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Inchcape plc Strong Distribution offsetting weaker Retail

Inchcape plc (LON:INCH), today announced half year results for the six months ended 30 June 2018

· Encouraging revenue growth of 6.8% in constant currency, and growth of 3.8% in actual currency

· Pre-exceptional profit before tax growth of 2% excluding property profit1 at constant currency, with strong Distribution momentum offsetting Retail challenges

· Reported profit before tax of £161.2m, down 15.6%

· Full year guidance confirmed. Continue to expect solid constant currency profit growth, with H1 overall performance largely as anticipated

· Strong performance in core Distribution business, with trading profit up 21% constant currency, supported by strength in Asia

· Retail market performance reflects significant vehicle margin pressure, as expected, down 61% in constant currency. Comparatives ease in the second half

· New Distribution contracts for Suzuki in Central America, Jaguar Land Rover in Colombia, and BMW in Guam announced since the start of the year

· Further new Jaguar Land Rover contract win in Kenya announced today – important strategic development for our African business

· Interim dividend per share +13%





Actual Currency

Constant Currency

Actual Rates

H1 2018

H1 2017 5








Pre-exceptional2,3 operating profit





Pre-exceptional2,4 profit before tax





Pre-exceptional1,2,4 profit before tax, excluding property profit





Reported profit before tax





Reported basic EPS





Basic adjusted EPS





Dividend per share










Vehicle gross profit





Aftersales gross profit





Distribution trading profit





Retail trading profit










Excluding Australia property profit of £9.3m in H1 2017.

2 H1 2018 operating exceptional charge is £4.4m, for costs incurred in relation to the acquisition and integration of the Grupo Rudelman business in Central America.  H1 2017 reported profit includes an exceptional charge of £5.1m in relation to the fixed cost review announced in 2016 and transactional costs for the South American acquisition in December 2016.  See note 3.

3 Our Central America acquisition contributed £5.3m to H1 2018 pre-exceptional operating profit

4 H1 2018 exceptional finance costs of £13.9m relating to the fair value basis of assessment of the Group’s US$ Private Placement loan notes. See note 5

5 IFRS 15 has been implemented for the year ending 31 December 2018. We have adopted a fully retrospective approach to transition, with all comparatives restated within this statement

Stefan Bomhard, Group CEO of Inchcape PLC, commented:
“We have made good progress in Distribution, the higher margin core of our business, over the first half of 2018, offsetting the expected challenges in our Retail markets. The Group’s resilient first half profit performance is broadly consistent with the phasing of our full year guidance and so we reiterate our expectation of a solid profit performance for the year as a whole. With comparatives easing into the second half in Retail and with our focus on optimising performance against some challenging market dynamics we intend to drive an improved second half performance.

“As we highlighted at our Capital Markets Day on 6th June we continue to see excellent growth opportunities, both organic and inorganic, for Inchcape. Today we announce our eighth Distribution business win over the last 24 months, a new Jaguar Land Rover contract in Kenya: a small business today, but a key milestone for development of our African footprint. It represents our first contract win in Africa in 50 years and means that we have achieved incremental business in all of the world regions on which we are focused as part of our Ignite strategy.

“The Inchcape investment case is a multi-layered growth story, with our highly cash generative and attractive global Distribution business at its core. We believe that through our business optimisation initiatives, M&A focus, and plans to capitalise on future industry trends we are well positioned to deliver growth for our shareholders through organic progress, industry consolidation and cash returns.”



Lead in Customer Experience
We will invest to maintain our position as leader in customer service innovation in automotive distribution and retail, with digital a key priority.

Become the OEMs’ Partner of Choice
We will build and strengthen our working relationships with our OEM partners by investing time in understanding their needs, seeking greater opportunities for collaboration with the aim of becoming a strategic business partner of choice.

Deliver Full Potential from all our Revenue Streams
We will increase our management focus on our Used vehicle and Aftersales activities at all levels of the organisation, enhancing their perceived status within the business and deepening further reporting and analysis.

Leverage our Global Scale
We will leverage the Group’s unique diversity and size into a true competitive advantage for Inchcape.

Invest to Accelerate Growth
We have a clear plan to work more actively with our OEM partners to identify distribution and retail acquisition opportunities that fit their strategic agendas, and create mutual value.


We have continued to make very pleasing progress across all five elements of our Ignite strategy in the first half of the 2018. As outlined at our recent Capital Markets Day, Ignite has been the key driver in our push to further differentiate the company in all core areas of operation, as well as providing a strong foundation from which to grow both organically and through M&A.

Most significantly, we continued our expansion in high growth potential markets with the acquisition in March of Grupo Rudelman and the Suzuki distribution contracts for Costa Rica and Panama. This was our second scale acquisition in Latin America in 18 months and also included the rights to distribute several Chinese automotive brands, further highlighting our commitment to building growth platforms for the future.

Over the period Jaguar Land Rover awarded Inchcape new business in Colombia and, as announced today, have awarded Inchcape the distribution contract for Kenya. From January we also started to operate as the distributor for BMW in Guam.

Nurturing the OEM partnerships we have built over many years, as well as building relationships with new partners, is a key facet of Ignite as we strive to become the OEMs’ ‘Partner of Choice’. We have dedicated, cross-functional teams spanning multiple markets that share insight and best practice to realise the potential of our partnerships; staying close to the OEMs and maintaining regular meaningful contact at all levels ensures that we are able to participate when new opportunities arise.

Staying with the theme of leveraging our scale, we have continued to make good progress with the ongoing delivery of our procurement-driven savings, optimising our global cost base and driving significant economies of scale.

Inchcape’s global diversification, focus on higher margin distribution markets and spread of revenue streams all reduce the exposure of the Group to cyclical new car trends. Our Ignite-driven focus on realising the full potential of all our revenue streams continues to deliver traction with operational improvement programmes in Used vehicles, Aftersales and Finance & Insurance (F&I).

Our commitment to leading in customer experience is now focused on building and embedding our digital and data capabilities in measurement, process automation, Search Engine Optimisation and online listings and reviews. Having laid the foundations of the ‘Inchcape Experience’ to improve how we interact with customers, we’re now working to empower our local marketing teams to further drive improvements in customer experience, especially online. Our digital development will also play a key role in our plans to create profitable growth opportunities from the trends which are shaping the future of the automotive industry.

We originally set out our Ignite strategy in 2016 to take us on a path of growth. We are delivering against this agenda, both organically and through consolidating our fragmented industry, and we are confident that we will continue to maximise Inchcape’s potential through Ignite.



Our performance in the first half of 2018 was broadly in line with the phasing of our full year guidance and reflects good trading profit growth across many of our markets. Our core Distribution business has continued to perform strongly, however, challenging trading conditions in the UK and Australia Retail markets has resulted in a flat year-on-year pre-exceptional constant currency underlying profit before tax, excluding a property profit in 2017 that has not repeated and excluding our recent Central America acquisition. The Central America acquisition adds 2% growth to this.

Revenue of £4.6bn in the first half of 2018 was up by 3.8% at actual rates on the previous year and up 6.8% at constant currency, with growth strongly driven by our Emerging Markets business, including 45.5% constant currency growth in our Russian business which was driven by our outperformance of a recovering market. Our new Central America business, focused on Suzuki in Costa Rica and Panama, contributed £55.8m of revenue since acquisition in March. Excluding the acquisition revenue grew 5.5% in constant currency.

In the first half of 2018 we generated pre-exceptional operating profit of £193.2m, a decline of 1.2% in constant currency. Our operating margin was down 50bps to 4.2%, reflecting the challenging trading environment in the UK and Australia Retail and the prior year property profit, partially offset by a strong performance in our Asia business. The new Central America business contributed £5.3m of operating profit to the half year, in-line with our expectations and achieving a trading margin of 9.5%. Excluding the acquisition pre-exceptional operating profit declined 4.0% in constant currency.

In the first half of 2018, trading profit of £180.9m in our Distribution segment increased by 12.6% in actual currency and was up by 20.8% at constant currency, with a strong performance in our Asia business, due to market share gains in our key markets of Singapore and Hong Kong, and a pleasing improvement in New Vehicle profitability in Singapore year-on-year, supported by a strong model mix. Our Distribution performance also benefitted from a strong increase in profitability in Europe, driven by Greece, Belgium and the Balkans, and Australia with the Yen transactional currency movements providing a year-on-year benefit.

Our Retail segment delivered a trading profit of £23.0m, down 61.8% in actual currency and 61.3% at constant currency, continuing the trend from the second half of 2017 and reflecting very challenging conditions for Vehicles in our UK and Australia Retail businesses. The first half of 2017 also included a £9.3m property profit in our Australian Retail market. Our Russian business was a highlight in the first half, delivering improved trading across our value drivers and leveraging the Ignite strategy to drive strong growth in our Used business. Russian trading profit improved from a loss of £1.2m in the prior year to a profit of £5.0m in the first half of 2018.

Pre-exceptional profit before tax declined 2.9% over the period in constant currency, but excluding the Australia property profit in the prior year grew 2.0%.

Operating cash flow, excluding the cash cost of exceptional items, was £200.8m over the first half (2017 H1: £252.0m), with 104% conversion (2017 H1: 122%) reflecting good control of working capital, albeit against a low December 2017 base and therefore driving an outflow for the period. Free cash flow was £69.2m over the first half (2017 H1: £149.8m), with 36% conversion (2017 H1: 72%). This reflected a more normalised level of net working capital and a higher proportion of expected full year capex in the first half compared to 2017. Year to date Capex spend was largely driven by planned investments in the UK. During the period we spent £137.6m (net of disposal proceeds) on acquisitions, principally related to the Central American acquisition in March 2018. We ended the first half of the year with a net debt position of £163.7m (2017 H1 net debt: £0.1m, 2017 FY net funds: £80.2m).

Consistent with our dividend policy, and given the strength of our balance sheet, the Board has declared an interim dividend of 8.9p (2017 H1: 7.9p). This represents a year-on-year increase of 12.7%. Inchcape sets its interim dividend at a third of the prior year’s total dividend (2017 FY: 26.8p). The interim dividend will be paid on 5 September 2018 to shareholders on the register at close of business on 3 August 2018. The Dividend Reinvestment Plan is available to ordinary shareholders and the final date for receipt of elections to participate is 14 August 2018.

The Board targets a capital structure that will provide Inchcape with the flexibility to invest in organic growth and to make further value-creating acquisitions while avoiding sustained excess net cash balances. With this stated objective, and following the Central America acquisition made in March, Inchcape announced that it would no longer continue with the share repurchase programme which was announced in February. The Board will continue to evaluate appropriate capital allocation over time.

With deep automotive experience across the Group, a strong ethos of operational discipline and an unrelenting focus on delivering outstanding customer service, Inchcape’s people are central to our success. Management would like to express their sincere thanks to colleagues around the world for their commitment and dedication through the first half of the year.

Our full year expectation for 2018 is unchanged, with the performance reflecting the trends from the first half of year with ongoing growth in our Distribution businesses acting as an offset to challenging trading conditions in some of our Retail markets. We expect to deliver a solid constant currency performance in 2018. With comparatives easing into the second half in Retail we intend to drive an improved second half performance.

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