Full Annual Report - Inchcape

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Business review Strategy Financial review Delivering solid results above our expectations despite the unprecedented global decline in the car industry. The Group has produced results above expectations. In addition to the segmental results, detailed below are the financial implications of our operational activities. Central costs Unallocated central costs for the full year are £18.8m before exceptional items (2008- £9.6m). The year on year increase is due to our extremely low cost base in 2008 as we did not pay any management bonuses and benefited from a credit from long-term share based awards. Included in central costs is a net gain of £0.1m from the currency call options taken out in February 2009 to hedge the currency impact from a potential strengthening of Sterling. All options have now been exercised or lapsed at the end of December 2009. Joint ventures and associates The share of profit after tax from joint ventures decreased by £1.5m to £0.7m in 2009. This is mainly due to the start up costs of our joint venture in Moscow and lower profit from our joint venture leasing business in Belgium. Exceptional items The exceptional costs of £18.4m remain the same as those reported at the half year. We have taken a prudent view on prospects in Latvia based on the continued challenging trading conditions and have taken an impairment of £10.3m on the carrying value of the land and buildings. All of the goodwill relating to Latvia was written off in 2008. Further restructuring costs of £5.1m were incurred relating to restructuring in Finland, the Baltics and Russia and the streamlining of our European management. We have also made a provision of £3.0m related to an onerous lease commitment on land which was part of the Inchcape Automotive business which was sold to Camden Motors. Camden went into administration during the first half of the year. The Group remains responsible for the head lease on this property. Net financing costs Net financing costs of £20.8m are £31.2m lower than last year, as we benefited from lower interest rates in the majority of our markets, reduced debt following the use of the net proceeds from the Rights Issue and the cash generated from operations as a result of significantly lower working capital. The proceeds from the Rights Issue were used to pay down US$114m higher rate US$ loan notes at par, resulting in a one off benefit of £4.0m from the hedging arrangements in place for the US$ Private Placement. The balance was used to pay down revolving debt. Overall, the hedging arrangements in place for the US$ Private Placement resulted in a net gain of £0.9m, including the £4.0m realised benefit referred to above. Tax The effective tax rate before exceptional items for the year is 28% compared to 26% in 2008. This increase arises due to the mix of profits across the territories in which we operate. The rate is expected to be similar in 2010 based on our current assumptions of profit mix. Minority interests Profits attributable to minority interests reduced to £3.0m from £3.9m in 2008. This was largely a result of lower profits in our Lithuanian business and the annualised impact of the acquisition in the first quarter of 2008 of the remaining 24.9% interest in our St Petersburg businesses. At the year end the Group’s minority interests principally comprise a 33% minority holding in UAB Vitvela in Lithuania, a 30% share in NBT Brunei and a 10% share of Subaru Australia. Foreign currency During 2009, the Group benefited by £16.7m from translation of its overseas profits before tax into Sterling at the 2009 average exchange rate. 36 Inchcape plc ¦ Annual Report and Accounts 2009
Section One Business review Cash flow and net debt The Group’s operations have proven to be significantly cash generative in 2009, in spite of the downturn, with cash generated from operations of £336.7m. The continued tight management of working capital, one of the Group’s five key operating priorities, with particular focus on inventory and supply chain management, has been a factor in the delivery of this result. The Group invested a total of £50.1m in capital expenditure across the Group and in addition raised £234.3m in a successful Rights Issue in April 2009. This has enabled the Group to report £0.8m of net cash at the end of 2009 versus £407.8m of net debt at the end of 2008. In line with the Group’s objectives announced as part of the Rights Issue process no interim dividend was paid and the Board is not recommending a final dividend for 2009. we have continued to make strategic investments by opening nine greenfield sites across the Group. The Group also continued with its implementation plan for a global SAP system for its operating business with the first live site in the UK. The next phase of implementations planned in 2010 are in the UK and Russia. John McConnell Group Finance Director 9 March 2010 Pensions Following the successful Rights Issue in April 2009 the Group has reviewed and agreed a revised funding programme with the Trustees and as a result the Group made contributions to the UK defined benefit schemes amounting to £34.7m in 2009, an increase on 2008. A revision of market and actuarial assumptions for the UK defined benefit schemes has resulted in a closing deficit on Group schemes of £74.8m compared to a surplus of £6.0m in 2008. Acquisitions and disposals The Group agreed on the earn out payment for the 75.1% acquisition of Musa Motors business in Moscow and made a payment of US$35m in October 2009. A further US$5m is to be made in 2010. The remaining 24.9% is due to be acquired in early 2011 for a payment dependent on 2010 EBITA. The Group accounts for Musa Motors as if it is a wholly owned subsidiary. Capital expenditure The Group has worked closely with its brand partners to minimise the level of capital expenditure, while maintaining the required operational standards, and as a result capital additions reduced from £117.8m in 2008 to £49.9m in 2009. However www.inchcape.com 37
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Section Four Shareholder informatio
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