Full Annual Report - Inchcape

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Business review Strategy Operating review Group Our resilient global business model and proven strategy has delivered a solid financial performance in the face of an unprecedented downturn. John McConnell Group Finance Director Across Europe, we delivered resilient margin in distribution despite the continued downturn. In Greece, where the market declined by 18.8%, our Toyota and Lexus business retained its market leadership position.Although the Belgian market fell by 12.6% we maintained our market share under very competitive circumstances. Although the market in Hong Kong improved in the fourth quarter of 2009, it was down 28.3% for the full year and we remained market leader despite strong pricing activity from our competitors. In Singapore the market slowed down further in the second half as new car quota sizes were reduced by the government. However, our strong marketing campaigns and lower parallel imports led to a 3.7ppts gain in market share to 21.4%. In a year that saw the car market in Australia decline by 7.4% we improved our market share by 0.1ppts. While our Russia and Emerging Markets segment has been significantly affected by the continued downturn, it remains profitable and the Group gained market share in the Baltics and the Balkans. Retail business The unprecedented downturn which began in the second half of 2008 and continued throughout 2009 has significantly impacted the global demand for new and used vehicles.We faced extremely challenging trading conditions in all of our markets across the world and although we saw improvements in a few markets in the second half of 2009, particularly the UK and Australia, overall, total registrations in all of our markets were considerably down compared with 2008 for the full year. Despite these significant market declines, the Group has delivered resilient results with sales of £5.6bn, a decline of 16.6% at constant currency for the year. Our swift response to market challenges,with a focus on our five key operational priorities of growing market share, growing aftersales, reducing costs, managing working capital and selective capital expenditure has been reflected in a Group operating profit of £175.2m before exceptional items, down from £240.5m in 2008. The restructuring carried out at the end of 2008 and in the second quarter of 2009 has resulted in annualised like for like cost savings of c.£70m.This has resulted in a trading margin of 3.5%, down from 4.0% in 2008. The Group has reduced working capital by £176m in 2009 and our stock target of 1.5 months was achieved earlier than expected.This, together with our other self help measures has enabled the Group to deliver cash generated from operations significantly ahead of expectations, generating £336.7m, 83.3% better than 2008 (at actual rate). The strong cash generation from operations combined with the proceeds from the Rights Issue enabled the Group to repay a significant portion of its borrowings.The Group ended the year with £0.8m of net cash compared to a net debt of £407.8m in 2008. Distribution business Our distribution businesses have been resilient despite the global decline in car markets resulting in sales of £2.4bn, a decline of 19.7% and a robust 5.7% trading margin, resulting in a trading profit of £137.6m, a decline of 37.7% on 2008. Although sales declined by 14.1% versus 2008, trading margins improved by 0.2ppts delivering a trading margin of 1.8% as a result of our self help measures put in place at the start of the year to deliver a trading profit of £56.4m. In the UK we delivered solid results, outperforming the market which fell by 6.4%, to deliver a like for like sales decline of 3.9%. With the beneficial impact of the scrappage scheme and a significantly reduced cost base, we generated a growth in trading profit of 48.6% and 34.6% on a like for like basis. Our Australasian retail business delivered a strong trading profit 15.2% higher than the prior year and a trading margin of 3.9%, an improvement of 0.6ppts. Across Europe we have continued to focus on delivering excellent customer service in very challenging trading environments. In our Russia and Emerging Markets businesses, sales decreased by 1.6%. Trading conditions remained extremely challenging, however we finished the year with a trading profit of £4.0m. 22 Inchcape plc ¦ Annual Report and Accounts 2009
Section One Business review Regional analysis For the year ended 31 December 2009, the Group adopted IFRS 8‘Operating Segments’. IFRS 8 replaces IAS 14 ‘Segment Reporting’ and is effective for reporting periods beginning on or after 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to assess their performance and to allocate resources to the segments. These operating segments are then aggregated into reporting segments to combine those with similar characteristics. In contrast, the predecessor standard required the Group to identify two sets of segments (business and geographical), using a risks and rewards approach. Under IFRS 8, Group businesses previously reported within the Rest of World segment under IAS 14 are reported within the other segments that best match the characteristics of each individual business. As a result, the Group’s reportable segments for 2009 are as below. Distribution Australasia Europe North Asia South Asia United Kingdom Russia and Emerging Markets Retail Australasia Europe United Kingdom Russia and Emerging Markets Included within the Russia and Emerging Markets segment are Russia, China, South America,Africa, the Balkans, the Baltics and Poland; on the basis that prior to the global downturn these markets had entered the growth phase of their development cycle and we expect these markets to return to that growth phase in the medium term.These changes require comparative segmental information to be restated accordingly. Our results are stated at actual rates of exchange.However,to enhance comparability,we also present year on year changes in sales and trading profit in constant currency thereby isolating the impact of exchange.Unless otherwise stated, changes in sales and trading profit in the operating review are at constant currency. Performance indicators – Results Year ended Year ended % change 31.12.2009 31.12.2008 in constant £m £m % change currency Sales 5,583.7 6,259.8 (10.8) (16.6) Trading profit 194.0 250.1 (22.4) (30.0) Trading margins (%) 3.5 4.0 (0.5)ppt (0.7)ppt Like for like sales 5,223.1 5,713.1 (8.6) (14.6) Like for like trading profit 194.8 248.1 (21.5) (29.0) Like for like sales (decline)/growth (%) (8.6) 2.6 (11.2)ppt Like for like trading profit (decline) (%) (21.5) (16.1) (5.4)ppt Working capital 76.7 252.5 (69.6) Cash generated from operations 336.7 183.7 83.3 Business analysis Sales Regional analysis Year ended Year ended % change 31.12.2009 31.12.2008 in constant £m £m % change currency Distribution 2,427.0 2,654.7 (8.6) (19.7) Retail 3,156.7 3,605.1 (12.4) (14.1) Trading profit Distribution 137.6 192.9 (28.7) (37.7) Retail 56.4 57.2 (1.4) 0.2 2009 2009 2009 2008 2008 2008 Operating Exceptional Trading Operating Exceptional Trading profit items profit profit items profit £m £m £m £m £m £m Australasia 37.9 – 37.9 40.9 (1.3) 42.2 Europe 26.8 (1.8) 28.6 33.6 (7.0) 40.6 North Asia 19.9 – 19.9 38.6 (0.1) 38.7 South Asia 55.9 – 55.9 63.0 – 63.0 United Kingdom 43.7 (3.0) 46.7 – (23.1) 23.1 Russia and Emerging Markets (7.1) (12.1) 5.0 (7.1) (49.6) 42.5 Central costs (20.3) (1.5) (11.0) (1.4) Operating profit 156.8 (18.4) 158.0 (82.5) www.inchcape.com 23
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Section Four Shareholder informatio
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