
Impact:
High
Likelihood:
Medium
Trend
Description
Impact
Mitigating actions
Inchcape complements its organic growth agenda by
pursuing inorganic growth through acquisition.
We have made several successful acquisitions since the
inception of the Ignite strategy and are continuing to pursue
further opportunities.
Many of those opportunities are in developing markets,
or in markets that are new to us and often comprise
businesses that are less mature than our own with less
sophisticated processes.
Failure to identify appropriate targets, acquire them on the
right terms, or to efficiently integrate new businesses into
our operation will adversely impact our ability to deliver the
benefits expected from those acquisitions.
– Inefficient capital
– Top down and bottom up approach to target
allocation.
identification.
– Higher leverage leads
– Dedicated business development team to
to volatility in EPS.
project manage M&A.
– Failure to realise growth
– Strong M&A governance process through M&A
objectives.
Committee and Board.
– Damage to relationship
– Partnering with OEM where appropriate to align
with OEM partner if
acquisition does not
yield expected benefits.
– Overpayment for
acquisition impacts on
profitability.
– Exposure to unknown/
misunderstood risks in
unfamiliar markets.
expectations and requirements.
– Robust valuation and comprehensive due
diligence process supported by external advisors.
– Codified, regionally driven integration strategy
developed, supported by Group functions.
– Intensive performance focus for newly acquired
businesses.
– Roll out of Minimum Control Framework (MCF) in
each new business.
– Internal Audit focus within six months of
acquisition.
44
Inchcape Annual Report and Accounts 2019
Growth in new mobility solutions leads to reduction in personal vehicle
ownership and reduces overall UIO through greater vehicle utilisation
Impact:
Medium
Likelihood:
Medium
Trend
Description
Impact
Mitigating actions
Technological advances have enabled the rapid growth of
on-demand mobility services.
As mobility as a service becomes a more common mode
of transport, personal vehicle ownership will likely reduce
and vehicle utilisation will increase, leading to a reduction in
revenue. At the same time, dedicated providers for mobility
fleet servicing, repair and maintenance may emerge and
win future business in this area to the detriment of ourselves.
The impact of these services will vary by market but provide
both opportunity and threat to our businesses, particularly in
major cities and advanced city states.
In the long term, advances in autonomous vehicles have
the potential to completely transform urban and extra-urban
mobility through the removal of a vehicle driver.
Climate change impact: a trend towards lower overall
vehicle ownership due to increasing environmental
concerns among customers leading to ride sharing,
increased use of public transport or other changes to
vehicle ownership models.
– Volume and margin
– Continually seeking to understand how best to
are adversely
impacted across our
markets.
– Adverse impact on
value of retail sites due
to falling demand.
– Long-term change
in vehicle ownership
model may jeopardise
the familiar automotive
value chain, and
potentially result in
disintermediation.
deploy our core capabilities to position ourselves
in the changing automotive model (e.g.
capacity for fleet management services and
network infrastructure, charging, maintenance,
storage).
– Close monitoring of developments across
industry and local market, including monitoring
possible disruptors and likely timeframe for entry
into the market.
– Pilot with Toyota and Grab to develop ultra
efficient fleet servicing.
– Partner with Comfort DelGro in Singapore to
understand autonomous fleet requirements for
distribution and servicing.
– Vehicle telematics proposition pilots in Colombia
(Hino) and Singapore (Toyota).
2019 Update
This risk was previously reported under a more generic risk related to ‘disruptive trends’. The risk has been articulated at a more granular
level to enable a more effective response. The revised risk scoring presents a more accurate reflection of the risk over a three to five-year
time horizon.
Increased digitisation of the customer relationship threatens our position in
the value chain as new entrants, OEMs and/or existing competitors provide
alternative, digitally based, routes to market
Impact:
High
Likelihood:
Trend
High
Description
Impact
Mitigating actions
The way that people communicate and the way that they
buy, and use, goods and services, continues to develop.
Technologies that allow for real time processing of vast
amounts of data, and the development of networks
connecting people, service providers and appliances
(including vehicles) will allow those developments to
continue and accelerate.
The digitisation of the customer journey, and growth of
online customer platforms, presents the opportunity to
improve the customer offering, and at the same time
presents new risks around data protection, maintenance of
standards and customer engagement through, for example,
social media.
Digital platforms may also allow our OEM partners, and
others, to reach out to our customer base directly, which in
the longer term may threaten our position in the value chain.
– Volume and margin
– Digitisation strategy driving investment in
seamless, omni-channel brand experience and a
best in class digital platform.
– Group and market level use of the internet and
social media as a communications channel for
our customers.
– Group and market level monitoring and
management of social media presence.
– Focus on data analysis to identify opportunities
to monetise data and build market level digital
capabilities such as targeted marketing, online
service booking, digital walk around check and
e-commerce (parts and accessories).
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.
2019 Update
The articulation of this risk has been refined to identify more precisely the nature, and source, of the risk. The impact and likelihood ratings
remain unchanged which reflects the Board’s view that this is the most pressing risk facing the business.
Inchcape Annual Report and Accounts 2019
45
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Risk management continued
Failure to optimise our existing portfolio leads to impact on profitability and
inefficient capital allocation
Impact:
Medium
Likelihood:
Low
Trend
NEW
Description
Impact
Mitigating actions
As a global Retailer we hold a significant portfolio of
operational assets, many of which we have held for
some time.
In recognition of the pressures which continually face our
industry, we acknowledge that the risk inherent in holding
retail only assets compared to the value we expect them to
generate is increasing, and therefore our ongoing portfolio
strategy is focused on more attractive and less capital
intensive Distribution operations.
A failure to dispose of assets when maximum value creation
has been achieved, or before anticipated internal or
external factors lead to a sustained underperformance, may
also lead to inefficiency and impact on profit.
– Inefficient capital
– Continual monitoring of portfolio and disposal of
allocation.
assets where necessary.
– Failure to realise growth
objectives.
– Unproductive assets
negatively impact
profitability.
– Failure to realise
maximum value from
assets.
– Regular impairment reviews undertaken.
– Disposal of non-strategic, higher risk retail assets
in progress.
– UK: 3 Audi & 4 VW sites sold in H1 2019;
disposal of non-core fleet business.
– Australia: 6 Trivett sites sold in H2 2019.
– Asia: Disposal of Chinese Retail operation.
2019 Update
This is a new risk added by the Board in 2019 to reflect increasing pressure on the value and contribution of our retail assets. Whilst there could
be a moderate and localised impact of holding on to non-productive assets, the Board believes the likelihood of any significant Group impacts
to be low.
Increasing electrification of the drivetrain reduces demand for our OEM
partners, products and leads to a reduction in revenue
Impact:
Medium
Likelihood:
Trend
Low
Description
Impact
Mitigating actions
Regulatory, environmental and customer pressures are
forcing OEMs to invest to lower their fleet emissions. As a
technology to achieve this, Electric Powertrains (both Hybrid
and BEV) are currently receiving significant attention and
investment from our OEM partners.
Predictions for EV penetration vary considerably but could
account for up to 40% of the fleet in developed markets
within the next decade, which presents both a threat
and a real opportunity, dependent on the availability of
competitive EV products in certain markets.
A greater penetration of electric vehicles may squeeze
margins through the value chain due to the required
investments and may also have an impact on our Aftersales
business as EVs require less frequent servicing, though this
is a long term threat.
Climate change impact: there is a risk that the industry
shifts towards electric and hybrid, away from internal
combustion engines.
– Volume and margin
are adversely
impacted across our
markets.
– Adverse impact on
value of retail sites due
to falling demand.
– Uncompetitive product
line up leads to a long-
term loss of sales.
– Opportunity for
increased market share
where OEM product
line up is strong.
– Diversification of OEM partnerships across
different vehicle types and technologies.
– Regular liaison with OEM partners to match
pipeline and product planning to emerging
technologies and support demand.
– Initiatives to monetise data such as targeted
marketing, predictive maintenance and recall
management.
– Preparation of Aftersales business in line with OEM
EV strategy.
2019 Update
This risk was previously reported under a more generic risk related to ‘disruptive’ trends. The risk has been articulated at a more granular
level to enable a more effective response. The revised risk scoring presents a more accurate reflection of the risk over a three to five-year time
horizon.
46
Inchcape Annual Report and Accounts 2019
Managed risks – Risks over which we are able to exert considerable influence on the impact or likelihood of
occurrence
Major loss or misappropriation of confidential or sensitive data results in
financial penalty and/or reputational damage
Impact:
High
Likelihood:
Trend
Medium
Description
Impact
Mitigating actions
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.
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.
– Impact on customer
and/or OEM
relationship and
erosion of reputation.
– Data Management minimum standards issued.
– Global Information Security and data
management policies and procedures
developed and implemented.
– Adverse financial
– Information assets defined, and security controls
impact as a result of
civil or criminal action.
– Regulatory intervention
leads to impact on
financial performance
(fine) or business
operations.
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.
Major systems failure or other service interruption impacts on ability to
service customers and/or operational efficiency
Impact:
Medium
Likelihood:
Trend
Low
Description
Impact
Mitigating actions
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
suitable redundancies are built into our infrastructure to
enable continuity of operations should there be a large-
scale interruption to our business.
Many of our core services are held on, or reliant on, cloud
based services provided by third parties. As we currently
lack internal capability to support and maintain these
services, we are increasingly reliant on third parties to
provide resilience.
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
– Built in resilience and security in place with active
interruption, leading to
lost sales opportunity
and adverse
reputational impact.
monitoring for core systems.
– Minimum Control 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,
and regularly tested.
– Business interruption insurance purchased.
– Close management of iPower implementations
and period of post implementation ‘hyper care’.
– Develop internal support capabilities for major
hosted systems.
2019 Update
This risk was previously reported under a more generic risk of cyber security and systems resilience. The risk has been articulated at a more
granular level to enable a more effective response. Our assessment of the level of risk remains unchanged.
Inchcape Annual Report and Accounts 2019
47
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Risk management continued
Failure to safeguard our customers and employees by not consistently
applying EH&S standards across the Group
Impact:
Medium
Likelihood:
Trend
Low
Description
Impact
Mitigating actions
Inchcape employs more than 17,000 people across the
globe. We are committed to the health, safety and security
of our people as well as that of our customers and other
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.
Climate change impact: there is a risk to the safety of our
people and customers with more frequent weather events
and natural catastrophes such as flooding etc.
– Injury to customers,
employees or third
parties.
– Serious incident
leading to lost time.
– Unlimited fines.
– Personal sanctions
(including prison) for
officers.
– Damage to reputation
following injury to, or
death of employees or
customers.
– Civil or criminal action.
– Appointment of Group Health, Safety &
Environment Director.
– Global audit of H&S practices and standards in
all markets.
– Global Community of Practice implemented.
– HSE strategic plans developed in all markets.
– Global and Local Health & Safety policy rollout
compliant with local legislation, and Inchcape
Standards of Safety.
– Qualified Health & Safety practitioners in major
markets and at Group level.
– Basic training offered to staff with more
advanced training for higher risk roles and first
responders.
– Clear ‘Ways of working’ displayed in prominent
areas in the riskiest areas (e.g. workshops).
– Accidents, hazards and near misses monitored
on a regular basis with corrective actions
tracked.
– Insurance package includes independent H&S
assessments for some markets.
– Roll out of a Global HSE system to facilitate
management of all safety operational
requirements.
Fraud or error of sufficient scale to materially affect financial performance
or reputation
Impact:
Medium
Likelihood:
Trend
Medium
Description
Impact
Mitigating actions
We continue to see an increased incidence of fraud or
attempted fraud perpetrated from both within and outside
the business, especially in Emerging Markets where our
growth plans are focused. In particular the risk of cyber fraud
is a growing trend.
– Significant fraud
with financial
and reputational
consequences.
– Significant error or
Strong internal controls and processes underpin our
operations. Without them we would fail to protect the value
we create and undermine our growth potential.
financial misstatement.
– Procedural breakdown
with consequences
for efficiency and/or
business interruption.
– Code of Conduct refreshed to set out
overarching standards of behaviour and
compliance globally.
– Minimum Control Framework (MCF) sets an
unambiguous global controls standard.
– Review and refresh of Fraud Management and
Whistleblowing policies.
– Delegation of authorities policy in place to ensure
that decisions are undertaken within approved
authority limits and parameters.
– Cyber security programme in place.
– Central Internal Control Team created to oversee
implementation and development of MCF.
– Clear management accountability for internal
controls.
– Automation of control through iPower
implementation reduces the possibility of error or
oversight.
– Fraud and other major control incidents
monitored by the Group Audit Committee.
– Close monitoring of MCF compliance by Group
Internal Audit.
– Speak Up! whistleblowing hotline available in all
markets.
2019 Update
This risk has been re-articulated to draw focus to the increasing risks associated with fraud.
48
Inchcape Annual Report and Accounts 2019
Major cyber incident leads to loss of confidential or sensitive data, fraud or
business interruption
Impact:
Medium
Likelihood:
Trend
High
Description
Impact
Mitigating actions
As we invest in our digital capability, gather and hold more
data and rely ever more heavily on technology and mobile
devices we simultaneously open up more opportunities for
cyber attackers and therefore we recognise that this risk is
increasing.
Far from being simply an IT issue, cyber crime is a business
risk, with malicious actors continuously developing new and
innovative ways to commit fraud, access data and interrupt
systems, many of which are based on manipulation or
exploitation of our people.
Attacks can be aimed at accessing confidential data,
extracting money, or causing business interruption
– Business continuity
– Information Security policy developed and rolled
out.
– Encryption and access standards applied.
– Investment in advanced network threat detection
and malicious communications filters.
– Best practice physical and logical security
measures control access to key infrastructure,
and subject to regular penetration testing.
– Encryption of valuable and sensitive data.
– Collaboration with OEMs and vendors to identify
emerging threats.
– Global vulnerability and risk scanning in place to
enable early response and intervention.
– Cyber awareness training deployed to all staff.
– Cyber incident response plans in place.
interruption, leading to
lost sales opportunity
and adverse
reputational impact.
– Impact on customer
and/or OEM
relationship and
erosion of reputation.
– Adverse financial
impact as a result of
civil or criminal action.
– Regulatory intervention
leads to impact on
financial performance
(fine) or business
operations.
– Fraud leading to loss of
monies and or assets.
2019 Update
This is a new risk which was previously reported under a more generic risk of cyber security and systems resilience. The risk has been
articulated at a more granular level to call out the increasing likelihood/impact of cyber attacks and to enable a more effective response.
Failure to comply with laws or regulations leads to material financial
penalty or reputational damage
Impact:
Medium
Likelihood:
Medium
Trend
Description
Impact
Mitigating actions
The Group, and its businesses, are subject to a wide range
of laws and regulations across a range of environments from
those where strong ethical standards are not yet established
to highly regulated markets.
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.
– Financial impact of
fines/sanctions.
– Regulatory intervention
leads to business.
interruptions or other
inefficiency.
– Adverse reputational
impact affecting OEM
partner relationships.
– 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.
– Code of Conduct training undertaken by all staff
– Local training programmes in place for
relevant staff to raise awareness and confirm
expectations.
– Online legal/compliance training solution to be
implemented globally.
– Market level policies and procedures
supplemented by Group policies and procedures
for higher risk areas.
Inchcape Annual Report and Accounts 2019
49
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Risk management continued
Failure to attract, retain & develop our people leading to knowledge drain
and operational inefficiency
Impact:
Medium
Likelihood:
Trend
Medium
Description
Impact
Mitigating actions
Inchcape employs over 17,000 people across 33 different
territories, in various roles including Sales, Aftersales, and
back office functions.
The fragmented nature of the automotive sector, coupled
with remuneration strategies which typically reward short-term
performance, mean that the industry is characterised by
inherently high turnover rates, especially in retail businesses.
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 succession
plans, and diversity at all levels, may compromise our ability
to deliver the Ignite strategy.
Climate change impact: there is a risk that we are not seen
as an environmentally responsible organisation and therefore
do not attract high calibre employees.
– Loss of core knowledge
– Global Talent Strategy to ensure resources are
and experience.
aligned to strategic requirements.
– Business interruption or
operational inefficiency.
– Failure to deliver
strategic objectives.
– Talent review pipeline to maximise the value-add
of our people.
– Recruitment, induction and continuous
development policies in all markets.
– Drive5 behaviours underpin development process.
– Employee Experience measurement in all markets
to identify and address issues/risks.
– 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.
– Launch of career development online tools to
support internal progression and aid retention.
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
Significant retrenchment of
credit available to customers
and/or our independent
dealers leads to a reduction in
demand for New vehicles
Global economic uncertainty may ultimately lead
to a reduction in readily available, affordable credit,
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.
Therefore we largely accept this risk.
Impact
Medium
Likelihood
Medium
Trend
2019 Update
The Board has re-assessed the likelihood and impact of this risk to better reflect our experience. The likelihood has been increased, but the
potential impact reduced as the Board feels it would likely be limited to a localised impact.
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.
Climate change impact: risk that demand for
product falls as environmentally aware customers
shift their preferences to less polluting models.
High
Medium
2019 Update
The Board has increased the likelihood of this risk crystallising reflecting recent events which have affected the reputation of certain OEM
partners or their product.
Fluctuations in exchange
rates with negative impact on
financial performance
As a global organisation we accept the risk that,
outside of 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
50
Inchcape Annual Report and Accounts 2019
Risk
Comments
Impact
Likelihood
Trend
Political and social instability
leads to economic uncertainty,
market interruption and/or
threat to safety
We accept that there is a risk of social and political
instability globally and that certain political and
social issues could have a destabilising effect on
the global economy. In addition rising eco-activism
could impact the automotive industry in the future.
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.
Medium
High
2019 Update
The reference to regulatory instability has been removed as it is covered in risks 14 and 15. The increase in impact and likelihood reflects the
scale of recent events in Hong Kong, Chile, Ethiopia and Ecuador.
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.
Climate change impact: environmental concerns
are a key driver of legislation aimed at limiting
vehicle usage in certain areas, making car
ownership less economical which will shift demand
to less polluting vehicles.
Medium
High
2019 Update
The potential impact of this risk has been increased to reflect the increasing reach, and pace of change in environmentally focused legislation,
across many of our markets.
Brexit
The UK has now left the European Union and is in a transition
period which is due to end on 31 December 2020. There are
still significant uncertainties surrounding the terms of the UK/
EU relationship after that date, which is now dependent on
the outcome of the trading negotiations between the UK
government and the EU. In the absence of agreement, trading
between the two parties will be based on WTO rules from
1 January 2021.
Our exposure to this risk is principally in our UK Retail business
where we are the Retailer for the major German brands
including BMW, Mercedes-Benz, Volkswagen, Audi and
Porsche. We also import certain Toyota models which are
manufactured in the UK into Greece, Belgium and the Balkans,
and JLR and Mini into our Northern Europe operation.
Considering the content of the withdrawal agreement and
political declaration and given that the UK and EU have
a transition period of at least 11 months to negotiate and
conclude the future relationship, we consider that a ‘no deal’
Brexit is now significantly less likely than previously.
However, all scenarios remain plausible, and therefore our
assessment of the potential impacts of the risks remains
unchanged. In the absence of agreement, we would
anticipate three broad impacts:
– Loss of freedom of movement in goods, services, capital and
people;
– Divergence of regulation between the EU and the UK; and
– Macroeconomic instability, principally in the UK.
The Board has considered these in detail and, given the nature
of our business and the actions that we and our partners have
already taken, does not foresee significant impacts related to
the loss of freedom of movement in services, capital or people,
or caused by the divergence of regulation (except in so far
as this might have an effect on the product mix offered by our
OEM partners in the UK).
Some uncertainty however remains around the impact of tariffs
and non-tariff barriers, in particular related to the impact on
the supply chain for new vehicles and parts. Given the nature
of our business, much depends upon the actions taken by our
OEM partners in response to those impacts and we continue to
work closely with those partners in order to make the necessary
preparations to mitigate the potential impact.
The medium-term macroeconomic impact on the UK economy
also remains uncertain. This is naturally very difficult to forecast,
and will no doubt change as trading negotiations progress,
but we stand ready to act to reduce our cost base should
circumstances so dictate.
The Board and Group Executive Committee continue to
actively monitor the situation and, as the outcomes of the
trading negotiations become clearer, we will continue to take
appropriate action as and when necessary.
Inchcape Annual Report and Accounts 2019
51
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Risk management continued
Viability statement
The Group’s business model and strategy are outlined
on pages 7 and 22 and the long-term viability of Group is
intrinsically linked to the delivery of this strategy and the cash-
generative nature of this business model.
It is in the nature of our business that our continued viability
is dependent upon the continuation of our relationships with
Original Equipment Manufacturers (OEMs). Based on the
longevity of our relationships with OEM partners, it is reasonable
for us to expect that, when viewed across a three-year time
horizon, a sufficient number of those contracts will be renewed
such that the Company will continue as a viable operation.
In seeking to become and remain the OEMs’ partner of choice,
we expect to continue to build on the long-term strategic
relationships we have developed with our OEM partners
over the years 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 a component part of this process, the Board adopts a
rigorous approach to the identification of the principal risks
facing the Group and to the monitoring of the actions taken to
mitigate these risks as outlined in this report. As part of this, the
impact of climate change has been considered on each of the
principal risks as noted on pages 43 to 51.
The Board has prioritised a subset of these principal risks for the
purposes of assessing the longer-term viability of the Group. The
three risks modelled for this purpose are:
– Loss of global Distribution contract with major brand partner;
– Increased digitisation of the customer relationship threatens
our position in the value chain as new entrants, OEMs and/
or existing competitors provide alternative, digitally based,
routes to market; and
– 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 both the loss of a Distribution contract
with a major brand partner in our largest market and the
impact of increased digitalisation and/or a major interruption
to OEM operations or product supply which negatively impacts
vehicle sales.
For 2021, the Board has also considered the impact of a “no
deal” Brexit and incorporated this as a scenario to model an
interruption to product supply. In addition, the risk of a liquidity/
credit shock, has been modelled as a sensitivity on top of these
risks to understand the combined financial impact.
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 set out on page 42 to 51 are
managed and mitigated in the ways 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 2022.
Directors’ approval of the Strategic Report
Our 2019 Strategic Report, from pages 2 to 52, has been
reviewed and approved by the Board of Directors on
26 February 2020.
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.
Stefan Bomhard
Group Chief Executive
52
Inchcape Annual Report and Accounts 2019
VW Group
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
extends to over 30 years and we are present today as
a Retail operator in the UK and Russia, following the
divestment in 2019 of our retail sites in China and Australia.
Locations
Retail
UK, Russia
Inchcape Annual Report and Accounts 2019
53
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Chairman’s statement
A governance culture
Nigel Stein
Chairman
Dear Shareholder
I am pleased to present the Corporate
Governance Report for the year ended
31 December 2019. 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.
Board changes
As mentioned in my letter at the beginning of the Annual
Report and Accounts, Stefan Bomhard has decided to leave
the Group to take up a new role with Imperial Brands PLC.
We are disappointed to lose Stefan at this time, but have
always recognised that an Executive of his calibre might be
recruited into an equivalent role at a larger organisation.
He has done a great job at Inchcape and we wish him every
success. Inchcape has an excellent strategy and a strong
management team driving it forward. The Board is determined
that the considerable momentum now being seen will be
maintained. We will carefully select Stefan’s successor from
both internal and external candidates, ensuring we maintain
Inchcape’s record of high quality leadership in executing the
Ignite strategy.
Nigel Northridge and Coline McConville retired from the
Board after serving over nine years and six years respectively.
Richard Howes resigned as Chief Financial Officer in August
2019. I would like to thank them for all their hard work and
dedication over the years. Succession planning is a key activity
for the Nomination Committee, with Board membership
consistently under review. We were pleased to recruit two
high calibre directors, Gijsbert de Zoeten who joined as the
new Chief Financial Officer in August 2019 and more recently
Alex Jensen who was announced as a Non-Executive Director
in January 2020.
54
Inchcape Annual Report and Accounts 2019
Gijsbert de Zoeten was, until 2018, CFO at LeasePlan
Corporation NV, an international fleet management and
mobility services company. He joined LeasePlan in 2016 and
was integral to the significant transformation of the business,
following its sale by VW Group. Previously, he had a successful
27-year career at Unilever plc where he had a range of senior
financial and operational roles leading to his six-year position
as the CFO of Unilever Europe. Gijsbert brings a wealth of
business integration, operational and financial experience,
and knowledge of the automotive industry to the Board which
will further enhance the development of the strategy and
strengthen the decision-making process.
Alex Jensen brings complementary skills, including digital
experience gained in her executive roles at BP plc as well
as a good understanding of the global automotive industry.
She will be a valuable addition to the Board during a period of
significant change in the industry.
2019 performance
The Board, and the executive team led by Stefan, spend
much of their time focusing on delivering the Group's strategy
for performance and growth, and planning for the future.
We have made further progress to grow our business through
the acquisition of BMW distribution businesses in Lithuania and
Kenya, the acquisition of Autolider, distributor of Daimler brands
in Uruguay and Ecuador and the Mercedes-Benz passenger
vehicle distribution contract on Colombia. This brings the total
of new Distribution businesses to 12 since we launched Ignite
in 2016.
Continuing our move to a more distribution focused business
we divested parts of our Retail-only business where we are
seeking to achieve improved profitability and performance.
We recently agreed the sale to our core partner Toyota of
Inchcape Fleet Solutions ("IFS"), which is one of a number of
similar businesses in the market and not one that we would
be able to invest in significantly enough to grow to a market
leading position. We are delighted that Toyota’s European
fleet management business agreed to buy IFS, and we wish
both them and our former colleagues the very best in their
new endeavour.
Section 172 and the UK Corporate Governance Code
The Board has always considered the wider interests of
internal and external stakeholders during the decision-making
process and the additional reporting requirements introduced
in 2019 aim to improve disclosure in this area. This includes
a requirement for Boards to demonstrate how they have
discharged their obligations in Section 172 of the Companies
Act 2006 (“S172”). The Board’s S172 statement is given on
page 3 of the Strategic Report, however the Annual Report as
a whole aims to demonstrate how the interests of stakeholders
are considered during the year by providing information on all
our stakeholders and how the Ignite strategy is linked to their
interests. To provide an example of how the Board considers
various stakeholders when making key decisions, case studies
on the sale of IFS and the acquisition of Autolider, being two
Compliance with the 2018 UK Corporate
Governance Code
The 2019 report has been structured in
accordance with the 2018 UK Corporate
Governance code and details how we have applied
the principles accordingly:
Board leadership and company purpose
56
58
58
59
61
Board of Directors
Purpose and strategy
Governance structure
Board activities
Engagement with stakeholders
Division of responsibilities
62
Roles of the Board
Composition, succession and evaluation
63
Nomination Committee Report
66
Board evaluation
Audit, risk and internal control
67
Audit Committee Report
Remuneration
76
79
80
87
Directors' Report on Remuneration
Remuneration at a glance
Directors' Remuneration Policy
Annual Report on Remuneration
Statement of Code compliance
The Company was compliant with the provisions
of the 2018 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 54 TO
102 AND FORMS PART OF THIS REPORT.
key strategic decisions taking during the year, are given on
page 61 and in the capital allocation policy on page 22.
The Board considers maintaining high standards of business
conduct integral to the long-term success of the Group and
is demonstrated through the approach to developing the
desired culture within the Group via the Code of Conduct,
policies and practices.
Engaging with stakeholders
The key stakeholders and the processes in place to engage
with them are given on page 16. The Board receives reports
from the Group Executive Committee on the outcomes of
stakeholder engagement throughout the year at the Board
and Committee meetings. The Board also engages with
stakeholders in a variety of other ways. For example, guest
speakers from OEM brand partners are invited to attend the
Annual Strategy Day, to give their views on the industry from
an OEM perspective which allows the Board to gain a broader
view of the long-term impacts to the Ignite strategy.
Our major shareholders were consulted during the review of
the new remuneration policy and their views were invaluable
in helping formulate the policy. See page 77 for further details.
The Company’s brokers also meet the Board to give the views
of investors and the market generally. Establishing dialogue
with investors is important to ensure that they understand
and support the Group’s strategic objectives which in turn
provides them with a sustainable return via the Group’s capital
allocation and dividend policy. See page 22 for further details.
Engagement with employees is important to the Board
as it gives insight into the culture and behaviours of the
organisation. This engagement takes the form of the Employee
Experience Consultation, see page 33 of the CSR Report
and page 75 of the CSR Committee report for further details.
The annual overseas Board visit also allows the Board to speak
to employees directly, gaining insight into the culture and
values of the organisation. The Board can also judge how
the Ignite strategy is being embedded locally. In October, the
Board visited the Toyota business in Belgium. See page 59 for
further information.
I would like to take this opportunity to pay tribute to our most
important asset, our people. It is a great privilege to be able to
travel to our markets, to meet the people who make Inchcape
the business it is today. I found their expertise and their
enthusiasm for the brands they represent infectious. The Ignite
strategy is fully embedded within the Group and the employees
have a strong sense of shared purpose. It is this passion that
brings to life the strategic decisions made by the Company’s
management and creates the resilience to manage
challenges and drive performance in the future.
I thank you for your support during 2019 and look forward to
the coming year.
Nigel Stein
Chairman
Inchcape Annual Report and Accounts 2019
55
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate governance report – Board leadership and company purpose
Board of Directors
The Board is collectively responsible for agreeing, developing, and continually reviewing the Ignite
strategy to ensure that it delivers long-term sustainable success. The Board is also responsible for
ensuring that the appropriate people are employed to deliver the Ignite objectives and that they have
adequate financial resources in order to do so. Underpinning this, the Board must ensure that there is
the right people development and training in place to support Ignite, along with the necessary controls,
processes and procedures to drive a strong ethical culture to facilitate the delivery the Ignite goals.
Nigel Stein
Stefan Bomhard
Gijsbert de Zoeten
Jerry Buhlmann
Rachel Empey
Jane Kingston
John Langston
Till Vestring
FULL BIOGRAPHIES, INCLUDING PAST EMPLOYMENT HISTORY, CAN BE FOUND ON WWW.INCHCAPE.COM
56
Inchcape Annual Report and Accounts 2019
Nigel Stein
Chairman
Appointed
October 2015
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 Remuneration and CSR
Committees.
Stefan Bomhard
Group Chief Executive
Gijsbert de Zoeten
Chief Financial Officer
Jerry Buhlmann
Non-Executive Director
Appointed
April 2015
Appointed
August 2019
Appointed
March 2017
Skills and experience
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.
Skills and experience
Gijsbert was CFO at
LeasePLan Corporation
NV, the international fleet
management and mobility
services company.
Previously, Gijsbert has held a
range of senior financial and
operational roles at Unilever
plc over 27 years, including
his six-year position as the
CFO of Unilever Europe.
Other appointments
Gijsbert is also a member
of the supervisory board of
Technical University Delft.
Skills and experience
Jerry has over 30 years’
experience in the media and
advertising industries. He was
CEO of Dentsu Aegis Network
from 2013 until 2018. Prior to
its acquisition by Dentsu Inc,
Jerry was the CEO of Aegis
Group PLC.
Jerry is also Non-Executive
Chairman of Croud, a global
digital marketing agency,
Senior Advisor for OC&C’s
TMT Practice and a director
of Madison Sports Group.
Committee membership
Audit, Remuneration,
CSR and Nomination
Committees.
Rachel Empey
Non-Executive Director
Jane Kingston
Non-Executive Director
John Langston
Non-Executive Director
Till Vestring
Non-Executive Director
Appointed
May 2016
Appointed
July 2018
Appointed
August 2013
Appointed
September 2011
Skills and experience
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.
Rachel is a chartered
accountant.
Committee membership
Audit and Nomination
Committees.
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 Spirax-Sarco
Engineering plc.
Committee membership
Chair of Remuneration
Committee and member of
Nomination Committee.
Skills and experience
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.
Skills and experience
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.
Till is also a Non-Executive
Director of Keppel
Corporation.
Committee membership
Chair of CSR Committee
and member of
Remuneration and
Nomination Committees.
Inchcape Annual Report and Accounts 2019
57
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Corporate governance report – Board leadership and company purpose continued
Purpose and strategy
Details of how the Company generates value for shareholders
and contributes to wider society is given in the description of
the business model, value chain, Ignite strategic achievements
and direction, and the CSR Report. Our ambition is to bring the
best loved automotive brands to customers and consumers
throughout the world. The 2019 Ignite achievements are set out
in pages 18 and 19.
Part of the Ignite strategy is to take advantage of acquisition
opportunities, with a focus on Distribution, and to consider the
disposal of any non-core assets. Key to understanding the long-
term benefit for the Group is to consider the risks associated
with M&A and the Board’s risk appetite when entering or exiting
markets. Careful consideration is given to these risks throughout
the decision-making process in order to balance the risk and
reward for the Group.
The Annual Strategy Day provides the forum to assess the Ignite
strategy and how the delivery of the strategy generates and
preserves value over the long term. The Board considers risks
and opportunities which could disrupt the business model in
the medium and long term, including future trends such as
electrification, connected cars and shared ownership, during
the strategy planning process. Having robust governance
processes in place drives the desired culture to support
the Ignite strategy and creates a shared sense of purpose
throughout the organisation which brings the Ignite strategy
to life.
The Board regularly reviews operational policies and practices,
to ensure they are driving the right behaviours throughout the
organisation. The Board also considers the development of
our people which will drive the Ignite strategy in the long term.
Further information is given on page 33 of the CSR Report. The
Remuneration Committee considers remuneration policies and
practices to ensure they are consistent with the Company’s
values and support its long term sustainable success. Other
policies are considered in conjunction with the review of risk,
the internal control framework including financial controls,
delegated authorities policies and HR & remuneration policies.
The Group also operates an externally hosted whistleblowing
line, details of which are given in the Audit Committee Report
on page 71.
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
Delegated
authorities:
Remuneration Policy
Risk Management
Incentive Plans
Internal Control
Performance Targets
Delegated
authorities:
Group Strategy
Operational
Management
Delegated
authorities:
Board Composition
Diversity
Succession Planning
Delegated
authorities:
CSR Strategy
COMMITTEE REPORT
COMMITTEE REPORT
COMMITTEE REPORT
COMMITTEE REPORT
PAGE 67
PAGE 76
PAGE 63
PAGE 74
Delegated
authorities:
Risk oversight
Minimum Control
Framework
iPOM
Committee
Group Capital
Committee
Delegated
authorities:
Oversight of Group
capital expenditure
58
Inchcape Annual Report and Accounts 2019
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
Gijsbert de Zoeten
Rachel Empey
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
2/2
6/6
4/4
6/6
6/6
4/4
3/3
6/6
6/6
–
3/3
–
4/4
–
4/4
–
1/1
–
–
–
2/2
–
–
–
2/2
–
1/1
1/1
2/2
2/2
–
2/2
–
2/2
–
2/1
2/1
1/1
1/1
2/2
2/2
2/2
2/2
–
–
–
–
1/1
–
2/2
2/2
* Nigel Northridge left on 23 May 2019, Coline McConville left on 23 July 2019 and Richard Howes left on 31 August 2019. Gijsbert de Zoeten joined on 27 August 2019.
John Langston and Jane Kingston were unable to attend the November Nomination Committee meeting due to prior
engagements. A full briefing on the business discussed was given to the Directors by the Chairman.
Board activities
Overseas Board visit
The annual overseas Board visit took place in Belgium at the
Group’s Toyota business. Visiting the overseas operations is a
key annual activity for the Board as it gives the Non-Executive
Directors an opportunity to meet the local teams and to see the
Ignite strategy in action. These interactions give an indication of
the Group’s culture and values and enables the Board to mix
with colleagues informally.
During the visit, the Board toured the Toyota and Lexus
dealership at Zaventem meeting various teams including
technicians and sales teams. After which, they arrived at the
Inchcape Belgium Head Office and received regional updates
from the CEO of Continental Europe, the Managing Director
of Belux, the Lexus Distribution & Retail Director, the Belux Sales
Director and the Network Development Director for Belux. The
Board was also invited to tour the Toyota Parts Centre in Diest.
This opportunity allowed the Board to gain first-hand experience
of our longest OEM partner's European wide supply and
distribution centre which distributes over 205,000 parts daily.
The Board found that engaging with local teams to discuss
the unique challenges and opportunities in their region gives
the Directors invaluable insight into the business and the
opportunity to learn more about our OEM partner’s business
provides a greater understanding of the Group’s position in
the value chain.
Inchcape Annual Report and Accounts 2019
59
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate governance report – Board leadership and company purpose continued
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. The Directors provide feedback on how the Board operates, its culture and effectiveness during
the evaluation process. Further details can be found on page 66. There is a schedule of formal matters reserved for the Board which
can be found at www.inchcape.com/governance.
Focus in 2019
What we achieved
Our priorities in 2020
Stakeholder engagement
During the year, the Remuneration Committee carried out a
consultation with shareholders on the proposed remuneration
policy. Further details are given on page 77.
Engagement with investors and
OEM partners on environmental,
social and governance factors
Ignite strategy
Risk
Financial reporting and
business performance
Leadership
Governance and culture
The Employee Experience Consultation was rolled out to
13,500 employees. Further details can be found in the CSR
Report on page 75.
Further information on stakeholders are given on page 16.
The Board continued to focus on the Ignite strategy which
continued to deliver value in 2019 with the acquisition
of exclusive distribution for BMW Lithuania and Daimler
passenger cars and trucks in Uruguay and Ecuador.
The focus on core Distribution activities also led to the Board's
decision to dispose of certain Retail businesses during the
year in the UK, China and Australia in addition to the fleet
business, Inchcape Fleet Solutions.
The digital strategy further evolved with the launch of the
omni-channel customer journey in Subaru Melbourne and
the introduction of reputation.com to measure and improve
customer experience.
Further information can be found on pages18 and 19.
Capital allocation is an important part of the Board's
decisions and during 2019, a further £100m was returned
to shareholders by way of a share buyback. Further
information on the capital allocation framework can be found
page 22.
The Board undertook a review of its risks this year, particularly
in respect of the entry into new markets in Central America
and the Board’s risk appetite in these areas. Further details are
given in the Risk Management Report on pages 39 to 52.
The Board reviews the performance of the business on
a regular basis and challenges management on the
assumptions made and the judgements used, with
assurances provided by both external and internal sources to
ensure the information communicated to stakeholders is fair,
balanced and understandable.
The Board reviews succession, talent development and
diversity and inclusion annually. Focus during 2019 has been
on building the Group's approach to diversity & inclusion.
Further details are given in the people section of the CSR
Report on page 33.
The 2018 UK Corporate Governance Code came into effect
from 1 January 2019. The Board considered its obligations
under the new Code and the S172 reporting requirement.
The S172 statement is given in page 3 and two case studies
demonstrating how the Board had regard for stakeholders
are given on page 61.
Global industry and market
trends
Disruptive and future trends
Strategy development
Annual review of principal risks
and mitigating actions
Annual review of risk appetite
Brexit impact
Approval of annual operating
plan
Review of delegated authorities
policy and capital expenditure
processes
Group Chief Executive
succession planning
Talent pipeline
The Board will continue to focus
on ESG factors impacting the
Group and its business model to
improve internal understanding
and external reporting in this
area.
60
Inchcape Annual Report and Accounts 2019
Engagement with stakeholders
Statement 172 case studies
Key decision
Sale of
Inchcape
Fleet
Solutions
Key decision
Acquisition
of Autolider
The Inchcape Fleet Solutions ("IFS")
business provides fleet solutions and
fleet management services to business
customers. While a successful business, the
Board considered IFS to be neither part of its
core Distribution activities nor meaningfully
synergistic with its UK Retail dealership
business. The Board therefore considered
that it was in the best long-term interest of
members to dispose of this business to the
mobility division of Toyota, its largest OEM
partner. The disposal, combined with the
divestment of certain of its Retail assets,
would allow the Group to continue to focus
its capital allocation on its core Distribution
business in alignment with its strategic goals.
Toyota intends to use the business as a
platform to grow its mobility services business
in the UK market. The Board therefore
took confidence that the interests of its
employees would be safeguarded and
that the acquisition by Toyota would lead
to enhanced growth opportunities for them.
In reaching its decision, the Board had
particular regard to maintenance of the
accrued and future pensions benefits of its
transferring employees.
Following the disposal, our UK Retail business
will continue as a business partner to the
Toyota Fleet Solutions business and this
will help to further cement the relationship
between the Group and one of its key OEM
partners.
SEE PAGE 5 FOR FURTHER DETAILS
In November 2019, the Group acquired
Autolider, a distributor of Daimler passenger
and commercial vehicle brands in Uruguay
and Ecuador. The acquisition adds two
new markets to the Group’s Latin America
businesses and represents its first Distribution
contract with Daimler brands.
In reaching its decision, the Board
considered that the acquisition is consistent
with its long-term strategic goals of investing
to grow and becoming the OEM partner
of choice.
The Board took into account the interests
of its strategic partner, Daimler, noting
the desire of Daimler to consolidate its
distribution network in Latin America. This
acquisition, together with the announced
acquisition of the Daimler passenger vehicle
distribution business in Colombia, represents
a significant milestone in progress towards
that shared goal.
The Board also considered the country
specific risks of entering these two new
markets noting, in particular, risks relating
to political instability and compliance
with laws. The Board has taken steps to
understand those risks and ensure that
relevant controlling and mitigating actions
are in place including the roll out of the
Group’s Code of Conduct and compliance
programme.
When acquiring a new business, the impact
on employees is a key priority during the
Board’s decision-making process. An on-
boarding team is deployed to ensure that
the integration of the business goes well and
that transferring employees are quickly made
to feel a part of the Inchcape Group. Being
part of a large international organisation will
give rise to development opportunities.
Finally, the Board noted that the Group’s
financial stability will give renewed
confidence in the business to suppliers, to
customers and to Daimler, thereby providing
a platform for future growth.
SEE PAGE 5 FOR FURTHER DETAILS
Inchcape Annual Report and Accounts 2019
61
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate governance report – Division of responsibilities
Roles of the Board
Nigel Stein
Chairman
Jerry Buhlmann
Senior Independent Director
Stefan Bomhard
Group Chief Executive Officer
Jerry Buhlmann 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.
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 Stein was considered independent
upon appointment.
Non-Executive Directors
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 strategic guidance and independent judgement on the Board’s discussions.
Explanatory notes on their contribution to the business are given in the Notice of Meeting for the 2020 Annual General Meeting to
accompany the resolution to re-appoint each Director. All Non-Executive Directors are considered independent in accordance with
the UK Corporate Governance Code. None of the Directors or their connected persons have, or have had, a material relationship
with the Company and its subsidiaries. Non-Executive Directors receive a fee only and do not participate in share award schemes
or the pension scheme. There are no cross directorships. The Non-Executive Directors’ letters of appointment are available for
inspection at the Company’s registered office and at the AGM.
The Non-Executive 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 Board’s policy
on multi-board appointments requires Directors to obtain prior approval from the Nomination Committee and the Board before
taking on another directorship.
The Non-Executive Directors met in 2019 without the presence of Nigel Stein to discuss his 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 2019.
Executive Directors
The Board understands that the Executive Directors can gain valuable business experience as a Non-Executive Director of another
company. The Board’s policy is to limit Non-Executive Directorships within a FTSE 100 company to one appointment only. The policy
requires Directors to obtain prior approval from the Nomination Committee and the Board before taking on another directorship.
Stefan Bomhard is also a Non-Executive Director of Compass Group PLC. Details of the fees paid to him are given on page 97 of the
Directors’ Report on Remuneration.
The Group Company Secretary supports the Board by providing advice, including access to independent advice, and ensuring
that the Board has the appropriate policies, information, time and resources in order the function effectively.
62
Inchcape Annual Report and Accounts 2019
Corporate governance report – Composition, succession and evaluation
Nomination Committee report
Nigel Stein
Chair of Nominations
Committee
Dear Shareholder
I am pleased to present the report of the
Nomination Committee for the year ended
31 December 2019.
Committee members and attendance at meetings
Scheduled / attended
Nigel Stein
Jerry Buhlmann
Rachel Empey
Jane Kingston
John Langston
Till Vestring
2/2
2/2
2/2
2/1
2/1
2/2
* Jane Kingston and John Langston were unable to attend one Committee
meeting during the year due to prior commitments.
Allocation of time spent
Succession planning
Board composition
Corporate governance
Reporting
The Committee reviews its terms of reference annually.
The terms can be found at www.inchcape.com
Board succession planning continues to be the main focus of
the Committee as it is essential to ensuring that an experienced
and capable board is in place to lead the Group. 2019 saw
several changes with the departure of Nigel Northridge, Coline
McConville and Richard Howes and the appointment of
Gijsbert de Zoeten and Alex Jensen. In February 2020, Stefan
Bomhard announced his resignation and the recruitment of a
new CEO will be the key focus for the Committee.
Nigel Northridge served on the Board for over nine years and
I would like to thank him for his valuable service during this
time. As disclosed last year, Jerry Buhlmann became the
Senior Independent Director following Nigel's departure. Coline
McConville left the Board in July 2019. During her tenure, Coline
successfully led the 2017 remuneration policy review which
was overwhelmingly supported by shareholders. I am pleased
that Jane Kingston became Remuneration Committee chair
following Coline's departure and after serving 12 months as a
member of the Remuneration Committee.
Further details of the appointment of Gijsbert de Zoeten and
Alex Jensen are given on page 64.
The Committee spends time evaluating the composition of
the Board, reviewing skills, experience and diversity to ensure
that the appropriate Directors are appointed to lead the
business. The review of our individual and collective attributes is
paramount to this planning. As a Board we have agreed not to
set specific diversity targets as we believe that all appointments
should be made on merit and in the context of the skills and
experience needed for the Board to be effective. However we
aim to achieve the guidelines set out in both the Hampton-
Alexander Review and the Parker Review and work with
recruitment consultants to ensure that the Board is informed of
the broadest possible range of candidates for consideration.
Further details are given on page 66.
The Board carries out a formal evaluation each year and,
in addition, I meet with each Director to discuss his or her
performance. These meetings allow Board members to
discuss any issues they might have and also to consider the
contribution of individuals to the decision-making process.
To accompany the resolution to re-appoint each Director
at the Annual General Meeting we have given reasons why
we believe each Director should be re-elected. The Notice of
Meeting is available at www.inchcape.com/notice.
Nigel Stein
Chairman
Inchcape Annual Report and Accounts 2019
63
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate governance report – Composition, succession and evaluation continued
Focus for 2019
What we achieved in 2019
Board succession planning
Appointment of Chief Financial Officer
Governance
Board composition
Committee evaluation
Recruitment process for Non-Executive Director
Review of policy on multiple board appointments to avoid
‘overboarding’
Review of skills, experience and diversity to identify potential
gaps in light of the Company's Ignite strategy
The Committee evaluated its performance during the year
Priorities for 2020
Appointment of Group Chief
Executive Officer
Consideration of the guidelines
set out in the Parker Review
Review matrix following
new appointments
External evaluation in 2020
Board composition and succession
The Board is comprised of five independent Non-Executive
Directors and two Executive Directors, whose biographies are
given on page 57. Non-Executive Directors are appointed for
an initial three-year term with a further two three-year terms
permitted subject to satisfactory performance. After each three-
year period, the performance of the Director is reviewed by the
Chairman and the Nomination Committee. Any further terms
are put to the Board for approval. All appointments are subject
to annual re-election at the AGM.
The succession planning process works around these timelines,
planning ahead for departing Directors as they reach a tenure
of nine years. There are always situations where a Director
will leave the Company before they have completed a full
nine years, and the Committee continually updates its list of
potential candidates taking into account the Ignite strategy
in the short, medium and long term, the business needs of
the Group and Board’s diversity policy. Should a situation
arise when a Director departs unexpectedly, the recruitment
can begin immediately. Till Vestring will complete this nine-
year service during 2020, therefore succession planning is
focused on appointing a new Non-Executive Director to fulfil
the vacancy when he departs, in addition to the recruitment of
a new CEO.
Skills, experience and diversity
The review of skills, experience and diversity is carried out by
the Committee annually by way of an assessment completed
by the Board members. The 2019 review identified digital/
technology as an area which could be further strengthened
on the Board. Digital is a rapidly evolving area for the
automotive industry and as such is a key consideration for
succession planning.
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. This
assessment assists with the search for suitable candidates and
forms part of the recruitment process.
Appointment process
The Lygon Group were appointed to assist with the search for
Directors during the year. Lygon have worked with the Group
for several years and are familiar with the current Board’s skills
set and the skills mix needed to support the future strategic
direction. 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 Lygon Group are a signatory to the Voluntary Code of
Conduct for Executive Search Firms and do not have any other
connection to the Company or any individual Director.
Appointment of Chief Financial Officer
The search for a new Chief Financial Officer commenced in
May 2019. The Committee considered what attributes and
skills would be needed to grow the global finance function as
the Group delivers the Ignite strategy. Gijsbert de Zoeten was
appointed in August 2019, and the Board believes his extensive
operational experience will be invaluable in ensuring that the
finance and control environment is able to support the Group
as it moves towards a Distribution focused model and enters
into new markets.
Appointment of Senior Independent Director
The Chairman led the recruitment process for the new
Senior Independent Director and met with a broad range
of candidates. The Committee believes that Jerry Buhlmann
recent CEO and international board experience is an asset and
he has the skills and capability to perform the role effectively.
As Senior Independent Director, Jerry will provide invaluable
support to both myself and other Board members in this role.
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.
Appointment of Non-Executive Director
As part of the ongoing Non-Executive Director succession
planning process, the Committee spent time considering
key skills which would complement the direction of the Ignite
strategy over the longer term. Several candidates were
considered to join the Board and during this process the
potential candidates meet with both the Chairman and Chief
Executive Officer, after which the preferred candidates met with
the other Non-Executive Directors. The Committee discusses
the merits of each individual which, in addition to the skills
and experience required, will also include an assessment of
personal attributes to ensure that they will be able to contribute
effectively. After a successful recruitment process Alex Jensen
was appointed in January 2020.
64
Inchcape Annual Report and Accounts 2019
Induction process
The Inchcape framework
Meet key management /
Visit the businesses
Gijsbert de Zoeten
The first step in the induction is
making sure that the Director
has 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,and
risk footprint.
The initial induction schedule
focused on Inchcape ways
of working and provides an
introduction to the Group's
culture and values. The
induction process for all
new employees includes
online training for the Code
of Conduct within the first 30
days of joining.
Gijsbert also spent time with
the Company Secretary to
discuss the role of the Board
and its Directors in a UK plc,
including legal, governance
and regulatory responsibilities.
The Chairman and Group
Chief Executive also spent
time with Gijsbert reviewing
the Board agenda, the
matters reserved for the
Board, the short, medium and
long-term strategic priorities
and the risk and control
environments.
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, and
finance.
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.
Following the UK induction
process, Gijsbert spent time
in Africa, where we operate
as the Distributor and Retailer
for Toyota, Daihatsu, Komatsu
and New Holland in Ethiopia
and are the distributor
for Jaguar Land Rover in
Kenya; and Hong Kong and
Singapore, where we are
the exclusive Distributor for
Toyota, Lexus, Land Rover,
Jaguar, Daihatsu and Hino
Trucks.
He also visited Colombia
where we operate as
Distributor and Retailer across
a number of OEM partners;
Costa Rica where we
operate as a Distributor and
exclusive Retailer for Suzuki,
and Belgium and Greece,
where we distribute Toyota
and Lexus.
Gijsbert has direct
responsibility for the Finance,
Internal Audit, Tax, Treasury,
Procurement and Investor
Relations functions. Individual
meetings were held with
the heads of each of these
functions along with team
meetings with the UK finance
function, Internal Audit, legal
and IT teams.
One on one meetings
took place with each of
the Executive Committee
members to provide a deep
dive into the operational
aspects of the business, how
the Ignite strategy is being
implemented and to provide
an overview of the unique
challenges facing each
business area and market.
Several meetings were
also held with the Audit
Committee chair, John
Langston to enable Gijsbert
to deepen his knowledge
on both the relationship
between the Audit
Committee, management
and the auditors and to also
understand the views of the
Committee on the Group's
control and risk environment.
Key advisors included in the
induction process are the
Group's brokers, external
auditors, and bankers.
Gijsbert met with the
Company's key investors to
gain an understanding of
their view of the business and
the external market generally.
Inchcape Annual Report and Accounts 2019
65
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate governance report – Composition, succession and evaluation continued
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, as it believes that all appointments
should be made on merit and in the context of the skills and
experience needed for the Board to be effective, however
aims to achieve the recommendations set out in the Hampton-
Alexander and Parker Reviews.
With the appointment of Alex Jensen in January 2020, the
Board has 33% female representation on the Board as required
under the Hampton-Alexander Review.
The Board philosophy on diversity is also reflected throughout
Inchcape where we employ a diverse workforce across 33
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.
Group Executive Committee and its direct reports:
Group Executive Committee
Direct reports
Male
8
47
Female
1
22
3
3
4
4
Length of service
Length of service
2
2
2
2
0 to 3 years
0 to 3 years
4 to 6 years
4 to 6 years
7 to 9 years
7 to 9 years
Nationality
Nationality
1
1
2
2
British
British
German
German
Dutch
Dutch
Gender
Gender
2
2
Male
Male
Female
Female
5
5
Residence
Residence
5
5
1
1
1
1
Asia
Asia
EU
EU
UK
UK
Board evaluation
An evaluation of the Board is carried out each year with an external review every third year. In 2019, the Board evaluation was an
internal review which consisted of an online questionnaire. The review in 2020 will be an external review.
The questionnaire consisted of sections on Strategy, Board effectiveness, knowledge and contribution, Succession planning, Risk
Management and the Committees. The Directors are invited to give further comment when answering the questions to provide
further insight into the effectiveness of the Board. The results of the questionnaire are collated into a report which was discussed by
the Board to agree actions for the coming year as set out in the table below.
The Board also considered the actions from the previous evaluation which it agreed had been addressed appropriately, with
improvement in the talent development process for senior management and a more in-depth review of skills, experience and
diversity carried out by the Nomination Committee during 2019. The Nomination Committee also updated its terms of reference
following the evaluation to ensure that they are in line with best practice.
Area of focus
Actions
Board
Nomination Committee
Remuneration Committee
CSR Committee
Consider opportunities for further management engagement
Greater focus on ethnic diversity at Board and senior management level
Improved reporting on the wider reward landscape
Improved stakeholder engagement programme and greater focus on ESG issues
66
Inchcape Annual Report and Accounts 2019
Corporate governance report – Audit, risk and internal controls
Audit Committee report
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
2019.
Committee members and attendance at meetings
Scheduled / attended
John Langston – Chair
Jerry Buhlmann*
Rachel Empey
Nigel Northridge*
4/4
3/3
4/4
1/1
* Nigel Northridge retired, and Jerry Buhlmann joined the Committee on
23 May 2019.
Allocation of time spent
The aim of the report is to provide an overview of how the
Committee has discharged its responsibilities during the
year, and to highlight the significant issues considered by
the Committee. The Committee considers also whether the
Annual Report and Accounts, when taken as a whole, is
considered fair, balanced and understandable and provides
the necessary information for shareholders to assess the
Company’s position and performance, business model and
strategy. Further details can be found on pages 2 to 52.
The viability statement is given on page 52. The Committee
considered the length of time used to assess the Company’s
viability and is of the view that three years remains appropriate
given the nature of the business.
Financial Reporting Council ("FRC") letter
In 2019, we received a letter from the Conduct Committee
of the FRC following a review of the goodwill disclosure in last
year's Annual Report and Accounts. The FRC stated it would
be incorporating some of our goodwill impairment disclosures,
as examples of better disclosures, in their thematic review of
companies’ disclosures of non-financial assets which was
published in October 2019, however they requested further
clarification on:
– The allocation of intangible assets with indefinite useful lives
(distribution agreements) to cash generating units;
– The measurement basis used to determine the recoverable
amount of cash generating units containing goodwill; and
– The key assumptions used and associated sensitivities.
The Company responded to the FRC, providing full
explanations in respect of the matters and, where appropriate,
indicated that we would clarify the disclosures in this year's
Annual Report and Accounts. Further details are given in the
financial statements on page 112 to 187.
Audit Quality Review
The FRC's Audit Quality Review team carried out a review of
Deloitte LLP's audit of the financial statements for the year
ended 31 December 2018. The AQR review team sent their
findings to the Committee in December 2019 and I am pleased
to report that their assessment of the audit was good with only
limited improvements required.
Financial reporting
The review covered:
Risk
Internal audit
Internal controls
External audit
Cyber security
Other
I am pleased to welcome Gijsbert de Zoeten, who was
appointed as the Chief Financial Officer in August 2019.
Gijsbert brings a wealth of operational financial experience
and will be key in improving controls and processes globally.
The Group has also appointed a new Head of Internal Audit,
who joined in late 2019. Further information on Internal Audit is
given on page 71.
– How work was scoped, instructions to, involvement with and
evaluation of component auditors and their work and how
issues reported were followed up and resolved;
– How Deloitte dealt with certain aspects of ethics,
independence, quality control and completion relevant
to the audit;
– Communication with the Audit Committee;
– Group auditor’s involvement in goodwill impairment,
pensions and acquisition accounting and at UK level
revenue recognition and inventory.
These reports are a key source of external evidence for the
Committee when assessing audit quality and effectiveness.
The Committee discussed the issues raised with the auditor at
the meeting.
John Langston
Chair of the Audit Committee
Inchcape Annual Report and Accounts 2019
67
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate governance report – Audit, risk and internal controls continued
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
Our 2019 objectives
What we achieved
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.
The Committee reviews its terms of reference annually. The
terms can be found on www.inchcape.com.
Annual Report
and Accounts
including
financial
statements and
accounting
judgements
Deloitte
independence
and objectivity
Deloitte 2019
audit plan
Internal Audit
Report
Risk
Management
Report
Non-Audit
Services Policy
and review
of non-audit
services
Tax update
and litigation
update
Cyber security
Committee
evaluation
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 allows the Committee to assess key disclosures to
ensure adequacy, clarity and completeness. The Committee carried out an
assessment of whether the Annual Report and Accounts were fair, balanced
and understandable. See page 70 for further details.
Key disclosures include the viability statement on page 52, going concern, which
can be found on page 102, and goodwill, which can be found on page 146.
The Committee considered the report from the auditor in relation to the financial
statements and the 2018 Annual Report and Accounts as a whole and assessed
the auditor’s approach to, and findings in relation to the audit to assess
independence and objectivity.
Committee discussed the audit plan and agreed materiality, scope and fees.
The Committee reviewed and monitored:
– progress against the 2019 plan throughout the year;
– the status of open audit issues;
– any internal control failings; and
– the appropriateness of mitigation actions put in place by
management.
The Committee also reconfirmed the Internal Audit Strategy and the Internal
Audit Charter and approved the 2020 Internal Audit Plan.
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 39 to 52.
The Committee reviewed the non-audit services supplied by the external auditor
to ensure that they are in line with the Group's Non-Audit Services Policy and best
practice guidelines. Further details can be found on page 73.
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.
The Committee received updates on cyber security during the year in which they
discussed principal cyber risks to the Group, the regional cyber security projects
implemented during the year, common cyber security incidents, the Group's
cyber incident response plans, business continuity and incident management
and the results of cyber security testing.
The Committee carried out an evaluation of its performance during the year.
68
Inchcape Annual Report and Accounts 2019
Priorities for 2020
Review of key
assumptions used by
management on key
accounting standards
Continuous assessment
of audit quality and
effectiveness
Review of the
effectiveness of the
external audit
Monitor progress against
2020 plan, resolving open
issues and improvement
plans in relation to
identified internal control
gaps
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
A review of the Group's
cyber security risks,
mitigation plans, and
incidents will be carried
out annually
External evaluation in
2020
Significant issues
Goodwill impairment
Goodwill and other indefinite life intangible assets are allocated to groups of cash generating units (CGU groups). In 2018, the Group recognised
a goodwill impairment charge of £175m in respect of the UK Retail CGU group following a reassessment of short and medium-term forecasts in
the light of a decline in the New car market and an elevated level of pre-registration activity which resulted in pressure on New and Used margins.
The challenging trading conditions in the UK continued in 2019 and management have provided the Committee with detailed reports outlining
the assessment made in relation to UK Retail goodwill, goodwill attributable to CGU groups and indefinite life intangible assets. These assessments
included the valuation methodology used, the key drivers of cash flow forecasts and the basis for the key assumptions used.
The Committee has challenged management on the forecasts and assumptions used and considered the sensitivity of the impairment assessments
to changes in the forecasts and assumptions. The Committee has also reviewed the disclosures in the financial statements to ensure that they were
appropriate.
After considering all the available information, and making any additional enquiries relating to the issues, and reviewing the findings and supporting
evidence of the Group’s auditor, Deloitte, the Committee concluded the application of the accounting principles to be appropriate.
Further information can be found in note 11 on page 146
Adoption of new accounting standards: IFRS 16 Leases
The Group adopted IFRS 16, Leases, with effect from 1 January 2019 on a fully retrospective basis. As in 2018, a significant amount of management
and Committee time was spent during the year considering the adoption of the new standard. Management conducted a thorough review of
lease arrangements across the Group against the requirements of the new standard during 2018 and 2019 in preparation for the adoption of
the new standard. As part of this review, management was required to exercise judgement in relation to the discount rates to be used, lease
extension options, whether certain contractual arrangements contained a lease and the classification of sub-leases. The Committee received
regular updates from management outlining the impact of the new accounting standard, including the judgements and key assumptions used in
determining the impact on the Group’s balance sheet at adoption.
Management’s processes, assumptions and calculations have also been subject to separate challenge by the Group’s auditor, Deloitte.
After considering all the available information, and making any additional enquiries relating to the issues, and reviewing Deloitte’s assessment
of management’s approach, the Committee concluded the application of the accounting principles and the adoption of the new accounting
standard to be appropriate.
Further information can be found in note 33 on page 175.
Financial statements presentation
The Committee gave consideration to the presentation of the financial statements and, in particular, the presentation of certain matters as
exceptional items in accordance with the Group accounting policy. This policy states that certain items are presented as exceptional items within
their relevant consolidated income statement category in order to provide additional useful information regarding the Group’s underlying business
performance. In 2019, management have reported exceptional items in relation to the disposal of businesses, the consequent costs of restructuring
operations and associated impairments, and costs associated with acquiring and integrating new businesses.
The Committee received detailed reports from management outlining the judgements applied in relation to the disclosure of exceptional items. This
was an area of focus for the Committee which was cognisant of the need to ensure that the classification and disclosure was appropriate given the
significance of the aggregate value (£78m) and the relevant guidelines on the use of alternative performance measures.
After considering all the available information, and disclosure of the matters reported as exceptional items, the Committee concluded the
judgements to be appropriate.
Further information can be found in note 2 on page 133.
Acquisition accounting
The Group has established a process for acquisition accounting which incorporates the identification of the fair values of the assets acquired and
liabilities assumed, including separate identification of intangible assets using external valuation specialists where required, and the allocation
of acquired businesses to CGU groups for the purpose of testing goodwill and other indefinite life assets for impairment. During the year, the
Committee received reports from management on the accounting for the BMW business in Lithuania acquired in January 2019 and the Daimler
businesses in Uruguay and Ecuador acquired in December 2019. The Committee reviewed the reports and discussed with management the
judgements made in relation to the identification of acquired intangible assets, the methodology and assumptions used to fair value the assets and
liabilities and the allocation of acquired businesses to CGU groups for the acquisitions completed in 2019.
The Committee concluded that it was satisfied with management’s valuations of these assets and liabilities, including the degree to which such
valuations are supported by professional advice from external advisors, and that the acquisitions had been accounted for appropriately in line with
the principles set out in IFRS 3, Business Combinations.
Further information can be found in note 29 on pages 171 to 172.
Disposal accounting and disposal groups held for sale
During the year the Group disposed of several retail sites in the UK, China and Australia. It also disposed of its fleet business, Inchcape Fleet
Solutions, in the UK. The Committee received reports from management outlining the accounting for the disposals and the judgements applied in
relation to the classification and measurement of disposal groups held for sale at the end of the year. The Committee noted that the classification
and measurement of disposal groups held for sale in accordance with IFRS 5, Non-current assets held for sale and discontinued operations,
required a degree of judgement.
After considering all the available information, and making any additional enquiries relating to the issues to management and Deloitte, the
Committee concluded the application of the accounting principles to be appropriate.
Further information can be found in the notes to the accounts on page 155.
Inchcape Annual Report and Accounts 2019
69
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Corporate governance report – Audit, risk and internal controls continued
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
Risk management
The Board carries out a robust assessment of principal and
emerging risks, which include those that would threaten the
business model, future performance, solvency and liquidity,
and is responsible for reviewing and agreeing the Group’s
principal risks and for considering its risk appetite in relation to
those risks. Each risk is considered in the context of the Ignite
strategy with a focus on:
applied or where significant issues have been discussed with
the external auditor;
– The description of the risk;
– The current risk footprint showing gross risk, net risk and the
– 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; and
– Reviewing assumptions and providing assurance to support
the long-term viability statement.
Fair, balanced and understandable
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
considers the weight given to published information to ensure
that it is of equal weight and there are no omissions. The Board
also ensures that narrative reporting is consistent with the
financial statements.
The Audit Committee 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. The Committee considered whether the
information given in the financial statements is a true reflection
of the narrative reporting throughout the Annual Report and
Accounts, whether the key performance indicators give a
true indication of the health of the business and if the issues
considered of significant risk by both the external auditor and
the Committee are aligned.
The processes and procedures in place to satisfy the Board of
the integrity of the financial and narrative statements include
a robust disclosure verification process, monthly financial
performance updates, and meetings with the internal and
external audit functions without the presence of management.
A statement of the Directors’ responsibilities is set out on pages
101 to 102. The going concern statement is set out on page
102 and the strategy and business model are set out on pages
7 to 22.
target position;
– Background information that underpins the risk;
– Key mitigation actions; and
– The risk appetite statement for each of the risks.
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.
Further information on risk management and the Group’s
principal risks can be found in the Risk Management Report
on pages 39 to 52.
70
Inchcape Annual Report and Accounts 2019
Internal control
Our internal control framework encompasses all controls,
including those relating to financial reporting processes,
preparation of consolidated Group accounts, operational
and compliance controls, and risk management processes.
At the heart of our control environment is our Minimum
Control Framework (“MCF”), covering not just financial, but
operational and IT processes. The MCF has been rolled out
globally across the organisation and has been designed to
enable management to establish, assess and enhance strong
and consistent risk and control governance. The framework is
regularly reviewed and updated in line with emerging Group
risks, in response to emerging internal audit issues and also
following any investigation activity. The central and regional
Internal Controls team support the business by providing
the framework, tools and training and ongoing support to
embed the MCF across the business which in turn enables
management to monitor the effectiveness of controls in the
business and to implement actions plans where improvement
is required.
The main elements of the internal control framework are:
– Group policies, standards and structures that provide the
basis for carrying out internal control across the organisation
supported by Inchcape’s Code of Conduct and training.
Oversight from the Board and regular review and monitoring
of compliance.
– The Group’s Minimum Control Framework, supporting
review by policies and procedures. Business units self-assess
against the MCF annually and remediate and control gaps.
Compliance is independently assessed during the internal
and external audit process.
– The Group’s Delegated Authority policy in addition to market
specific delegated authority policies.
– Clear regional, functional and market accountability for
establishing effective financial controls and for keeping them
under continuous review to ensure they remain effective.
– Group Internal Control function responsible for continuous
development of the internal control framework including
automation, development of standards and policies, training
and reviewing implementation efforts across the Group.
– Comprehensive and regularly reviewed Policy and Procedure
Framework including Group Tax and Treasury.
– Risk management policies and procedures in place to
identify potential events that may affect the organisation,
manage the associated risks and opportunities and provide
reasonable assurance that our Company’s objectives will be
achieved.
– Independent whistleblowing line ‘Speak Up!’, with supporting
governance and investigations as appropriate.
The Audit Committee assesses the effectiveness of the internal
control and risk management systems throughout the year
by receiving regular reports from the Head of Internal Audit,
the Head of Corporate Assurance and the external auditor,
in addition to reports from the General Counsel and the
Group Tax Director. The information provided gives details on
any control gaps or significant risk areas and the mitigation
plans in place to address the issues. The Committee monitors
the progress against plans and challenges management if it
believes the issues are not being addressed appropriately.
The reports are available to all Board members to allow
them to keep informed, and other Board members are also
able to attend any Committee meetings should they wish.
However, the Audit Committee also provides an update on the
control and risk environment to the full Board following each
Committee meeting.
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
2019 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.
Whistleblowing
Speak Up!, 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.
The Audit Committee chair reports to the Board on any
significant issues following each meeting. All Directors have
full access to the whistleblowing reports and other Audit
Committee papers.
Internal Audit
The aim of the Internal Audit function is to provide independent
and objective risk based assurance for the Group by bringing
a systematic and disciplined approach to evaluate the
effectiveness of risk management, governance and control.
An annual programme of audit activity is approved by the
Audit Committee; this is flexed if required throughout the year
in accordance with the risk profile of the organisation and any
subsequent amendments are discussed in detail and agreed
by the Committee.
The function carries out audits across a selection of Group
businesses, functions and programmes which include the
management of risks and controls over financial, operational,
IT and other compliance areas such as GDPR and anti-bribery
and corruption. 2019 has seen strengthening of the audit
function following introduction of the Regional Audit Model in
2018 and a refreshed methodology. In addition a new Group
Head of Internal Audit joined the Group in December 2019.
Inchcape Annual Report and Accounts 2019
71
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Corporate governance report – Audit, risk and internal controls continued
The Internal Audit function, led by the Group Head of Internal
Audit, consists of appropriately qualified and experienced
employees with an in-depth understanding of the business
culture, systems, and processes. The Group Head of Internal
Audit reports to the Audit Committee and has direct access to,
and has regular meetings with, the Audit and Committee Chair,
preparing formal reports for Audit Committee meetings on the
activities and key findings of the function and progress against
mitigation plans. The purpose, authority and responsibility of
Internal Audit are defined in the Internal Audit Charter, which
the Committee reviews annually.
During the year the Internal Audit function carried out 70 audits
which included a Group review of anti money laundering, data
privacy audits in Central Europe, Asia and Australia and sales
processes audits across South America. The team also carried
out a number of IT general controls reviews across the Group.
Key issues noted in the period include the need to better retain
supporting information for key transactions and to further
improve control compliance across a number of our smaller
and newly acquired businesses.
In addition to undertaking a full programme of audit the
function also provided a number of advisory engagements
(where risk and control systems and processes have recently
been introduced) and participated in investigation activities
where appropriate.
Internal Audit effectiveness review
The Audit Committee agreed that a review of the effectiveness
of the Internal Audit function should take place in 2019, which
was carried out by the Company Secretary.
At present Internal Audit effectiveness is self-assessed as follows:
– results of customer feedback from satisfaction surveys sent at
the end of each audit;
– self-evaluation of compliance against the Global Internal
Audit Methodology; and
– the Audit Committee’s regular monitoring process.
The internal effectiveness review carried out in 2019 consisted
of a series of face-to-face and telephone interviews, an online
questionnaire and a review of Internal Audit documents and
processes including Audit Committee reports, IA methodology,
the IA charter, the IA strategy, audit reports covering
operational, compliance and risk based audits and feedback
from the businesses. Key stakeholders who participated in the
review included the Head of Internal Audit, Chief Financial
Officer, Audit Committee Chair, IA team members, external
auditor team members, regional Finance Directors and
functional department heads.
The results of the review were presented to the Audit Committee
and the findings discussed with management. Overall, the
Internal Audit team is considered independent and objective
and has a professional approach. It is considered to be an
evolving function which has improved significantly over the last
18 months.
The Audit Committee agreed that an independent external
review will be carried out once the new Head of Internal Audit
has settled into her role.
External audit
Following an audit tender process during 2017, Deloitte LLP
was appointed as the Group’s auditor. Deloitte assumed
responsibilities from PwC in May 2018 following shareholder
support for the appointment at the Annual General Meeting.
Anna Marks is the lead audit partner and has been in position
since the appointment of Deloitte LLP.
The Company confirms that it complied with the provisions of
the Competition and Markets Authority’s Order for the financial
year under review.
Auditor effectiveness, independence and objectivity
Ensuring that the external auditor provides a high quality
audit is a key activity of the Audit Committee as a high quality
audit provides stakeholders with assurance that the financial
statements give a true and fair view. The Committee carries
out its assessment on an ongoing basis by considering its
interactions with the auditor, its observations of the auditor and
the relationship between the Audit Committee, the auditor and
management.
The Committee encourages a culture of open communication
and debate and the Committee believes that it is able to
ask questions on key issues and to challenge when it feels
more information is needed. The Committee also looks at
how management responds to requests from the auditor and
carefully reviews the auditor’s findings and recommendations.
When the auditor supports management’s approach, the
Committee considers the evidence supplied by the auditor
to support its decision to ensure that the auditor is not
compromised and remains objective.
The auditor also meets with the Committee without the
presence of management on a regular basis, usually following
each meeting. This gives the auditor an opportunity to confirm
its view that management are addressing any issues raised
appropriately or to raise any concerns they may have.
External evidence of the quality of the audit is also vital in
assisting the Committee in its review of the effectiveness
of the audit. In December 2019, the FRC’s Audit Quality
Review team carried out a review of the audit of the financial
statements for the year ended 31 December 2018, which
concluded that the audit quality was good with only limited
improvements required.
72
Inchcape Annual Report and Accounts 2019
When evaluating the external audit the Committee considers:
– Mindset and culture – the ethical and professional principles
adhered to by the auditor; whether the auditor has any
personal or commercial interests in the Group; and how
they have demonstrated high standards of independence,
integrity and objectivity throughout the year.
– Skills, character and knowledge – the auditing skills of the
audit team; level of knowledge of the automotive distribution
and retail industry possessed by the audit team; the auditor’s
understanding of its obligations to users of the financial
statements; and ability to challenge where appropriate whilst
maintaining strong relationships
– Quality control – the processes the auditor has in place to
identify and address risks to the audit.
The above attributes support the auditor in making reliable and
objective judgements and the Committee continually seeks to
assure itself that they are in place.
The auditors’ report to the Committee sets out the audit plan,
materiality, scoping, the risk assessment process, significant
risks, other areas of focus, the purpose of the report and
responsibility statement. The Committee reviews at each stage
of the audit to ensure that it is satisfied that the audit plan is
appropriate, if the auditor is meeting its obligations, and to
agree any changes to the audit if they arise.
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.
After considering all of the above elements, the conclusion
of the Committee is that the auditor carried out their audit
effectively and that the auditor is independent and objective.
Non-audit services
Implementing a Non-Audit Services Policy (the "Policy") is also
key to ensuring the independence of the external auditor.
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 and 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 Group’s Policy on non-audit services to be provided by the
Group’s auditor defines two types of non-audit services that
may be performed:
– Statutory and audit related services, which are services
undertaken as auditor or reporting accountant which
are outside the scope of the statutory audit but which are
consistent with the role of statutory auditor; and
– Permitted non-audit services, which are services that the
auditor may be permitted to undertake subject to the
appropriate level of approval.
The aggregate fees incurred for permitted non-audit services
relative to the audit fee should not exceed 70% of the average
audit fee over the previous three years, with such cap
applicable to both Group and UK audit fees.
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.
In 2019, the fees for permitted non-audit services largely relate
to dealer benchmarking services provided by Deloitte in
Australia and the Group remains within the Audit Committee
approved ratio of audit to non-audit fees.
The following non-audit fees incurred with Deloitte were:
Permitted non-audit
services
2019
£'000
171
2018
£'000
355
The ratio for audit/non-audit work for the year ended
31 December 2019 is 0.05:1. Full details are shown in note 3d
of the notes to the financial statements.
Audit Fees paid to the Auditor
Fees paid for services provided by Deloitte (three year average)
were:
Audit fees
Audit-related fees
2019
£'000
3,149
121
2018
£'000
2,817
101
Inchcape Annual Report and Accounts 2019
73
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
CSR committee report
CSR Committee report
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 2019.
Committee members and attendance at meetings
Scheduled / attended
Till Vestring
Jerry Buhlmann
Stefan Bomhard
Alison Clarke
Coline McConville*
Nigel Stein
* Coline McConville left on 23 July 2019.
Allocation of time spent
2/2
2/2
2/2
2/2
1/1
2/2
CSR strategy
Employee engagement
Environmental
Safety
During the year the Committee considered the progress being
made on the Group's CSR agenda which, for the last few years,
has focused on people, health & safety and the environment.
When looking at CSR in the context of our people, we have
agreed an ambitious people agenda and are moving forward
on diversity & inclusion. We have also considered how our
employee policies and practices support an inclusive culture,
whether our learning culture supports our people to optimise
their performance in their role and to realise their potential
and whether our social culture empowers our people and
communities to collaborate, share and work together.
The health & safety agenda has progressed well with the
appointment of a Group HSE Director and we are on track to
achieve our goal of achieving zero safety incidents. The Group
HSE Director visited all of the Group's markets in 2019, carrying
out 450 health & safety audits globally. The Group now has
a clear understanding of the health & safety environment
globally and the HSE Director will present his findings to the
Board during 2020. The creation of a pan-market Group HSE
Community of Practice supports the Group's commitment to
health & safety. This allows the markets to build a consistent
approach through shared best practice and leveraged scale.
The primary function of the HSE Community of Practice is to
develop a single direction for Inchcape’s health & safety
culture across all our businesses.
We have also strengthened our CO2 data collection processes
to ensure that our greenhouse gas emissions data is robust.
Further details are given in the Directors' Report on page 100.
We are committed to making continuous improvement in our
emissions however we are also considering whether, in light of
our broad regional spread, adopting a more 'science-based'
target would be appropriate. We are still working closely with
the Carbon Trust to improve in this area and are focused on
delivering effective energy management in all our sites.
In addition to monitoring our energy and emissions we
have also participated in the CDP (previously the Carbon
Disclosure Project) for the last two years after receiving
feedback from investors and customers who are encouraging
their stakeholders to engage as climate related issues rise
in importance for everyone. We will continue to participate
annually and will endeavour to manage our impact on the
environment effectively. Our score remained the same in 2019,
however there was an improvement in our climate-related risk
assessment analysis which will continue to be a focus for 2020.
We also discussed ESG factors which we agreed would be a
focus for 2020 as this is a growing area of interest for investors.
We also added articulation on climate change impact to our
principal risks. See page 43 for further details.
74
Inchcape Annual Report and Accounts 2019
In addition, the first consultation for the senior leader population
was completed in 2019. This consultation went into greater
depth on how well the management teams understand and
agree with the Ignite strategy and the direction the Group is
taking. The survey focused on three key areas:
– Organisation: the business as a whole, what Inchcape
means to people, how they experience change and the big
strategic drivers
– Leadership: how people experience the way in which the
business and regions are managed, what they understand
by ‘leaders’
– Individual: our people’s responses to their roles, relationships
with their managers and how they are rewarded and
developed
The outcomes from the survey were discussed by the
Committee which considered the strengths and weaknesses
identified and management’s plans for turning the insights into
action. The Board receives an update following each meeting.
The results of the consultation also give an indication of the
culture within the organisation and the metrics given on page
33 of the CSR Report give an indication of the level of employee
satisfaction. The Committee will monitor the employee
performance metrics at each meeting and will be able to
develop a clear understanding of the people culture within the
business.
While much remains to be done, I am excited by the level of
engagement and commitment amongst the Group Executive
Committee and our employees around the world.
Till Vesting
Chair of the CSR Committee
2018 Corporate Governance Code
As reported last year, and in accordance with the Code, I have
assumed the role as the designated director for workforce
engagement. During 2019, the Committee considered how to
approach this requirement to ensure that it is productive for
both the Board and for colleagues. The Committee agreed the
following processes:
– Dedicated ‘director-only’ town hall meetings to listen to the
views of the workforce – this is the opportunity for colleagues
to discuss the results of their region’s engagement scores
without the presence of management. It is an important
opportunity to ascertain whether the results presented
to the Board are reflective of the thoughts and attitudes
of the workforce and to discuss any action plans put in
place by management and whether these are having the
desired impact.
– Oversight of the ‘people dashboard’ to monitor progress
against KPIs – the dashboard was introduced during 2019
and will provide valuable data on metrics which give a clear
indication on engagement, inclusion and culture.
– Bi-annual analysis of the Employee Experience Consultation
– see below for further details. Significant employee-related
reports to Speak Up! – whistleblowing reports can often
be an indicator of the culture within an organisation. By
receiving regular updates and monitoring the outcome of
any investigations, we can report to the Board on any issues
of concern.
– Monitoring management’s action plans to address workforce
concerns – once action plans are in place it is important to
measure progress against objectives to ensure that changes
are being made. The Committee’s oversight will ensure that
management are held to account.
Employee Experience Consultation
The consultation was rolled out across the Group during the
latter half of 2018 and 2019. Over 13,500 colleagues completed
the survey showing a good level of engagement throughout
the business especially during a year of change for some
regions with new acquisitions being incorporated into the
Group and several disposals in certain markets.
Focus for 2019
Progress made
CSR strategy
Modern Slavery
Statement
Employee
Engagement
Consultation
Committee
evaluation
Review of three core pillars
– People - review of the Group's culture including diversity & inclusion
statement, global strategy to create continuous learning and growth
and an overview of the Employee Experience Consultation
– H&S - review of the health & safety strategy and functional capabilities
– Emissions and sustainability - discussion on target setting and
participation in CDP
Priorities for 2020
Designated director /
workforce engagement
programme rolled out
A review of ESG issues and
engagement programme
Review of progress against previous year and approval
of 2019 statement
Review of data gathered during consultation process, insights gained
and strategy to improve engagement
Review of progress and action
plans to improve disclosure
Review of progress against
plans and monitor relevant KPIs
The Committee carried out an evaluation of its performance. See page
66 for further details
External evaluation in 2020
Inchcape Annual Report and Accounts 2019
75
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Corporate governance report – Remuneration
Directors’ Report on Remuneration
Jane Kingston
Chair of the
Remuneration
Committee
Dear Shareholder
On behalf of the Board, I am pleased to present
the Directors’ Report on Remuneration (“DRR”) for
the year ended 31 December 2019, my first year
as the Chair of the Remuneration Committee of
Inchcape.
Membership
Jane Kingston
Jerry Buhlmann
Nigel Stein
Till Vestring
Coline McConville*
Nigel Northridge*
Number of meetings
held / attendance
Ad hoc meetings held /
attendance
2/2
2/2
2/2
2/2
1/1
1/1
2/2
2/2
2/2
2/2
–
–
* Coline McConville and Nigel Northridge left Inchcape and the Committee on
23 July and 23 May respectively.
Allocation of time
Proposed remuneration policy
Incentives
Executive remuneration
Other
76
Inchcape Annual Report and Accounts 2019
It has been a busy year for the Committee with important
management changes to execute in addition to updating the
remuneration policy and the implementation of 2018 Code
requirements.
Director changes and business performance
2019 and the start of 2020 has been a period of change for
the Group with Gijsbert de Zoeten joining as our new Chief
Financial Officer (“CFO”) in August 2019 and the recent
announcement that Stefan Bomhard will be departing as Chief
Executive Officer (“CEO”).
The global automotive industry is also undergoing a period of
significant change and against this challenging backdrop we
are pleased with the Group's financial performance, reliably
delivering results that are in line with expectations. The Group
delivered sales of £9.4bn, operating profit before exceptional
items of £373.1m, EPS of 59.9p (adjusted) and ROCE of 22%.
Furthermore, we are delighted with the significant strategic
progress which has been made through the implementation of
the Ignite strategy, and the focus on our Distribution business.
Resulting performance outcomes
Inchcape’s performance resulted in 40% of the 2017
performance share plan (“PSP”) and the 2017 co-investment
plan (“CIP”) vesting for Stefan Bomhard and a 2019 annual
bonus payment of 23.7% of salary for Gijsbert de Zoeten. The
Committee considered the salary increase for Gijsbert de
Zoeten effective from 1 April 2020 and approved an increase
of 3% of salary which is in line with the average increase across
the Group. Stefan Bomhard was not eligible to receive a 2019
bonus or a 2020 salary increase given his resignation.
The Committee is satisfied that the total remuneration received
by Executive Directors in 2019 appropriately reflects the
Company’s performance over the year, is in line with policy
and is consistent with the approach taken for other employees.
The Committee is also satisfied that the approach to setting
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 2019.
Proposed revisions to the remuneration policy
(the "Policy")
The Committee reviewed the Group’s current remuneration
policy, approved at the 2017 AGM, and its implementation.
The review covered all aspects of the current arrangements to
ensure it (i) remains fit-for-purpose, (ii) reinforces the business
strategy, (iii) enables the motivation, retention and attraction of
talent, and (iv) aligns executives’ and shareholders’ interests.
During the review, the Committee also considered recent
developments in market practice, the applicability of
alternative long-term incentive arrangements, and the range
of performance measures available to Inchcape. Our review
also took into account the latest developments in remuneration
governance and investor expectations.
Our conclusion from the review is that the current policy is
broadly working well, and therefore we are not proposing to
make any significant revisions. However, we are proposing
to update a few areas to help ensure the Policy, and its
implementation, continue to accelerate our strategy and follow
good remuneration and corporate governance practices. The
proposed changes to the Policy include:
– Limiting pension contributions for new Executive Directors to
10% of salary (the UK employee average).
– Introducing a post-exit shareholding requirement which will
apply to PSP and CIP awards granted to Executive Directors
after 1 January 2020. In reality, this will apply to all awards
made to the CFO and will apply to all awards made to the
new CEO once appointed.
– Given the significant market uncertainty, it became clear
to the Committee that the importance of reaching critical
short-term targets needed to be reinforced. The Committee
considered market practice and concluded that increasing
the bonus target opportunity from 40% to 50% of maximum
achieved this objective, whilst remaining in line with FTSE
market norms. No change will be made to the maximum
opportunity which remains at 150% of salary for Executive
Directors and targets will continue to be set to support
annual business objectives. Upon approval, this change will
be applied throughout the Group as appropriate.
– Expanding the circumstances in which malus and clawback
provisions could be applied.
– Inclusion of discretion on the number of shares which vest
under the PSP to ensure it is a fair reflection of the Group’s
underlying performance.
The Committee also reviewed whether to retain the CIP
alongside the PSP. After much consideration the Committee
concluded that the CIP continues to be highly valued by
participants and encourages share ownership. The Committee
strongly believes that the CIP is a critical tool to retain and
motivate the management team. Therefore, the Committee
proposes to maintain the CIP. It should be noted that the
measures and targets between PSP and CIP will continue
to be consistent, aiding simplicity and ensuring that the
management team is focused on the same goals, whether
they participate in the CIP or not.
The Committee also considered the operation of the Policy,
in particular the measures and target ranges used for the PSP
and CIP, and is proposing to make the following changes for
awards made after January 2020:
– Incorporating a free cash flow measure
– Targets to be based on three-year average cash conversion
and will account for up to 20% of the award (with the
remaining 80% split equally between EPS and ROCE). The
Committee concluded that a three-year cash conversion
target was appropriate as it supports Inchcape’s disciplined
capital allocation policy. The cash conversion range for
the 2020 awards is 55% to 70%. In line with the EPS and
ROCE performance measures, 25% of this element of the
award will vest for threshold performance with full vesting for
exceptional performance.
– Use of a three-year cumulative EPS range.
– The Committee reviewed the existing EPS range and
concluded that a cumulative EPS range would reward more
effectively the maximisation of EPS performance for every
year during the current difficult market climate. The proposed
EPS range for 2020 awards is 169p to 191p and reflects over
the next three years our current expectations of our global
markets and disposals of some of our operations relative
to 2019. Performance against targets will continue to be
neutralised for share buybacks.
– ROCE will continue to be measured as a three-year average.
– The proposed ROCE range for 2020 awards is 16.5% to 20.5%
which is the same range used for the 2019 and 2018 awards
on an IFRS 16 basis.
The targets for all three measures will be reviewed annually
ahead of every award cycle taking into account forecasted
growth, broker forecasts and broader market expectations.
The Committee also reviewed the pension contributions for
Executive Directors’ recognising the need to lower pension
contributions to closer align with that of the UK employee
average. Following shareholder feedback, the Committee
agreed with Stefan Bomhard that a reduction to 10% of salary
over the course of the new Policy period was appropriate.
Given his recent resignation, the Committee is proposing to
maintain the glide path as if he were to remain in the role for
the next three years; therefore, his pension contribution will
be reduced by 6.7% to 23.3% of salary upon approval of the
Policy and will be maintained at this level until his departure.
His successor will have a pension contribution in line with the
UK employee average of 10% of salary, which is considered the
appropriate rate for any newly appointed Executive Director.
Further details on these changes, including rationale, can be
found in the remuneration policy and in the annual report on
remuneration.
Shareholder consultation
During the course of the remuneration policy review we
consulted with 20 of our largest shareholders, representing over
two-thirds of our issued share capital, as well as proxy advisors. I
would like to thank all our shareholders who responded for their
constructive advice and suggestions and support for the Group
and its management.
In general, shareholders gave us positive feedback that our
overall remuneration structure is fit for purpose and pay is
well aligned with performance. They were pleased that no
increases to the maxima of any schemes had been proposed
and understood the rationale for increasing target bonus
opportunity from 40% to 50% of maximum for the wider
management team.
Whilst acknowledging that the combination of a CIP and PSP
was less common now, many shareholders were pleased
to hear that the CIP was very much valued by participants.
Overall, shareholders were positive about this aspect of our
structure, as it promotes high levels of share based rewards
aligning our participants with shareholders’ interests.
Shareholders were also pleased to see the introduction of a
post-exit shareholding requirement.
Shareholders were also universally pleased to see that the
pension contribution for newly appointed Executive Directors
would be fully aligned with the UK average of 10% of salary
and had been applied to the recent appointment of Gijsbert
de Zoeten as CFO. We discussed openly with our shareholders
the challenges of dramatically reducing the fixed pay of Stefan
Bomhard and listened to the advice from shareholders and
proxy agencies. Our initial approach was a slower glide path
but as a result of our shareholder discussions, the Committee
agreed with Stefan to reduce his pension down to that of the
UK employee average over the next Policy period.
Inchcape Annual Report and Accounts 2019
77
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Corporate governance report – Remuneration continued
The Committee recognises the vote on the Remuneration
Report at the 2019 AGM was lower than in previous years and
has considered the reasons why shareholders voted against
the Remuneration Report, which included the level of disclosure
given in the Report. This year, the Committee has reviewed
all its disclosures in detail to ensure they meet the standards
required by shareholders. The Committee will continue to keep
an open dialogue with shareholders to help ensure support for
remuneration decisions is strong.
UK Corporate Governance Code
The 2018 UK Corporate Governance Code came into effect
from 1 January 2019, and the Committee considered this
in developing the revised Policy, incorporating a post-exit
shareholding policy and aligning pension contributions of
newly-appointed Executive Directors to the UK employee
average. The Committee, as part of its annual agenda, reviews
wider remuneration and the alignment of reward with culture.
The Committee also has discretion to adjust the annual
bonus outcomes and can also adjust the number of shares
vesting under the PSP to ensure they are reflective of resulting
outcomes. The Committee also renewed its terms of reference
to ensure alignment with the revised Code. These can be
found at www.inchcape.com/governance, and details of the
Committee’s advisors can be found on page 97.
CEO pay ratio
The median CEO pay ratio for 2019 was 48:1 which was
calculated using methodology C in line with the updated
remuneration reporting regulations. Further details can be
found on page 95.
The Annual Report on Remuneration has also been updated to
reflect other revisions to the reporting requirements, including
the disclosure of the use of discretion by the Committee, an
additional scenario in the Performance Scenario charts, and a
reference in the Single Figure table on the impact of share price
appreciation on incentive outcomes.
Wider remuneration
As a new Chair of this Committee I have been encouraged
to see that there is strong and consistent alignment of
incentive programmes / targets and outturns throughout
the management structure (Executive Directors, the Group
Executive Committee and wider senior management), creating
strong alignment of purpose throughout the Group.
The Committee already reviews and approves all remuneration
arrangements for the Group Executive Committee and
also reviews the pay budgets and benefit structures for the
wider population, as the necessary context to decisions on
pay that we approve for Executive Directors and the Group
Executive Committee.
CFO appointment
Richard Howes left the Group on 31 August 2019. In line with the
remuneration policy and his leaving status, Richard Howes did
not receive a bonus for 2019 and all his outstanding PSP and
CIP awards (i.e. those granted in 2017, 2018 and 2019) lapsed
in full. Richard also did not receive any exit payments.
Gijsbert de Zoeten joined on 27 August 2019 with a salary
of £485,000, a pension contribution of 10% of salary and
incentives and benefits consistent with the remuneration policy,
including a relocation allowance. The relocation allowance
equates to £264,000 on a gross tax basis and has been
calculated taking into account Gijsbert moving with his family
from the Netherlands on a permanent basis. In line with the
Investment Association guidelines, this amount will be payable
for 12 months only. He did not receive any amounts in lieu of
awards forfeited at his previous employer. Further details on
his remuneration package can be found on page 79. We
were delighted that Gijsbert immediately demonstrated his
commitment to Inchcape by purchasing 17,500 shares.
The Committee also agreed that the PSP award made to
Gijsbert in 2020 would be enhanced to 230% of salary for this
year only (versus a regular award of 180%), which is in line with
policy. This is in light of the uncertainty following the resignation
of the CEO and reflects that no PSP award was granted in 2019.
2018 and 2019 PSP/CIP awards targets
As highlighted in the 2018 DRR, the Committee reviewed the
impact of the new accounting standard IFRS 16, which was
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. The conclusions of
our review were that the EPS target ranges for 2017, 2018 and
2019 do not need to be changed nor does the ROCE range for
the 2017 awards as it is possible to measure target and actual
performance on a consistent basis.
However, to ensure ROCE targets and actual performance are
calculated on a consistent basis, the 2018 and 2019 awards
target ranges (previously 22% for threshold vesting, to 26% for
full vesting) have been revised to 16.5% (for threshold vesting)
to 20.5% (for full vesting). This ROCE range will also apply to
the 2020 PSP and CIP awards. The change in the ROCE range
is due only to the change in the accounting standard and
the Committee is satisfied that the revisions do not make the
range easier or more difficult. Further details can be found on
page 93.
Looking forward
The Committee is committed to ensuring the remuneration
arrangements continue to support the Ignite strategy, align pay
with strong performance, the interests of executives and senior
management with those of shareholders and good corporate
governance.
We hope to have your support at the upcoming AGM.
Jane Kingston
Chair of the Remuneration Committee
78
Inchcape Annual Report and Accounts 2019
Remuneration at a glance
What Executive Directors earned during 2019 (£’000)
£1,639
636
227
18
757
£401
115
17
100
169
– 2.0% salary increase in 2019 for CEO; CFO appointed
on salary of £485,000
– 30% of salary pension supplement for CEO, 10%
for CFO
– Benefits include medical cover, company car
and life assurance, and relocation allowance for
the CFO
– Bonus payout of 23.7% of salary for CFO
– 40% of the 2017 PSP and CIP vested for the
CEO. The LTIP figure for the CEO was based on
the average share price from 1 October to 31
December 2019 of 654.2p
Stefan
Bomhard
Gijsbert de
Zoeten
DETAILS OF ACTUAL PERFORMANCE ACHIEVED ARE GIVEN ON PAGES 90 TO 92.
Base salary
Benefits
Pensions
Annual bonus
LTIP
Alignment of performance and remuneration for 2019
Annual bonus
To motivate and reward the achievement of the Company’s
strategic and operational objectives
DRIVE GROWTH
KPI: Revenue £9.4bn
DRIVE PERFORMANCE
KPI: Operating profit £373.1m
DELIVER STRATEGY
KPI: Annual objectives linked to the progress of Ignite
REWARD PAYABLE TO CFO FOR 2019 (PRO-RATED FOR SERVICE)
23.7% of salary
Long-term incentives
To motivate and reward performance linked to long-term success
INCREASE EARNINGS AND RETURNS
KPI: EPS 57.7p*
KPI: ROCE 28.2%*
LONG-TERM PERFORMANCE PERIOD
2017 – 2019
REWARD OUTCOME FOR CEO
PSP 40%
CIP 0.8:1 match
Proposed changes to the
remuneration policy
Retain the CIP and the PSP for
Executive Directors and senior
managers
– Introduction of a post-
employment share ownership
requirement
– Pension contributions for new
Executive Directors will not exceed
the UK employee average
(currently 10% of salary)
– Bonus target opportunity to
increase from 40% to 50% of
maximum
– Expansion of circumstances in
which malus and clawback can
be applied
FURTHER INFORMATION ON ANNUAL BONUS AND LONG-TERM INCENTIVE PLANS CAN BE FOUND ON PAGES 89 TO 93.
* These are on an IAS 17 basis to ensure targets and performance are measured consistently and therefore differ from those disclosed elsewhere in the Annual Report which
are on an IFRS 16 basis.
Inchcape Annual Report and Accounts 2019
79
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Corporate governance report – Remuneration continued
Part 1 —
Directors’ remuneration policy
This section of the report sets out the policy that the Committee will put to shareholders for approval at
the 2020 Annual General Meeting to be held on 21 May 2020 and, if approved, will be effective from
that date.
The principal changes to the policy are as follows:
– 75% of salary, or 50% of maximum, being payable in the annual bonus for target performance instead of 60% of salary
(40% of maximum)
– Reduction in the maximum cash supplement in lieu of pension from 30% to 10% of salary for newly-appointed Executive Directors
– Inclusion of a post-exit shareholding requirement for two years post-exit, set at the lower of the shareholding on exit and in-post
shareholding requirement
– Inclusion of reputational damage and corporate failure as circumstances in which malus and clawback provisions could be
applied
– Inclusion of the Committee’s ability to adjust the number of shares vesting under the PSP to ensure it is a fair reflection of the
Group underlying performance
Alignment of the remuneration policy
This section outlines how clarity, simplicity, risk, predictability, proportionality and alignment to culture were addressed when
reviewing the remuneration policy and its implementation.
– The Committee believes that the disclosure of the design of remuneration arrangements is transparent with clear rationale
provided on maintenance and changes to policy. The Committee remains committed to consulting with shareholders on the
policy and its implementation
– The Committee believes the performance measures used in the long-term incentive plans, along with those in the bonus, also
aid simplicity due to the clear alignment to Inchcape’s strategy
– The Committee has ensured that remuneration arrangements do not encourage and reward excessive risk taking by setting
targets to be stretching and achievable, with discretion to adjust formulaic bonus and PSP outcomes and expanding the
circumstances in which malus and clawback can be applied
– The link to strategy of the performance measures used and the setting of targets balances predictability and proportionality by
ensuring outcomes do not award poor performance in the short and long term. The policy is consistent with Inchcape’s culture
as well as strategy, therefore driving behaviours which promote the long-term success of Inchcape
Element
Base salary
Remuneration policy for Executive Directors
Objective and link
to strategy
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.
Operation and performance metrics
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 the 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.
Based at least 70% on annual financial performance. Financial
measures may include (but are not limited to) revenue and 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.
75% of salary payable for
target performance.
Bonus payouts are subject to malus and clawback provisions.
15% 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.
Normal PSP opportunities will
be 180% of salary.
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.
PSP awards are subject to malus and clawback provisions.
Award levels are subject to
an individual limit of 300% of
salary.
Threshold level performance
will result in 25% vesting of the
PSP award.
Performance
Share Plan
(PSP)
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.
80
Inchcape Annual Report and Accounts 2019
Remuneration policy for Executive Directors continued
Operation and performance metrics
Any bonus earned 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.
Opportunity
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.
Element
Co-
Investment
Plan (CIP)
Objective and link to
strategy
To encourage executive
share ownership and
reinforce long-term
success.
A voluntary investment
opportunity in return for
a performance-based
match.
Any annual bonus
earned 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.
Save As You
Earn (SAYE)
To encourage share
ownership.
Pension
To provide market
competitive pension
benefits where it is
cost-effective and tax-
efficient to do so.
For awards granted to the Executive Directors, 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 are subject to malus and clawback provisions.
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.
Receive a salary supplement in lieu of pension contributions.
In addition and in line with other UK-based employees, Executive
Directors are also entitled to participate in the Group’s pension
scheme, Cash+, which 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. In this scheme, members are required to
contribute 7% of pensionable salary.
Other benefits
To provide market
competitive benefits
where it is cost-effective
and tax-efficient to do
so.
Benefits currently include (but are not limited to):
– Company cars;
– Medical care; and
– Life assurance premiums.
In-post
shareholding
guidelines
Post-exit
shareholding
guidelines
To encourage share
ownership and
alignment of executive
interest with those of
shareholders.
To reinforce long-term
alignment of executive
interests with those of
shareholders post-
termination.
Executive Directors are required to accumulate, over a maximum
period of five years from date of appointment, a number of shares
equivalent to a shareholding worth 200% of base salary.
n/a
A departing Executive Director is required to maintain a
shareholding for two years post-termination, set at the lower of the
actual shareholding on exit and the in-post shareholding guideline.
n/a
Enforcement of this guideline will be facilitated through a holding
requirement applied to share-based incentive awards granted to
Executive Directors from 2020 onwards.
The application of this requirement will be at the Committee’s
discretion (which will be applied only in exceptional
circumstances).
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
As part of the remuneration policy review, the Committee
reviewed the appropriateness of performance measures used
by the Group and determined the following:
– The annual bonus measures have been selected to
incentivise sustainable growth in profits. The matrix structure
continues to provide a balanced focus between commercial
and cash initiatives. A mix of strategic measures will continue
to be selected each year to reinforce the Group’s strategic
objectives.
– The Committee believes that EPS and ROCE continue to be
suitable measures of long-term performance for the Group.
EPS is consistent with the Group’s long-term strategy focusing
on sustainable growth while ROCE supports the Group’s
cash initiatives of controlling working capital and capital
Inchcape Annual Report and Accounts 2019
81
Participation limits are those set
by the UK tax authorities from
time to time.
Newly-hired Executive
Directors are entitled to a cash
supplement of up to 10% of
salary.
Executive Directors who were
appointed prior to 2019
are entitled to a pension
contribution of up to 30% of
salary.
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).
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Corporate governance report – Remuneration continued
expenditure. When ROCE is used in combination with EPS,
it ensures there is a balance between growth and returns.
The new cash conversion measure reflects the criticality of
cash generation for Inchcape, which is required to support its
continued evolution.
– 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. 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 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, set to reward for
outperformance of the market and that the maximum will
only be achievable for truly outstanding performance. Please
see pages 91 to 93 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. The Committee also has
the ability to adjust the number of shares vesting under the
PSP to ensure it is a fair reflection of underlying performance
during the performance period.
– 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, reputational damage or corporate
failure) 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.
Participants are informed about the malus and clawback
conditions on their bonus at the start of each year and are
required to confirm acceptance of malus and clawback
provisions on their PSP and CIP awards upon grant.
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 (%)
22%
78%
Fixed: base salary, benefits and pension
Variable: annual bonus, PSP and CIP
Short-term vs. long-term (%)
39%
61%
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 employees 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.
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Inchcape Annual Report and Accounts 2019
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. In-
post share ownership guidelines apply to Executive Directors.
All UK employees are eligible to participate in the SAYE scheme
on the same terms.
Pension and benefits arrangements are tailored to local
market conditions, and so various arrangements are in place
for different populations within the Group. The Group has
calculated the average equivalent pension contribution across
UK employees to be 10% of salary.
Remuneration policy for Non-Executive Directors
Objective and link to strategy Operation and performance metrics
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.
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 Chair 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.
Opportunity
Appropriate adjustments may
be made to fee levels, taking
account of:
– increases awarded across
the Group as a whole and
conditions elsewhere in
the Group;
– fee levels 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 approved by shareholders. 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 month’s
notice (six months for the Chairman).
Name
Jerry Buhlmann
Rachel Empey
Jane Kingston
John Langston
Nigel Stein
Till Vestring
Date of appointment
01 March 2017
26 May 2016
25 July 2018
01 August 2013
08 October 2015
01 September 2011
Notice period
One month
One month
One month
One month
Six months
One month
Consideration of conditions elsewhere in the group
The Committee reviews and approves all remuneration
arrangements for the Group Executive Committee and the
Company Secretary. The Committee also reviews the pay
budgets and benefit structures across the general population
which are considered when determining remuneration for
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.
This includes the Employee Experience Consultation conducted
in all markets in 2019, more detail of which is provided in the
CSR Report on page 33.
The remuneration policy is published in the Annual Report and
Accounts and is available to all employees for their review.
The Remuneration Committee is available to answer any
questions employees may have about the policy or to provide
clarification on any remuneration matters. Elements of the
policy are cascaded down the organisation such as bonus
and long-term incentive plans. The new policy also aligns the
pension contribution for newly appointed Executive Directors
with the UK employee average which is currently 10% of salary.
Consideration of shareholder views
When determining remuneration, the Committee takes into
account the guidelines of representative investor bodies and
proxy advisors 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
our recent consultation with shareholders representing 70%
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
executive remuneration remains appropriate. Further details on
the consultation undertaken as part of the remuneration policy
review can be found on page 77.
Inchcape Annual Report and Accounts 2019
83
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Corporate governance report – Remuneration continued
Performance scenarios
The charts below show the remuneration that Executive Directors could expect to obtain based on varying performance scenarios.
These 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 chart
for the CFO has been updated for his 2020 salary. The chart for the CEO uses Stefan Bomhard's current salary combined with the
proposed changes in the policy even though he will not be eligible for a bonus or PSP/CIP award in 2020 given his resignation.
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
Total remuneration (£’000s)
Gijsbert de Zoeten – Chief Financial Officer
Total remuneration (£’000s)
£5,295
60%
£4,230
50%
£2,060
26%
28%
46%
27%
22%
23%
18%
£957
100%
Minimum
On-target
Maximum Maximum
with share
price growth
Fixed remuneration
Annual bonus
Long-term incentives (PSP and CIP)
Notes on the performance scenarios:
£3,405
62%
£2,706
52%
£1,282
27%
29%
44%
£558
100%
Minimum
On-target
28%
22%
20%
16%
Maximum Maximum
with share
price growth
Fixed remuneration
Annual bonus
Long-term incentives (PSP and CIP)
Element
Fixed
remuneration
Assumptions
– Total remuneration comprises base salary, benefits and pensions
– Base salary – effective from 1 April 2020
– Benefits – as provided in the single figure table on page 88, excluding one-off relocation allowance for CFO
– Pension – cash in lieu of pension (23.3% of salary for CEO and 10% of salary for CFO)
Variable pay
Annual bonus No payout
Minimum On-target
Target payout (50% of
maximum)
No vesting Assumes full voluntary
investment
Threshold match of 0.5:1
Maximum
Maximum payout
Maximum with share
price growth
Maximum vesting Maximum vesting + 50% share
price growth
No vesting Threshold vesting (25% of
maximum)
Maximum vesting Maximum vesting + 50% share
price growth
CIP
PSP
84
Inchcape Annual Report and Accounts 2019
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
Base salary
Maximum annual grant value
n/a
Approach
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 and receive a cash supplement on similar terms to Executive
Directors appointed after 2019.
New appointees will be eligible to receive normal benefits available
to senior management, including (but not limited to) company cars,
medical care, life assurance and relocation allowance.
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.
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’.
Pension
Benefits
Annual bonus
PSP
CIP
Other
n/a
n/a
150% of salary
300% of salary
100% of salary
n/a
The combined
maximum is not
intended to exceed
400% of salary
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.
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 83. 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 Chair of the Audit, Remuneration and CSR Committees as appropriate.
Inchcape Annual Report and Accounts 2019
85
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate governance report – Remuneration continued
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 rules of the relevant plans (subject to any Committee discretion):
Component
Annual bonus
Circumstance
Resignation.
Death, ill-health,
redundancy, retirement
or any other reason which
the Committee may, in its
absolute discretion, permit.
Change of control.
PSP and CIP
Resignation.
Death, ill-health,
redundancy, retirement
(CIP only) or any other
reason which the
Committee may, in its
absolute discretion, permit.
Change of control.
Treatment
Bonus will lapse unless the date of leaving is after
the year end and the individual is not serving their
notice period. The bonus will only be paid to the
extent the targets set at the beginning of the year
have been achieved.
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.
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.
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.
At the normal release date
(save where the Committee
has discretion to determine
otherwise or the rules provide
otherwise).
Any unvested awards will be pro-rated for time
and performance.
At the time of change of
control.
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
Gijsbert de Zoeten
Date of contract
1 April 2015
27 August 2019
Notice period
12 months
12 months
Unexpired term
To retirement
To retirement
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.
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Inchcape Annual Report and Accounts 2019
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 2019 and how it will be
implemented in the financial year to 31 December 2020 (dependent on shareholder
approval of the new remuneration policy).
The Remuneration Committee consists of three 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 Committee reviews its terms of reference on an annual basis. The terms can be found at www.inchcape.com.
The main focus of the Committee during 2019 has been the remuneration policy review and its implementation in 2020. The table
below details the decisions the Committee made in 2019 in addition to the policy review and its focus for 2020.
Focus area
Bonus scheme
Progress made in 2019
The Committee reviewed the outcome of the 2018
bonus scheme and set targets for the 2019 bonus
scheme. Details are given on pages 89 to 90
Long-term
incentives
Executive Directors’
remuneration
Group Executive
Committee
remuneration
Wider
remuneration
Chairman’s fee
New CFO package
Impact of IFRS 16
Share plans
Remuneration
trends update
Gender pay gap
report
Committee
evaluation
The Committee reviewed the outcome of the 2016
PSP and CIP awards and agreed the grants for 2019.
Details are on pages 91 to 92
The Committee approved the overall 2019
remuneration for the Executive Directors. Further details
are given on page 88
The Committee reviewed the remuneration for senior
executives taking into account pay for employees
across the Group
The Committee reviewed the wider remuneration in
context of executive remuneration
The Committee reviewed the Chairman’s fee
in November and increased the fee by 2% effective
from 27 November 2019
The Committee determined the appropriate package
for the new CFO taking into account the experience of
the CFO, prior arrangements and market practice
The Committee reviewed the impact of IFRS 16
on existing target ranges for EPS and ROCE for
outstanding awards including the 2019 PSP and CIP
awards and proposed changes to the ROCE targets
The Committee reviewed the share plan rules to
ensure they comply with best practice, regulation and
governance practices
The external advisors updated the Committee on
governance and remuneration trends
The Committee reviewed and approved the
disclosures for the CEO pay ratio, pay scenarios and
impact of share price appreciation
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 Committee evaluated its performance during the
year. See page 66 for further details
Priorities for 2020
The Committee will review the bonus measures
and targets applicable for the 2020 bonus within
the framework of the remuneration policy. The
Committee will also review the outcomes of the
2019 annual bonus
The Committee will review the 2017 PSP and CIP
outcomes and agree the grants for 2020 within
the framework of the remuneration policy
The Committee will set targets for performance-
related remuneration and consider appropriate
salary levels and other benefits
The Committee will set targets for performance-
related remuneration and consider salary levels
and other benefits
The Committee will review the wider
remuneration in context of executive
remuneration
The Chairman’s fee will be reviewed every two
years
The Committee will continue to review the
package of the CFO to ensure it remains
appropriate and competitive
To continue to review the target ranges to ensure
that ranges are not more challenging or easier
than intended
The Committee will continue to review the share
plan rules to ensure they comply with best
practice, regulation and governance practices
The Committee will continue to 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 2020 gender pay
analysis
External evaluation in 2020
Inchcape Annual Report and Accounts 2019
87
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate governance report – Remuneration continued
Single total figure of remuneration (audited)
The table below sets out the total remuneration received by the Directors for the year ended 31 December 2019:
Name
2019 2018 2019 2018
2019 2018
2019 2018 2019 2018 2019 2018
2019 2018
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
Gijsbert de Zoeten*
Current Non-Executive Directors (f)
Nigel Stein
Jerry Buhlmann
Rachel Empey
Jane Kingston
John Langston
Till Vestring
757
169
321
73
60
67
77
74
739
–
217
60
60
26
75
70
Former Executive Directors
Richard Howes*
287
423
Previous Non-Executive Directors
18
100
16
–
0
115
430
–
636 1,019
–
--
227
17
222
–
0
0
4 1,639 2,430
--
–
401
1
–
–
–
–
–
2
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
322
73
60
67
77
74
218
60
60
26
75
70
3
0
284
0
686
86
127
0
31
375 1,554
Ken Hanna
Coline McConville*
Nigel Northridge*
Total
–
45
32
128
75
81
1,962 1,954
–
–
–
121
1
–
–
21
–
–
–
115
–
–
–
714
–
–
–
–
–
–
636 1,705
–
–
–
330
–
–
–
349
–
–
–
0
–
–
–
–
129
45
75
32
81
35 3,164 4,778
* Gijsbert de Zoeten joined the Group during the year, Richard Howes, Coline McConville and Nigel Northridge left during the year.
a. Taxable benefits comprise car allowance, medical cover and mileage allowance. Gijsbert de Zoeten received a relocation allowance of £92,000 during 2019.
b. Payment for performance during the year under the annual bonus, including amounts paid in shares. Stefan Bomhard and Richard Howes did not receive a 2019 bonus due
to being under notice at the payment date or departing during 2019.
c. The 2019 figure for the CEO includes the 2017 PSP and CIP which will vest in May and June 2020 based on performance over the three-year period ended 31 December 2019.
These awards will be subject to an additional two-year holding period and therefore will be released in 2022. The figures have been valued using the average share price
from 1 October 2019 to 31 December 2019 of 654.2p. Actual performance against targets is given on page 92. For Stefan Bomhard the 2019 value includes a movement of
-£152,656 which was due to a reduction in share price over the period. No further discretionary adjustments were made. The 2018 figure for Stefan Bomhard and Richard
Howes 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 610p and 636p for
the 2016 PSP and CIP awards respectively) and includes dividend equivalent of £74,773 and £50,004 respectively. For Stefan Bomhard and Richard Howes, the 2018 value
includes a movement of -£126,077 and -£88,575 respectively. Full details of the awards exercised in 2019 are given on page 94.
d. During the year Stefan Bomhard and Richard Howes received a cash supplement of 30% of base salary in lieu of pension contributions, while Gijsbert de Zoeten received a
contribution of 10% of base salary from the date of his appointment.
e. The 2018 figures for Stefan Bomhard and Richard Howes include the value of the 2018 SAYE awards and are based on the embedded value at date of grant. In 2018,
Richard Howes received a one-off payment of £28,288 in lieu of a cancelled holiday.
f. The fees of the Chairman, Non-Executive Directors and the Senior Independent Director are given on page 88.
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.
The salary for Gijsbert de Zoeten was determined taking into account this benchmarking data, as well as the other factors detailed
in the policy table. Stefan Bomhard was not eligible to receive a salary increase for 2020.
The salaries for 2018, 2019 and 2020 are set out below, together with the average increases across the Group.
Name
Stefan Bomhard
Gijsbert de Zoeten
Average increase across Group
1 April 2018
£746,200
–
2.5%
1 April 2019
1 April 2020
£761,124 – 2.0% increase
£485,000
2.43%
£761,124
£499,550 –3% increase
3.18%
Chairman’s and Non-Executive Directors’ fees
In November 2019, the Remuneration Committee agreed an increase of 2% p.a. for the Chairman's fee. The fee is currently
£326,000 p.a.
The Senior Independent Director receives a fee of £81,000 p.a. The Non-Executive Directors receive a fee of £62,000 p.a. with an
additional £15,000 p.a. for the chair of the Audit and Remuneration Committees and an additional £12,000 p.a. for the chair of the
CSR Committee.
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Inchcape Annual Report and Accounts 2019
Annual bonus
The annual bonus is based on annual financial measures and
strategic objectives. 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 strategic objectives are selected each year
to reinforce the Group’s strategic priorities and may include
personal objectives linked to the delivery of the Ignite strategy.
The principles for setting the 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
2019 bonus
For 2019, 80% of the bonus was 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 90 illustrates targets, performance
and resulting 2019 bonus outcomes for the Executive Directors.
The structure of the 2019 bonus
Up to 80% of total bonus or 120% of salary is earned according to the following matrix of financial measures
(%s are of salary):
Revenue
Stretch
Target
Threshold
24%
16%
12%
72%
48%
36%
120%
96%
72%
Threshold
Target
Stretch
Operating profit
Up to 20% of the total bonus, or 30% of salary, is earned for the achievement of strategic objectives linked to the Ignite strategy
which for Gijsbert de Zoeten is given in the table on page 90.
Inchcape Annual Report and Accounts 2019
89
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Corporate governance report – Remuneration continued
Actual performance against bonus targets
Achievement of financial targets (80% of total bonus or 120% of salary)
In 2019, revenue performance was between target and stretch and operating profit was between threshold and target on the
matrix. This resulted in a bonus of 16.2% of salary for the CFO (as pro-rated for time in role) under this element of the bonus. Stefan
Bomhard did not receive a bonus payment for 2019. 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 targets, and both targets and performance have been determined on an IFRS 16 basis. This approach helps ensure that
the bonus is linked to underlying financial performance.
Measure
Revenue
Operating profit
Targets
Threshold
£8,895.9m
£333.4m
Target
Stretch
Actual performance
£9,364.1m
£370.4m
£9,832.3m
£407.4m
£9,391.0m
£369.2m
Outcome for element of bonus
% of salary
48.5%
Adjustments made during the year
The revenue and operating profit targets for 2019 were adjusted to take into account strategic disposals during the year, to ensure
target and performance outcomes were assessed on a like-for-like basis.
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 2019 bonus and
the resulting outcomes. For 2019, Gijsbert de Zoeten had three bonus objectives linked to the Ignite strategy.
Executive Director Objective
Gijsbert de Zoeten Overhead
reduction
Capital
allocation
policy
Optimise free
cash flow
position
Weighting (%) Further details on objectives
10% To support the continued leveraging of our global scale,
this objective focused on the delivery of a meaningful run
rate reduction of overheads and securing procurement
savings across the Group. Overheads were reduced to
c.£7m below plan and procurement savings exceeded
the plan by c.7%. The Committee concluded that the
requirement under this objective had been exceeded and
as a result, this element paid out in full at 5% of salary (pro-
rated for time in role).
5% On joining, Gijsbert was tasked with reviewing the Group’s
capital allocation policy in all its elements. This comprised
a review of our cash utilisation priorities which included a
review of policies governing the following areas: 1) excess
cash post capex working capital, 2) dividends, 3) value
accretive M&A opportunities and 4) remaining excess FCF
distributed through buybacks. Gijsbert’s updated policy
was agreed by the Board and the Committee concluded
that the requirement under this objective had been
exceeded. As a result, this element paid out in full at 2.5% of
salary (pro-rated for time in role).
Weighted
outcomes (%)
10%
(equivalent to
5% of salary
taking into
account
pro-rating for
time in role)
5%
(equivalent to
2.5% of salary
taking into
account
pro-rating for
time in role )
5% This objective was centred around the delivery of a free
0
cash flow position exceeding the level targeted in the
Annual Operating Plan. However, the level targeted
was not achieved and such the Committee concluded
that there would be no bonus payable in relation to this
objective.
As Stefan Bomhard did not receive a bonus for 2019 due to being under notice at time of payment, details on his strategic
objectives have not been disclosed.
Overall 2019 bonus outcome
Taking together the outcomes against the financial and strategic components of the bonus, the Committee approved the overall
2019 bonus for Gijsbert de Zoeten as follows:
Gijsbert de Zoeten
Payment for financial targets
(% of salary)
Payout for strategic targets
(% of salary)
16.2%
7.5%
Total payment
% of salary
23.7%
£
£114,720
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.
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Inchcape Annual Report and Accounts 2019
Annual bonus for 2020
The maximum annual bonus opportunity in 2020 will remain unchanged from previous years and will be 150% of salary. For the
Executive Directors, 80% of the bonus will be based on a financial performance matrix, linked to revenue and profit before tax, and
20% of the bonus will be based on a basket of specific, measurable objectives that relate to the Ignite strategy.
For target performance, the payout will be 50% of the maximum bonus opportunity (subject to shareholder approval at the 2020
AGM). This means the financial performance matrix for the 2020 bonus will be as follows:
Revenue
Stretch
Target
Threshold
24%
20%
15%
72%
60%
45%
120%
96%
72%
Threshold
Target
Stretch
Profit before tax
Given the close link between performance targets, the longer-term strategy, and the advantage this may give competitors, the 2020
targets for the Executive Directors 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 2017, Inchcape granted awards under the PSP and CIP schemes which vested dependent on certain performance targets
measured over three years to 31 December 2019. These awards are also subject to an additional post-vest two-year holding period.
2017 PSP/CIP performance targets
Three-year EPS growth p.a. (60% weighting)
Less than 4%
4%
12%
Between 4% and 12%
Vesting %
Three-year average ROCE (40% weighting)
0% Less than 22%
25% 22%
100% 26%
Straight line basis
Between 22% and 26%
Unexpired term
0%
25%
100%
Straight line basis
Vesting of 2017 PSP/CIP awards
Over the 2017-2019 performance period an EPS growth of -1.1% and three-year average ROCE of 28.2% was achieved, which
resulted in the following vesting outcomes:
Award
PSP
Total (overall vesting outcome of PSP)
Award
CIP
Total (overall vesting outcome of CIP)
Performance measure
EPS
ROCE
Performance measure
EPS
ROCE
Wtg.
60%
40%
Wtg.
60%
40%
Vesting outcome (% of element)
0%
100%
40%
Vesting outcome (% of element)
0%
100%
40% = 0.8:1 match
Inchcape Annual Report and Accounts 2019
91
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate governance report – Remuneration continued
From 1 January 2019, Inchcape was required to adopt a new accounting standard (IFRS 16) relating to lease accounting,
replacing the previous standard (IAS 17). As the targets for the 2017 PSP/CIP awards were set under IAS 17, EPS and ROCE
performance outcomes were calculated using the IAS 17 basis, to ensure consistency in targets and outcomes.
Stefan Bomhard and Richard Howes were granted PSP and CIP awards in 2017. Upon his departure in August 2019, Richard Howes’
awards lapsed in full. Stefan Bomhard is entitled to the following shares on vesting as he has remained in role after the end of the
performance period as per the scheme rules at the time of award. These awards are subject to a two-year holding period.
Stefan Bomhard
PSP
CIP
Interest held
Vesting %
Interest vesting
Vesting date
Assumed market
price (p)1
Estimated value
150,982
92,247
40%
40%
60,393
36,899
26 May 2020
27 June 2020
654.2p
654.2p
£395,091
£241,393
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 over the
last three months of 2019.
PSP and CIP awards granted during the year
During 2019, PSP and CIP awards were granted to Stefan Bomhard and Richard Howes. PSP awards were granted at 180% of salary,
and under the CIP, Stefan Bomhard invested 50% of salary and was granted a matching award of 100% of salary. In line with the
policy, Richard Howes’ awards lapsed in full upon his departure in August 2019. Stefan Bomhard's awards will also lapse in full upon
his departure.
During 2019, the Committee reviewed the impact of the new accounting standard IFRS 16 (effective from 1 January 2019) on the
performance targets on outstanding incentives, using the principle that targets and outcomes should be measured on a consistent
basis. The Committee concluded that the EPS range, of 4% to 12% p.a., remains suitable for the 2019 PSP and CIP awards. However,
the impact on ROCE of moving to IFRS 16 is more material and, hence, the committee has set the three-year ROCE range to be
16.5% to 20.5%, which is considered to be equivalent to a range of 22% to 26% under the previous IAS 17 accounting standard.
Therefore, the performance targets for the 2019 awards are as follows:
2019 PSP/CIP
Three-year EPS growth p.a. (60% weighting)
Less than 4%
4%
12%
Between 4% and 12%
Vesting %
Three-year average ROCE (40% weighting)
0% Less than 16.5%
25% 16.5%
100% 20.5%
Straight line basis
Between 16.5% and 20.5%
Unexpired term
0%
25%
100%
Straight line basis
Threshold level performance will result in 25% of the 2019 PSP and CIP awards vesting.
Share-based awards granted during 2019:
Stefan Bomhard*
PSP
CIP
Richard Howes*
PSP
CIP
Date of grant
Share
price
(p)1
Number of
shares/options
awarded
Face value
at grant2
Performance period
Exercise period
11 April 2019
11 April 2019
595.0p
595.0p
237,192
131,773
£1,411,292
£784,049
Jan 2019 – Dec 2021
Jan 2019 – Dec 2021
Apr 2022 – Apr 2023
Apr 2022 – Oct 2023
11 April 2019
11 April 2019
595.0p
595.0p
135,253
75,141
£804,755
£447,089
Jan 2019 – Dec 2021
Jan 2019 – Dec 2021
Apr 2022 – Apr 2023
Apr 2022 – Oct 2023
1. Mid-market share price on date of grant.
2. Face value has been calculated using the share price at date of grant.
* Awards lapsed/to lapse on date of departure.
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Inchcape Annual Report and Accounts 2019
2018 Long-term incentives
The Committee also reviewed the impact of the change to IFRS 16 on the 2018 PSP and CIP targets, which were set under the
previous IAS 17 standard. As for the 2019 awards, no change is required to the EPS range, but the ROCE range has been adjusted
to 16.5% to 20.5% (previously 22% to 26%) to ensure consistency of targets and outcomes. Therefore, the revised performance
ranges for the 2018 PSP and CIP awards are:
2018 PSP/CIP performance ranges after adjustments to reflect changes in accounting standards
Three-year EPS growth p.a. (60% weighting)
Three-year average ROCE(40% weighting)
Vesting %
Less than 4%
4%
12%
Between 4% and 12%
0% Less than 16.5%
25% 16.5%
100% 20.5%
Straight line basis
Between 16.5% and 20.5%
Unexpired term
0%
25%
100%
Straight line basis
Long-term incentives for 2020
The Committee has considered the performance conditions for PSP and CIP awards granted in 2020 and has agreed that vesting
will continue to be based on EPS (as three-year cumulative target measured at constant FX over the period) and a three-year
average ROCE (each to be weighted 40%), but will also be partially linked to cash conversion (20% weighting). This approach
reflects the criticality of cash generation for Inchcape whilst still ensuring an appropriate balance between sustainable earnings
growth and returns. The EPS range reflects over the next three years our current expectations of our global markets and the
disposals of some operations relative to 2019.
The performance ranges for each measure have been set taking into account internal and broker forecasts as well as broader
market exceptions and are as follows:
Three-year cumulative EPS (40% weighting)
Vesting %
Three-year average ROCE(40% weighting)
Less than 169p
169p
191p
Between 169p and 191p
Cash conversion (20% vesting)
Less than 55%
55%
70%
Between 55% and 70%
0% Less than 16.5%
25% 16.5%
100% 20.5%
Straight line basis
Between 16.5% and 20.5%
Vesting %
0%
25%
100%
Straight line basis
Unexpired term
0%
25%
100%
Straight line basis
At the beginning of 2020, Stefan Bomhard, CEO, announced his resignation. In light of increased uncertainty surrounding the
departure of the CEO and to reflect no PSP award was granted to Gijsbert in 2019, the Committee agreed that the PSP award made
to Gijsbert in 2020 would be enhanced on a one-off basis to 230% of salary (versus a regular award of 180%). He will also be invited
to participate in the CIP where he can invest up to 50% of salary with a 2:1 match.
Pension
During 2019 the CEO, Stefan Bomhard, and former CFO, Richard Howes, were entitled to receive a cash supplement of 30% of
base salary, while Gijsbert de Zoeten was entitled to receive a cash supplement of 10% of salary. All were eligible to join the Cash+
pension scheme, although none participated in the pension scheme.
For 2020, Stefan Bomhard will receive a pension contribution of 23.3% of salary until his departure. Gijsbert de Zoeten will continue to
receive a pension contribution of 10% of salary which is aligned to the UK employee average.
Inchcape Annual Report and Accounts 2019
93
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Corporate governance report – Remuneration continued
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 2019.
Stefan Bomhard
Gijsbert de Zoeten
Nigel Stein
Jerry Buhlmann
Rachel Empey
Jane Kingston
John Langston
Till Vestring
Richard Howes*
Coline McConville*
Nigel Northridge*
Share awards held
Options held
Shares held at
31 December
2019
Subject to
performance
conditions
Subject to
deferral
Not subject to
performance
targets
Subject to
deferral
Vested but
not yet
exercised
Guideline met
450,651
17,500
46,834
15,000
6,760
3,500
6,765
9,308
182,484
4,736
28,391
904,512
0
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0
0
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0
0
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3,249
0
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
0
0
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Yes
No
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
* Shares and awards held by Richard Howes, Coline McConville, and Nigel Northridge on their dates of leaving 31 August, 23 July and 23 May 2019 respectively.
There have been no changes to the number of shares held by the Directors between 31 December 2019 and 26 February 2020.
Share ownership policies
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 Gijsbert de Zoeten held 421% and 25% of salary respectively as at 31 December 2019, using the share price as
at 31 December 2019 of 706p.
Awards exercised during 2019
Stefan Bomhard exercised the award granted to him under the 2016 Performance Share Plan and Co-investment Plan on 3 May
2019 and exercised the award granted to him under the SB Award on 6 March 2019. He sold sufficient shares to cover costs and tax
and retained the remaining shares.
Plan
PSP
CIP
SB Award
Shares exercised
Dividend shares
Share price
Shares sold
Shares retained
89,546
62,675
68,375
7,040
4,926
6,129
607.5p
607.5p
590.2p
45,487
31,837
35,758
51,099
35,764
38,746
Richard Howes exercised the award granted to him under the 2016 Performance Share Plan and Co-investment Plan on 25 April
2019 and exercised the award granted to him under the RH Award on 26 April 2019. He sold sufficient shares to cover costs and tax
and retained the remaining shares.
Plan
PSP
CIP
RH Award
Shares exercised
Dividend shares
Share price
Shares sold
Shares retained
66,485
36,262
0
5,227
2,849
849
616.2p
616.2p
615.0p
33,773
18,420
408
37,939
20,691
441
Percentage change in Group Chief Executive remuneration
The table shows the percentage change in Group Chief Executive remuneration from 2018 to 2019 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.
Salary
Taxable benefits
Single-year variable
Total
Change in remuneration from 2018 to 2019
Group Chief Executive
Senior management
2.4%
12.5%
n/a
-32.6%
3.0%
0.0%
2.6%
2.9%
Employees representing the most senior executives 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.
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Inchcape Annual Report and Accounts 2019
CEO pay ratio
Financial year
2019
Calculation methodology
P25 (Lower quartile)
P50 (median)
P75 (Upper quartile)
C
67:1
48:1
32:1
The 25th, 50th and 75th percentile (P25, P50, P75) employees were determined using calculation methodology C which was to
calculate the actual full time equivalent remuneration for all UK employees using the single total figure valuation methodology
for the CEO with two amendments: 2018 bonus outcomes as a proxy for 2019 bonus outcomes and the exclusion of the 2019
SAYE grants. It was not possible to include accurate estimates of 2019 bonus outcomes and the SAYE values for 2019 for all UK
employees. However, 2018 bonus outcomes were determined to be a good proxy for 2019 bonus outcomes for those eligible and
given significant take-up of the SAYE by UK employees, there was little impact on its exclusion in the selection of the P25, P50 and P75
employees. Inchcape chose this method as it is in line as much as possible with methodology A which is the government’s preferred
approach taking into account operational constraints. The total remuneration for 2019 of the three employees identified as P25, P50
and P75 were then calculated using the same methodology as used to calculate the single total figure for the CEO including the
2019 bonus instead of the 2018 bonus and the 2019 SAYE values (if applicable). The P25, P50 and P75 UK employees were selected
from the UK employee population as of January 2020 to ensure all commissions paid in 2019 are taken into account in the selection
process. The Committee is satisfied that the selected employees are representative.
The table below sets out the remuneration details for the individuals identified:
Salary
CEO
Basic salary (£'000)
Total remuneration1 (£'000)
£757
£1,639
P25
£15
£24
P50
£28
£34
P75
£28
£52
1. Total remuneration has been calculated using the single figure valuation methodology includes basic salary, annual bonus paid in 2019, pension, travel or car allowance,
the cash value of employee benefits plus the value of any long-term incentives received under the 2017 PSP and/or CIP.
As this is the first year of reporting the CEO pay ratio using the above methodology, there is no comparative data against which
to compare the pay ratios above. The Committee will consider the median pay ratio of 48:1 in the context of the ratios reported in
future years.
The Committee is satisfied that the overall picture presented by the 2019 pay ratios is consistent with the reward policies for
Inchcape’s UK employees. The CEO pay ratio is based on comparing the CEO’s pay to that of Inchcape’s UK-based employee
population, a large proportion of whom are in customer-facing roles in retail outlets with remuneration which is commission-driven.
Therefore the ratios are likely to be volatile from one year to the next, largely driven by the CEO’s incentive outcomes which are
dependent on Group-wide results whereas employee pay variability will be driven by pay increases and commissions which are
driven largely by UK market conditions. The Committee takes into account these ratios when making decisions around the Executive
Director pay packages, and Inchcape takes seriously the need to ensure competitive pay packages across the organisation.
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 2018 to 2019.
Relative importance of spend on pay (£M)
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.
(1.3%)
647.4
639
Issued share capital as at 31 December 2019
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
399m
40m
21m
20m
7m
(4.25%)
115.2 110.5
100%
100.0
Dividend
Share buyback
2018
2019
Employee
remuneration
The Directors are proposing a final dividend for 2019 of 17.9p
per share (2018: 17.9p).
Inchcape Annual Report and Accounts 2019
95
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Corporate governance report – 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 2019.
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 2019.
Value of £100 invested at 1 January 2010
350
300
250
200
150
100
50
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
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
2010
2011
2012
André Lacroix
Stefan Bomhard
1,984
n/a
2,993
n/a
2,165
n/a
2013
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
2,430
2019
n/a
1,639
100%
52%
68%
48% 100% 56.8% 40.3% 67.6% 38.5%
n/a6
0% 100% 100%
66%
68%
n/a4
n/a5
79.6%
58%
40%
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.
6. Stefan Bomhard did not receive a bonus for 2019 due to his resignation from the Group.
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Inchcape Annual Report and Accounts 2019
Shareholder context
The table below shows the advisory vote on the Remuneration
Report at the 2019 AGM:
For (including discretionary)
Against
Total votes cast (excluding votes
withheld)
Votes withheld1
(Total votes cast including votes
withheld)
% of
votes cast
85.41%
14.59%
100%
Total number of votes
305,184,935
52,151,283
357,336,218
9,941
357,346,159
The Committee recognises the vote on the Remuneration
Report at the 2019 AGM was lower than in previous years and
has considered the reasons why shareholders voted against
the Remuneration Report. Reasons for voting against include
the level of disclosure in the Report. This year, the Committee
has reviewed all its disclosures in detail to ensure they meet
the standards required by shareholders. The Committee will
continue to keep an open dialogue with shareholders to help
ensure support for remuneration decisions is strong.
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)
% of
votes cast
96.79%
3.21%
100%
Total number of votes
337,335,918
11,173,431
348,509,349
408,954
348,918,303
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 and the Board.
Stefan Bomhard is a Non-Executive Director of Compass Group
PLC, for which he received a fee of £86,500 during 2019.
Gijsbert de Zoeten is a member of the supervisory board of
Technical University Delft, for which he received a fee of €15,800
during 2019.
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 supplied unrelated services to the Group in
relation to IAS 19. None of the individual Directors have a
personal connection with Mercer. 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 £124,149
for its services during the year, excluding expenses and VAT.
1. Withheld votes are not included in the final proxy figures as they are not
recognised as a vote in law.
The Directors’ Report on Remuneration was approved by the
Board and has been signed by Jane Kingston on its behalf.
Exit payments during the year
None.
Payments to past Directors
No payments were made to past Directors in 2019.
Jane Kingston
Chair of the Remuneration Committee
Inchcape Annual Report and Accounts 2019
97
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Directors’ Report
Directors’ Report
The Directors’ Report for the year ended 31 December 2019
comprises pages 98 to 102 of this report (together with
sections incorporated by reference). Information required in
the Management Report under DTR 4.1.8R can be found in
the following sections:
– A review of the business and future developments – pages 2
to 32
– Principal risks and uncertainties – pages 42 to 51.
A description of the Group's internal control framework is given
on page 71.
A description of the Board's activities and the structure of its
Committees is given on pages 54 to 97.
Corporate governance statement
The statement of compliance with the 2018 UK Corporate
Governance Code is given on page 55. The Code is published
on the Financial Reporting Council’s website www.frc.org.uk.
Information required under DTR 7 is given in the Corporate
Governance Report on pages 54 to 97.
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:
Stefan Bomhard
Jerry Buhlmann
Gijsbert de Zoeten – joined 27 August 2019
Rachel Empey
Richard Howes – left 1 September 2019
Alexandra Jensen – joined 29 January 2020
Jane Kingston
John Langston
Coline McConville – left 23 July 2019
Nigel Northridge – left 23 May 2019
Till Vestring
In accordance with the 2018 UK Corporate Governance Code,
all Directors will stand for election or re-election at the Annual
General Meeting (AGM) on 21 May 2020.
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
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Inchcape Annual Report and Accounts 2019
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 2019 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 2019 are shown on pages 112
to 187. 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 2020 AGM, the final
ordinary dividend will be paid on 19 June 2020 to shareholders
registered in the books of the Company at the close of business
on 15 May 2020. Together with the interim dividend of 8.9p per
ordinary share paid on 4 September 2019, this makes a total
ordinary dividend for the year of 26.8p per ordinary share
(2018: 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 22 for more
information on the dividend policy.
Share capital
As at 31 December 2019, the Company’s issued share capital
of £39,913,273.60 comprised 399,132,736 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.
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 23 May 2019, the Company was
authorised to make market purchases of up to 41,512,745
ordinary shares (representing approximately 10.0% of its issued
share capital).
In the year ended 31 December 2019, the Company
purchased for cancellation,16,070,070 ordinary shares of 10.0p
each at a cost of £100m, representing 4.02% of the issued share
capital as at that date, as part of the Board’s commitment to
return additional surplus cash to shareholders under the share
buyback programme.
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 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.
Number of
shares
Date
notified
Below 5%
12,202,311
Shareholder
BlackRock Inc
Polaris Capital
Management,
LLC
Standard Life
Aberdeen plc
Source TR-1 notifications. These are updated on the Company’s website.
05/11/2019
21/08/2019
02/10/2019
40,682,271
Percentage
notified
Below 5%
3%
10.07%
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 2019, the Trust’s shareholding totalled
861,589 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, including family
interests, in the ordinary shares of the Company of the persons
who were Directors at 31 December 2019 is shown in the
Directors’ Report on Remuneration on page 94.
There have been no changes to the number of shares held by
Directors between 31 December 2019 and 26 February 2020.
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 apart from certain
of the Group’s third party funding arrangements which would
terminate upon a change of control of the Company, such
as the Group's revolving credit facility agreement. Further
details are given in note 23 of the financial statements on page
158.
The Group’s relationships with its OEM brand partners are
managed at Group level, but the relevant contracts are
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 2019, or was entered into
during the year for any Director and/or connected person
(2018: 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:
Section Information
Interest capitalised
Publication of unaudited financial
information
Page
Not material to the
Group
96 (TSR graph)
Details of long-term incentive schemes
91-93
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
Parent participation in a placing by a
listed subsidiary
Contracts of significance
Provision of services by a controlling
shareholder
Shareholder waiver of dividends
Shareholder waiver of future dividends
Not applicable
Not applicable
Not applicable
Not applicable
99
99
Agreements with controlling shareholders Not applicable
1
2
4
5
6
7
8
9
10
11
12
13
14
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
Inchcape Annual Report and Accounts 2019
99
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Directors’ Report continued
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 2019 to 31 December 2019. 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.
Total greenhouse gas emissions in 2019
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 emissions
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 2019
Year ended
31 Dec 2018*
Change in
emissions
10,744
46,629
57,374
10,954
43,037
53,991
9,391
57,374
6.1
7,838
53,991
6.9
-2%
+8%
+6%
+20%
+6%
-11%
The 2018 figures have been restated following the correction of an error in the data supplied by the Singapore market.
scheme, which is offered annually. Further details can be found
in the Directors’ Report on Remuneration on pages 76 to 97.
Employee communication
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. The Group's global intranet,
iConnect also provides a means of communicating important
issues to employees.
The Employee Experience Consultation is the primary tool for
obtaining the views of employees and the results of the survey
are reported to the CSR Committee on an annual basis. The
chair of the CSR Committee is the designated director for
communicating the views of employees to the Board and he
reports the findings to the Board following each meeting.
The consultation enables the Board to gain an understanding
of how the employee experience is perceived and what actions
can be taken to enhance this experience so employees feel
challenged, excited, engaged and supported in their roles.
Further details can be found in the CSR Report on pages 33
to 35.
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.
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
100
Inchcape Annual Report and Accounts 2019
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 2019 is as follows:
Board
Senior management
All employees
6
64
12,892
Male
75.0%
83.1%
74.4%
2
13
4,435
Female
25.0%
16.9%
25.6%
Total
8
77
17,327
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 and has achieved the
recommendation of 33% female representation by 2020 as
recommended by the Hampton-Alexander Review.
The Nomination Committee ensures that a broad mix of
suitable candidates are put forward for consideration for
vacancies. 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 42 to 51.
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 24 to the financial statements on pages 160 to 167.
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 2019
and does not intend to make any political donations in 2020.
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.
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
Inchcape Annual Report and Accounts 2019 101
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Auditor and disclosure of information to the auditor
The auditor, Deloitte LLP, has indicated its willingness to
continue in office. A resolution to reappoint Deloitte as auditor
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, 21 May 2020
at The Royal Automobile Club, 89 Pall Mall, London SW1Y 5HS.
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’ 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.
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.
Business relationships
Having positive relationships with our OEM brand partners,
our main suppliers, and our customers is imperative for the
long-term success of the Company. Our OEM brand partner
relationships are key to every part of our value chain and the
length of these relationships, which are given on page 15 is
testament to their strength. Engagement with the OEMs is given
on page 16 and the ‘OEM partner of choice’ Ignite objective is
given on page 18.
The customer relationship is also extremely important, and we
have undertaken a comprehensive project to understand the
customer journey in order to improve their experience. Further
details of the Ignite strategy to ‘Lead in customer experience’
are given on page 18, a response to changing customer needs
now and in the future.
Culture
The Board monitors the culture of the Company by reviewing
reports received from the whistleblowing line, Speak Up!, via
reporting to the Audit Committee, reviewing the employee
voice via the results of the Employee Experience Consultation,
which is monitored by the CSR Committee, and reviewing
the number of employees who have undertaken the Code of
Conduct training. The Board also carries out an annual global
talent and leadership review as part of its succession planning
activities which enable the monitoring of key metrics such
as internal promotions and development programmes. The
Remuneration Committee considers wider pay and practices
when reviewing Executive remuneration and has an annual
update on remuneration practices which allows it to assess
whether they drive the right behaviours within the businesses
in accordance with the DRIVE5 performance drivers, see page
100. Members of the Board also have the opportunity to talk to
employees, without the presence of management, during the
annual overseas Board trip.
Going concern
Having assessed the principal risks and the other matters
discussed in connection with the viability statement on page
52, the Directors consider it appropriate to adopt the going
concern basis of accounting in the financial statements for the
next 12 months.
102
Inchcape Annual Report and Accounts 2019
Financial statements
104 Independent auditor’s report to the members of Inchcape plc
112 Consolidated income statement
113 Consolidated statement of comprehensive income
114 Consolidated statement of financial position
115 Consolidated statement of changes in equity
116 Consolidated statement of cash flows
117 Accounting policies
126 Notes to the financial statements
177 Alternative performance measures
178 Five year record
179 Company statement of financial position
180 Company statement of changes in equity
181 Company accounting policies
184 Notes to the Company financial statements
Other information
197 Shareholder information
Inchcape Annual Report and Accounts 2019 103
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 2019 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;
– the accounting policies; and
– the related notes 1 to 35 of the consolidated financial statements and notes 1 to 14 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. The non-audit services
provided to the Group and parent company for the year are disclosed in note 3 to the financial statements. 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
– Disposal accounting
– Initial adoption of IFRS 16 Leases
Within this report, key audit matters are identified as follows:
Newly identified
Similar level of risk
Increased level of risk
Decreased level of risk
Materiality
The materiality that we used for the Group financial statements was £16.1 million which was determined on the
basis of 5% of profit before taxation and exceptional gains and losses on business disposals, impairments and
restructuring costs.
Scoping
We conducted our work in 19 countries, with 25 reporting units subject to full-scope audit procedures.
The reporting units where we conducted our audit work accounted for 88% of the Group’s revenue, 95% of the
Group’s profit before taxation and exceptional items and 89% of the Group’s net assets.
Significant
changes
in our
approach
We have identified Disposal accounting and the Initial adoption of IFRS 16 Leases as new key audit matters in the
current year due to the quantum of the disposals and the recognised lease liabilities and right-of-use assets and
level of judgement involved in accounting for the disposals and the first time adoption of IFRS 16.
In the prior year our key audit matters included acquisition accounting and inventory valuation. In the current year
we have concluded that these do not represent key audit matters.
In relation to acquisition accounting, the acquisitions in the current year were not as significant as those in the prior year.
In relation to inventory valuation, the ageing of the Group’s inventory balance has improved and the country
specific inventory concerns are not as relevant in the current year.
104
104
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
Conclusions relating to going concern, principal risks and viability statement
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 Company’s ability to continue to do so over a period of at least 12 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.
Going concern is the
basis of preparation of
the financial statements
that assumes an entity
will remain in operation
for a period of at least
12 months from the date
of approval of the
financial statements.
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
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 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 41- 51 that describe the principal risks, procedures to identify emerging
risks, and an explanation of how these are being managed or mitigated;
– the Directors’ confirmation on page 70 that they have carried out a robust assessment of the
principal and emerging risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity; or
– the Directors’ explanation on page 52 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.
Viability means the ability
of the Group to continue
over the time horizon
considered appropriate
by the Directors.
We confirm that we have
nothing material to report,
add or draw attention to in
respect of these matters.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 105
105
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 recognised goodwill of £215.7 million (2018: £259.8 million) across nine cash generating
units (“CGUs”) as at 31 December 2019. The UK Retail CGU represents the largest balance at £80.2 million
(2018: £90.3 million).
The UK retail market has continued to face challenging trading conditions in 2019 with industry-wide metrics
expecting these conditions to continue in 2020. Management tested the UK Retail CGU for impairment at
31 December 2019 as part of the annual impairment review process. Management concluded that the
recoverable amount was higher than the carrying value. Consequently, no impairment charge was
recorded in 2019.
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, the long term growth rate and the discount rate.
Our key audit matter focuses on the robustness of the revenue, profit and cash flow 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 67 (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 obtained an understanding of the design
and implementation of the relevant controls addressing the accuracy of the revenue, profit and cash
flow forecasts;
– Met with UK Retail and Group management to understand and critically challenged the key underlying
assumptions used in the forecasts that form the basis of the Group’s impairment review, through the
assessment of contradictory information, including a review of external industry growth forecasts,
news articles and competitor announcements;
– Assessed the accuracy of previously prepared forecasts; this included reviewing trading performance in
2019 to determine management’s ability to forecast accurately and understand the reasons for any
material variances;
– Ran sensitivities to assess the robustness of the model’s headroom, this involved running a variety of
downside sensitivities to stress-test the model;
– 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;
– Checked the model integrity, including reviewing the model for mathematical and clerical accuracy; and
– Assessed contradictory information, including a review of external industry growth forecasts and industry
news articles.
Key observations
Based on the audit procedures performed we are satisfied that the valuation of goodwill at year end
is appropriate.
Disposal accounting
Key audit matter
description
The Group completed disposals of Retail sites in the UK, Australia and China during the year, generating a
net gain on disposal of £108.8 million (2018: Nil). The Group also has assets held for sale at 31 December
2019 of £5.1 million (2018: £8.9 million) and disposal groups held for sale with assets of £144.3 million
(2018: Nil) and liabilities of £106.1 million (2018: Nil).
The key audit matter in relation to disposal accounting was regarding management’s judgement in
determining assets held for sale and the identification of the relevant assets and liabilities in the calculation
of the net gain on disposal.
Refer to page 67 (Audit Committee report) and notes 20 and 29 to the consolidated financial statements.
106
106
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
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 disposal accounting process, including management’s process for the
classification of assets and disposal groups as held for sale process, and obtained an understanding of
the design and implementation of the relevant controls addressing the key audit matter;
– Performed enquiries of management and inspected the Board and relevant sub-committee minutes
of meetings;
– Evaluated the appropriateness of the Group’s judgement on the determination of assets and disposal
groups held for sale;
– Reviewed the disposal share purchased agreements and asset purchase agreements;
– Performed audit procedures on the valuation and completeness of material asset and liability balances
on the transaction date;
– Tested the allocation of goodwill to disposal groups held for sale for accuracy and appropriateness;
– Agreed the disposal proceeds to bank statements; and
– Tested the mathematical accuracy of management’s calculations.
Based on the audit procedures performed we are satisfied that the completed disposals have been
appropriately accounted for in the year ended 31 December 2019 and the assets held for sale and the
disposal groups held for sale are appropriately classified and valued at year end.
Key observations
Initial adoption of IFRS 16 – Leases
Key audit matter
description
How the scope
of our audit
responded to
the key audit
matter
The Group adopted IFRS 16 on 1 January 2019 when the standard became effective. IFRS 16 introduces
significant changes to lessee accounting by removing the distinction between operating and finance leases
and requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases.
The Group has applied IFRS 16 using the fully retrospective approach, with restatement of the comparative
information.
As at 31 December 2019, a lease liability of £352.8 million (2018: £460.4 million) and a right-of-use asset of
£313.3 million (2018: £415.2 million) was recognised.
The challenges of implementing the new standard were primarily due to a combination of the global spread
of the Group’s operations and the following judgements made by management related to the complexities
of IFRS 16:
– Identification of leases; and
– The determination of the incremental borrowing rate (“IBR”).
Due to these factors, the initial adoption of IFRS 16 was identified as a key audit matter.
Refer to page 67 (Audit Committee report) and notes 13 and 33 to the consolidated financial statements.
We performed the following procedures in response to the key audit matter identified:
– Completed a walkthrough of the lease identification, measurement and disclosure process and
obtained an understanding of the design and implementation of the relevant controls addressing the
key audit matter;
– Verified the accuracy of the underlying lease data by agreeing a representative sample of leases to their
original contract and other supporting information;
– Tested the reconciliation to the Group’s operating lease commitments (disclosed in Accounting Policies) in
order to assess completeness of the leases;
– Agreed a representative sample of the lease documents and listings to the leases identified under IFRS 16
for completeness;
– Inspected the general ledgers for any rental expenses that had not been identified as leases under IFRS 16;
– Assessed the appropriateness of the discount rates applied in determining lease liabilities with the
involvement of our valuation specialists;
– Performed independent recalculations of a representative sample of lease liabilities and right of use assets
at 31 December 2019 and 2018; and
– Assessed whether the disclosures within the financial statements satisfy the requirements of IFRS 16 –
Leases and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
Key
observations
Based on the audit procedures performed we are satisfied that the IFRS 16 – Leases accounting standard has
been appropriately adopted in 2019.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 107
107
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Independent auditor’s report to the members of Inchcape plc continued
Our application of materiality
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:
Materiality
Basis for
determining
materiality
Group financial statements
£16.1 million (2018: £18.0 million)
Group materiality equals 5% profit before taxation adjusted
for other asset impairments, restructuring costs and gains
and losses on the disposal of sites and businesses.
In the prior year Group materiality was based on 5% of profit
before taxation and exceptional impairment, pension and
finance costs.
Rationale for
the benchmark
applied
The adjusted profit before taxation is considered to be the
most relevant benchmark as this provides the most stable
and comparable profit metric.
Parent company financial statements
£16.0 million (2018: £17.7 million)
Parent company materiality equals 1%
of net assets, which has been capped
lower than Group materiality.
In the prior year parent company
materiality equated to 1% of net assets.
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.
PBT £324m
PBT
Group materiality
Group materiality
£16m
Component materiality
range £7m to £1m
Audit Committee
reporting threshold £0.80m
Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial statements as a whole. Group performance materiality was set at
70% of Group materiality for the 2019 audit (2018: 70%). In determining performance materiality, we considered the following factors:
a)
b)
c)
the quality of the control environment and whether we were able to rely on controls;
the low turnover in key management personnel; and
the absence of material uncorrected adjustments in the prior year.
Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.8 million (2018:
£0.9 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.
An overview of the scope of our audit
Identification and scoping of components
The parent company is audited directly by the Group audit team.
We conducted our work in 19 (2018: 17) countries, engaging 21 (2018: 18) component audit teams with 25 (2018: 26) reporting
units subject to full-scope audit procedures.
108
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
The reporting units where we conducted our audit work accounted for 88% (2018: 89%) of the Group’s revenue, 95% (2018: 93%) of
the Group’s profit before taxation and exceptional items and 89% (2018: 88%) of the Group’s net assets. Our scope has increased
to include the newly acquired Lithuanian BMW Distribution business.
12
5
11
Revenue %
88
Profit before
tax and
exceptional
items %
95
Net
assets %
89
– Full audit scope
– Full audit scope
– Full audit scope
– Review at Group level
– Review at Group level
– Review at Group level
Working with other auditors
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 £1 million to £7 million (2018: £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 10 (2018: 13) countries during the 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.
A dedicated member of the Group audit team is assigned to facilitate an effective and consistent approach to component
oversight. 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 components not subject to full-scope audits.
At a Group level we also performed audit procedures on centrally held balances including goodwill, lease right of use assets and
liabilities, retirement benefit obligations, taxation, treasury, head office costs and litigation.
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.
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 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.
We have nothing to report in respect of these matters.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 109
109
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Independent auditor’s report to the members of Inchcape plc continued
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 and non-compliance
with laws and regulation, 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.
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, we considered the following:
– the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for Directors’ remuneration, bonus levels and performance targets;
– results of our enquiries of management, internal audit, in house legal council and the Audit Committee about their own
identification and assessment of the risks of irregularities;
– any matters we identified having obtained and reviewed the Group’s documentation of their 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 of fraud or non-compliance with laws and regulations;
– the matters discussed among the audit engagement team including significant component audit teams and involving relevant
internal specialists, including tax, valuations, pensions and IT regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud
and identified the greatest potential for fraud in the following areas: the judgements related to the goodwill impairment analysis,
disposal accounting and the valuation of used inventory. In common with all audits under ISAs (UK), we are also required to
perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions
of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions
legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the
Group’s regulatory solvency requirements and environmental regulations.
Audit response to risks identified
As a result of performing the above, we identified goodwill impairment and disposal accounting as key audit matters related to the
potential risk of fraud. 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 provisions of
relevant laws and regulations described as having a direct effect on the financial statements;
– enquiring of management, the Audit Committee and in-house legal 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;
110
110
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
– reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing
correspondence with HMRC;
– in addressing the risk of fraud in the valuation of used inventory, we corroborated underlying data to third party data sources
and recalculated the provision in local markets using location specific industry knowledge, considering market conditions
and assessing whether the provision is complete and the vehicles have been recorded at the lower of cost or net realosable
value; 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 significant 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’ Remuneration Report 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 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.
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’ Remuneration Report 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 two years, covering the years ending 31 December
2018 and 31 December 2019.
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 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 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 Company and the 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
26 February 2020
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 111
111
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Consolidated income statement
For the year ended 31 December 2019
Before
exceptional
items
2019
£m
Exceptional
items
(note 2)
2019
£m
Notes
Before
exceptional
items
2018
(Restated)1
£m
Exceptional
items
(note 2)
2018
(Restated)1
£m
Total
2019
£m
Revenue
Cost of sales
Gross profit
Net operating expenses
Operating profit
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
Profit attributable to:
– Owners of the parent
– Non-controlling interests
Basic earnings per share (pence)
Diluted earnings per share (pence)
1. See note 33.
1, 3
3
14
6
7
8
9
9
9,379.7
(8,107.6)
1,272.1
(899.0)
373.1
0.3
373.4
24.1
(71.2)
326.3
(75.6)
250.7
– 9,379.7
– (8,107.6)
– 1,272.1
(823.5)
448.6
0.3
448.9
24.1
(71.2)
401.8
(73.1)
328.7
75.5
75.5
–
75.5
–
–
75.5
2.5
78.0
9,277.0
(7,975.7)
1,301.3
(902.7)
398.6
0.1
398.7
20.1
(68.2)
350.6
(79.1)
271.5
–
–
–
(223.7)
(223.7)
–
(223.7)
–
(13.9)
(237.6)
5.5
(232.1)
322.9
5.8
328.7
79.0p
78.4p
The notes on pages 126 to 176 are an integral part of these consolidated financial statements.
Total
2018
(Restated)1
£m
9,277.0
(7,975.7)
1,301.3
(1,126.4)
174.9
0.1
175.0
20.1
(82.1)
113.0
(73.6)
39.4
32.4
7.0
39.4
7.8p
7.8p
112
112
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
Consolidated statement of comprehensive income
For the year ended 31 December 2019
Profit for the year
Other comprehensive (loss) / income:
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
Items that may be or have been reclassified subsequently to the consolidated income statement
Cash flow hedges
Exchange differences on translation of foreign operations
Current tax recognised in consolidated statement of comprehensive income
Deferred tax recognised in consolidated statement of comprehensive income
Other comprehensive (loss) / income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
– Owners of the parent
– Non-controlling interests
1. See note 33.
The notes on pages 126 to 176 are an integral part of these consolidated financial statements.
Notes
2019
£m
328.7
2018
(Restated)1
£m
39.4
5
17
17
(71.7)
–
10.1
(61.6)
(25.9)
(98.6)
–
7.0
(117.5)
(179.1)
149.6
146.8
2.8
149.6
36.4
(6.1)
(0.1)
30.2
25.4
(9.6)
(0.6)
(5.8)
9.4
39.6
79.0
70.3
8.7
79.0
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 113
113
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Consolidated statement of financial position
As at 31 December 2019
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Investments in joint ventures and associates
Financial assets at fair value through other comprehensive income
Trade and other receivables
Deferred tax assets
Retirement benefit asset
Current assets
Inventories
Trade and other receivables
Financial assets at fair value through other comprehensive income
Derivative financial instruments
Current tax assets
Cash and cash equivalents
Assets held for sale and disposal group
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Current tax liabilities
Provisions
Lease liabilities
Borrowings
Liabilities directly associated with the disposal group
Non-current liabilities
Trade and other payables
Provisions
Deferred tax liabilities
Lease 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 33.
2019
£m
2018
(Restated)1
£m
1 January
2018
(Restated)1
£m
Notes
11
12
13
14
15
16
17
5
18
16
15
24
19
20
21
24
22
13
23
20
21
22
17
13
23
5
25
26
27
577.9
695.1
313.3
4.3
6.9
38.7
58.3
78.7
1,773.2
1,566.9
512.3
0.2
16.2
21.6
423.0
2,540.2
149.4
2,689.6
4,462.8
606.0
821.7
415.2
4.3
6.6
52.4
33.3
116.5
2,056.0
1,851.9
512.6
0.8
92.1
22.6
589.3
3,069.3
8.9
3,078.2
5,134.2
639.5
787.5
393.2
4.2
7.3
42.3
39.9
105.9
2,019.8
1,768.6
462.8
0.2
52.4
10.1
926.9
3,221.0
13.8
3,234.8
5,254.6
(1,996.4)
(27.4)
(82.4)
(23.0)
(56.8)
(50.1)
(2,236.1)
(106.1)
(2,342.2)
(2,356.6)
(13.3)
(86.4)
(20.3)
(66.3)
(417.0)
(2,959.9)
–
(2,959.9)
(2,234.9)
(21.6)
(73.7)
(22.2)
(56.4)
(532.8)
(2,941.6)
–
(2,941.6)
(77.2)
(12.9)
(96.7)
(296.0)
(270.0)
(69.2)
(822.0)
(67.3)
(14.3)
(92.3)
(394.1)
(210.0)
(34.6)
(812.6)
(58.9)
(11.2)
(73.8)
(365.9)
(360.5)
(33.6)
(903.9)
(3,164.2)
1,298.6
(3,772.5)
1,361.7
(3,845.5)
1,409.1
40.0
146.7
140.6
(190.4)
1,141.4
1,278.3
20.3
1,298.6
41.6
146.7
139.0
(75.9)
1,087.0
1,338.4
23.3
1,361.7
41.6
146.7
139.0
(83.6)
1,145.0
1,388.7
20.4
1,409.1
The notes on pages 126 to 176 are an integral part of these consolidated financial statements. The consolidated financial statements
on pages 112 to 176 were approved by the Board of Directors on 26 February 2020 and were signed on its behalf by:
Stefan Bomhard,
Group Chief Executive
Gijsbert De Zoeten,
Chief Financial Officer
114
114
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
Consolidated statement of changes in equity
For the year ended 31 December 2019
Notes
33
Share
capital
£m
Share
premium
£m
41.6
–
41.6
146.7
–
146.7
Capital
redemption
reserve
£m
Other
reserves
(note 26)
£m
Retained
earnings
(note 27)
£m
Equity
attributable
to owners of
the parent
£m
Non-
controlling
interests
£m
Total
shareholders’
equity
£m
139.0
–
139.0
(83.5) 1,183.5
(38.5)
(83.6) 1,145.0
(0.1)
1,427.3
(38.6)
1,388.7
20.6
(0.2)
20.4
1,447.9
(38.8)
1,409.1
At 1 January 2018
Adjustment for IFRS 16
At 1 January 2018 (restated)1
Profit for the year (restated)1
Other comprehensive income
for the year (restated)1
Total comprehensive income for the year
(restated)1
Share-based payments, net of tax
Net purchase of own shares by the
Inchcape Employee Trust
Dividends:
– Owners of the parent
– Non-controlling interests
At 1 January 2019 (restated)1
Adjustment for IFRIC 232
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
32.4
32.4
7.7
7.7
–
–
30.2
37.9
62.6
70.3
7.2
7.2
(12.6)
(12.6)
–
–
41.6
–
–
–
146.7
–
–
–
139.0
–
–
–
(115.2)
–
(115.2)
–
(75.9) 1,087.0 1,338.4
6.1
6.1
–
4,17
10
Profit for the year
Other comprehensive loss for the year
Total comprehensive (loss) / income 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
At 31 December 2019
1. See note 33.
2. See accounting policies.
4,17
25
–
(1.6)
10
–
–
–
40.0
–
–
–
–
–
–
–
–
146.7
–
–
–
–
(114.5)
(114.5)
322.9
(61.6)
261.3
322.9
(176.1)
146.8
–
1.6
–
–
–
–
6.8
(100.0)
6.8
(100.0)
(9.3)
(9.3)
–
–
(110.5)
–
140.6 (190.4) 1,141.4 1,278.3
(110.5)
–
–
–
7.0
1.7
8.7
–
–
–
(5.8)
23.3
–
5.8
(3.0)
2.8
–
–
–
39.4
39.6
79.0
7.2
(12.6)
(115.2)
(5.8)
1,361.7
6.1
328.7
(179.1)
149.6
6.8
(100.0)
(9.3)
–
(5.8)
20.3
(110.5)
(5.8)
1,298.6
The notes on pages 126 to 176 are an integral part of these consolidated financial statements.
Share-based payments include a net tax credit of £0.7m (current tax charge of £nil and a deferred tax credit of £0.7m)
(2018 – net tax charge of £0.3m (current tax charge of £0.1m and a deferred tax charge of £0.2m)).
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 115
115
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Consolidated statement of cash flows
For the year ended 31 December 2019
Cash generated 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
Net cash inflow from disposal of investments in joint ventures and associates
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of property, plant and equipment
Purchase of financial assets at fair value through other comprehensive income
Proceeds from sale of financial assets at fair value through other comprehensive income
Receipt from sub-lease receivables
Net cash generated from / (used in) investing activities
Cash flows from financing activities
Share buyback programme
Net purchase of own shares by the Inchcape Employee Trust
Repayment of Private Placement loan notes
Net cash (outflow) / inflow from other borrowings
Payment of capital element of lease liabilities
Equity dividends paid
Dividends paid to non-controlling interests
Net cash used in financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
Cash and cash equivalents consist of:
– Cash at bank and cash equivalents
– Short-term deposits
– Bank overdrafts
1. See note 33.
The notes on pages 126 to 176 are an integral part of these consolidated financial statements.
Notes
28a
29
29
10
28b
2019
£m
2018
(Restated)1
£m
445.9
(74.1)
22.0
(66.6)
327.2
(41.2)
230.4
0.1
(44.9)
(24.7)
15.7
–
–
0.6
136.0
(99.3)
(9.3)
(75.4)
(122.0)
(65.7)
(110.5)
(5.8)
(488.0)
(24.8)
463.4
(59.4)
379.2
581.8
(98.7)
17.9
(64.1)
436.9
(152.7)
13.4
–
(90.8)
(34.4)
25.9
(0.6)
0.5
1.0
(237.7)
–
(12.6)
–
35.6
(64.0)
(115.2)
(5.8)
(162.0)
37.2
416.6
9.6
463.4
19
19
23
321.5
101.5
(43.8)
379.2
370.3
219.0
(125.9)
463.4
116
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
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 financial assets at fair
value through other comprehensive income, 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 policies and disclosures
The accounting policies have been applied consistently throughout the reporting period, other than in respect of IFRS 16 and IFRIC
23 which have been newly adopted with effect from 1 January 2019. The other standards that became applicable for the current
reporting period did not have any impact on the Group’s accounting policies and did not require retrospective adjustments.
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 superseded the previous guidance on leases including IAS 17 Leases and the related interpretations when it
became 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 are on balance sheet except for short-term leases and leases of low value assets. Payments
associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit
or loss as the Group has elected to apply the transition exemptions available. Short-term leases are leases with a lease term of
12 months or less.
Right-of-use assets are initially measured at cost and subsequently measured at cost less accumulated depreciation. Lease
liabilities are initially measured at the present value of the lease payments. Subsequently, lease liabilities are adjusted for interest
and lease payments. Consequently, earnings before interest, tax, depreciation and amortisation (EBITDA) has increased because
operating lease expenses previously included in EBITDA are now recognised instead as depreciation of the right-of-use asset
and interest expense on the lease liability. However, there is an overall reduction in profit before tax in the early years of a lease
because the depreciation and interest charges will exceed the previous straight-line expense incurred under IAS 17. In addition,
the classification of cash flows has also been affected because operating lease payments under IAS 17 were presented within
operating cash flows, whereas under IFRS 16 the payments are split into a principal and interest portion which are presented as
financing and operating cash flows respectively.
For leases in which the Group is a lessor, 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 has elected to apply the new standard on a fully retrospective basis 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 33.
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating
leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments,
discounted using the lessee’s incremental borrowing rate as of 1 January 2019. The weighted average lessee’s incremental
borrowing rate applied to the lease liabilities on 1 January 2019 was 4.7%.
As at 31 December 2018, the Group had non-cancellable operating lease commitments of £430.2m. When measuring lease
liabilities for leases that were classified as operating leases, the Group discounted lease payments using incremental borrowing
rates applicable at the date of initial application. Differences between the discounted operating lease commitment figure and total
lease liabilities recognised relate to transition exemptions available for short-term and low-value leases recognised on a straight-line
basis as an expense as well as adjustments as a result of a different treatment of extension and termination options. Additionally,
finance lease liabilities of £1.8m recognised as at 31 December 2018 have been reclassified and included in total lease liabilities
of £460.4m as at 31 December 2018.
Inchcape plc Annual Report and Accounts 2019
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117
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Accounting policies continued
Operating lease commitments disclosed as at 31 December 2018
Add: adjustments as a result of a different treatment of extension and termination options and additional lease
arrangements identified
(Less): short-term and low-value leases recognised on a straight-line basis as expense
Discounted using the lessee’s incremental borrowing rate at the date of initial application
Add: finance lease liabilities recognised as at 31 December 2018
Lease liabilities recognised as at 1 January 2019
£m
430.2
188.9
(3.7)
(156.8)
1.8
460.4
IFRIC 23 Uncertainty over income tax treatments
The Group adopted IFRIC 23 with effect from 1 January 2019 and has applied the interpretation retrospectively with the cumulative
effect of adoption being recognised as an adjustment to the opening balance of retained earnings. Comparatives have not
been restated. The standard clarifies the accounting for income tax when it is unclear whether a taxing authority accepts the
tax treatment. The interpretation requires the Group to determine whether uncertain tax positions are assessed separately or as
a group and whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by
an entity in its income tax filings. On adoption, the Group derecognised liabilities totalling £6.1m.
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 2020:
– Amendments to IAS 1 and IAS 8 – Definition of Material;
– Amendments to IFRS 3 – Definition of a Business;
– Amendments to IAS 1 – Classification of liabilities;
– Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest rate benchmark reform; and
– IFRS 17 – Insurance contracts
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.
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.
118
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Inchcape plc Annual Report and Accounts 2019
In the individual entities, transactions in foreign currencies are translated into the functional currency at the rates of exchange
prevailing at the dates of the individual transactions. Monetary assets and liabilities denominated in foreign currencies are
subsequently retranslated at the rate of exchange ruling at the end of the reporting period. All differences are taken to the
consolidated income statement, except those arising on long-term foreign currency borrowings used to finance or hedge
foreign currency investments which on consolidation are taken directly to other comprehensive income.
The assets and liabilities of foreign operations are translated into Sterling at the rate of exchange ruling at the end of the reporting
period. The income statements of foreign operations are translated into Sterling at the average rates of exchange for the period.
Exchange differences arising from 1 January 2004 are recognised as a separate component of shareholders’ equity. On disposal
of a foreign operation, any cumulative exchange differences held in shareholders’ equity are transferred to the consolidated
income statement.
Revenue, other income and cost of sales
Revenue 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 consideration receivable, 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.
Inchcape plc Annual Report and Accounts 2019
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119
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Accounting policies continued
Where an employee or the Company cancels an award, the charge for that award is recognised as an expense immediately, even
though the award does not vest.
Finance costs
Borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as
part of the cost of that asset from the first date on which the expenditure is incurred for the asset and until such time as the asset is
ready for its intended use. A Group capitalisation rate is used to determine the magnitude of borrowing costs capitalised on each
qualifying asset. This rate is the weighted average of Group borrowing costs, excluding those borrowings made specifically for the
purpose of obtaining a qualifying asset.
All other borrowing costs are recognised as an expense in the period in which they are incurred.
Income tax
The charge for current income tax is based on the results for the period as adjusted for items which are not taxed or are disallowed.
It is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
The new accounting standard covering uncertain tax positions, IFRIC 23 “Uncertainty over Income Tax Treatments”, has been
adopted by the Group from 1 January 2019. The Group recognises provisions for uncertain tax positions when it is not probable
that a tax authority will accept an uncertain tax treatment used, or proposed to be used, in its income tax filings. Uncertain tax
positions are assessed and measured using management’s estimate of the most likely outcome including an assessment of
whether uncertain tax positions should be considered separately or as a group. The Group recognises interest on late paid
taxes as part of financing costs, and any penalties, if applicable, as part of the income tax expense.
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.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which
the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
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.
Business combinations and goodwill
The acquisition of subsidiaries is accounted for using the acquisition method (at the point the Group gains control over a business
as defined by IFRS 3). The cost of the acquisition is measured as the cash paid and the aggregate of the fair values, at the date of
exchange, of other assets transferred, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for
control of the acquiree. The consideration transferred includes the fair value of any asset or liability resulting from a contingent
consideration arrangement at the acquisition date.
Acquisition-related costs are expensed as incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet
the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date. The Group recognises any
non-controlling interests in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interests’
proportionate share of the recognised amounts of acquiree’s identifiable net assets.
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.
120
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Inchcape plc Annual Report and Accounts 2019
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.
Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost comprises the
purchase price and directly attributable costs of the asset and includes, where relevant, capitalised borrowing costs. Depreciation
is based on cost less estimated residual value and is included within ‘net operating expenses’ in the consolidated income
statement, with the exception of depreciation on ‘interest in leased vehicles’ which is charged to ‘cost of sales’. It is provided on
a straight-line basis over the estimated useful life of the asset, except for freehold land which is not depreciated. For the following
categories, the annual rates used are:
Freehold buildings and long leasehold buildings
Short leasehold buildings
Plant, machinery and equipment
Interest in leased vehicles
2.0%
shorter of lease term or useful life
5.0% – 33.3%
over the lease term
The residual values and useful lives of all assets are reviewed at least at the end of each reporting period and adjusted if necessary.
Impairment of non-financial assets
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.
The provision for impairment of receivables is based on lifetime expected credit losses. Lifetime expected credit losses are
calculated by assessing historic credit loss experience, adjusted for factors specific to the receivable and company. 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’.
Inchcape plc Annual Report and Accounts 2019
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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Accounting policies continued
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 based on an expected credit loss model under
IFRS 9. The amount of the provision is the difference between the asset’s carrying amount and the expected value of the amounts
to be received.
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.
122
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Leasehold property provision
A leasehold property 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, excluding the lease liability already recognised under
IFRS 16. A leasehold property provision is also recognised when there is future obligation relating to the maintenance of leasehold
properties. The provision is based on management’s best estimate of the obligation which forms part of the Group’s unavoidable
cost of meeting its obligations under the lease contracts.
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 committed to a plan to sell and is actively marketing a business and disposal is expected within one year
of the date of classification as held for sale, the assets and liabilities of the associated businesses are separately disclosed in the
consolidated statement of financial position as a disposal group. Assets and liabilities 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 and liabilities 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. The accounting policies of the reportable segments are the same as
the Group’s accounting policies described in this note.
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. Financial assets at fair value through other comprehensive income 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.
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.
Inchcape plc Annual Report and Accounts 2019
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123
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Accounting policies continued
Derivative financial instruments
An outline of the objectives, policies and strategies pursued by the Group in relation to its financial instruments is set out in note
24 to the consolidated financial statements.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured
at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a
hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as:
– hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or
– hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction
(cash flow hedge).
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the consolidated
income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged
risk. The Group only applies fair value hedge accounting for hedging fixed interest risk on borrowings and future fixed amount
currency liabilities (on its cross-currency interest rate swaps). The gain or loss relating to the effective portion of interest rate swaps
hedging fixed rate borrowings and changes in the fair value of those borrowings are recognised in the consolidated income
statement within ‘finance costs’. The gain or loss relating to the ineffective portion is also recognised in the consolidated
income statement within ‘finance costs’.
Cash flow hedge
For cash flow hedges that meet the conditions for hedge accounting, the portion of the gains or losses on the hedging instrument
that is determined to be an effective hedge is recognised directly in other comprehensive income and the ineffective portion is
recognised within ‘net operating expenses’ in the consolidated income statement. When the hedged forecast transaction results in
the recognition of a non-financial asset or liability then, at the time the asset or liability is recognised, the associated gains or losses
that had previously been recognised in other comprehensive income are included in the initial measurement of the acquisition
cost or other carrying amount of the asset or liability. For all other cash flow hedges, the gains or losses that are recognised in other
comprehensive income are transferred to the consolidated income statement in the same period in which the hedged forecast
transaction affects the consolidated income statement.
Financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income are primarily equity instruments that the Group has elected
to recognise the changes in fair value of in other comprehensive income. They are recognised initially at fair value and are
re-measured subsequently at fair value with gains and losses arising from changes in fair value recognised directly in equity
and presented in the Group statement of comprehensive income. Cumulative gains and losses on equity instruments at fair
value through other comprehensive income are not recycled to the Group income statement.
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
For the sources of estimation uncertainty below, there is no significant risk that a material adjustment to the carrying amount of
assets or liabilities may be required as a result of changes in the assumptions or estimates in the next period.
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).
124
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Inchcape plc Annual Report and Accounts 2019
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.
Tax
The Group is subject to income taxes in the jurisdictions in which it operates. 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. 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. Where such issues exist, no single item is expected to give rise to a material adjustment in
the following or subsequent years.
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 17). In the event that actual taxable profits are
different, such differences may impact the carrying value of such deferred tax assets in future periods or extend the period over
which the deferred tax assets are utilised.
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.
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.
Discount rate applied to leases
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement
date if the interest rate implicit in the lease is not readily determinable. To arrive at the incremental borrowing rate the Group applies
the respective country’s (economic environment) risk free rate for the term corresponding to the lease term, adjusted for the
Group’s credit risk.
Impairment of property, plant and equipment, intangible assets and right-of-use assets
Property, plant and equipment, intangible assets and right-of-use 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, 12 and 13).
Critical accounting judgements
Right-of-use assets and lease liabilities – extension and termination options
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise
an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included
in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment is reviewed if a significant
event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 125
125
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. 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
2019
Revenue
Total revenue
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 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 European 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.
Australasia
£m
UK
and Europe
£m
Asia
£m
Emerging
Markets
£m
Total
Distribution
£m
Distribution
1,036.3
1,329.6
1,681.9
993.5
5,041.3
60.8
–
60.8
43.7
–
43.7
181.9
24.2
206.1
67.8
(0.5)
67.3
354.2
23.7
377.9
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
126
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1 Segmental analysis continued
2019
Revenue
Total revenue
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
306.7
3,004.9
1,026.8
4,338.4
9,379.7
–
9,379.7
(1.4)
(18.0)
17.5
72.7
(19.4)
90.2
20.0
–
20.0
36.1
54.7
390.3
78.4
(17.2)
(2.9)
373.1
75.5
90.8
468.7
(20.1)
448.6
0.3
448.9
24.1
(71.2)
401.8
(73.1)
328.7
Net finance costs of £47.1m 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:
2019
UK
Rest of the world
Group
£m
2,808.8
6,570.9
9,379.7
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 127
127
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
1 Segmental analysis continued
2019
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
215.4
332.5
288.9
413.2
1,250.0
(368.1)
(305.3)
(378.8)
(297.9)
(1,350.1)
Segment assets include net inventory, receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
2019
Other segment items
Capital expenditure:
– Property, plant and equipment
– Interest in leased vehicles
– Right-of-use assets
– Intangible assets
Depreciation:
– Property, plant and equipment
– Interest in leased vehicles
– Right-of-use assets
Amortisation of intangible assets
Impairment of goodwill
Impairment of other intangible assets
Impairment of property, plant and equipment
Impairment of right-of-use assets
Impairment of disposal group
Net provisions charged / (credited) to the consolidated
income statement
Australasia
£m
UK
and Europe
£m
Asia
£m
Emerging
Markets
£m
Total
Distribution
£m
Distribution
2.6
–
0.6
1.5
3.0
0.2
9.7
3.2
–
–
1.8
3.8
–
0.7
4.2
0.3
–
2.6
3.4
–
4.5
2.0
–
–
–
–
–
4.6
3.7
7.5
9.6
1.9
8.8
3.9
25.3
2.5
–
–
–
–
–
10.3
0.5
4.7
3.0
8.5
1.4
11.8
1.4
–
–
–
–
–
20.8
8.3
14.9
9.0
23.7
5.5
51.3
9.1
–
–
1.8
3.8
–
(2.4)
0.6
3.5
Net provisions include inventory, trade receivables impairment and other liability provisions.
2019
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
30.0
647.2
163.7
840.9
2,090.9
(17.8)
(623.6)
(93.0)
(734.4)
636.8
1,735.1
(2,084.5)
(1,079.7)
1,298.6
128
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
1 Segmental analysis continued
Segment assets include net inventory, receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
2019
Other segment items
Capital expenditure:
– Property, plant and equipment
– Interest in leased vehicles
– Right-of-use assets
– Intangible assets
Depreciation:
– Property, plant and equipment
– Interest in leased vehicles
– Right-of-use assets
Amortisation of intangible assets
Impairment of goodwill
Impairment of other intangible assets
Impairment of property, plant and equipment
Impairment of right-of-use assets
Impairment of disposal group
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
–
–
–
2.3
2.4
–
3.2
–
–
0.7
–
4.9
–
16.9
0.8
4.5
0.6
12.3
1.4
9.0
3.4
–
–
3.0
–
2.8
(1.4)
24.6
5.4
–
5.1
0.2
4.1
–
2.3
1.4
–
–
–
–
–
1.3
22.3
0.8
9.6
3.1
18.8
1.4
14.5
4.8
–
0.7
3.0
4.9
2.8
24.5
43.1
9.1
24.5
12.1
42.5
6.9
65.8
13.9
–
0.7
4.8
8.7
2.8
28.0
0.2
–
1.8
13.1
0.1
–
0.5
2.1
–
–
–
–
–
0.4
43.3
9.1
26.3
25.2
42.6
6.9
66.3
16.0
–
0.7
4.8
8.7
2.8
28.4
Net provisions include inventory, trade receivables impairment and other liability provisions.
Australasia
£m
UK
and Europe
£m
Asia
£m
Emerging
Markets
£m
Distribution
Total
Distribution
£m
1,198.4
1,145.5
1,687.7
956.5
4,988.1
89.4
–
89.4
34.7
(4.5)
30.2
172.2
–
172.2
86.5
(1.8)
84.7
382.8
(6.3)
376.5
2018 (Restated)1
Revenue
Total revenue
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
1. See note 33.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 129
129
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
1 Segmental analysis continued
2018 (Restated)1
Revenue
Total revenue
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
1. See note 33.
Australasia
£m
UK
and Europe
£m
Emerging
Markets
£m
Retail
Total
Retail
£m
Total pre
Central
£m
Central
£m
Total
£m
382.2
3,057.6
849.1
4,288.9
9,277.0
–
9,277.0
(5.8)
–
17.7
(206.6)
20.2
–
32.1
(206.6)
414.9
(212.9)
(16.3)
(10.8)
398.6
(223.7)
(5.8)
(188.9)
20.2
(174.5)
202.0
(27.1)
174.9
0.1
175.0
20.1
(82.1)
113.0
(73.6)
39.4
Net finance costs of £62.0m 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
2018 (Restated)1
Segment assets and liabilities
Segment assets
Other current assets
Other non-current assets
Segment liabilities
Other liabilities
Net assets
1. See note 33.
£m
2,892.5
6,384.5
9,277.0
Distribution
Total
Distribution
£m
Australasia
£m
UK
and Europe
£m
Asia
£m
Emerging
Markets
£m
299.1
335.6
359.2
380.2
1,374.1
(427.9)
(282.5)
(430.0)
(296.6)
(1,437.0)
Segment assets include net inventory, receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
130
130
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
1 Segmental analysis continued
2018 (Restated)1
Other segment items
Capital expenditure:
– Property, plant and equipment
– Interest in leased vehicles
– Right-of-use assets
– Intangible assets
Depreciation:
– Property, plant and equipment
– Interest in leased vehicles
– Right-of-use assets
Amortisation of intangible assets
Impairment of goodwill
Impairment of other intangible assets
Impairment of property, plant and equipment
Impairment of right-of-use assets
Net provisions charged / (credited)
to the consolidated income statement
1. See note 33.
Australasia
£m
UK
and Europe
£m
Asia
£m
Emerging
Markets
£m
Distribution
Total
Distribution
£m
8.7
1.9
23.2
3.0
4.6
–
8.5
2.9
–
–
–
–
2.1
6.3
0.1
0.7
4.4
3.1
0.1
4.0
1.8
–
–
4.5
–
4.5
8.6
8.0
12.2
2.5
8.6
3.6
25.1
2.0
–
–
–
–
1.6
14.0
2.4
15.5
3.6
8.0
0.8
11.3
1.5
–
–
–
–
0.6
37.6
12.4
51.6
13.5
24.3
4.5
48.9
8.2
–
–
4.5
–
8.8
Net provisions include inventory, trade receivables impairment and other liability provisions.
2018 (Restated)1
Segment assets and liabilities
Segment assets
Other current assets
Other non-current assets
Segment liabilities
Other liabilities
Net assets
1. See note 33.
Australasia
£m
UK
and Europe
£m
Emerging
Markets
£m
Retail
Total
Retail
£m
Total
£m
119.3
818.0
131.0
1,068.3
2,442.4
(114.4)
(793.2)
(83.8)
(991.4)
635.8
2,056.0
(2,428.4)
(1,344.1)
1,361.7
Segment assets include net inventory, receivables and derivative assets. Segment liabilities include payables, provisions and
derivative liabilities.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 131
131
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
1 Segmental analysis continued
2018 (Restated)1
Other segment items
Capital expenditure:
– Property, plant and equipment
– Interest in leased vehicles
– Right-of-use assets
– Intangible assets
Depreciation:
– Property, plant and equipment
– Interest in leased vehicles
– Right-of-use assets
Amortisation of intangible assets
Impairment of goodwill
Impairment of other intangible assets
Impairment of property, plant and equipment
Impairment of right-of-use assets
Net provisions charged / (credited)
to the consolidated income statement
1. See note 33.
Australasia
£m
UK
and Europe
£m
Emerging
Markets
£m
0.4
–
–
–
–
–
4.7
0.7
–
–
–
1.3
1.5
48.5
6.0
22.6
3.1
15.8
2.7
10.2
3.2
175.0
–
18.7
12.9
54.1
3.6
–
5.2
0.4
3.7
–
2.2
1.3
–
–
–
–
0.7
Retail
Total
Retail
£m
52.5
6.0
27.8
3.5
19.5
2.7
17.1
5.2
175.0
–
18.7
14.2
Total pre
Central
£m
Central
£m
Total
£m
90.1
18.4
79.4
17.0
43.8
7.2
66.0
13.4
175.0
–
23.2
14.2
–
–
–
16.7
0.1
–
0.9
0.8
–
–
–
–
90.1
18.4
79.4
33.7
43.9
7.2
66.9
14.2
175.0
–
23.2
14.2
56.3
65.1
(2.2)
62.9
Net provisions include inventory, trade receivables impairment and other liability provisions.
132
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
2 Exceptional items
Goodwill impairment (see note 11)
Disposal of businesses (see note 29)
Other asset write-offs and impairments (see notes 11, 12 and 13)
Restructuring costs
Acquisition of businesses
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
2019
£m
–
108.8
(21.9)
(8.9)
(2.5)
–
75.5
–
75.5
2.5
78.0
2018
(Restated)1
£m
(175.0)
–
(36.1)
–
(7.2)
(5.4)
(223.7)
(13.9)
(237.6)
5.5
(232.1)
1. Restated, following adoption of IFRS 16, to include a £12.9m impairment of right-of-use assets (see note 33).
An exceptional operating profit of £108.8m has been recognised related to the disposal of the Group’s retail operations in China
and the Fleet Solutions business in the UK, together with several retail sites in Australia and the UK.
As a direct result of the Group’s optimisation of its retail market portfolio, asset write-offs of £4.9m and impairments of £17.0m,
including leasehold improvements and right-of-use assets, and £8.9m of restructuring costs have been incurred, principally
following the disposal of several retail sites in the UK and Australia. The restructuring costs incurred comprised headcount
reduction and costs associated with exiting certain properties.
During the year exceptional operating costs of £2.5m have been incurred in connection with the acquisition and integration of
business, primarily the Krasta Auto business in Lithuania and the Autolider business in South America.
In 2018, a goodwill impairment charge of £175.0m was recognised relating to the UK Retail CGU group. Exceptional items also
include asset impairments of £36.1m following an impairment review of certain site-based assets, including right-of-use assets,
in the UK and Europe. Exceptional operating costs of £7.2m were 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.
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
2019
£m
8,580.0
799.7
9,379.7
2018
£m
8,500.3
776.7
9,277.0
Distribution costs
Administrative expenses
Other operating income
1. See note 33.
Net operating
expenses before
exceptional
items
2019
£m
Exceptional
items
2019
£m
532.6
370.1
(3.7)
899.0
–
33.3
(108.8)
(75.5)
Net operating
expenses before
exceptional
items
2018
(Restated)1
£m
Exceptional
items
2018
(Restated)1
£m
507.5
402.3
(7.1)
902.7
–
223.7
–
223.7
Net
operating
expenses
2019
£m
532.6
403.4
(112.5)
823.5
Net
operating
expenses
2018
(Restated)1
£m
507.5
626.0
(7.1)
1,126.4
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 133
133
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
3 Revenue and expenses continued
c. Profit before tax is stated after the following charges / (credits):
Depreciation of tangible fixed assets:
– Property, plant and equipment
– Interest in leased vehicles
– Right-of-use assets
Amortisation of intangible assets
Impairment of goodwill
Impairment of other intangible assets
Impairment of property, plant and equipment
Impairment of right-of-use assets
Impairment of disposal group
Impairment of trade receivables
Profit on sale of property, plant and equipment
Loss on sale of other intangible assets
Operating lease rentals – short-term leases
Sub-lease income of right-of-use assets
1. See note 33.
2019
£m
2018
(Restated)1
£m
42.6
6.9
66.3
16.0
–
0.7
4.8
8.7
2.8
2.0
(0.5)
1.0
4.7
(0.8)
43.9
7.2
66.9
14.2
175.0
–
23.2
14.2
–
1.3
(2.1)
–
5.0
(0.7)
Profit on the sale of property, plant and equipment in 2019 relates to the sale of surplus assets in Australia and the UK (2018 – Latvia,
the UK and Russia).
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
2019
£m
2018
£m
0.5
3.0
0.1
0.2
3.8
0.2
2019
£m
558.5
48.4
26.0
6.1
639.0
0.4
2.5
0.1
0.4
3.4
0.2
2018
£m
558.6
53.8
27.4
7.5
647.3
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 76 to 97 of this document. Information on compensation
of key management personnel is set out in note 32b.
134
134
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
3 Revenue and expenses continued
f. Average monthly number of employees
Australasia
UK and Europe
Asia
Emerging Markets
Total operational
Central
2019
Number
1,167
1,664
2,612
3,670
9,113
Distribution
2018
Number
1,182
1,434
2,645
3,828
9,089
2019
Number
482
5,478
–
2,976
8,936
Retail
2018
Number
567
5,938
–
2,401
8,906
2019
Number
1,649
7,142
2,612
6,646
18,049
156
18,205
Total
2018
Number
1,749
7,372
2,645
6,229
17,995
155
18,150
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 £6.1m (2018 – £7.5m), all of which was
equity-settled.
The Other Share Plans’ disclosures below include other share-based incentive plans for senior executives and employees.
The following table sets out the movements in the number of share options and awards during the year:
2019
Outstanding at 1 January
Granted
Exercised
Lapsed
Outstanding at 31 December
Exercisable at 31 December
2018
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
£5.61
£4.59
£4.79
£5.70
£5.11
£5.54
4,708,409
2,182,473
(827,423)
(1,177,272)
4,886,187
148,366
5,841
–
(2,612)
(3)
3,226
3,226
Weighted average
exercise price*
Performance
Share Plan
Executive Share
Option Plan
£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
237,158
69,066
–
(63,225)
–
5,841
2,576,229
1,432,380
(404,953)
(1,234,749)
2,368,907
Other
Share Plans
1,253,929
489,364
(457,527)
(325,610)
960,156
84,162
2,641
Save As You
Earn Plan
1,898,273
1,338,942
(78,916)
(582,070)
2,576,229
Other
Share Plans
1,385,836
408,323
(455,255)
(84,975)
1,253,929
5,841
453,464
74,504
* 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 2019 is 2.7 years (2018 – 2.4 years).
The range of exercise prices for options outstanding at the end of the year was £3.10 to £6.66 (2018 – £0.10 to £6.66). See note 25
for further details.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 135
135
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
4 Share-based payments continued
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
2019 and 31 December 2018:
Performance
Share Plan
Save As You
Earn Plan
Other
Share Plans
2019
2018
2019
2018
2019
2018
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
£5.95
£6.08
n/a
3.0 years
n/a
3.0 years
n/a
n/a
£5.95
£7.08
£7.15
n/a
3.0 years
n/a
3.0 years
n/a
n/a
£7.08
£6.27
£6.32
£4.59
3.0 years
23.4%
3.2 years
1.0%
4.3%
£1.38
£6.89
£7.25
£5.54
3.0 years
22.2%
3.2 years
1.0%
4.0%
£1.28
* 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 2019 or 2018.
The expected life and volatility of the options are based upon historical data.
£6.19
£6.02
n/a
£7.07
£7.11
n/a
2.8 years 2.8 years
n/a
2.8 years 2.8 years
n/a
n/a
£7.07
n/a
n/a
£6.19
n/a
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 (“IMPS”) in the UK is the Group’s main defined benefit pension scheme. It is comprised of the
Group, Motors, Normand and Cash+ sections. The Group, Motors and Normand sections provide benefits linked to the final salary
of members, are closed to new members 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 of 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 bears risks in relation
to its final salary schemes, notably relating to investment performance, interest rates, inflation and members’ life expectancies.
There is potential for these risks to harm the funding position of the schemes. If the schemes were to be in deficit then additional
contributions may be required from the Group. A number of exercises have been undertaken to mitigate these key funding risks.
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 and interest rate risk to normal retirement age (65). Inflation and mortality risks associated
with benefits are borne solely by the members.
Governance
Our UK schemes are registered with HMRC and comply fully with the regulatory framework published by the UK Pensions Regulator.
IMPS is established under trust law and has a trustee board that runs the scheme in accordance with the Trust Deed and Rules and
relevant legislation. The trustee board is comprised of two independent trustee companies appointed by the Group. The Trustees
are required to act in the best interest of the members and have responsibility for the scheme’s governance. The Trustees consult
with the Group over decisions relating to matters such as funding and investments.
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.
136
136
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
5 Pensions and other post-retirement benefits continued
Scheme specific cash obligation / investment detail
Inchcape Motors Pension Scheme
Group, Motors and Normand sections (closed sections)
The Group considers two measures of the pension deficit. The accounting position is shown on the Group balance sheet. The
funding position, calculated at the triennial actuarial valuation, is used to agree contributions made to IMPS. The Trustees are
currently progressing with the latest actuarial valuations as at 5 April 2019 for the four sections of IMPS. As part of the valuation
process the Trustees and Group will agree future levels of contributions required to be made by the Group to IMPS.
The last completed actuarial valuations for the Group, Motors and Normand sections were carried out at 5 April 2016 on a
market-related basis and determined in accordance with the advice of the Scheme Actuary 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 aggregate surplus existed. The Group currently contributes £0.6m per annum towards the administrative costs of running
these sections. For the Normand section, the Group also currently pays deficit reduction contributions of £1.1m per annum, rising
by 3.05% per annum 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 expected 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 the Scheme Actuary 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 currently contributes £0.2m per annum towards the administrative costs of running the scheme.
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 split equally
between multi-factor equities and emerging market multi-asset funds.
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 2018 and determined in
accordance with the advice of the Scheme Actuary based on the attained age method. The actuarial valuation determined that
the duration of the liabilities was approximately 12 years and that the scheme was approximately 77% funded on a prudent funding
basis. To make good the funding deficit of £16.2m, it has been agreed that deficit contributions of £1.5m per annum will be paid, by
means of an annual lump sum for 10 years, ending with the payment due in July 2029. The first payment at this new level will be on
1 July 2020. Additional contributions in respect of expenses of £150,000 per annum will also be made.
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 under which the benefits payable to the members of the scheme
were fully insured. The insurance policy was purchased using the existing assets of the scheme with no additional funding required
from the Group. The scheme was fully bought out and formally wound up during 2018.
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 £7.1m (2018 – £7.0m). There are no outstanding
contributions at 31 December 2019 (2018 – nil).
d. Defined benefit plans
As the Group’s principal defined benefit schemes are in the UK, these have been reported separately from the overseas schemes.
For the purposes of reporting, actuarial updates have been obtained for the Group’s material schemes and these updates are
reflected in the amounts reported in the following tables.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 137
137
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
5 Pensions and other post-retirement benefits continued
The principal weighted average assumptions used by the actuaries were:
Rate of increase in salaries
Rate of increase in pensions
Discount rate
Rate of inflation:
– Retail price index
– Consumer price index
United Kingdom
Overseas
2019
%
3.0
2.9
2.0
2.9
1.8
2018
%
3.1
3.0
2.9
3.2
2.1
2019
%
4.0
1.8
1.8
1.9
n/a
2018
%
4.0
1.8
1.9
1.8
n/a
The rate of increase in healthcare costs is 6.0% (2018 – 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 23.0 years (2018 – 23.8 years) for current pensioners and 24.4 years
(2018 – 25.3 years) for current non pensioners. Most of the overseas schemes only offer a lump sum on retirement and therefore
mortality assumptions are not applicable.
The asset / (liability) recognised in the consolidated statement of financial position is determined as follows:
United Kingdom
Overseas
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
2019
£m
(872.8)
887.6
14.8
(0.5)
14.3
2018
£m
(727.0)
816.0
89.0
(0.6)
88.4
78.4
(64.1)
14.3
116.2
(27.8)
88.4
The amounts recognised in the consolidated income statement are as follows:
United Kingdom
Current service cost
Past service cost
Scheme expenses
Interest expense on plan liabilities
Interest income on plan assets
2019
£m
(16.1)
–
(1.4)
(21.0)
23.8
(14.7)
2018
£m
(17.5)
(5.4)
(1.5)
(22.3)
24.1
(22.6)
2019
£m
(46.0)
43.0
(3.0)
(1.8)
(4.8)
0.3
(5.1)
(4.8)
2019
£m
(2.8)
–
(0.1)
(0.9)
0.8
(3.0)
2018
£m
(50.9)
45.0
(5.9)
(0.6)
(6.5)
2019
£m
(918.8)
930.6
11.8
(2.3)
9.5
0.3
(6.8)
(6.5)
78.7
(69.2)
9.5
Overseas
2018
£m
(2.9)
–
(0.1)
(0.8)
0.7
(3.1)
2019
£m
(18.9)
–
(1.5)
(21.9)
24.6
(17.7)
Total
2018
£m
(777.9)
861.0
83.1
(1.2)
81.9
116.5
(34.6)
81.9
Total
2018
£m
(20.4)
(5.4)
(1.6)
(23.1)
24.8
(25.7)
138
138
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
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 / (losses) on assets:
– Experience gains / (losses)
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 (losses) / gains recognised in the year
Effect of foreign exchange rates
At 31 December
United Kingdom
2019
£m
(10.3)
(5.2)
(123.6)
2018
£m
(0.2)
29.4
63.6
64.7
(74.4)
(54.5)
38.3
2019
£m
0.7
(0.2)
(0.4)
2.6
2.7
Overseas
2018
£m
(0.3)
–
0.5
(2.1)
(1.9)
2019
£m
(9.6)
(5.4)
(124.0)
Total
2018
£m
(0.5)
29.4
64.1
67.3
(71.7)
(56.6)
36.4
United Kingdom
Overseas
2019
£m
88.4
(14.7)
15.0
–
(74.4)
–
14.3
2018
£m
75.1
(22.6)
3.5
(5.9)
38.3
–
88.4
2019
£m
(6.5)
(3.0)
1.6
–
2.7
0.4
(4.8)
2018
£m
(2.8)
(3.1)
1.4
–
(1.9)
(0.1)
(6.5)
Changes in the present value of the defined benefit obligation are as follows:
United Kingdom
Overseas
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
2019
£m
(727.6)
(16.1)
–
(21.0)
(10.3)
(5.2)
(123.6)
(0.2)
30.7
–
–
(873.3)
2018
£m
(1,007.9)
(17.5)
(5.4)
(22.3)
(0.2)
29.4
63.6
(0.2)
33.0
199.9
–
(727.6)
2019
£m
(51.5)
(2.8)
–
(0.9)
0.7
(0.2)
(0.4)
–
4.6
0.7
2.0
(47.8)
2018
£m
(49.0)
(2.9)
–
(0.8)
(0.3)
–
0.5
–
3.3
–
(2.3)
(51.5)
2019
£m
81.9
(17.7)
16.6
–
(71.7)
0.4
9.5
2019
£m
(779.1)
(18.9)
–
(21.9)
(9.6)
(5.4)
(124.0)
(0.2)
35.3
0.7
2.0
(921.1)
Total
2018
£m
72.3
(25.7)
4.9
(5.9)
36.4
(0.1)
81.9
Total
2018
£m
(1,056.9)
(20.4)
(5.4)
(23.1)
(0.5)
29.4
64.1
(0.2)
36.3
199.9
(2.3)
(779.1)
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 139
139
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
5 Pensions and other post-retirement benefits continued
Changes in the fair value of the defined benefit asset are as follows:
At 1 January
Interest income on plan assets
Scheme expenses
Actuarial gains / (losses) :
– Experience gains / (losses)
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
2019
£m
816.0
23.8
(1.4)
64.7
15.0
0.2
(30.7)
–
–
–
887.6
2018
£m
1,083.0
24.1
(1.5)
(54.5)
3.5
0.2
(33.0)
(199.9)
(5.9)
–
816.0
2019
£m
45.0
0.8
(0.1)
2.6
1.6
–
(4.6)
(0.7)
–
(1.6)
43.0
2018
£m
46.2
0.7
(0.1)
(2.1)
1.4
–
(3.3)
–
–
2.2
45.0
2019
£m
861.0
24.6
(1.5)
67.3
16.6
0.2
(35.3)
(0.7)
–
(1.6)
930.6
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)
Investment funds (quoted)
Investment funds (unquoted)
Other (quoted)
Other (unquoted)
United Kingdom
Overseas
2019
2018
2019
2018
2019
5.9%
–
–
–
62.4%
–
31.7%
100.0%
5.2%
–
–
–
66.3%
–
28.5%
100.0%
67.4%
–
19.3%
0.2%
–
5.1%
8.0%
100.0%
73.3%
2.7%
13.3%
0.2%
–
3.8%
6.7%
100.0%
8.8%
–
0.9%
–
59.5%
0.2%
30.6%
100.0%
Total
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
Total
2018
8.8%
0.1%
0.7%
–
62.8%
0.2%
27.4%
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, property and liability driven
investments can be classified as Level 2 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).
140
140
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
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%
RPI Inflation –0.25%
RPI Inflation +0.25%
CPI Inflation –0.25%
CPI Inflation +0.25%
Life expectancy + 1 year
United Kingdom
2019
£m
+28.8
-26.3
-10.7
+12.0
-8.8
+10.4
+38.1
2018
£m
+31.2
-29.3
-9.8
+10.6
-8.0
+9.2
+29.4
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 £3.7m to its UK defined benefit plans in 2020, under the prevailing Schedules of
Contributions, on top of the ongoing employer contributions for the open Cash+ section. As part of the finalisation of the actuarial
valuations of IMPS as at 5 April 2019, a revised Schedule of Contributions will be agreed between the Trustees and the Group.
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.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 141
141
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
6 Finance income
Bank and other interest receivable
Net interest income on post-retirement plan assets and liabilities
Sub-lease finance income
Other finance income
Total finance income
1. See note 33.
7 Finance costs
Interest payable on bank borrowings
Interest payable on Private Placement
Interest payable on other borrowings
Fair value adjustment on Private Placement
Fair value gain on cross currency interest rate swaps
Lease finance costs
Stock holding interest (see note 21)
Other finance costs
Capitalised borrowing costs
Total finance costs
Total finance costs are analysed as follows:
Finance costs before exceptional finance costs
Exceptional finance costs
Total finance costs
1. See note 33.
2019
£m
17.2
2.7
0.6
3.6
24.1
2019
£m
12.9
6.9
–
3.3
(3.4)
20.0
27.6
4.0
(0.1)
71.2
71.2
–
71.2
2018
(Restated)1
£m
12.7
1.7
0.8
4.9
20.1
2018
(Restated)1
£m
11.5
7.1
0.2
17.1
(2.6)
20.8
25.2
3.3
(0.5)
82.1
68.2
13.9
82.1
Included within finance costs, in 2018, is a fair value adjustment in relation to the Group’s Private Placement loan notes of £14.5m.
Included within this is £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 2.9% (2018 – 2.0%).
142
142
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
8 Tax
Current tax:
– UK corporation tax
– Overseas tax
Adjustments to prior year liabilities:
– UK
– Overseas
Current tax
Deferred tax (see note 17)
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
1. See note 33.
2019
£m
2018
(Restated)1
£m
0.1
78.6
78.7
4.4
(2.6)
80.5
(7.4)
73.1
75.6
(2.5)
73.1
0.1
80.5
80.6
0.2
(1.4)
79.4
(5.8)
73.6
79.1
(5.5)
73.6
Details of the exceptional items for the year can be found in note 2. Not all of the exceptional items will be taxable/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 taxable/allowable.
Factors affecting the tax expense for the year
The effective tax rate for the year after exceptional items is 18.2% (2018 – 65.1% restated). The underlying effective tax rate before
the impact of exceptional items is 23.2% (2018 – 22.6% restated). The weighted average tax rate is 20.6% (2018 – 31.0% restated).
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 20.6% (2018 – 31.0%)
Non-exceptional items
– Permanent differences
– Non-taxable income
– Prior year items
– Recognition of deferred tax assets
– Tax audits and settlements
– Taxes on undistributed earnings
– Other items (including tax rate differentials and changes)
Exceptional items
– Goodwill impairment (see note 11)
– Acquisition and disposals of businesses
– Exceptional finance costs (see note 7)
– Other asset write-offs and impairment (see notes 11, 12 and 13)
Total tax charge
1. See note 33.
2019
£m
401.8
82.8
2018
(Restated)1
£m
113.0
35.0
5.4
(2.6)
(5.5)
(0.4)
6.5
2.0
0.4
–
(20.5)
–
5.0
73.1
8.4
(4.7)
(1.5)
(2.5)
(3.6)
2.5
0.5
33.3
1.1
2.1
3.0
73.6
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 143
143
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
8 Tax continued
Factors affecting the tax expense of future years
The Group’s future tax expense, and effective tax rate, could be affected by several factors including: the resolution of audits and
disputes, consequences of the European Commission’s state aid investigations, 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.
On 25 April 2019, the European Commission published its full decision in relation to its investigation into the “group financing
exemption” (‘GFE’) in the UK’s controlled foreign company rules and whether the GFE constituted unlawful State Aid. The
Commission concluded that the legislation up until December 2018 does partially represent State Aid. On 12 June 2019 the UK
Government brought an action against the Commission to have the judgment annulled. Subsequently a number of UK multi-
national groups, including Inchcape, applied on their own behalf to have the decision annulled. In view of HMRC’s recent
statement concerning the European Commission decision published in December 2019 and the assessment subsequently
received, the Group has recognised a provision of £5.4m plus interest.
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. In the event that
actual taxable profits are different to those forecast, the Group’s future tax expense and effective tax rate could be affected.
Information about the Group’s tax losses and deferred tax assets can be found in note 17.
The Group has published its approach to tax on inchcape.com covering its tax strategy and governance framework.
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
1. See note 33.
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
2019
£m
328.7
(5.8)
322.9
(78.0)
244.9
79.0p
78.4p
59.9p
59.5p
2018
(Restated)1
£m
39.4
(7.0)
32.4
232.1
264.5
7.8p
7.8p
63.8p
63.4p
2019
number
2018
number
409,513,387 415,090,366
(763,509)
(611,860)
408,749,878 414,478,506
2,883,558
2,988,393
411,738,271 417,362,064
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. Basic 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.
144
144
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
10 Dividends
The following dividends were paid by the Group:
Interim dividend for the six months ended 30 June 2019 of 8.9p per share
(30 June 2018 of 8.9p per share)
Final dividend for the year ended 31 December 2018 of 17.9p per share
(31 December 2017 of 18.9p per share)
2019
£m
2018
£m
36.3
36.9
74.2
110.5
78.3
115.2
A final proposed dividend for the year ended 31 December 2019 of 17.9p per share amounting to £71.4m is subject to approval by
shareholders at the Annual General Meeting and has not been included as a liability as at 31 December 2019.
The Group has sufficient distributable reserves to pay dividends to its ultimate shareholders. Distributable reserves are calculated on
an individual legal entity basis and the ultimate parent company, Inchcape plc, currently has adequate levels of realised profits
within its retained earnings to support dividend payments.
11 Intangible assets
Cost
At 1 January 2018
Businesses acquired (see note 29)
Businesses sold
Additions
Disposals
Retirement of fully amortised assets not in use
Effect of foreign exchange rate changes
At 1 January 2019
Businesses acquired (see note 29)
Businesses sold (see note 29)
Additions
Disposals
Retirement of fully amortised assets not in use
Reclassified to assets held for sale (see note 20)
Effect of foreign exchange rate changes
At 31 December 2019
Accumulated amortisation and impairment
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 1 January 2019
Amortisation charge for the year
Impairment charge for the year
Business sold (see note 29)
Disposals
Retirement of fully amortised assets not in use (see note 20)
Effect of foreign exchange rate changes
At 31 December 2019
Net book value at 31 December 2019
Net book value at 31 December 2018
Goodwill
£m
Distribution
agreements
£m
Computer
software
£m
Other
intangible
assets
£m
605.0
43.7
(0.7)
–
–
–
(13.8)
634.2
10.1
(34.1)
–
–
–
(10.6)
(5.5)
594.1
(213.2)
–
(175.0)
–
–
13.8
(374.4)
–
–
–
–
–
(4.0)
(378.4)
215.7
259.8
170.7
80.1
–
–
–
–
(1.0)
249.8
33.2
–
–
–
–
–
(21.9)
261.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
261.1
249.8
182.2
0.2
(0.1)
33.7
(0.3)
(0.3)
(1.3)
214.1
0.3
(1.8)
25.2
(2.1)
–
–
(3.7)
232.0
(105.3)
(14.1)
–
0.1
0.3
1.3
(117.7)
(16.0)
(0.7)
1.4
1.0
–
1.1
(130.9)
101.1
96.4
0.1
–
–
–
–
–
–
0.1
–
–
–
–
(0.1)
–
–
–
–
(0.1)
–
–
–
–
(0.1)
–
–
–
–
0.1
–
–
–
–
Total
£m
958.0
124.0
(0.8)
33.7
(0.3)
(0.3)
(16.1)
1,098.2
43.6
(35.9)
25.2
(2.1)
(0.1)
(10.6)
(31.1)
1,087.2
(318.5)
(14.2)
(175.0)
0.1
0.3
15.1
(492.2)
(16.0)
(0.7)
1.4
1.0
0.1
(2.9)
(509.3)
577.9
606.0
The asset impairments of £0.7m, which arose following the disposal of businesses in Australia, are included within exceptional items
(see note 2).
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 145
145
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
11 Intangible assets continued
Goodwill
Goodwill acquired in a business combination has been 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
UK and Europe Distribution
Emerging Markets Distribution
Asia
Australasia Retail
Australasia Distribution
Discount
rate
Long-term
growth rate CGU group
8.8%
9.1%
12.8%
to
18.2%
8.9%
10.2%
2.0%
2.0%
2.5%
2.0%
2.0%
UK Retail
Baltics
South America – Uruguay & Ecuador
South America – Other
Central America
Kenya
Singapore
Australia Retail
Peugeot Citroën Australia
2019
£m
80.2
5.8
3.8
45.7
44.8
1.2
22.8
9.6
1.8
215.7
2018
£m
90.3
–
–
51.4
46.6
1.1
23.3
45.2
1.9
259.8
Goodwill is subject to impairment testing annually, or more frequently where there are indications that they may be impaired.
Impairment tests were performed for all CGU groups during the year ended 31 December 2019.
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. The recoverable amount is determined firstly through value in use calculations. Where this is insufficient to cover
the carrying value of the relevant asset being tested, fair value less costs to sell is also determined.
The value in use calculations use cash flow projections based on five-year financial forecasts prepared by management. The key
assumptions for these forecasts are those relating to volumes, revenue, gross margins, overheads, the level of working capital
required to support trading and capital expenditure. The relative importance of the value in use calculations to the assumptions
used depends on whether the CGU group operates Retail or Distribution activities. For example, the following assumptions are key
to the value in use calculations for Retail activities:
– Volumes, linked to market forecasts and brand partner targets, particularly in relation to the sale of New vehicles;
– Gross margins;
– Working capital, to support trading; and
– Capital expenditure.
The assumptions used in the value in use calculations are based on past experience, recent trading and expectations of future
changes in the operation of the business and changes in the relevant markets including, where appropriate, the impact of climate
change. They also reflect expectations about continuing relationships with key brand partners. The forecast cash flows do not
include uncommitted restructuring or improvements and enhancements to existing assets.
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 based
on a weighted average cost of capital adjusted for a risk premium attributable to the relevant country. The Group uses several
inputs to calculate a range for the weighted average cost of capital from which an absolute measure of the weighted average
cost of capital is determined on a prudent basis.
Impairment
In 2018, the Board reassessed its short and medium-term forecasts for the UK Retail CGU group following a 29.6% decline in the sale
of diesel vehicles and an overall decline in the UK New car market of 6.8% (source: SMMT). The impairment test for the UK Retail
CGU group was updated and the review indicated that the value in use calculation was less than the carrying value of the
assets attributable to the UK Retail CGU group. Consequently, an impairment charge of £175m was recognised.
In 2019, the UK New car market declined by a further 2.4% (source: SMMT) broadly in line with previous forecasts. During the year,
the UK Retail business also made meaningful progress in reshaping its retail footprint through the selective sale of less productive
UK Retail sites. In light of the reduction in the UK Retail footprint, the Board has revisited its short and medium-term forecast for the
UK Retail CGU group and updated the value in use calculations. The key assumptions for these forecasts remain those relating to
volumes, gross margins, the level of working capital required to support trading and capital expenditure. Due to the uncertainty
regarding the terms of the UK/EU relationship after 31 December 2020, the forecasts assume that an orderly process for a trade
agreement will be agreed between the UK government and the EU.
146
146
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
11 Intangible assets continued
The results of the impairment review indicated that the value in use calculation now exceeded the carrying value of the assets
attributable to the UK Retail CGU group by c£70m.
The forecasts are however sensitive to changes in the key assumptions used. The table below shows the sensitivity of the value in
use calculations for the UK Retail CGU group 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
+/-£31m
+/-£29m
+/-£26m
-/+£16m
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 the UK Retail CGU group, a reasonably possible change in a key assumption will not cause a
material impairment of goodwill in any of the CGU groups.
Distribution agreements
Indefinite-life intangible assets, principally Distribution agreements acquired in a business combination are allocated to the CGUs or
CGU groups that are expected to benefit from the cash flows associated with the relevant agreements. These CGU groups
represent the lowest level within the Group at which the associated indefinite life intangible assets are monitored for management
purposes.
The carrying amount of indefinite-life intangible assets has been allocated to CGU groups within the following reporting segments:
Reporting segment
Discount
rate
Long-term
growth rate CGU group
UK and Europe Distribution
9.1%
2.0%
Emerging Markets Distribution
12.7%
to
18.2%
2.5%
BMW Baltics
Hino South America
Subaru South America
Daimler South America
Suzuki Central America
2019
£m
27.4
46.0
88.6
13.8
85.3
261.1
2018
£m
9.6
51.8
99.8
–
88.6
249.8
Distribution agreements with indefinite useful lives are subject to impairment testing annually, or more frequently where there
are indications that they may be impaired. Impairment tests were performed for all CGU groups during the year ended
31 December 2019.
The recoverable amounts of the Distribution agreements were determined based on value in use calculations. The value in use
calculations use cash flow projections based on five-year financial forecasts prepared by management. The key assumptions
for these forecasts are those relating to volumes, revenue, gross margins, overheads, the level of working capital required to
support trading and capital expenditure. The assumptions are based on past experience, recent trading and expectations of
future changes in the operation of the business and changes in the relevant markets including, where appropriate, the impact
of climate change. They also reflect expectations about continuing relationships with key brand partners. The forecast cash flows
do not include uncommitted restructuring or improvements and enhancements to existing assets.
Cash flows after the five-year period are extrapolated for each CGU group using declining growth rates which reduces the year five
growth rate down to the long-term growth rate for each CGU group of between 2.0% and 2.5%. 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 based
on a weighted average cost of capital adjusted for a risk premium attributable to the relevant country. The Group uses several
inputs to calculate a range for the weighted average cost of capital from which an absolute measure of the weighted average
cost of capital is determined on a prudent basis.
Sensitivities
The Group’s value in use calculations are sensitive to a change in the key assumptions used. However, a reasonably possible
change in a key assumption will not cause a material impairment of an indefinite life asset in any of the CGU groups.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 147
147
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
12 Property, plant and equipment
Cost
At 1 January 2018
Adjustment for IFRS 16
At 1 January 2018 (restated) 1
Businesses acquired
Businesses sold
Additions
Disposals
Reclassifications
Transferred to/from inventory
Retirement of fully depreciated assets not in use
Reclassified to assets held for sale (see note 20)
Effect of foreign exchange rate changes
At 1 January 2019 (restated) 1
Businesses acquired (see note 29)
Businesses sold (see note 29)
Additions
Disposals
Transferred to/from inventory
Other2
Reclassified to assets held for sale (see note 20)
Effect of foreign exchange rate changes
At 31 December 2019
Accumulated depreciation and impairment
At 1 January 2018
Adjustment for IFRS 16
At 1 January 2018 (restated)1
Businesses sold
Depreciation charge for the year
Disposals
Impairment charge for the year
Reclassifications
Transferred to/from inventory
Retirement of fully depreciated assets not in use
Effect of foreign exchange rate changes
At 1 January 2019 (restated) 1
Businesses sold
Depreciation charge for the year
Impairment charge for the year
Disposals
Transferred to/from inventory
Other2
Reclassified to assets held for sale (see note 20)
Effect of foreign exchange rate changes
At 31 December 2019
Net book value at 31 December 2019
Net book value at 31 December 2018 (restated)
Land and
buildings
£m
Plant,
machinery and
equipment
£m
Subtotal
£m
1,070.2
(2.2)
1,068.0
43.2
(6.9)
90.1
(34.6)
0.7
(1.4)
(2.1)
(4.9)
(6.9)
1,145.2
10.0
(82.9)
43.3
(26.4)
0.1
18.7
(58.5)
(21.2)
1,028.3
(328.4)
1.3
(327.1)
1.4
(43.9)
20.0
(23.2)
(0.4)
0.7
2.1
0.3
(370.1)
21.9
(42.6)
(4.8)
14.8
0.3
(18.7)
28.3
9.4
Interest
in leased
vehicles
£m
64.4
–
64.4
3.7
–
18.4
–
(0.7)
(23.4)
–
–
1.4
63.8
0.2
(8.7)
9.1
(0.1)
(23.0)
–
–
(1.9)
39.4
(17.8)
–
(17.8)
–
(7.2)
–
–
0.4
7.9
–
(0.5)
(17.2)
3.7
(6.9)
–
–
8.8
–
–
0.5
Total
£m
1,134.6
(2.2)
1,132.4
46.9
(6.9)
108.5
(34.6)
–
(24.8)
(2.1)
(4.9)
(5.5)
1,209.0
10.2
(91.6)
52.4
(26.5)
(22.9)
18.7
(58.5)
(23.1)
1,067.7
(346.2)
1.3
(344.9)
1.4
(51.1)
20.0
(23.2)
–
8.6
2.1
(0.2)
(387.3)
25.6
(49.5)
(4.8)
14.8
9.1
(18.7)
28.3
9.9
247.1
–
247.1
2.7
(1.2)
36.1
(17.9)
(6.5)
(1.4)
(1.8)
–
1.0
258.1
2.5
(10.4)
21.4
(12.4)
0.1
18.7
(5.0)
(7.9)
265.1
(159.3)
–
(159.3)
0.6
(24.0)
13.3
–
(0.4)
0.7
1.8
(0.5)
(167.8)
6.7
(24.5)
–
7.8
0.3
(18.7)
4.4
4.7
(187.1)
(361.5)
(11.1)
(372.6)
78.0
90.3
666.8
775.1
28.3
46.6
695.1
821.7
823.1
(2.2)
820.9
40.5
(5.7)
54.0
(16.7)
7.2
–
(0.3)
(4.9)
(7.9)
887.1
7.5
(72.5)
21.9
(14.0)
–
–
(53.5)
(13.3)
763.2
(169.1)
1.3
(167.8)
0.8
(19.9)
6.7
(23.2)
–
–
0.3
0.8
(202.3)
15.2
(18.1)
(4.8)
7.0
–
–
23.9
4.7
(174.4)
588.8
684.8
1. See note 33.
2. This represents a correction of a historic adjustment to cost and accumulated depreciation of acquired plant, machinery and equipment. It has no net impact on net book
value at any balance sheet date presented.
The asset impairments of £4.8m, which arose following an impairment review of certain site-based assets in the UK and Australia as a
result of the retail disposals in those markets (2018 – £23.2m in the UK and Europe), are included within exceptional items (see 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.
148
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
12 Property, plant and equipment continued
The book value of land and buildings is analysed between:
Freehold
Leasehold with over 50 years unexpired
Short leasehold
1. See note 33.
2019
£m
423.5
45.1
120.2
588.8
2018
(Restated)1
£m
484.0
47.4
153.4
684.8
Land and buildings include properties with a net book value of £9.7m (2018 – £12.3m) that are let to third parties on a
short-term basis.
As at 31 December 2019, £5.7m (2018 – £5.6m) of capitalised borrowing costs were included within ‘land and buildings’, £0.1m of
which was capitalised in 2019 (2018 – £0.5m).
13 Right-of-use assets and lease liabilities
a. Amounts recognised in the balance sheet
Cost
At 1 January 2018
Businesses acquired
Additions
Derecognition
Remeasurement
Effect of foreign exchange rate changes
At 1 January 2019
Businesses acquired (see note 29)
Businesses sold (see note 29)
Additions
Derecognition
Transferred to assets held for sale (see note 20)
Remeasurement
Effect of foreign exchange rate changes
At 31 December 2019
Accumulated depreciation and impairment
At 1 January 2018
Depreciation charge for the year
Impairment charge for the year
Derecognition
Effect of foreign exchange rate changes
At 1 January 2019
Businesses sold (see note 29)
Depreciation charge for the year
Derecognition
Impairment charge for the year
Transferred to assets held for sale (see note 20)
Effect of foreign exchange rate changes
At 31 December 2019
Net book value at 31 December 2019
Net book value at 31 December 2018
Land and
buildings
£m
585.0
12.1
78.3
(8.2)
14.2
(2.5)
678.9
11.7
(48.3)
25.8
(48.1)
(42.6)
8.8
(20.2)
566.0
(194.5)
(65.7)
(14.2)
8.2
0.4
(265.8)
12.0
(64.9)
44.4
(8.7)
19.4
9.0
(254.6)
311.4
413.1
Other
£m
4.1
–
1.1
(0.5)
–
(0.1)
4.6
–
–
0.5
–
–
0.6
(0.2)
5.5
(1.4)
(1.2)
–
0.1
–
(2.5)
–
(1.4)
0.1
–
–
0.2
(3.6)
1.9
2.1
Total
£m
589.1
12.1
79.4
(8.7)
14.2
(2.6)
683.5
11.7
(48.3)
26.3
(48.1)
(42.6)
9.4
(20.4)
571.5
(195.9)
(66.9)
(14.2)
8.3
0.4
(268.3)
12.0
(66.3)
44.5
(8.7)
19.4
9.2
(258.2)
313.3
415.2
The asset impairments of £8.7m, which arose following an impairment review of certain site-based assets in Australia, as a result of
the retail disposals in the market, are included within exceptional items (2018 – £14.2m in the UK and Australia, of which £12.9m are
included within exceptional items) (see note 2).
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 149
149
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
13 Right-of-use assets and lease liabilities continued
Lease liabilities
Current
Non-current
At 31 December
2019
£m
20181
£m
56.8
296.0
352.8
66.3
394.1
460.4
1. In the previous year, the Group only recognised lease assets and lease liabilities in relation to leases that were classified as ‘finance leases’ under IAS 17 Leases. The assets
were presented in property, plant and equipment and the liabilities as part of the Group’s borrowings. For adjustments recognised on adoption of IFRS 16, please see note 33.
b. The Group’s leasing activities and how these are accounted for
The Group leases various retail and other locations, primarily in the UK, Australia, Hong Kong, South America and Russia. Rental
contracts are typically made for fixed periods of 2 to 25 years but may have extension options as described below. Lease terms are
negotiated on an individual basis and contain a wide range of different terms and conditions.
Lease liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of
the following lease payments:
– fixed payments (including in-substance fixed payments), less any lease incentives receivable;
– variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the
commencement date;
– amounts expected to be payable by the Group under residual value guarantees;
– the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
– payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is
generally the case for leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the individual lessee
would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic
environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group:
– uses a build-up approach that starts with a risk-free interest rate by market and currency;
– applies a credit risk, based on yields of comparable entities, to the determined risk-free interest rate by market; and
– where applicable, makes adjustments specific to the lease, e.g. term, country, currency and security.
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability
is reassessed and adjusted against the right-of-use asset.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease
period to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are recognised at the commencement date of the lease. Right-of-use assets comprising mainly land and
buildings are measured at cost less accumulated depreciation and impairment losses. The costs include the amount of the initial
measurement of the lease liability, any lease payments made at or before the commencement date less lease incentives received,
any direct costs and an estimate of dismantling costs. The carrying amount is further adjusted for any remeasurement of the lease
liability. Depreciation is expensed to the income statement on a straight-line basis over the lease term. The lease term includes the
noncancellable period of lease together with any extension or termination options that are reasonably certain to be exercised.
Payments associated with short-term leases and all leases of low-value assets are recognised on a straight-line basis as an expense
in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise largely of small items
of office equipment.
150
150
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
14 Investments in joint ventures and associates
Details of the interests held by the Group in joint ventures and associates can be found in note 16 to the Inchcape Plc Company
financial statements on pages 188 to 196.
Amounts recognised in the statement of financial position in respect of joint ventures and associates are as follows:
At 1 January
Share of profit after tax of joint ventures and associates
Disposals
Effect of foreign exchange rate changes
At 31 December
Net assets of joint ventures and associates
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Results of joint ventures and associates
Revenue
Other income
Profit before tax
Tax
Profit after tax of joint ventures and associates
Summarised financial information of joint ventures and associates
Opening net assets at 1 January
Profit for the year
Disposals
Other comprehensive income for the year
Closing net assets at 31 December
Carrying value of interest in joint ventures and associates
2019
£m
4.3
0.3
(0.1)
(0.2)
4.3
2019
£m
9.1
9.1
(0.4)
(0.4)
8.7
2019
£m
–
0.6
0.6
–
0.6
2019
£m
8.6
0.6
(0.2)
(0.3)
8.7
4.3
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
2018
£m
8.4
0.2
–
–
8.6
4.3
As at 31 December 2019, no guarantees were provided in respect of joint ventures and associates’ borrowings (2018 – £nil).
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 151
151
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
15 Financial assets at fair value through other comprehensive income
At 1 January
Additions
Disposals
Effect of foreign exchange rate changes
At 31 December
Analysed as:
Current
Non-current
Assets held are analysed as follows:
Equity securities
Other
2019
£m
7.4
–
–
(0.3)
7.1
2019
£m
0.2
6.9
7.1
2019
£m
6.9
0.2
7.1
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
‘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.
152
152
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
16 Trade and other receivables
Trade receivables
Less: provision for impairment of trade receivables
Net trade receivables
Prepayments and accrued income2
Other receivables
1. See note 33.
2. The balance of accrued income at 31 December 2019 is £62.1m (2018 – £58.3m).
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
2018
(Restated)1
£m
337.4
(11.4)
326.0
124.2
62.4
512.6
2019
£m
329.0
(8.7)
320.3
117.9
74.1
512.3
Non-current
2018
(Restated) 1
£m
10.0
–
10.0
22.1
20.3
52.4
2018
£m
(10.2)
(1.7)
(1.3)
1.2
0.7
(0.1)
(11.4)
2019
£m
12.6
–
12.6
7.1
19.0
38.7
2019
£m
(11.4)
–
(2.0)
1.1
3.6
–
(8.7)
2019
2018
Neither past
due nor
impaired
£m
228.2
252.4
Total
£m
341.6
347.4
Past due but not impaired
0 – 30 days
£m
30 – 90 days
£m
> 90 days
£m
Impaired
£m
53.9
47.0
24.7
21.9
26.1
14.7
8.7
11.4
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.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 153
153
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
17 Deferred tax
Net deferred tax (liability) / asset
At 1 January 2019
Adjustment for IFRS 16
At 1 January 2019 (restated)1
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 2019
Analysed as:
Deferred tax assets
Deferred tax liabilities
1. See note 33.
Pension and
other post-
retirement
benefits
£m
Cash flow
hedges
£m
Share-based
payments
£m
Tax
losses
£m
Accelerated
tax
depreciation
£m
Provisions and
other timing
differences
£m
Distribution
agreements
£m
IFRS 16
£m
Total
£m
(14.4)
–
(14.4)
–
10.1
(0.1)
0.2
(4.2)
(3.4)
–
(3.4)
0.1
7.0
–
(0.2)
3.5
2.0
–
2.0
11.1
–
11.1
(4.8)
–
(4.8)
12.7
–
12.7
(73.1)
–
(69.9)
–
10.9
10.9
(73.1) 10.9 (59.0)
(0.4)
8.0
0.6
(2.3)
–
1.4
7.4
0.7
–
–
2.3
–
(0.2)
(0.6)
18.3
–
(0.5)
(0.3)
(5.0)
–
(0.5)
(1.0)
8.9
–
–
(6.4) (1.1)
17.8
(8.8)
6.5
4.2
(0.4)
(73.0) 10.8 (38.4)
2019
£m
58.3
(96.7)
(38.4)
2018
(Restated)1
£m
33.3
(92.3)
(59.0)
Measured at relevant local statutory rates, the Group has an unrecognised deferred tax asset of £22m (2018 – £29m) relating to tax
relief on trading losses. The unrecognised asset represents £108m (2018 – £140m) 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 £25m (2018 – £23m) relating to capital losses. The asset represents £147m
(2018 – £136m) of losses at the UK standard rate of 17.0% (2018 – 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 £2.0m
(2018 – £2.5m) 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 £11.4m (2018 – £12.5m) offset by deferred tax assets on trade related accounting provisions in the Group’s
operating companies £20.3m (2018 – £25.2m).
The deferred tax liability on distribution agreements of £73.0m (2018 – £73.1m) has been recorded as a result of the business
acquisitions during 2016, 2018 and 2019.
The deferred tax asset on tax trading losses of £18.3m (2018 – £11.1m) relates to territories and entities where future taxable profits
are considered probable.
154
154
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
18 Inventories
Raw materials and work in progress
Finished goods and merchandise
2019
£m
33.2
1,533.7
1,566.9
2018
£m
31.0
1,820.9
1,851.9
Vehicles held on consignment which are in substance assets of the Group amount to £167.2m (2018 – £205.6m). 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 £44.8m (2018 – £49.9m) 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 £7,504.9m (2018 – £7,466.7m). The write-down of inventory to net realisable value recognised
as an expense during the year was £22.2m (2018 – £57.9m). All of these items have been included within ‘cost of sales’ in the
consolidated income statement.
19 Cash and cash equivalents
Cash at bank and cash equivalents
Short-term deposits
2019
£m
321.5
101.5
423.0
2018
£m
370.3
219.0
589.3
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 2019, the weighted average
floating rate was 0.42% (2018 – 0.45%).
£88.0m (2018 – £100.1m) of cash and cash equivalents is held in Ethiopia where prior approval is required to transfer funds abroad,
and currency may not be available locally to effect such transfers.
At 31 December 2019, short-term deposits have a weighted average period to maturity of 25 days (2018 – 20 days).
20 Assets and liabilities held for sale and disposal group
Assets held for sale
Assets directly associated with the disposal group
Assets classified as held for sale and disposal group
Liabilities directly associated with the disposal group
The assets and liabilities in the disposal group comprise the following:
Goodwill
Property, plant and equipment
Right-of-use assets
Inventories
Assets directly associated with the disposal group
Trade and other payables
Lease liabilities
Liabilities directly associated with the disposal group
2019
£m
5.1
144.3
149.4
(106.1)
2019
£m
7.6
30.2
22.9
83.6
144.3
(76.4)
(29.7)
(106.1)
2018
£m
8.9
–
8.9
–
2018
£m
–
–
–
–
–
–
–
–
Assets held for sale relate to surplus properties within the UK, Russia and Colombia which are actively marketed with a view to sale.
The disposal groups relate to the assets and liabilities attributable to retail centres in the UK and Australia and are stated net of an
impairment charge of £2.8m which has been reported as an exceptional charge in the income statement following the subsequent
write-down of disposal groups to fair value less costs to sell.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 155
155
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
21 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
1. See note 33.
Current
2018
(Restated)1
£m
225.0
87.7
1,621.6
62.7
339.9
0.1
19.6
2,356.6
2019
£m
241.2
60.3
1,367.9
48.3
252.3
–
26.4
1,996.4
Non-current
2019
£m
–
4.3
–
–
70.3
–
2.6
77.2
2018
£m
3.5
3.7
–
–
58.0
–
2.1
67.3
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 2019, amounts outstanding
under vehicle funding facilities and on which interest was payable were subject to a weighted average interest rate of 1.5%
(2018 – 2.5%).
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
2019
£m
36.6
38.1
44.7
119.4
2019
£m
58.6
60.8
119.4
2018
£m
42.0
34.0
45.7
121.7
2018
£m
63.7
58.0
121.7
Revenue recognised in 2019 that was included in deferred revenue at the beginning of the year was £65.3m (2018 – £34.7m).
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. roadside 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.
156
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Inchcape plc Annual Report and Accounts 2019
22 Provisions
At 1 January 2019
Adjustment for IFRS 16
At 1 January 2019 (restated) 1
Businesses acquired
Business sold
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 2019
Analysed as:
Current
Non-current
1. See note 33.
Product
warranty
£m
Leasehold
£m
Litigation
£m
9.0
–
9.0
–
–
4.5
(1.5)
0.1
(1.1)
(0.4)
10.6
0.7
1.0
1.7
–
–
0.3
(0.1)
–
(1.1)
(0.3)
0.5
1.5
–
1.5
0.5
–
0.6
(0.5)
–
(0.2)
(0.2)
1.7
Other
£m
21.8
0.6
22.4
3.8
(2.0)
5.0
(1.7)
0.1
(3.4)
(1.1)
23.1
Total
£m
33.0
1.6
34.6
4.3
(2.0)
10.4
(3.8)
0.2
(5.8)
(2.0)
35.9
2019
£m
23.0
12.9
35.9
2018
(Restated) 1
£m
20.3
14.3
34.6
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 five 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.
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, excluding the lease
liability recognised under IFRS 16. This includes taking into account existing subtenant arrangements. The category also includes
the future obligation relating to the maintenance of premises. 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 uncertain non-income taxes recognised on acquisition of a business,
residual values on leased vehicles and provisions relating to restructuring activities. These provisions are expected to be utilised
within three years.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 157
157
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
2019
Total
£m
43.8
6.3
50.1
60.0
210.0
270.0
320.1
2018
Total
£m
125.9
163.6
127.4
0.1
417.0
Notes to the financial statements continued
23 Borrowings
2019
Current
Bank overdrafts
Bank loans
Non-current
Bank loans
Private Placement
Total borrowings
Floating rate
Weighted
average
effective
interest rate
%
0.8
1.0
0.8
1.1
–
1.1
1.0
£m
43.8
6.3
50.1
60.0
–
60.0
110.1
Fixed rate
Weighted
average
effective
interest rate
%
Total interest
bearing
£m
On which
no interest
is paid
£m
–
–
–
–
3.0
3.0
3.0
43.8
6.3
50.1
60.0
210.0
270.0
320.1
–
–
–
–
–
–
–
£m
–
–
–
–
210.0
210.0
210.0
Bank overdrafts include £43.8m (2018 – £125.9m) held in cash pooling arrangements which have not been offset in the
consolidated statement of financial position (see note 24b).
2018 (Restated)1
Current
Bank overdrafts
Bank loans
Private Placement
Other loans
Non-current
Private Placement
Total borrowings
1. See note 33.
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
–
–
–
–
–
210.0
210.0
Fixed rate
Weighted
average
effective
interest rate
%
Total interest
bearing
£m
On which
no interest
is paid
£m
–
–
–
–
–
3.0
3.0
125.9
163.6
127.4
–
416.9
–
–
–
0.1
0.1
210.0
–
210.0
626.9
0.1
627.0
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 £212.1m (2018 – £208.6m)
calculated from discounted cash flow 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.
£nil of the Group’s bank loans are secured by term deposits placed under a standby letter of credit and related facility
arrangements (2018 – £38.2m). The Group’s bank overdrafts are secured by related offsetting cash balances held under pooling
arrangements. The Group’s remaining borrowings are unsecured.
In February 2019, the Group entered into a syndicated revolving credit facility of £700m with an initial expiry date of February 2024
and options to renew until 2026. This facility replaced the Group’s existing syndicated revolving credit facility agreement for £400m
and existing bilateral facility agreements of £221m.
At 31 December 2019, the committed funding facilities of the Group comprised a syndicated revolving credit facility of £700m
(2018 – £400m), bilateral revolving credit facilities of £nil (2018 – £221m), US dollar Private Placement loan notes totalling US$nil (2018
– US$161m) and sterling Private Placement loan notes totalling £210m (2018 – £210m).
At 31 December 2019, £60m of the £700m was drawn down (2018 – £nil).
158
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Inchcape plc Annual Report and Accounts 2019
23 Borrowings continued
In December 2016, the Group concluded a Private Placement transaction raising £210m to refinance existing US dollar 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 were repaid in May 2019.
The table below sets out the maturity profile of the Group’s existing borrowings that are exposed to interest rate risk. The analysis for
2018 is presented after taking account of the cross currency fixed to floating interest rate swap on US$161m of Private Placement
loan notes.
2019
Fixed rate
Private Placement
Floating rate
Bank overdrafts
Bank loans
2018 (Restated)1
Fixed rate
Private Placement
Floating rate
Bank overdrafts
Bank loans
Private Placement
1. See note 33.
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
–
43.8
6.3
–
–
–
–
–
–
–
–
–
70.0
140.0
210.0
–
60.0
–
–
43.8
66.3
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
–
125.9
163.6
127.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
210.0
210.0
–
–
–
125.9
163.6
127.4
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 159
159
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
24 Financial instruments
The Group’s financial liabilities, other than derivatives, comprise overdrafts, loan notes, trade and other payables and lease
liabilities. 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 include 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
Measured at
amortised
cost
£m
Measured at
fair value
through other
comprehensive
income
£m
Measured at
fair value
through profit
or loss
£m
–
490.2
–
423.0
913.2
(1,885.4)
–
(352.8)
(320.1)
(2,558.3)
(1,645.1)
7.1
–
0.9
–
8.0
–
(3.3)
–
–
(3.3)
4.7
–
409.8
–
589.3
999.1
(2,225.7)
–
(460.4)
(627.0)
(3,313.1)
(2,314.0)
7.4
–
16.8
–
24.2
–
(1.2)
–
–
(1.2)
23.0
Total
£m
7.1
490.2
16.2
423.0
936.5
–
–
15.3
–
15.3
–
(24.1)
–
–
(24.1)
(1,885.4)
(27.4)
(352.8)
(320.1)
(2,585.7)
(8.8)
(1,649.2)
Total
£m
7.4
409.8
92.1
589.3
1,098.6
–
–
75.3
–
75.3
–
(12.1)
–
–
(12.1)
(2,225.7)
(13.3)
(460.4)
(627.0)
(3,326.4)
63.2
(2,227.8)
Measured at
amortised
cost
£m
Measured at
fair value
through other
comprehensive
income
£m
Measured at
fair value
through profit
or loss
£m
2019
Financial assets
Financial assets at fair value through other comprehensive income
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total financial assets
Financial liabilities
Trade and other payables
Derivative financial instruments
Lease liabilities
Borrowings
Total financial liabilities
2018 (Restated)1
Financial assets
Financial assets at fair value through other comprehensive income
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total financial assets
Financial liabilities
Trade and other payables
Derivative financial instruments
Lease liabilities
Borrowings
Total financial liabilities
1. See note 33.
160
160
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
24 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 assets
£m
Gross amounts of
financial liabilities set
off in the statement of
financial position
£m
Net amounts
of financial assets
presented in the
statement of
financial position
£m
Related amounts not set off
in the statement of
financial position
Financial
instruments
£m
Cash
collateral
received
£m
16.2
423.0
439.2
98.4
589.3
687.7
–
–
–
(6.3)
–
(6.3)
16.2
423.0
439.2
92.1
589.3
681.4
(8.3)
(43.8)
(52.1)
(11.9)
(125.9)
(137.8)
–
–
–
–
–
–
As at 31 December 2019
Derivative financial assets
Cash and cash equivalents
Total
As at 31 December 2018
Derivative financial assets
Cash and cash equivalents
Total
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
£m
Net amounts
of financial liabilities
presented in the
statement of
financial position
£m
Gross amounts of
financial liabilities
£m
Related amounts not set
off in the statement of
financial position
Financial
instruments
£m
Cash
collateral
paid
£m
(27.4)
(43.8)
(71.2)
(19.6)
(125.9)
(145.5)
–
–
–
6.3
–
6.3
(27.4)
(43.8)
(71.2)
(13.3)
(125.9)
(139.2)
8.3
43.8
52.1
11.9
125.9
137.8
–
–
–
–
–
–
As at 31 December 2019
Derivative financial liabilities
Bank overdrafts
Total
As at 31 December 2018
Derivative financial liabilities
Bank overdrafts
Total
Net
amount
£m
7.9
379.2
387.1
80.2
463.4
543.6
Net
amount
£m
(19.1)
–
(19.1)
(1.4)
–
(1.4)
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 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.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 161
161
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
24 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 expired in 2019, bank borrowings, supplier-related finance and the returns available on surplus cash.
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 2019 with all other variables held constant.
2019
Sterling
Euro
Russian rouble
Australian dollar
US dollar
2018
Sterling
Euro
Russian rouble
Australian dollar
US dollar
Increase
in basis
points
Effect on
profit before
tax
£m
75
50
500
100
75
75
50
500
100
75
(10.6)
0.3
0.7
3.1
0.4
(9.6)
0.1
0.4
1.2
0.9
162
162
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
24 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
In 2018, the Group used cross currency interest rate swaps to hedge the forward foreign currency risk associated with the US$161m
Private Placement loan notes. The effective portion on the gain or loss of the hedge was recognised in the consolidated income
statement at the same time as the underlying hedged transaction affects the consolidated income statement. The US$ Private
Placement loan notes were fully repaid in 2019.
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.
2019
Yen
Yen
2018
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.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 163
163
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
24 Financial instruments continued
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
BBB-
No rating*
Derivative
assets
£m
0.5
1.5
9.3
1.6
0.1
–
0.1
3.1
16.2
2019
Short-term
deposits
£m
1.0
–
2.0
1.0
1.0
22.0
–
74.5
101.5
2018
Derivative
assets
£m
Short-term
deposits
£m
43.4
32.5
–
12.0
0.9
–
0.1
3.2
92.1
–
68.1
–
32.0
0.7
–
19.9
98.3
219.0
* Counterparties in certain markets in which the Group operates do not have a credit rating.
No credit limits were exceeded during the reporting period and management does not expect any losses from non-performance
by these counterparties.
The maximum exposure to credit risk for cash at bank, receivables and other financial assets is represented by their carrying amount.
Total cash at bank of £321.5m (2018 – £370.3m) 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.
164
164
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Inchcape plc Annual Report and Accounts 2019
24 Financial instruments continued
g. Liquidity risk
Prudent liquidity risk management includes 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 2019 based on
contractual expected undiscounted cash flows:
2019
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial assets at fair value through other comprehensive income
Derivative financial instruments
Financial liabilities
Interest bearing loans and borrowings
Lease liabilities
Trade and other payables
Derivative financial instruments
Net outflows
2018 (Restated)1
Financial assets
Cash and cash equivalents
Trade and other receivables
Financial assets at fair value through other comprehensive income
Derivative financial instruments
Financial liabilities
Interest bearing loans and borrowings
Lease liabilities
Trade and other payables
Derivative financial instruments
Net outflows
1. See note 33.
Less than
3 months
£m
Between
3 to 12
months
£m
Between
1 to 5 years
£m
Greater than
5 years
£m
414.3
387.1
0.2
10.6
812.2
(44.0)
(21.4)
(1,619.6)
(18.7)
(1,703.7)
(891.5)
Less than
3 months
£m
573.7
356.3
0.2
24.7
954.9
(164.6)
(21.6)
(1,913.6)
(13.4)
(2,113.2)
(1,158.3)
8.7
59.9
–
5.6
74.2
(6.8)
(60.1)
(251.4)
(8.7)
(327.0)
(252.8)
Between
3 to 12
months
£m
15.6
31.4
–
141.8
188.8
(253.5)
(61.8)
(299.2)
(76.4)
(690.9)
(502.1)
Total
£m
423.0
493.3
7.1
16.2
939.6
–
33.3
–
–
33.3
–
13.0
6.9
–
19.9
(156.9)
(235.8)
(14.4)
–
(407.1)
(373.8)
(150.4)
(251.9)
–
–
(402.3)
(382.4)
(358.1)
(569.2)
(1,885.4)
(27.4)
(2,840.1)
(1,900.5)
Between
1 to 5 years
£m
Greater than
5 years
£m
Total
£m
589.3
415.6
7.4
166.5
1,178.8
–
12.2
–
–
12.2
(228.6)
(292.5)
–
–
(521.1)
(508.9)
(672.0)
(618.8)
(2,225.7)
(89.8)
(3,606.3)
(2,427.5)
–
15.7
7.2
–
22.9
(25.3)
(242.9)
(12.9)
–
(281.1)
(258.2)
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 165
165
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
24 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
Financial assets at fair value through other
comprehensive income
Liabilities
Derivatives used for hedging
Level 1
£m
Level 2
£m
Level 3
£m
2019
Total
£m
Level 1
£m
Level 2
£m
Level 3
£m
2018
Total
£m
–
16.2
–
16.2
–
92.1
–
92.1
0.5
0.5
–
16.2
6.6
6.6
7.1
23.3
0.5
0.5
–
92.1
6.9
6.9
7.4
99.5
–
(27.4)
–
(27.4)
–
(13.3)
–
(13.3)
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 2019.
The Group’s derivative financial instruments comprise the following:
Cross currency interest rate swaps
Forward foreign exchange contracts
2019
£m
–
16.2
16.2
Assets
2018
£m
52.2
39.9
92.1
2019
£m
–
(27.4)
(27.4)
Liabilities
2018
£m
–
(13.3)
(13.3)
The ineffective portion recognised in the consolidated income statement that arises from fair value hedges amounts to a loss of
£0.1m (2018 – loss of £0.6m). The ineffective portion recognised in the consolidated income statement that arises from cash flow
hedges amounts to a gain of £nil (2018 – £nil).
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
(2018 – 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 2019 was £804.5m (2018 – £810.5m).
Net fair value gains and losses recognised in the hedging reserve in shareholders’ equity (see note 26) on forward foreign
exchange contracts as at 31 December 2019 are expected to be released to the consolidated income statement within 12 months
of the end of the reporting period (2018 – 12 months).
Fair value hedge
At 31 December 2018, the Group had in place three cross currency interest rate swaps. Two of these totalled US$200m which
hedged changes in the fair value of the Group’s 12-year loan notes that matured in May 2019. Under these swaps the Group
received fixed rate US dollar interest of 6.04% on US$200m and paid 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 paid US dollar interest of 6.04% on US$39.2m and received LIBOR +214bps. The loan notes and cross currency interest rate
swaps had the same critical terms and all matured in May 2019.
166
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
24 Financial instruments continued
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
1. See note 33.
2019
22.2%
2018
(Restated)1
22.2%
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. The leverage tests are measured excluding the impact of IFRS 16.
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.
2019
133.3
n/a
n/a
2018
62.0
n/a
n/a
*** Calculated as net debt / market capitalisation as at 31 December.
25 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
2019
Number
2018
Number
415,127,453 415,018,286
75,353
109,167
(16,070,070)
–
399,132,736 415,127,453
2019
£m
41.6
–
(1.6)
40.0
2018
£m
41.6
–
–
41.6
b. Share buyback programme
During the year, the Group repurchased 16,070,070 of its own shares through purchases on the London Stock Exchange at a cost
of £98.5m (2018 – £nil). The shares repurchased during the year were cancelled, with none held within treasury shares at the end of
the reporting period. An amount of £1.6m, equivalent to the nominal value of the cancelled shares, was transferred to the capital
redemption reserve. Costs of £1.5m (2018 – £nil) associated with the transfer to the Group of the repurchased shares and their
subsequent cancellation were charged to the profit and loss reserve. In 2018, there were no repurchases of own shares.
c. Substantial shareholdings
Details of substantial interests in the Company’s issued ordinary share capital received by the Company at 26 February 2020 under
the provisions of the Companies Act 2006 have been disclosed in the significant shareholdings section of the Corporate
Governance Report.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 167
167
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
25 Share capital continued
d. Share options
At 31 December 2019, 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
7 April 2020
– unapproved (Part I – UK)
1,612
– unapproved overseas (Part I – Overseas)
1,612
7 April 2020
7 April 2020
The Inchcape SAYE Share Option Scheme
– approved
84,162
237,810
702,425
1,344,510
1 May 2020
1 May 2021
1 May 2022
1 May 2023
5.63
6.66
5.54
4.59
3.10
3.10
3.10
Included within the retained earnings reserve are 861,589 (2018 – 771,211) 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 2019 was £5.5m (2018 – £5.1m). The market value of these shares
at 31 December 2019 and 26 February 2020 was £6.1m and £5.1m respectively (31 December 2018 – £4.3m, 27 February
2019 – £4.6m).
26 Other reserves
At 1 January 2018
Cash flow hedges:
– Fair value movements
– Reclassified and reported in inventories
– Tax on cash flow hedges
Other currency translation differences
At 1 January 2019
Cash flow hedges:
– Fair value movements
– Reclassified and reported in inventories
– Tax on cash flow hedges
Other currency translation differences
At 31 December 2019
1. See note 33.
Translation
reserve
(Restated)1
£m
Hedging
reserve
£m
Total other
reserves
(Restated)1
£m
(67.1)
(16.5)
(83.6)
–
–
–
(10.0)
(77.1)
–
–
–
(97.1)
(174.2)
38.7
(15.3)
(5.7)
–
1.2
(41.0)
16.4
7.2
–
(16.2)
38.7
(15.3)
(5.7)
(10.0)
(75.9)
(41.0)
16.4
7.2
(97.1)
(190.4)
The effect of foreign exchange rate changes includes a gain of £2.7m (2018 – gain of £2.8m) 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.
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.
168
168
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
27 Retained earnings
At 1 January (restated)1
Adjustment for IFRIC 232
Total comprehensive income attributable to owners of the parent for the year:
– Profit for the year
– Actuarial (losses) / gains on defined pension benefits (see 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 (see note 10)
At 31 December
1. See note 33.
2. See accounting policies for further details.
28 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 of intangible assets
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Impairment of right-of-use assets (non-exceptional)
Profit on disposal of property, plant and equipment
Gain on disposal of right-of-use assets
Share-based payments charge
Decrease / (increase) in inventories
Increase in trade and other receivables
(Decrease) / increase in trade and other payables
Increase in provisions
Pension contributions less than the pension charge for the year2
Decrease in interest in leased vehicles
Payments in respect of operating exceptional items
Other non-cash items
Cash generated from operations
1. See note 33.
2. Includes additional payments of £2.8m (2018 – £2.7m) and a return of surplus of £nil (2018 – £16.8m).
2019
£m
1,087.0
6.1
322.9
(71.7)
10.1
261.3
6.8
(100.0)
(9.3)
(110.5)
1,141.4
2018
(Restated)1
£m
1,145.0
–
32.4
36.4
(6.2)
62.6
7.2
–
(12.6)
(115.2)
1,087.0
2019
£m
2018
(Restated)1
£m
448.6
(75.5)
16.0
42.6
66.3
–
(4.4)
(0.1)
6.1
94.8
(29.4)
(121.5)
1.7
2.3
7.3
(10.5)
1.6
445.9
174.9
223.7
14.2
43.9
66.9
1.3
(2.1)
–
7.5
(41.5)
(15.4)
94.6
1.0
21.3
2.9
(10.1)
(1.3)
581.8
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 169
169
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
28 Notes to the consolidated statement of cash flows continued
b. Net debt reconciliation
Net debt at 1 January 2018 (restated)1
Cash flows
Acquisitions
Disposals
New lease liabilities
Foreign exchange adjustments
Net movement in fair value
Net debt at 1 January 2019 (restated)1
Cash flows
Acquisitions
Disposals
New lease liabilities
Transferred to liabilities held for sale
Foreign exchange adjustments
Net movement in fair value
Net debt at 31 December 2019
1. See note 33.
Net debt is analysed as follows:
Liabilities from financing activities
Assets
Borrowings
£m
(333.3)
(35.6)
(61.2)
–
–
(4.3)
(14.5)
(448.9)
197.4
(22.9)
–
–
–
(1.8)
(0.1)
(276.3)
Leases
£m
(422.3)
64.0
(12.1)
–
(93.5)
3.5
–
(460.4)
65.7
(12.5)
41.8
(30.2)
30.1
12.7
–
(352.8)
Sub-total
£m
Cash / bank
overdrafts
£m
(755.6)
28.4
(73.3)
–
(93.5)
(0.8)
(14.5)
(909.3)
263.1
(35.4)
41.8
(30.2)
30.1
10.9
(0.1)
(629.1)
416.6
176.5
(152.7)
13.4
–
9.6
–
463.4
(214.0)
(41.2)
230.4
–
–
(59.4)
–
379.2
Total
net debt
£m
(339.0)
204.9
(226.0)
13.4
(93.5)
8.8
(14.5)
(445.9)
49.1
(76.6)
272.2
(30.2)
30.1
(48.5)
(0.1)
(249.9)
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
Lease liabilities
Fair value of cross currency interest rate swaps
Debt financing
Net debt
1. See note 33.
2019
£m
423.0
(50.1)
6.3
379.2
(6.3)
(270.0)
(352.8)
–
(629.1)
(249.9)
2018
(Restated)1
£m
589.3
(417.0)
291.1
463.4
(291.1)
(210.0)
(460.4)
52.2
(909.3)
(445.9)
170
170
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
29 Acquisitions and disposals
a. Acquisitions
On 31 January 2019, the Group acquired the full share capital of Krasta Auto in Lithuania, an authorised dealer of BMW Group,
from Modus Group for a total cash consideration of £16.3m (net of cash acquired). The business was acquired to strengthen the
Group’s partnership with BMW in Northern Europe. A Distribution agreement with a fair value of £19.0m has been recognised at the
date of acquisition. The goodwill arising on the acquisition represents intangible assets that do not qualify for separate recognition
and the premium paid to complete the Group’s consolidation of BMW’s representation across the Baltic region. None of the
goodwill is expected to be deductible for tax purposes.
On 2 December 2019, the Group acquired the full share capital of Autolider, a distributor of Mercedes-Benz passenger and
commercial vehicles in both Uruguay and Ecuador, for cash consideration of £24.9m (net of cash acquired) and contingent
consideration with a fair value of £3.9m. A Distribution agreement with a provisional fair value of £14.2m has been recognised
at the date of acquisition. This business builds further on the Group’s presence in Latin America, adding two new markets, and is
consistent with the focus on core Distribution capabilities. The goodwill arising on the acquisition represents intangible assets that
do not qualify for separate recognition and the Group strengthening its Latin American platform. None of the goodwill is expected
to be deductible for tax purposes.
Krasta Auto
£m
Autolider1
£m
Total
£m
Assets and liabilities acquired
Intangible assets
Distribution agreements recognised on acquisition (see note 11)
Property, plant and equipment
Right-of-use assets
Tax assets
Inventory
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Lease liabilities
Provisions
Borrowings
Tax liabilities
Net identifiable assets
Goodwill
Net assets acquired
Consideration comprises
Cash consideration
Contingent consideration
Total consideration
1. The fair values of acquired assets and liabilities are provisional.
Income statement items
Revenue recognised since the acquisition date in the consolidated income statement
Profit after tax since the acquisition date in the consolidated income statement
–
19.0
0.3
6.9
0.3
8.2
5.9
1.1
(10.4)
(7.7)
(1.7)
(7.0)
(3.6)
11.3
6.1
17.4
17.4
–
17.4
0.3
14.2
9.9
4.8
1.2
27.4
18.7
1.1
(24.7)
(4.8)
(2.6)
(15.9)
(3.7)
25.9
4.0
29.9
26.0
3.9
29.9
0.3
33.2
10.2
11.7
1.5
35.6
24.6
2.2
(35.1)
(12.5)
(4.3)
(22.9)
(7.3)
37.2
10.1
47.3
43.4
3.9
47.3
Total
£m
55.9
0.9
If the acquisitions had occurred on 1 January 2019, the Group’s approximate revenue and operating profit before exceptional items for the year ended 31 December 2019 would
have been £9,469.5m and £376.9m respectively.
Cash outflow to acquire businesses, net of cash and overdrafts acquired
Cash consideration
Less: Cash acquired
Net cash outflow
2019
£m
43.4
(2.2)
41.2
2018
£m
161.2
(8.5)
152.7
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 171
171
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
29 Acquisitions and disposals continued
b. Disposals
Assets and liabilities disposed of
Goodwill
Intangible assets
Property, plant and equipment
Right-of-use assets
Tax assets
Inventory
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Provisions
Lease liabilities
Net assets disposed of
Consideration received and receivable
Disposal costs incurred
Gain on disposal before reclassification of foreign currency translation reserve
Recycling of foreign currency translation reserve
Gain on disposal
Australia
Retail
£m
UK Retail
£m
Inchcape
Fleet
Solutions
£m
China
£m
Total
£m
29.0
–
33.2
1.5
0.4
41.6
–
–
(37.1)
–
(1.5)
67.1
72.0
(1.4)
3.5
–
3.5
5.1
–
14.8
20.7
–
17.3
–
–
(14.9)
–
(22.2)
20.8
24.6
(3.6)
0.2
–
0.2
–
0.3
5.1
–
0.8
19.8
30.6
5.8
–
0.1
12.9
14.1
1.3
15.6
15.4
32.9
(43.2) (10.7)
–
(18.1)
63.5
91.9
(6.9)
(2.0)
–
17.2
100.0
(1.9)
80.9
–
80.9
21.5
2.7
24.2
34.1
0.4
66.0
36.3
2.5
94.3
46.0
38.7
(105.9)
(2.0)
(41.8)
168.6
288.5
(13.8)
106.1
2.7
108.8
Consistent with our focus on optimal deployment of our capital and maximising returns, the Group agreed the sale of a number of underperforming sites within our Australian
retail business. Three retail sites in Australia were sold in December 2019 following on from the sale of three further sites completed in June and August 2019.
In the UK, the Group has optimised its portfolio of retail centres in regions where the Group has a less concentrated presence and is
less able to leverage costs efficiently. As a result, seven Volkswagen and Audi sites in the UK were sold in July 2019.
On 12 December 2019, the Group sold its three retail sites in China to Yongda Automobiles Services Holdings Limited for total
proceeds of £91.9m, out of which £8.1m is deferred for payment over 12 months.
On 31 December 2019, the Inchcape Fleet Solutions business was sold for cash proceeds of £100m to Toyota Fleet Mobility GmbH.
None of these disposals are material enough to be shown as discontinued operations on the face of the consolidated income
statement as they do not represent a separate major line of business or geographical area of operations.
c. 2018 acquisitions and disposals
In 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.
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.
The Group also disposed of its Jaguar Land Rover operations in Shaoxing, China, and a dealership in the UK, generating disposal
proceeds of £13.4m.
172
172
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
30 Guarantees and contingencies
Guarantees, performance bonds and contingent liabilities
2019
£m
75.1
2018
£m
77.4
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 24).
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.
HMRC has now been granted leave to appeal a number of items at the Supreme Court and hearings will occur in February
and December 2020. Therefore, resolution of the test case in the FII GLO remains incomplete. As at 31 December 2019, 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.
It is not expected that Brexit will affect this ongoing litigation.
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.
31 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
2019
£m
5.0
–
2018
£m
20.6
0.4
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.
From 1 January 2019, the Group has recognised right-of-use assets for these leases, except for short-term and low-value leases.
Future minimum lease payments for short-term leases under non-cancellable operating leases are as follows:
Within one year
2019
£m
3.2
2018
£m
4.1
Operating leases – 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
2019
£m
3.4
4.9
0.1
8.4
2018
(Restated)1
£m
5.0
6.4
4.8
16.2
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 173
173
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
31 Commitments continued
Sub-lease receivables – Group as lessor
The Group has entered into sub-leases for a number of properties and other assets. As the lease term represents a major
proportion of the underlying asset’s useful life, the associated right-of-use asset has been derecognised and replaced with a
sub-lease receivable. Future minimum lease payments receivable under sub-leases, together with the present value of the net
minimum lease payments receivable (included within trade and other receivables), are as follows:
Minimum lease payments receivable:
– Within one year
– Between one and five years
– After five years
Total minimum lease payments receivable
Less: Unearned finance income
Present value of sub-lease receivables
2019
£m
0.8
3.5
8.2
12.5
(3.1)
9.4
2018
£m
0.4
5.4
12.2
18.0
(5.8)
12.2
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
2019
£m
7.1
2018
£m
81.9
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. The disposal of the Fleet Solutions
business in the UK has driven the reduction in the Group’s vehicle liabilities and commitments.
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 £0.3m (2018 – £6.8m) of residual value commitments that are included
within ‘trade and other payables’.
32 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
2019
£m
0.8
2018
£m
0.8
2019
£m
–
2018
£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 (2018 – £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
2019
£m
5.4
0.6
2.2
8.2
2018
£m
5.9
0.6
2.4
8.9
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.
174
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
33 Restatement on initial adoption of IFRS 16
The application of IFRS 16 to leases previously classified as operating leases under IAS 17 resulted in the recognition of right-of-use
assets and lease liabilities. Provisions for onerous lease contracts have been derecognised and operating lease incentives
previously recognised as liabilities have been derecognised and factored into the measurement of the right-of-use assets and lease
liabilities. The principal restatements as a result of the initial adoption of IFRS 16 Leases are set out in the following tables. The tables
show the adjustments recognised for each individual line item as at 31 December 2018. Line items that were not affected by the
changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated from the numbers
provided.
The impacts on the consolidated income statement are:
Net operating expenses
Operating profit
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
The impacts on the consolidated statement of financial position are:
Year to
31 Dec 2018
£m
(1,127.0)
174.3
19.3
(61.6)
132.1
(76.9)
55.2
Year to
31 Dec 2018
Restated
£m
(1,126.4)
174.9
20.1
(82.1)
113.0
(73.6)
39.4
IFRS 16
£m
0.6
0.6
0.8
(20.5)
(19.1)
3.3
(15.8)
Non-current assets
Property, plant and equipment
Right-of-use assets
Trade and other receivables
Deferred tax assets
Current assets
Trade and other receivables
As at
1 Jan 2018
£m
788.4
–
59.0
36.7
As at
1 Jan 2018
Restated
£m
As at
31 Dec 2018
£m
787.5
393.2
42.3
39.9
822.9
–
70.9
30.8
IFRS 16
£m
(0.9)
393.2
(16.7)
3.2
As at
31 Dec 2018
Restated
£m
821.7
415.2
52.4
33.3
IFRS 16
£m
(1.2)
415.2
(18.5)
2.5
465.0
(2.2)
462.8
512.8
(0.2)
512.6
Total assets
4,878.0
376.6
5,254.6
4,736.4
397.8
5,134.2
Current liabilities
Trade and other payables
Provisions
Lease liabilities
Borrowings
Non-current liabilities
Provisions
Lease liabilities
Deferred tax liabilities
Borrowings
Total liabilities
Net assets
Equity
Other reserves
Retained earnings
Equity attributable to owners of the parent
Non-controlling interests
Total equity
(2,234.6)
(21.2)
–
(534.5)
(0.3)
(1.0)
(56.4)
1.7
(2,234.9)
(22.2)
(56.4)
(532.8)
(2,356.5)
(18.5)
–
(417.1)
(0.1)
(1.8)
(66.3)
0.1
(2,356.6)
(20.3)
(66.3)
(417.0)
(11.5)
–
(78.6)
(361.9)
0.3
(365.9)
4.8
1.4
(11.2)
(365.9)
(73.8)
(360.5)
(14.5)
–
(100.7)
(211.7)
0.2
(394.1)
8.4
1.7
(14.3)
(394.1)
(92.3)
(210.0)
(3,430.1)
(415.4)
(3,845.5)
(3,320.6)
(451.9)
(3,772.5)
1,447.9
(38.8)
1,409.1
1,415.8
(54.1)
1,361.7
(83.5)
1,183.5
1,427.3
20.6
1,447.9
(0.1)
(38.5)
(38.6)
(0.2)
(38.8)
(83.6)
1,145.0
1,388.7
20.4
1,409.1
(76.3)
1,141.3
1,392.3
23.5
1,415.8
0.4
(54.3)
(53.9)
(0.2)
(54.1)
(75.9)
1,087.0
1,338.4
23.3
1,361.7
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 175
175
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
33 Restatement on initial adoption of IFRS 16 continued
The impacts on the consolidated statement of cash flows are:
Cash generated from operations
Interest received
Interest paid
Net cash generated from operating activities
Receipt of sub-lease receivables
Net cash used in investing activities
Payment of capital element of finance leases
Net cash used in financing activities
Net increase in cash and cash equivalents
See note 1 for details of the change in accounting policies arising from the adoption of IFRS 16.
34 Foreign currency translation
The main exchange rates used for translation purposes are as follows:
Year to
31 Dec 2018
£m
501.5
17.1
(44.2)
375.7
Year to
31 Dec 2018
Restated
£m
581.8
17.9
(64.1)
436.9
IFRS 16
£m
80.3
0.8
(19.9)
61.2
–
(238.7)
1.0
1.0
1.0
(237.7)
(1.8)
(99.8)
37.2
(62.2)
(62.2)
–
(64.0)
(162.0)
37.2
Australian dollar
Chilean peso
Ethiopian birr
Euro
Hong Kong dollar
Russian rouble
Singapore dollar
US dollar
Average rates
Year end rates
2019
2018
2019
1.84
908.04
37.39
1.14
10.01
82.96
1.74
1.28
1.79
853.58
36.92
1.13
10.45
83.14
1.80
1.33
1.89
996.59
42.42
1.18
10.34
82.13
1.78
1.33
2018
1.81
885.33
36.06
1.11
9.99
88.48
1.74
1.28
35 Events after the reporting period
The Group has agreed to acquire Daimler’s Mercedes-Benz passenger car and private vans distribution operations in Colombia,
currently operated by Daimler Colombia S.A.
The Group disposed of two retail sites in the UK in January 2020 and two retail sites in Australia in February 2020.
176
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
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
Operating margin
Operating profit (before exceptional items)
and unallocated central costs. Refer to note 1.
Operating profit before exceptional items.
Refer to the consolidated income statement.
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.
Free cash flow
Return on capital
employed (ROCE)
Net funds / (debt)
Net capital
expenditure
Constant currency
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 31.
Operating profit (before exceptional items)
divided by the average of opening and closing
capital employed, where capital employed is
defined as net assets add net debt / less
net funds.
Cash and cash equivalents less borrowings
and lease liabilities adjusted for the fair value of
derivatives that hedge interest rate or currency
risk on borrowings. Refer to note 28.
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 31.
Presentation of reported results translated using
constant rates of exchange.
A measure of the contribution of the Group’s
segmental performance.
A key metric of the Group’s underlying
business performance.
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.
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.
A measure of the Group’s net indebtedness
that provides an indicator of the overall balance
sheet strength.
A measure of the net amount invested in
operational facilities in the period.
A measure of underlying business performance
which excludes the impact of changes in exchange
rates used for translation.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 177
177
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
2019
£m
2018
£m
2017
£m1
2016
£m1
2015
£m1
9,379.7
9,277.0
8,953.3
7,838.4
6,836.3
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 (debt) / funds
Capital employed
Net (debt) / funds
Net assets
Equity attributable to owners of the parent
Non-controlling interests
Total equity
373.1
75.5
448.6
0.3
448.9
(47.1)
–
401.8
(75.6)
2.5
328.7
(5.8)
322.9
401.8
79.0p
326.3
59.9p
26.8p
1,773.2
(224.7)
1,548.5
(249.9)
1,298.6
1,278.3
20.3
1,298.6
398.6
(223.7)
174.9
0.1
175.0
(48.1)
(13.9)
113.0
(79.1)
5.5
39.4
(7.0)
32.4
113.0
7.8p
350.6
63.8p
26.8p
2,056.0
(248.4)
1,807.6
(445.9)
1,361.7
1,338.4
23.3
1,361.7
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)
–
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)
–
262.6
(74.9)
(4.8)
182.9
(7.1)
175.8
262.6
39.8p
312.1
52.1p
20.9p
1,641.0
(273.3)
1,367.7
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
1,427.3
20.6
1,447.9
1,343.9
18.6
1,362.5
1,219.0
22.9
1,241.9
1 Prior year results have been restated on transition to IFRS 16 Leases. See note 33 for further details. Earlier periods have not been restated for the effects of IFRS 16 and therefore
the results are not presented on a comparable basis.
178
178
Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
Company statement of financial position
As at 31 December 2019
Non-current assets
Intangible assets
Property, plant and equipment
Investment in subsidiaries
Deferred tax assets
Trade and other receivables – amounts falling due after more than one year
Current assets
Current tax 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
Total liabilities
Net assets
Equity
Share capital
Share premium
Capital redemption reserve
Retained earnings
Total shareholders’ funds
Notes
2019
£m
2018
£m
3
4
5
10
6
6
7
8
9
12
8.6
1.5
1,576.9
5.6
210.6
1,803.2
1.9
42.2
2.1
46.2
1,849.4
13.8
1.5
1,576.9
1.1
210.0
1,803.3
2.1
174.3
0.9
177.3
1,980.6
(22.0)
(22.0)
(135.1)
(135.1)
(1,104.4)
(1,104.4)
(1,126.4)
723.0
(1,099.6)
(1,099.6)
(1,234.7)
745.9
40.0
146.7
140.6
395.7
723.0
41.6
146.7
139.0
418.6
745.9
The Company reported a profit for the financial year ended 31 December 2019 of £190.8m (2018 – a loss of £29.1m). The financial
statements on pages 179 to 196 were approved by the Board of Directors on 26 February 2020 and were signed on its behalf by:
Stefan Bomhard
Group Chief Executive
Registered Number: 609782
Inchcape plc
Gijsbert de Zoeten
Chief Financial Officer
179
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 179
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Company statement of changes in equity
For the year ended 31 December 2019
Share capital
£m
Notes
Share
premium
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
41.6
146.7
139.0
568.0
Total
£m
895.3
(29.1)
(29.1)
(115.2)
(12.6)
7.5
745.9
–
–
(29.1)
(29.1)
–
–
–
139.0
(115.2)
(12.6)
7.5
418.6
–
–
190.8
190.8
190.8
190.8
–
1.6
–
–
140.6
(110.5)
(100.0)
(9.3)
6.1
395.7
(110.5)
(100.0)
(9.3)
6.1
723.0
–
–
–
–
–
41.6
–
–
–
(1.6)
–
–
40.0
–
–
–
–
–
146.7
–
–
–
–
–
–
146.7
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 1 January 2019
Profit for the year
Total comprehensive income for the year
Dividends
Share buyback programme
Net purchase of own shares by the Inchcape Employee Trust
Share-based payments, net of tax
At 31 December 2019
13
13
12
Share-based payments include a net tax charge of £nil (2018 – £nil).
180
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
Accounting policies
General information
These financial statements are prepared for Inchcape plc (the Company) for the year ended 31 December 2019. The Company is
the ultimate parent entity of the Inchcape Group (the Group) and acts as the holding company of 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 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 Company does not have any critical accounting judgements. The sources of estimation uncertainty most applicable to the
Company do not give rise to a significant risk of material adjustment to the carrying value of the Company’s assets and liabilities.
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 39 to 52.
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.
181
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Inchcape Annual Report and Accounts 2019 181
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Accounting policies continued
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, as described in
the Directors’ Report of the consolidated Group Financial Statements.
Foreign currencies
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 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.
Impairment
The Company’s accounting policies in respect of impairment of property, plant and equipment, intangible assets and financial
assets are consistent with those of the Group. The carrying values of investments in subsidiary undertakings are reviewed at each
reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable
amount is estimated.
The Company’s impairment policies in relation to financial assets are consistent with those of the Group, with additional
consideration given to amounts owed by Group undertakings. Any provision for impairment of receivables is based on lifetime
expected credit losses. Lifetime expected credit losses are calculated by assessing historic credit loss experience, adjusted for
factors specific to the receivable and company.
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 between five and 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.
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, 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.
182
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
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 117 to 125.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 183
183
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements
1 Auditor’s remuneration
The Company incurred £0.1m (2018 – £0.1m) in relation to UK statutory audit fees for the year ended 31 December 2019.
2 Directors’ remuneration
Wages and salaries
Social security costs
Pension costs
2019
£m
2.1
0.2
0.3
2.6
2018
£m
3.1
0.3
0.3
3.7
Further information on Executive Directors’ emoluments and interests is given in the Directors’ Report on Remuneration which can be
found on pages 76 to 97.
Computer
software
£m
33.7
0.9
(5.7)
28.9
(19.9)
(0.4)
(20.3)
8.6
13.8
Plant,
machinery
and
equipment
£m
Total
£m
33.7
0.9
(5.7)
28.9
(19.9)
(0.4)
(20.3)
8.6
13.8
Total
£m
1.8
1.8
(0.3)
1.5
1.5
(0.3)
1.5
1.5
3
Intangible assets
Cost
At 1 January 2019
Additions
Transfer to Group companies
At 31 December 2019
Accumulated amortisation and impairment
At 1 January 2019
Amortisation charge for the year
At 31 December 2019
Net book value at 31 December 2019
Net book value at 31 December 2018
4 Property, plant and equipment
Cost
At 1 January 2019 and at 31 December 2019
Accumulated depreciation and impairment
At 1 January 2019 and at 31 December 2019
Net book value at 31 December 2019
Net book value at 31 December 2018
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
5
Investment in subsidiaries
Cost
At 1 January and at 31 December
Provisions
At 1 January
Provisions for impairment
At 31 December
Net book value
2019
£m
2018
£m
1,711.0
1,711.0
(134.1)
–
(134.1)
(61.9)
(72.2)
(134.1)
1,576.9
1,576.9
The Directors believe that the carrying value of the individual investments is supported by their underlying net assets.
In 2018, an impairment charge of £72.2m in relation to Inchcape Finance (Ireland) Ltd was recognised 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.
6 Trade and other receivables
Amounts due within one year
Amounts owed by Group undertakings
Other debtors
Amounts due after more than one year
Amounts owed by Group undertakings
Other debtors
2019
£m
42.1
0.1
42.2
210.0
0.6
210.6
2018
£m
174.3
–
174.3
210.0
–
210.0
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
2019
£m
2.1
2019
£m
17.5
–
–
4.5
22.0
2018
£m
0.9
2018
£m
5.5
124.8
2.7
2.1
135.1
Amounts owed to Group undertakings are interest free and repayable on demand.
In 2018, the Company had an amount of US$160.8m under the Private Placement which borne interest at a fixed rate of 6.04% per
annum. It was repaid in May 2019.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 185
185
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
9 Trade and other payables – amounts falling due after more than one year
Amounts owed to Group undertakings
Private Placement
2019
£m
894.4
210.0
1,104.4
2018
£m
889.6
210.0
1,099.6
Amounts owed to Group undertakings are repayable between one and five years and bear interest at rates linked to source
currency base rates.
In December 2016, the Group concluded a Private Placement transaction raising £210m to refinance existing US dollar 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 2019
Credited / (Charged) to the income statement
At 31 December 2019
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
3.0
3.8
(0.1)
(0.1)
(0.2)
0.4
1.6
2.0
Total
£m
1.1
4.5
5.6
Deferred tax assets recognised are supported by future taxable profits of the UK tax group, headed by the Company, which are
considered probable.
11 Guarantees
The Company is party to composite cross guarantees between banks and its subsidiaries. The Company’s exposure under these
guarantees at 31 December 2019 was £2.1m (2018 – £0.9m), 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 (2018 – £94.7m).
12 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
2019
Number
2018
Number
415,127,453 415,018,286
75,353
109,167
(16,070,070)
–
399,132,736 415,127,453
2019
£m
41.6
–
(1.6)
40.0
2018
£m
41.6
–
–
41.6
b. Share buyback programme
During 2019, the Company repurchased 16,070,070 (2018 – nil) of its own shares through purchases on the London Stock
Exchange, at a cost of £98.5m (2018 – £nil). The shares repurchased during the year were cancelled, with none held within treasury
shares at the end of the reporting period. An amount of £1.6m (2018 – £nil), equivalent to the nominal value of the cancelled
shares, has been transferred to the capital redemption reserve. Costs of £1.5m (2018 – £nil) 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 26 February 2020
under the provisions of the Companies Act 2006 have been disclosed in the significant shareholdings section of the Corporate
Governance Report.
186
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
12 Share capital continued
d. Share options
At 31 December 2019, 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
7 April 2020
3.10 84,162
237,810
702,425
1,344,510
1 May 2020
1 May 2021
1 May 2022
1 May 2023
5.63
6.66
5.54
4.59
– unapproved (Part I – UK)
1,612
7 April 2020
3.10
– unapproved overseas (Part I – Overseas)
3,224
7 April 2020
3.10
Included within the retained earnings reserve are 861,589 (2018 – 777,211) 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 2019 was £5.5m (2018 – £5.1m). The market value of these shares
at both 31 December 2019 and 26 February 2020 was £6.1m and £5.1m respectively (31 December 2018 – £4.3m, 27 February
2019 – £4.6m).
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 £0.6m (2018 – £1.2m), all of which is equity-settled.
The weighted average exercise price of shares exercised during the period was £0.10 (2018 – £0.10).
The weighted average remaining contractual life for the share options outstanding at 31 December 2019 is 2.3 years (2018 –
5.9 years) and the exercise price for options outstanding at the end of the year was £5.54 (2018 – range of £0.10 to £5.63).
13 Dividends
The following dividends were paid by the Company:
Interim dividend for the six months ended 30 June 2019 of 8.9p per share
(30 June 2018 of 8.9p per share)
Final dividend for the year ended 31 December 2018 of 17.9p per share
(31 December 2017 of 18.9p per share)
2019
£m
2018
£m
36.3
36.9
74.2
110.5
78.3
115.2
A final proposed dividend for the year ended 31 December 2019 of 17.9p per share amounting to £71.4m is subject to approval by
shareholders at the Annual General Meeting and has not been included as a liability as at 31 December 2019.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 187
187
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
14 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 2019 is shown below:
Subsidiaries
Name and registered address
Argentina
Av Libertador 13.180 Martinez Bs As
Distribuidora Automotriz 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
Inchcape Finance Australia Pty Limited
Inchcape Corporate Services Australia Pty Limited
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
188
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Inchcape plc Annual Report and Accounts 2019
(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%
100%
100%
70%
70%
70%
100%
100%
100%
14 Related undertakings continued
Name and registered address
Chile
Av. La Dehesa 265, Santiago, Región Metropolitana
Mobility Services Chile SpA
Universal Motors SpA
Williamson Balfour Motors SpA
Williamson Balfour SA
Ruta 5 Norte #19100 Ciudad Santiago comuna Lampa Región Metropolitana
Inchcape Automotriz Chile SA
Hino Chile SA
Inchcape Camiones y Buses Chile SA
Avda. las Condes 11774, Vitacura, Santiago
Inchcape Latam Internacional SA
Indigo Chile Holdings SpA
Avenida Francisco Bilbao 0102, Providencia, Santiago
Inchcape Commercial Chile SA
Colombia
Calle 99 N° 69c – 41 Bogotá
Inchcape Inversiones Colombia S.A.S
Impoquing Motor SAS
Matrase SAS
Praco Didacol SAS
Inmobiliaria Inchcape Colombia S.A.S
Aut. Medellín Calle 80 Km 7 Parque Industrial Celta Trade Park Bodega 1202 Funza
Distribuidora Hino de Colombia SAS
Cook Islands
First Floor, BCI House, Avarua, Rarotonga
IB Enterprises Ltd
Costa Rica
La Uruca, de la Pozuelo 200 metros oeste, frente al Hospital Mexico
Arienda Express SA
Comericio de las Americas SA
Inchcape Protection Express
Vehiculos de Trabajo SA
Vistas de Guanacaste Orquideas SA
Djibouti
Route de Venise – Djibouti Free Zone – LOB 124, PO Box 2645
Red Sea Automotive FZCO
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%
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 189
189
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
14 Related undertakings continued
Name and registered address
Ecuador
Av. Galo Plaza Lasso n. 5898. Quito, 170513
Autolider Ecuador S.A.
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
Polis Inchcape Athens SA
11th Km, National Road Thessaloniki-Airport, Thessaloniki 60371
Polis Inchcape Thessaloniki SA
Guam
443 South Marine Corps Drive, Tamuning, Guam 96913
Atkins Kroll Inc
Hong Kong
11/F, Tower B, Manulife Financial Centre, 223-231 Wai Yip Street, Kwun Tong, Kowloon, HK
British Motors Ltd
Crown Motors Ltd
Future Motors Ltd
Inchcape Finance (HK) Ltd
Inchcape Hong Kong Ltd
Inchcape Mobility Limited
Inchcape Motor Services Ltd
Mega EV Ltd
Percentage
owned
100%
100%
94%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
190
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
14 Related undertakings continued
Name and registered address
Ireland
17 Corrig Road, Sandyford, Dublin 18, D18 N6K8
Inchcape Finance (Ireland) Ltd
Ivory Coast
01 BP 3893, Abidjan O1
Distribution Services Cote d’Ivoire SA
Toyota Services Afrique SA
Kenya
LR 1870/X/126, Ground Floor, Oracle Towers, Waiyaki Way, P.O. Box 2231-00606, Nairobi
Inchcape Kenya Ltd
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
Ozo str. 10A, Vilnius, LT-08200
UAB Krasta Auto
UAB Krasta Auto Vilnius
Svajonės str. 40, Klaipėda, LT-94101
UAB Krasta Auto Klaipeda
Veiverių str. 150, Kaunas, LT-46391
UAB Krasta Auto Kaunas
Luxembourg
6 ZAI Bourmicht L-8070, Bertrange
Grand Garage de Luxembourg
193 Route d’Arlon, L-1150
Jaguar Luxembourg
Percentage
owned
(v)
100%
(viii)
100%
100%
100%
100%
100%
100%
100%
60%
100%
67%
67%
67%
100%
100%
100%
100%
100%
100%
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 191
191
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
14 Related undertakings continued
Name and registered address
Macau
Avenida do Coronel Mesquita, No 48-48D, Edf. Industrial Man Kei R/C, Macau
Nova Motors (Macao) Ltd
Yat Fung Motors Ltd
Macedonia
21 8th September Boulevard, 1000 Skopje
Toyota Auto Center DOOEL
Netherlands
Gustav Mahlerlaan 1212, 1081 LA Amsterdam, the Netherlands
Inchcape International Group BV
New Zealand
Bell Gully, Level 22, Vero Centre, 48 Shortland Street, Auckland, 1010 , New Zealand
Inchcape Motors NZ Ltd
Panama
Vía General Nicanor A. de Obarrio (Street 50), Plaza Bancomer
lIaother SA
Ilachile SA
Ciudad de Panamá, Vía Cincuentenario Andrés Mojica, Ave. 6ta B., Lote X 5B, Corregimiento de San
Francisco, Distrito de Panamá, Provincia de Panamá
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. El Polo Nro. 1117, Santiago de Surco, Lima
Inchcape Motors Peru SA
Av. Republica de Panama Nro. 3330, San Isidro, Lima
IMP Distribuidora SA
Av. Morro Solar 812, Santiago de Surco, Lima
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
192
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
Percentage
owned
100%
100%
100%
(i)
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
14 Related undertakings continued
Name and registered 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
108811, Moscow, settlement Moskovskiy, block No34, property 2, bld. 1
LLC Inchcape T
10 Seslavinskaya Street, Moscow 121309
LLC Autoproject
36 Yaroslavskoe Shosse, Moscow 129337
LLC Borishof 1
195273, Saint-Petersburg, Rustaveli str., 31, Lit.A, apt.3
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
San Jose Village, 1 Chalan Monsignor Guerrero, Saipan, 96950, Northern Mariana Islands
Atkins Kroll (Saipan) Inc
Singapore
2 Pandan Crescent, Inchcape Centre, Singapore 128462
Borneo Motors (Singapore) Pte Ltd
Century Motors (Singapore) Pte Ltd
Champion Motors (1975) Pte Ltd
Inchcape Automotive Services Pte Ltd
Inchcape Motors Private Ltd
Spain
C. Prim, 19, 28004 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
Percentage
owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 193
193
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
14 Related undertakings continued
Name and registered address
United Kingdom
Inchcape Retail, First Floor, Unit 3140 Park Square, Solihull Parkway, Birmingham B37 7YN
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 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
Kenning Motor Group 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
194
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Inchcape plc Annual Report and Accounts 2019
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)
14 Related undertakings continued
Name and registered 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
St Mary Axe Securities Ltd
PO Box 33, Dorey Court, Admiral Park, St Peter Port, GUERNSEY GY1 4AT
St James’s Insurance Ltd
4th Floor 115 George Street, Edinburgh EH2 4JN
Inchcape Investments & Asset Management Ltd
Uruguay
Rambla Baltasar Brum 3028, Montevideo
Autolider Uruguay S.A.
United States of America
The Corporation Company, 30600 Telegraph Road Bingham Farms, MI 48025
Baltic Motors Corporation
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%
70%
100%
100%
100%
100%
100%
100%
100%
(vii)
(ix)
(vii)
Corporation Trust Center, 1209 Orange Street, Wilmington DE 19801
SS Acquisition Corporation
(x)
12%
Inchcape plc Annual Report and Accounts 2019
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195
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Notes to the financial statements continued
14 Related undertakings continued
Joint ventures
Name and registered address
Greece
48 Ethnikis Antistaseos Street, Halandri 15231
Tefin SA
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%
(i)
49%
(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
(viii) Owned at 60% by Inchcape plc, 40% by Baltics Motors Corporation
(ix) Owned at 70% by Inchcape plc and 30% by Inchcape Australia Ltd
(x) Owned at 42% by Inchcape Baltic Motors Ltd, 2% by Inchcape BMI Ltd, 44% by Inchcape Latvia Ltd and 12% by Inchcape plc
196
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Inchcape Annual Report and Accounts 2019
Inchcape plc Annual Report and Accounts 2019
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
Herbert Smith Freehills
Slaughter and May
Corporate brokers
Jeffries Hoare Govett
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
21 May 2020
Announcement of 2020 Interim Results
30 July 2020
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.
Inchcape plc Annual Report and Accounts 2019
Inchcape Annual Report and Accounts 2019 197
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Inchcape plc
22a St James’s Square
London SW1Y 5LP
T +44 (0) 20 7546 0022
www.inchcape.com
Registered number 609782