Preliminary Results for 2002
Inchcape PLC
3 March 2003
3 March 2003
Inchcape plc preliminary results
A successful year of operational progress
Inchcape plc, the international automotive services group, announces its results
for the full year to 31 December 2002.
Financial highlights:
• Continuing operating profit* up 17.1% at £117.2m
• Headline profit before tax (PBT)** up 12.4% at £112.1m
• Profit before tax up 78.0% at £108.6m
• Headline earnings per share (EPS)** up 31.1% at 104.5p
• Basic EPS up 241.6% at 100.1p
• Proposed final dividend up 15.4% at 21.0p per share, resulting in total
dividend of 31.0p per share, up 14.8%
• Strong operating cash flow of £163.9m
• Balance sheet ungeared;
* Before amortisation
** Before goodwill amortisation and exceptional items
Operational progress and further strategic investment:
• Revised European Block Exemption legislation favours
large, well financed automotive services groups
• Foundations laid for Business Services expansion
• Earnings enhancing acquisition of minority shareholding in
Inchcape Motors Limited, Singapore completed
• Market share gains achieved in major territories
• £13.9m investment in Subaru flagship retail site in Melbourne completed
• £10.0m being invested in significant new Mercedes-Benz UK market area
• Continued investment with Toyota in UK, Continental Europe and Singapore;
Peter Johnson, Group Chief Executive of Inchcape plc, commented:
'Inchcape has had another highly successful year and has come a long way since
becoming a pure automotive services group in mid 1999.
'We have continued to invest in our OEM relationships, the strength of which are
one of the keys to our success. Our market leading positions are testament to
the quality of our operations and management.
'The impact of the revised European Block Exemption legislation is working out
as we anticipated and we are confident that, overall, the Group will be further
strengthened as a result.
'The excellent strategic progress made in recent years, the strength of our OEM
partnerships and the robust operational base that has been established
demonstrate that this is a high quality cash generative business. We are well
placed to exploit changes arising in our industry and 2003 should show further
progress for Inchcape.'
Financial summary
£m 2002 2001
Turnover 3,517.0 3,319.5
Continuing operating profit* 117.2 100.1
Discontinued operating profit* - 3.5
117.2 103.6
Goodwill amortisation (5.6) (1.8)
Operating profit 111.6 101.8
Interest (5.1) (3.9)
Exceptionals 2.1 (36.9)
PBT 108.6 61.0
Headline PBT** £112.1m £99.7m
Headline EPS** 104.5p 79.7p
Basic EPS 100.1p 29.3p
*Before goodwill amortisation
**Before goodwill amortisation and exceptional items
For further information, including photographs, please contact:
Group Communications, Inchcape plc 020 7546 0022
Hogarth Partnership Limited (John Olsen/Tom Leatherbarrow) 020 7357 9477
Inchcape, as an international automotive services group, provides quality
representation for its manufacturer partners, a choice of channels to market and
products for its retail customers and a range of business services for its
corporate customers. Operations are focused on the UK, Greece, Belgium,
Australia, Hong Kong and Singapore. Inchcape's activities include exclusive
Import, Distribution and Retail, Business Services, automotive E-commerce and
Financial Services. Our key manufacturer partners are Toyota/Lexus, Subaru,
Ferrari/Maserati, BMW and the Premier Automotive Group of Ford.
For further information, visit us at www.inchcape.com
Preliminary results announcement for the full year ending 31 December 2002
Introduction
Inchcape plc has again produced an outstanding set of results. Despite
challenging conditions in some of our core markets, operating profit before
goodwill amortisation (see note 1b) rose by 13.1% whilst Headline profit before
tax (before goodwill amortisation and exceptional items) was up 12.4% (see note
6). Headline earnings per share, of 104.5p, increased by 31.1% compared to 2001.
Operating cash flow in 2002 was strong at £163.9m and the Group remained
ungeared at the year end.
All this is testament to the quality of our businesses in our six core markets
where we have strong manufacturer partnerships and excellent market positions.
The results support the strategic steps taken over the last three years to focus
on these businesses and relationships. Furthermore our confidence that, overall,
the Group will be further strengthened following the recent changes to the
European Block Exemption legislation supports our strategy going forward.
Strategic overview
Inchcape has come a long way since we became a pure automotive services group in
mid 1999.
Our overseas businesses now have many common characteristics; long term stable
relationships with quality Original Equipment Manufacturer (OEM) partners,
market leading sales performances and outstanding aftersales returns delivered
by the highest quality management.
In addition the success of our integrated Distribution and Retail business model
in Hong Kong and Singapore has provided a template for our investments in Greece
and Australia.
It is in the UK market where Inchcape now has both its greatest challenges and
opportunities. Much of our earlier investment in Retail, Business Services and
alternative sales channels will start to deliver growth allied to improved
margins. Graeme Potts' arrival in September 2002, as Managing Director for
Inchcape UK and Europe, has strengthened our management team. Our balance sheet
strength will allow us to act rapidly should suitable growth opportunities arise
in either Retail or Business Services.
Changes in the European Block Exemption legislation have required all OEMs to
terminate their existing agreements with distributors and dealers. The revised
legislation has turned out much as we predicted and the opportunities for large,
well financed groups to invest further with their chosen OEM partners are
considerable. Many OEMs have used the revised legislation to revisit existing
agreements with their current retail partners and most now see fewer but much
larger scale relationships as the way forward. We are in discussion with our key
OEM partners in the UK and envisage a positive outcome, overall, for the Group.
Our investment in logistics, re-marketing and refurbishment through the
acquisition of Eurofleet Ltd is an important strategic move. OEMs are constantly
seeking, from well funded and professionally managed companies, new and
innovative ways to drive cost out of the supply chain. Our Business Services
operations can successfully address this need.
We remain confident of leveraging the Business Services infrastructure into
Continental European markets within the next two years. We see particular
opportunities for our integrated logistics and re-marketing service in France
and Germany, as OEMs continue to seek pan European solutions and partners.
As the problems of over capacity and inadequate returns continue to affect the
OEMs, the key to gaining a competitive advantage will arise not only from
delivering lower costs through greater efficiency, but increasingly through ever
higher levels of customer satisfaction driven by brand strength, excellent
products and outstanding levels of service. It is here Inchcape offers an
unrivalled track record to its OEM partners.
OEM relationships across all our marques have been an important factor in our
success. Our most extensive relationship is with Toyota with whom we continue to
grow. In 2002 we achieved market leadership in all markets where we represent
the brand, with the exception of Belgium where we increased market share from
3.9% to 5.1%.
Toyota's new model programme continues to gather pace and following the
successful launch in Europe of the Corolla, the new Avensis will be launched in
mid 2003.
We strengthened our partnership in 2002 by further investing in the Toyota brand
with a complete refurbishment of our facilities in Singapore, which will result
in a significant increase in our aftersales capacity. In the UK we continue to
invest and remain the largest Toyota/Lexus dealer. In Greece we moved into new
retail premises in Athens and have further invested in Salonica, the second
largest market.
We continue to look at expanding from our core markets into adjacent
territories. As an example, we have recently invested in new Toyota sales and
service facilities in Sofia, Bulgaria. We are also examining opportunities in
China, a country which will ultimately be the largest single growth market in
Asia.
Maintaining and enhancing brand strength through investment has been a key focus
of our strategy across the whole Group. In 2002 we made a significant investment
in our Subaru relationship with our new state-of-the-art facility in Melbourne,
which is expected to retail in excess of 5,000 new and used vehicles in 2003.
Our 3.4% market share is the highest for the Subaru brand in any major market
outside Japan.
Our strategy with Ferrari/Maserati is to extend our Retail reach. In the year we
opened a new service workshop in Surrey doubling capacity.
In the UK our key retail partners are BMW and Toyota/Lexus and we will seek
further growth with these manufacturers. In addition our relationship with the
Premier Automotive Group of Ford (PAG) is set to expand. We aim to represent
between 5.0% and 10.0% of our key partners' national sales volumes.
We will further leverage our OEM relationships and the drive into Retail and
Business Services will be accelerated with special emphasis on UK market
opportunities.
Acquisitions and disposals
During the year £89.7m was spent on acquisitions and settling claims mainly
arising from the sale of Intertek Testing Services Ltd (£14.9m). The largest
acquisition was the purchase of the minority holding (c. 36.7%) in our quoted
Singaporean subsidiary, Inchcape Motors Ltd (IML), in May 2002 (£63.1m). The
company was delisted on 3 July 2002. The acquisition of a number of dealerships
in the UK made up the balance and included a Mercedes-Benz market area, covering
Oxford, Stratford-upon-Avon, Coventry and Banbury.
No disposals of any significance were made in the period although there are
still certain non-core businesses to be sold within our portfolio.
Balance sheet strength
Since becoming a pure automotive services group in 1999 our business has
demonstrated strong cash flow characteristics resulting in an ungeared balance
sheet. This is despite an increasing dividend, the return of £45.0m to our
shareholders through a share buy back in 2001 and continued investment in our
businesses.
The Group is therefore well placed to fund its strategic development programme,
as set out above. Given this intended programme, a further return of capital to
shareholders is not currently considered appropriate. However, the Board's
policy in this regard remains clear and consistent; if available funds are not
required for investment purposes we will make additional returns of capital to
shareholders.
Dividend
The Board follows a progressive dividend policy and since becoming a pure
automotive services group in 1999 the dividend has been increased each year. The
Board therefore recommends the payment of a final ordinary dividend of 21.0p
(2001 - 18.2p) giving a total dividend for the year of 31.0p (2001 - 27.0p).
This is an increase of 14.8% and means that the ordinary dividend has risen over
47.0% since 1999. The dividend is covered 3.4 times by Headline earnings per
share. Subject to approval at the Annual General Meeting on 15 May 2003, the
final dividend will be paid on 16 June 2003 to shareholders on the register on
23 May 2003.
Operational Review
Group operating profit, before goodwill amortisation of £5.6m, rose by £13.6m to
£117.2m. Profits increased in the UK, Greece, Belgium, Australia and Singapore.
United Kingdom
Operating profit before goodwill amortisation: £18.6m 2002, £14.9m 2001
The new car market in the UK reached a record level in 2002 for the second
consecutive year, increasing by 4.3% to 2.6m units, fuelled by low interest
rates and new vehicle price reductions. Inchcape's new car retail volumes
performed ahead of the market growing 13.5%. BMW, Toyota/Lexus, PAG,
Mercedes-Benz and Audi, our key Original Equipment Manufacturer (OEM) partners,
all performed well.
Retail profits grew by 7.2% in 2002. The full year effect of the acquisition of
the Bates Motor Group Ltd in September last year was a significant factor in
this. In total, profits from our acquisitions more than offset the impact of any
loss of profits from dealerships disposed of in the period. Financial Services'
profits (included in the Financial Services' results) of £0.5m were generated by
our UK Retail operations.
Our Leasing business experienced a disappointing year. We have, however,
restructured the business at a cost of £1.6m integrating our operations with
Inchcape Fleet Solutions. This amalgamation will generate significant economies
of scale and will achieve a payback in under two years.
In Business Services, Eurofleet's turnover increased 10.9% in a difficult
market. Margins suffered as a result of a very competitive daily rental sector
and higher costs, such as insurance.
However, we remain confident that this business is capable of both top line
revenue growth and improved margins. In particular our range of new products and
services continue to develop well. Our 'Inspect and Collect' business showed
rapid growth as leasing companies took advantage of our new systems, which
enabled them to charge immediately and accurately their customers for damage
done to vehicles.
Our Fleet Management and Re-marketing businesses commenced trading in January
2002 incurring start-up losses in line with expectations.
Losses in Autobytel UK fell significantly in the period and for the forseeable
future this business is expected to operate at close to breakeven. A new
contract was signed with Autobytel.com in the period, extending our agreement
through to 2027.
In December 2001 we launched a joint venture with the AA to sell new and used
cars direct to the public. We have recently refocused the business on AA
customers and reduced costs by sharing back office functions with Autobytel UK.
We expect the business to breakeven in 2003.
Investment in prior years in the Maserati brand is now beginning to bear fruit.
The launch of the Maserati Coupe and Spyder Convertible, and the continued
strong performance by Ferrari, increased profitability by 14.5% during the year.
Greece/Belgium
Operating profit before goodwill amortisation: £19.8m 2002, £13.0m 2001
In Belgium the total car market declined by 6.0% despite the boost of the 2002
Brussels Motor Show. Toyota, however, increased sales by 23.3% thus
significantly improving its market share as it benefited from the successful
launch of the new Corolla and the introduction of new diesel variants on the
Yaris and RAV4. In the diesel sector Toyota's market share rose from 2.3% to
4.0%. Profits increased by £3.4m on last year despite a one off charge of £4.4m
to cover the cost of implementing new European Block Exemption contracts
throughout the dealer network.
The new Corolla was also well received in Greece. Despite a 4.5% fall in the
market Toyota increased its share to 9.7% and achieved market leadership, an
excellent performance in a challenging market. Unit sales were up 4.7% and this,
together with the continued strong performance in our ancillary businesses,
resulted in an increased level of profitability. We continue to invest in our
Balkans businesses, which are moving into profit as sales volumes grow.
Australia/New Zealand
Operating profit before goodwill amortisation: £17.9m 2002, £13.1m 2001
Subaru Australia had yet another excellent year. The market increased by some
6.7% whilst Subaru achieved a sales record of 28,112 units. This was our sixth
consecutive year of record sales while our market share of 3.4% was the largest
of any major market outside Japan. This sales performance, allied to improved
margins, resulted in strong profit growth.
During 2002 the Subaru Melbourne project was effectively completed and we are
now the sole retailer of Subaru products in Melbourne, an area which represents
some 20.0% of the Australian market. In addition to the state-of-the-art
Docklands facility we operate through three full sales and service dealerships
and two service-only sites. We retailed over 2,000 new and used cars in the year
and this should rise to in excess of 5,000 in 2003 when the full profit impact
of this major new investment will begin to be seen.
In Sydney our Retail operations failed to improve their returns. VW, one of our
OEM partners in the market, suffered a 12.5% national volume decline. This was
partially offset by our other key franchise, Jaguar, which benefited from the
launch of the X-Type.
In New Zealand our Subaru market share and profits improved marginally.
Hong Kong
Operating profit before goodwill amortisation: £31.3m 2002, £48.9m 2001
The Hong Kong market, excluding taxis, fell by 8.9% to 31,693 units, its lowest
level for over twelve years. The taxi market fell significantly as the programme
to change the taxi fleet from diesel to liquefied petroleum gas (LPG) neared
completion.
However, our operating profit was still an impressive £31.3m and our trading
margin remains over 10.0%. This resilient performance was primarily driven by
our Toyota/Lexus business, which (excluding taxis) increased market share from
26.0% to 28.4%. Margins held up well considering the economic conditions, and
aftersales continue to be an important profit generator.
The Mazda franchise, which had a difficult year, will benefit from the
introduction of its new volume product, the Mazda 3, scheduled for late 2003.
Actions have been taken to reduce the cost base of this business by further
integrating back office activities across all our franchises and this will bring
benefits in 2003.
Profits from our Financial Services joint venture, Inchroy, fell primarily as a
result of tighter interest rate spreads, but still contributed some £6.2m.
Singapore/Brunei
Operating profit before goodwill amortisation: £33.0m 2002, £19.2m 2001
Singapore achieved a truly exceptional result, with profits rising by 61.9%.
This was driven by a number of factors. The market was down by 10.0% but this
was less than expected due to the release of additional Certificates of
Entitlement (COE) in the fourth quarter of 2002. Significantly, however, a
change in the COE bidding system improved the transparency of the process
allowing us to manage to a greater extent the cost of acquiring COEs, resulting
in much improved gross margins.
In market share terms Toyota/Lexus had an excellent year increasing penetration
from 21.3% to 26.7%, which resulted in Toyota regaining market leadership. The
proportion of cars sold over 1.6 litres, where the margins are better, has risen
from 10.2% to 31.6% and the success of the new Toyota Camry has been key to
this.
In 2002 our main Toyota/Lexus showroom was renovated and we opened a new service
centre increasing our aftersales capacity by over 17.0%.
In Brunei tax cuts resulted in the market more than doubling. Our Toyota
business increased market share to 21.7%, and we retained market leadership
whilst increasing profits significantly.
Other
Operating profit before goodwill amortisation: £10.5m 2002, £5.9m 2001
Operating profits in our Toyota business in Ethiopia were higher than last year.
Mazda Finland returned to profit whilst BMW in Chile and Peru again made
encouraging contributions.
In 2001 we provided £2.5m against our investment in the US listed Autobytel.com.
Central costs
Central costs: £(13.9)m 2002, £(14.9)m 2001
Central costs benefited from headcount reductions in 2001. However, costs were
higher than expected due to the need to make a provision of £2.9m relating to an
empty leasehold property. We are, however, taking steps to recover the costs
being incurred. Any further disclosure could prejudice these actions.
Discontinued businesses
Operating profit before goodwill amortisation: £nil 2002, £3.5m 2001
There were no discontinued businesses in 2002. The £3.5m of profits generated in
2001 primarily related to IRB in Brunei and Peugeot in Australia/New Zealand.
Current trading and prospects
The UK car market for 2003 is forecast at 2.38m units, a reduction from 2002 but
still the third highest market ever recorded. In UK Retail we will see the
benefits of the full year operation of our new Mercedes-Benz market area.
Business Services should continue the gradual improvement seen in the second
half of 2002. A cost reduction programme, undertaken during the last year, will
result in improved performances from our Leasing and alternate channels to
market businesses. Overall the recovery seen in 2002 in the UK is expected to
continue despite our estimate that the 2003 pension charge will increase by
around £3.0m to £4.0m.
In Greece and Belgium our Toyota businesses will benefit from improved supply of
the new Corolla, the launch of the new Avensis and the much improved diesel
variants in Belgium, which should offset the projected market declines.
Australia will benefit from a full year's contribution from our Subaru business
in Melbourne.
Recovery in the Hong Kong market is not expected in the short term, however, our
actions to reduce costs during 2002 should result in yet another robust
performance from this business.
The market should continue to grow in Singapore helping offset any margin
pressure from competitors' new product introductions.
The excellent strategic progress made in recent years, the strength of our OEM
partnerships and the robust operational base that has been established
demonstrate that this is a high quality cash generative business. We are well
placed to exploit changes arising in our industry and 2003 should show further
progress for Inchcape.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2002
2002 2001
restated
£m £m
Turnover including share of joint ventures and associates 3,517.0 3,319.5
Less:
- share of joint ventures (30.4) (41.4)
- share of associates (72.8) (165.1)
Group subsidiaries' turnover 3,413.8 3,113.0
Cost of sales (2,901.7) (2,648.6)
Gross profit 512.1 464.4
Net operating expenses (410.2) (377.1)
Operating profit 101.9 87.3
Share of profits of joint ventures 9.1 11.7
Share of profits of associates 0.6 2.8
Total operating profit 111.6 101.8
Net profit (loss) on sale of properties and investments 0.9 (0.6)
Net profit (loss) including provisions on sale and
termination of operations 1.2 (36.3)
Profit on ordinary activities before interest 113.7 64.9
Net interest (5.1) (3.9)
Profit on ordinary activities before taxation 108.6 61.0
Tax on profit on ordinary activities (28.9) (29.3)
Profit on ordinary activities after taxation 79.7 31.7
Minority interests (3.4) (8.3)
Profit for the financial year 76.3 23.4
Dividends (23.6) (19.5)
Retained profit for the financial year 52.7 3.9
Profit before tax (£m) 108.6 61.0
Basic earnings per share (pence) 100.1p 29.3p
Diluted earnings per share (pence) 97.9p 29.0p
Headline (before goodwill amortisation £5.6m (2001 - £1.8m)
and exceptional items):
- profit before tax (£m) 112.1 99.7
- earnings per share (pence) 104.5p 79.7p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER 2002
2002 2001
restated
£m £m
Profit for the financial year 76.3 23.4
Effect of foreign exchange rate changes:
- results for the year (3.4) (1.0)
- foreign currency net investments: subsidiaries (7.3) (3.6)
joint ventures and
associates (3.2) 0.4
Unrealised deficit on impairment of revalued properties - (0.2)
Total recognised gains relating to the year 62.4 19.0
Prior period adjustment (note 2):
- subsidiaries (2.5)
- joint ventures (1.7)
Total recognised gains since last annual report 58.2
Note of historical cost profits and losses
for the year ended 31 December 2002
2002 2001
restated
£m £m
Reported profit on ordinary activities before taxation 108.6 61.0
Realisation of property revaluation surpluses (deficits) 0.2 (1.3)
Difference between the historical cost and the actual
depreciation charge 0.7 1.0
Historical cost profit on ordinary activities before taxation 109.5 60.7
Historical cost profit after taxation, minority interests and
dividends 53.6 3.6
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2002
2002 2001
restated
£m £m
Fixed assets:
Intangible assets 82.9 76.2
Tangible assets 258.1 251.1
Investments:
- joint ventures: share of gross assets 319.2 443.2
share of gross liabilities (271.6) (393.7)
share of net assets 47.6 49.5
- associates 26.2 29.0
- other investments 6.3 4.0
421.1 409.8
Current assets:
Stocks 501.8 519.7
Debtors:
- amounts due within one year 190.4 202.2
- amounts due after more than one year 14.5 12.0
Investments 11.4 14.2
Cash at bank and in hand 103.2 123.0
821.3 871.1
Creditors - amounts falling due within one year:
Borrowings (44.6) (83.1)
Other (596.5) (582.7)
(641.1) (665.8)
Net current assets 180.2 205.3
Total assets less current liabilities 601.3 615.1
Creditors - amounts falling due after more than one year:
Borrowings (42.0) (22.4)
Other (66.3) (81.6)
(108.3) (104.0)
Provisions for liabilities and charges (94.5) (112.5)
Net assets 398.5 398.6
Capital and reserves:
Called-up share capital 116.6 116.2
Share premium account 107.5 107.0
Revaluation reserve 30.4 36.1
Capital redemption reserve 16.4 16.4
Profit and loss account 121.8 77.0
Equity shareholders' funds 392.7 352.7
Minority interests 5.8 45.9
398.5 398.6
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2002
RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
2002 2001
£m £m
Operating profit 101.9 87.3
Amortisation 5.0 0.9
Depreciation 27.8 26.6
Loss (profit) on sale of tangible fixed assets other than
property 1.6 (0.4)
Decrease in stocks 25.9 6.1
Decrease in debtors 2.5 44.4
Increase in creditors 3.6 14.4
Payments in respect of termination of operations (2.4) (2.2)
Other items (2.0) 11.4
Net cash inflow from operating activities 163.9 188.5
CONSOLIDATED CASH FLOW STATEMENT
Net cash inflow from operating activities 163.9 188.5
Dividends from joint ventures 5.5 7.2
Dividends from associates 3.4 3.5
Returns on investments and servicing of finance (6.7) (6.7)
Taxation (26.2) (28.4)
Capital expenditure and financial investment (23.6) (17.6)
116.3 146.5
Acquisitions and disposals (89.7) 6.6
Equity dividends paid (21.4) (18.4)
Net cash inflow before use of liquid resources and financing 5.2 134.7
Net cash inflow from the management of liquid resources 1.6 53.5
Net cash outflow from financing (15.6) (169.3)
Net (decrease) increase in cash (8.8) 18.9
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET CASH (DEBT)
Net (decrease) increase in cash (8.8) 18.9
Net cash outflow from increase in debt and lease financing 16.5 124.2
Net cash inflow from the management of liquid resources (1.6) (53.5)
Change in net cash resulting from cash flows 6.1 89.6
Effect of foreign exchange rate changes on cash and debt (7.0) (4.6)
Net loans and finance leases relating to acquisitions and
disposals - 13.0
Liquid resources of businesses sold - (11.4)
Movement in net cash (0.9) 86.6
Net cash (debt) at 1 January 17.5 (69.1)
Net cash at 31 December 16.6 17.5
NOTES
1 SEGMENTAL ANALYSIS
a Turnover Group subsidiaries Share of joint ventures
2002 2001 2002 2001
(i) By geographical market: £m £m £m £m
UK 1,201.9 904.7 6.3 10.2
Greece/Belgium 697.2 595.0 5.1 5.0
Australia/New Zealand 455.3 408.8 6.5 8.2
Hong Kong 289.7 423.1 12.5 17.4
Singapore/Brunei 486.1 427.5 - -
Other 283.6 267.4 - -
Continuing 3,413.8 3,026.5 30.4 40.8
Discontinued - 86.5 - 0.6
3,413.8 3,113.0 30.4 41.4
a Turnover Share of associates Total
2002 2001 2002 2001
(i) By geographical market: £m £m £m £m
UK 70.9 159.3 1,279.1 1,074.2
Greece/Belgium 1.9 1.7 704.2 601.7
Australia/New Zealand - - 461.8 417.0
Hong Kong - - 302.2 440.5
Singapore/Brunei - - 486.1 427.5
Other - - 283.6 267.4
Continuing 72.8 161.0 3,517.0 3,228.3
Discontinued - 4.1 - 91.2
72.8 165.1 3,517.0 3,319.5
a Turnover Group subsidiaries Share of joint ventures
2002 2001 2002 2001
(ii) By activity: £m £m £m £m
Import, Distribution and Retail 2,421.1 2,261.5 2.1 -
UK Retail 929.3 711.7 - -
Financial Services 62.2 52.5 28.3 40.8
E-commerce 1.2 0.8 - -
Continuing 3,413.8 3,026.5 30.4 40.8
Discontinued - 86.5 - 0.6
3,413.8 3,113.0 30.4 41.4
a Turnover Share of associates Total
2002 2001 2002 2001
(ii) By activity: £m £m £m £m
Import, Distribution and Retail 68.7 157.1 2,491.9 2,418.6
UK Retail - - 929.3 711.7
Financial Services 4.1 3.9 94.6 97.2
E-commerce - - 1.2 0.8
Continuing 72.8 161.0 3,517.0 3,228.3
Discontinued - 4.1 - 91.2
72.8 165.1 3,517.0 3,319.5
Geographical analysis of turnover is by origin and is not significantly
different from turnover by destination. Turnover between segments is not
material.
b Total operating profit Group subsidiaries Share of joint ventures
2002 2001 2002 2001
(i) By geographical market: £m £m £m £m
UK 14.5 10.5 (0.4) 0.7
Greece/Belgium 16.4 9.4 2.7 2.9
Australia/New Zealand 16.8 12.3 0.6 0.5
Hong Kong 25.1 41.4 6.2 7.5
Singapore/Brunei 32.5 19.2 - -
Other 10.5 5.9 - -
115.8 98.7 9.1 11.6
Central costs (13.9) (14.9) - -
Continuing 101.9 83.8 9.1 11.6
Discontinued - 3.5 - 0.1
101.9 87.3 9.1 11.7
b Total operating profit Share of associates Total
2002 2001 2002 2001
(i) By geographical market: £m £m £m £m
UK 0.2 2.5 14.3 13.7
Greece/Belgium 0.4 0.4 19.5 12.7
Australia/New Zealand - - 17.4 12.8
Hong Kong - - 31.3 48.9
Singapore/Brunei - - 32.5 19.2
Other - - 10.5 5.9
0.6 2.9 125.5 113.2
Central costs - - (13.9) (14.9)
Continuing 0.6 2.9 111.6 98.3
Discontinued - (0.1) - 3.5
0.6 2.8 111.6 101.8
b Total operating profit Group subsidiaries Share of joint ventures
2002 2001 2002 2001
(ii) By activity: £m £m £m £m
Import, Distribution and Retail 106.1 94.0 (0.8) (0.2)
UK Retail 12.5 12.2 - -
Financial Services (1.8) (0.8) 9.9 11.8
E-commerce (1.0) (6.7) - -
115.8 98.7 9.1 11.6
Central costs (13.9) (14.9) - -
Continuing 101.9 83.8 9.1 11.6
Discontinued - 3.5 - 0.1
101.9 87.3 9.1 11.7
b Total operating profit Share of associates Total
2002 2001 2002 2001
(ii) By activity: £m £m £m £m
Import, Distribution and Retail (0.8) 1.5 104.5 95.3
UK Retail - - 12.5 12.2
Financial Services 1.4 1.4 9.5 12.4
E-commerce - - (1.0) (6.7)
0.6 2.9 125.5 113.2
Central costs - - (13.9) (14.9)
Continuing 0.6 2.9 111.6 98.3
Discontinued - (0.1) - 3.5
0.6 2.8 111.6 101.8
b Total operating profit Group subsidiaries Share of joint ventures
2002 2001 2002 2001
(iii) Operating profit before £m £m £m £m
goodwill amortisation:
Operating profit 101.9 87.3 9.1 11.7
Goodwill amortisation 5.0 0.9 0.3 -
106.9 88.2 9.4 11.7
b Total operating profit Share of associates Total
2002 2001 2002 2001
(iii) Operating profit before £m £m £m £m
goodwill amortisation:
Operating profit 0.6 2.8 111.6 101.8
Goodwill amortisation 0.3 0.9 5.6 1.8
0.9 3.7 117.2 103.6
Of the £5.0m subsidiaries' goodwill amortisation, £3.7m (2001 - £0.3m) relates
to the UK, £0.3m (2001 - £0.3m) to Greece/Belgium, £0.5m (2001 - £0.3m) to
Australia/New Zealand and £0.5m (2001 - £nil) to Singapore/Brunei.
The £0.3m (2001 - £nil) joint ventures' and £0.3m (2001 - £0.9m) associates'
goodwill amortisation fall under the UK segment.
Goodwill amortisation with the exception of £0.9m (2001 - £0.3m) in UK Retail,
relates entirely to Import, Distribution and Retail.
Note 3 provides a split of the exceptional profit (loss) by country.
c Net assets Group subsidiaries Share of joint ventures
2002 2001 2002 2001
restated restated
(i) By geographical market: £m £m £m £m
UK 238.2 242.8 4.6 3.8
Greece/Belgium 20.1 46.2 7.0 7.5
Australia/New Zealand 1.5 (16.3) - 0.5
Hong Kong 28.9 37.5 36.0 37.7
Singapore/Brunei 57.9 47.3 - -
Other 56.7 60.7 - -
Continuing 403.3 418.2 47.6 49.5
Discontinued - (0.9) - -
403.3 417.3 47.6 49.5
Net cash 16.6 17.5 - -
Other unallocated assets and
liabilities* (95.2) (114.7) - -
324.7 320.1 47.6 49.5
c Net assets Share of associates Total
2002 2001 2002 2001
restated
(i) By geographical market: £m £m £m £m
UK 24.2 27.4 267.0 274.0
Greece/Belgium 2.0 1.4 29.1 55.1
Australia/New Zealand - - 1.5 (15.8)
Hong Kong - - 64.9 75.2
Singapore/Brunei - - 57.9 47.3
Other - - 56.7 60.7
Continuing 26.2 28.8 477.1 496.5
Discontinued - 0.2 - (0.7)
26.2 29.0 477.1 495.8
Net cash - - 16.6 17.5
Other unallocated assets and
liabilities* - - (95.2) (114.7)
26.2 29.0 398.5 398.6
c Net assets Group subsidiaries Share of joint ventures
2002 2001 2002 2001
restated restated
(ii) By activity: £m £m £m £m
Import, Distribution and Retail 252.9 283.0 1.2 0.8
UK Retail 141.5 118.4 - -
Financial Services 9.4 17.9 46.4 48.7
E-commerce (0.5) (1.1) - -
Continuing 403.3 418.2 47.6 49.5
Discontinued - (0.9) - -
403.3 417.3 47.6 49.5
Net cash 16.6 17.5 - -
Other unallocated assets and
liabilities* (95.2) (114.7) - -
324.7 320.1 47.6 49.5
c Net assets Share of associates Total
2002 2001 2002 2001
restated
(ii) By activity: £m £m £m £m
Import, Distribution and Retail 19.2 21.9 273.3 305.7
UK Retail - - 141.5 118.4
Financial Services 7.0 6.9 62.8 73.5
E-commerce - - (0.5) (1.1)
Continuing 26.2 28.8 477.1 496.5
Discontinued - 0.2 - (0.7)
26.2 29.0 477.1 495.8
Net cash - - 16.6 17.5
Other unallocated assets and
liabilities* - - (95.2) (114.7)
26.2 29.0 398.5 398.6
* Other unallocated assets and liabilities include central provisions, taxation,
dividends and assets not directly related to operating activity.
2 PRIOR PERIOD ADJUSTMENT
The adoption of FRS 19 Deferred Tax has resulted in a change in the method of
accounting for deferred tax, from a partial to a full provision basis. This
change in accounting policy has been reflected in the accounts as a prior period
adjustment in accordance with FRS 18 Accounting Policies, and has required both
the profit and loss account and balance sheet comparatives to be restated. The
effect of the restatement on the prior year balance sheet is shown below:
2001
£m
Decrease in share of joint ventures' post acquisition reserves
1.7
Decrease in deferred tax asset 1.4
Increase in deferred tax provision 1.1
2.5
Decrease in net assets 4.2
Profit and loss reserve at 1 January 2001 3.7
Profit and loss account for year ending 31 December 2001 0.6
4.3
Minority interest (0.1)
4.2
The effect on the current year taxation charge is a decrease of £0.3m and on the
comparative taxation charge an increase of £0.6m.
3 EXCEPTIONAL ITEMS
2002 2001
£m £m
Net profit (loss) on sale of properties and investments 0.9 (0.6)
Net profit (loss) including provisions on sale and termination
of operations:
- UK Retail dealerships (2001 includes goodwill written off
£5.8m) (1.4) (6.7)
- IFS Australia 0.8 -
- Provision release arising from settlement of warranties/
indemnities 3.0 -
- MCL - UK (2001 goodwill written off £24.5m) - (24.5)
- Seaking Automotive Ltd - UK (2001 includes goodwill written
off £5.3m) - (7.9)
- IRB Finance Berhad - Brunei - 3.9
- Other (2002 includes goodwill written off £0.3m; 2001 - £1.1m) (1.2) (1.1)
Total net profit (loss) including provisions on sale and
termination of operations 1.2 (36.3)
Total exceptional items (note 6) 2.1 (36.9)
Goodwill written off included above of £0.3m (2001 - £36.7m) had been charged
against reserves in previous years.
4 NET INTEREST
2002 2001
£m £m
Interest payable and other charges relating to the Company and
its subsidiaries:
Bank loans and overdrafts falling due within five years 6.6 6.0
Loan notes falling due within five years 2.7 4.7
Other interest 2.2 2.5
11.5 13.2
Less amounts included in cost of sales for Financial Services
subsidiaries - (0.6)
11.5 12.6
Interest receivable relating to the Company and its
subsidiaries:
Bank and other interest (6.2) (11.9)
Less amounts included in turnover for Financial Services
subsidiaries - 1.8
(6.2) (10.1)
Net interest relating to the Company and its subsidiaries 5.3 2.5
Share of joint ventures' net interest - 0.1
Share of associates' net interest (0.2) 1.3
5.1 3.9
5 TAXATION
2002 2001
restated
Analysis of tax charge for the year £m £m
Current tax:
United Kingdom corporation tax at 30.0% (2001 - 30.0%) 5.5 1.5
Double tax relief (5.8) (2.2)
(0.3) (0.7)
Overseas tax 30.9 27.3
30.6 26.6
Adjustments to prior year liabilities:
- UK (1.5) (0.5)
- overseas 0.6 0.9
The Company and its subsidiaries' current tax 29.7 27.0
Share of joint ventures' current tax 3.2 3.3
Share of associates' current tax 0.6 1.1
Total current tax charge 33.5 31.4
The Company and its subsidiaries' deferred tax (3.9) (2.3)
Share of joint ventures' deferred tax (0.7) 0.2
Total deferred tax (4.6) (2.1)
Tax on profit on ordinary activities 28.9 29.3
The adoption of FRS 19 has resulted in a decrease of £0.3m in the tax charge to
31 December 2002 (2001 - £0.6m increase).
Tax on Headline profit amounts to £29.1m (2001 - £29.3m) which is before tax
relief of £0.2m (2001 - £nil) on goodwill amortisation (note 6). There is no
tax on exceptional items (2001 - £nil).
6 EARNINGS PER ORDINARY SHARE
Headline FRS3
2002 2001 2002 2001
restated restated
£m £m £m £m
Headline profit before tax 112.1 99.7 112.1 99.7
Goodwill amortisation - - (5.6) (1.8)
Exceptional items (note 3) - - 2.1 (36.9)
Profit before tax 112.1 99.7 108.6 61.0
Taxation (note 5) (29.1) (29.3) (28.9) (29.3)
Minority interests (3.4) (6.8) (3.4) (8.3)
Earnings 79.6 63.6 76.3 23.4
Headline earnings per share 104.5p 79.7p
Basic earnings per share 100.1p 29.3p
Diluted earnings per share 97.9p 29.0p
2002 2001
number number
Weighted average number of fully paid ordinary shares in issue
during the year, less those held by the Inchcape Employee Trust 76,195,345 79,816,472
Dilutive effect of potential ordinary shares 1,754,558 968,310
Adjusted weighted average number of fully paid ordinary shares
in issue during the year 77,949,903 80,784,782
Headline profit before tax and earnings (before goodwill amortisation and
exceptional items) are adopted in that they provide a fair representation of
underlying performance.
Headline and basic earnings per share are calculated by dividing the respective
Headline and FRS 3 earnings (as outlined above) 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 as per Headline and 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.
7 DIVIDENDS
2002 2001 2002 2001
pence pence £m £m
Interim - paid 16 September 2002
(2001 paid - 17 September 2001) 10.0 8.8 7.5 5.6
Final - proposed - payable 16
June 2003 (2001 paid - 17 June
2002) 21.0 18.2 16.1 13.9
31.0 27.0 23.6 19.5
If approved at the Annual General Meeting the final ordinary dividend will be
paid to ordinary shareholders registered in the books of the Company at the
close of business on 23 May 2003.
Dividends above exclude £0.4m (2001 - £0.3m) payable on shares held by the
Inchcape Employee Trust.
8 FOREIGN CURRENCY TRANSLATION
The main exchange rates used for translation purposes are as follows:
Average rates Year end rates
2002 2001 31.12.02 31.12.01
Australian dollar 2.77 2.80 2.86 2.84
Euro 1.59 1.61 1.53 1.63
Hong Kong dollar 11.71 11.22 12.55 11.35
Singapore dollar 2.69 2.58 2.79 2.69
9 BASIS OF PRESENTATION
The figures contained in this announcement have been prepared in accordance with
applicable accounting standards on the historical cost basis, modified to
include the revaluation of certain tangible fixed assets.
The financial information presented does not constitute the statutory financial
statements of 2002 or 2001. The 2002 figures are extracted from the audited
financial statements for that year which have not yet been approved by the
shareholders and have not yet been delivered to the Registrar. The comparative
figures are extracted from the latest published financial statements that have
been delivered to the Registrar of Companies. These have been restated on
adoption of FRS 19 during 2002, per note 2. The auditors' reports in respect of
both years were unqualified and did not contain a statement under either Section
237 (2) or Section 237 (3) of the Companies Act 1985.
Financial review
Financial reporting and accounting standards
The Group has adopted FRS 19 Deferred Tax with effect from 1 January 2002.
Deferred tax is now stated on a full provision basis. A prior period adjustment
reducing the net assets by £4.2m has been made to reflect the change in basis of
accounting. The comparatives in the profit and loss account and balance sheet
have been restated accordingly.
Results
The Group's operating profit before goodwill amortisation has increased from
£103.6m in 2001 to £117.2m in 2002. The 2001 operating profit included £3.5m
relating to discontinued businesses, and therefore the underlying continuing
operating profit in 2002 has shown strong growth from £100.1m to £117.2m. This
reflected a combination of growth in existing operations, particularly
Singapore, a full year's contribution from the Bates Motor Group Ltd (Bates
Group) and Eurofleet Ltd (Eurofleet) acquisitions, partially offset by a
reduction in Hong Kong due to much reduced taxi sales.
Pensions
The Group has continued to account for the cost of its defined benefit pension
scheme, in the profit and loss account, under SSAP 24. The Group operates a
number of defined benefit schemes, principally in the UK and Hong Kong. The
latest actuarial valuation of the UK schemes was at 31 March 2000 and showed
material surplus assets over liabilities. In accordance with SSAP 24 this
surplus is currently being amortised over the members' estimated remaining
working life reducing the Group's pension cost.
All pension and post retirement health care plans have been actuarially reviewed
at 31 December 2002 under the FRS 17 methodology. This shows a net deficit of
£53.2m compared to a net surplus of £5.7m at 31 December 2001. This reflects the
poor performance of equity markets during the year and lower bond rates, which
increases the quantum of the pension liability.
A triennial valuation of the Group's UK defined benefit schemes will be
undertaken in April 2003 upon which a revised SSAP 24 charge will be determined
for the next three years. As a result of the reduction in the schemes' net
assets we estimate the 2003 pension charge to increase by around £3.0m to £4.0m.
Exceptional items
The aggregate net exceptional profit for the period was £2.1m. This included a
£0.8m profit on the disposal of our 50.0% share of Inchcape Financial Services
Australia and a £3.0m provision release due to settling a number of claims
arising from businesses sold prior to Inchcape becoming a pure automotive
services group. This was partially offset by a £1.4m charge on the exit of some
of our UK Retail dealerships.
Net interest
The net interest charge for the year increased from £3.9m in 2001 to £5.1m in
2002. Of this, the subsidiary interest charge increased from £2.5m in 2001 to
£5.3m in 2002. This is as a result of the full year effect of the acquisitions
of the Bates Group and Eurofleet made in 2001, as well as the cost of funding
the acquisition of the minority shareholding in Inchcape Motors Ltd (IML).
Joint venture and associates' interest improved from a £1.4m charge in 2001 to
an income of £0.2m in 2002. This is due to the acquisition in late 2001 of the
remaining shares in Eurofleet, previously a 49.0% associate, and the sale of a
number of businesses by MCL Group Ltd, our 40.0% associate, during 2001 and
2002.
Taxation
Following the adoption of FRS 19, the Headline tax rate (before goodwill
amortisation and exceptional items) for the year ended 31 December 2001 has been
restated on a full provision basis from 28.8% to 29.4%. Further information on
the restatement can be found in note 2.
The Headline tax rate for the year decreased from 29.4% in 2001 to 26.0% in
2002. The rate benefited from a reduction in several statutory overseas' tax
rates, lower unrelieved tax losses in the UK, partly as a result of the
acquisition of the Bates Group and Eurofleet, and a one off benefit of 1.3%
arising from the agreement of prior year overseas tax computations.
Minority interest
Profit attributable to minorities has decreased to £3.4m from £8.3m in 2001.
This is due to the non-recurrence of a £1.5m exceptional profit on the sale of
IRB, the Financial Services subsidiary in Brunei in 2001 and the acquisition of
the minority shares in IML in May 2002. Prior to May IML contributed £1.5m to
the minority interest charge.
Exchange rates
Had the average rates in 2001 continued into 2002, both the Group's operating
profit before goodwill amortisation and Headline profit before tax would have
been £2.9m higher. This effect arose primarily as a result of the weakening of
the Singapore dollar and Hong Kong dollar, partially offset by the strengthening
of the Euro and Australian dollar. Principal exchange rates are listed in note
8.
Cash flow
The Group continues to manage its working capital tightly and the cash generated
from operating activities was £163.9m, over 140.0% of operating profit.
The Group had net cash of £16.6m at 31 December 2002 compared to £17.5m at 31
December 2001. This is despite spending £89.7m on both acquisitions and the
settlement of claims mainly arising from the sale of Intertek Testing Services
Ltd (£14.9m).
Acquisitions and disposals
The largest acquisition in the year was the purchase in May 2002 of the c. 36.7%
minority stake in IML for £63.1m including costs. The Group continues to invest
in its specialist UK Retail business and in June the Group signed an agreement
with Mercedes-Benz to represent the brand in Oxford, Stratford-upon-Avon,
Coventry and Banbury. Investment in this market area to date has been £5.9m.
In light of adverse changes in the Australian tax treatment of foreign owned
financial services companies, the Group disposed of its 50.0% interest in
Inchcape Financial Services Australia and has entered into new commission based
arrangements with a local financial services provider.
Capital expenditure
Capital expenditure less disposal proceeds was £23.6m. This was £4.2m lower than
the depreciation charge primarily as a result of increased receipts from
property disposals in the UK.
Treasury management and policy
The centralised Group Treasury function manages the key financial risks of the
Group encompassing funding and liquidity risk, interest rate risk, counterparty
risk and currency risk. Group Treasury operates under Board approved objectives
and policies which expressly forbid speculative transactions. The treasury
function is subject to regular internal audit.
Funding and liquidity risk
Group policy is to ensure that the funding requirements forecast by the Group
can be met within available committed facilities.
The Group's principal committed facility is a five year £250.0m revolving credit
facility, which was put in place in July 2002 with a syndicate of banks. This
facility replaces a £200.0m committed revolving credit facility, which had a
maturity date of March 2003, and a US private placement for US$72.0m (£43.5m),
which matured on 31 May 2002.
Loan notes totalling £19.3m were redeemed during the year. Notes issued in
December 2000/2001 on the Eurofleet acquisition, totalling £5.4m, were redeemed
in four tranches between March and December 2002. A further £13.9m of notes put
in place for the Bates Group acquisition in August 2001 were redeemed in
September 2002. At the year end Eurofleet notes totalling £20.5m were
outstanding, maturing between 2003 and 2005.
In addition to the committed facilities the Group has available uncommitted
borrowing lines made available by relationship banks. These facilities are used
for liquidity management purposes.
The Group's cash and debt balances at the year end are set out below:
Cash and debt balances
£m Debt Cash Net
Euro (3.2) 24.5 21.3
Hong Kong dollar (0.1) 4.4 4.3
Singapore dollar (0.1) 40.6 40.5
Australian dollar - 3.2 3.2
Other (2.3) 19.4 17.1
Total (other than sterling) (5.7) 92.1 86.4
Total sterling (80.9) 11.1 (69.8)
Total (86.6) 103.2 16.6
The Group's principal borrowings are in sterling. In addition to the £20.5m
Eurofleet notes, a further £40.0m was drawn on the committed £250.0m revolving
credit facility.
The principal cash deposits at the year end were in Singapore where cash is held
locally to support the requirement for the purchase of Certificates of
Entitlement required for new car sales.
Interest rate risk
The Group's interest rate policy has the objectives of minimising net interest
expense and the protection of the Group from material adverse movements in
interest rates. To achieve these objectives the policy throughout 2002 has been
to maintain the Group's principal borrowings at floating rates reflecting both
the low level of gross debt and the expected continuance of a benign interest
rate environment.
The Board has approved the use of interest rate swaps, forward rate agreements,
and options for interest rate hedging activities.
Counterparty risk
Cash deposits and other financial instruments result in credit risk on the
amount due from counterparties. Limits are in place, which reduce credit risk by
stipulating the aggregate amount and duration of exposure to any one
counterparty dependent upon the applicable credit rating. Credit ratings and the
appropriate limits are reviewed regularly.
Currency risk
The Group faces currency risk on its net assets and earnings, a significant
proportion of which are in currencies other than sterling. On translation into
sterling, currency movements can affect the Group balance sheet and profit and
loss account. Group policy is to minimise balance sheet translation exposures,
where fiscally efficient, by financing working capital requirements in local
currency and maximising the remittances of overseas earnings into sterling.
The percentages of net assets by currency at 31 December 2002 for the Group are
set out below:
Net assets by currency %
Sterling 23.8
Euro 17.7
Hong Kong dollar 23.2
Singapore dollar 22.5
Other 12.8
Total 100.0
The Group has transactional currency exposures mainly where purchases by an
operating unit are in currencies other than in that unit's reporting currency.
In many of our businesses, to remove this exposure, local currency billing
arrangements have been put in place with our principals. For those businesses
that continue to be billed in foreign currency, Group policy is that committed
transaction exposures are hedged into the businesses' reporting currency. Where
possible foreign exchange exposures will be matched internally before being
hedged externally. Hedging instruments are approved by the Board and are
restricted to forward foreign exchange contracts, currency options and foreign
exchange currency swaps. Foreign exchange currency swaps are also used to hedge
transaction exposures arising on cross border Group loans.
- End -
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