2018 Annual Results Announcement
Strategic progress despite market headwinds
Results for the year ended 31 December 2018
2018 Highlights
- Robust Distribution offset by continued Retail market challenges resulting in a 2.6% pre-exceptional PBT decline in constant currency
- Reported PBT of £132.1m, down 64% driven by goodwill impairment, and pre-exceptional PBT decline of 6.5% in actual currency
- Ignite supporting business with four deals during 2018, revenue stream successes and further procurement savings
- Two BMW contract wins in Kenya and Lithuania in 2019
- Good free cash flow conversion with generation of £281m, compared to £314m in 2017. FY18 DPS maintained year-on-year at 26.8p
| Actual Rates | 2018 | 2017 1 | Actual Currency YoY | Constant Currency YoY |
| Revenue | £9,277m | £8,953m | +3.6% | +5.8% |
| Reported operating profit | £174.3m | £394.0m | (55.8%) | – |
| Pre-exceptional operating profit 4,5 | £385.1m | £406.6m | (5.3)% | (1.4)% |
| Reported profit before tax | £132.1m | £369.0m | (64.2%) | – |
| Pre-exceptional profit before tax 6 | £356.8m | £381.6m | (6.5%) | (2.6%) |
| Reported basic EPS | 11.6p | 64.3p | (82.0%) | – |
| Basic adjusted EPS | 65.0p | 66.7p | (2.5%) | – |
| Full year DPS 2 | 26.8p | 26.8p | +0.0% | – |
| Distribution trading profit 3,7 | £374.9m | £366.8m | +2.2% | +6.5% |
| Retail trading profit 3,7 | £26.5m | £65.0m | (59.2%) | (58.7%) |
| Vehicle gross profit | £809.7m | £784.4m | +3.2% | +6.0% |
| Aftersales gross profit | £491.6m | £466.8m | +5.3% | +8.7% |
1. 2017 restated following the adoption of IFRS 15 and changes to the segmental information.
2. The final dividend of 17.9p is subject to final approval at the AGM on 23 May 2019.
3. These measures are Alternative Performance Measures, see note 11.
4. 2018 adjusted operating profit excludes an exceptional primarily non-cash charge of £210.8m, comprising £198.2m of goodwill and asset impairment (UK & Europe), £5.4m of non-cash pension charge relating to GMP equalisation and £7.2m relating to acquisitions. 2017 adjusted profit excludes an exceptional charge of £12.6m, comprising £10.5m of primarily cash exceptional charges relating to the fixed cost review, and £2.1m of costs relating to the South American acquisition.
5. Our Central American acquisition contributed £12.2m to FY18 pre-exceptional trading profit before integration costs.
6. 2018 adjusted profit before tax excludes a £13.9m exceptional non-cash finance cost relating to fair value adjustments against repayment of US Private placement loans in 2009.
7. Trading profit stated as per reclassified channel segmentation. On prior segmentation classification Distribution trading profit increased +9.3% y-o-y and Retail declined (53.1%) y-o-y in constant currency. See note 2.
Stefan Bomhard, Group CEO of Inchcape plc, commented:
“In 2018 we continued to demonstrate the merits of our Distribution business model and the strong cash generation profile of our business. Distribution contributed 93% of Group trading profit, compared to 85% in the prior year, after growing 7% year-on-year in constant currency over the year and 3% excluding our Central America acquisition. Distribution profit was driven by a strong performance across Asia, despite market decline in Singapore. Margins in our Retail channel came under further pressure due to the continued UK market supply and demand imbalance, the incremental impact of the new Worldwide Harmonised Light Vehicle Testing Procedure (WLTP) regulation, and a slowing Australia market. These factors were partially offset by the delivery of near record profit in Russia Retail, as we benefited strongly from Ignite initiatives undertaken in the market. Strategic initiatives, focused on rationalising our cost base, are underway to improve our Retail segment performance in 2019. Given continuation of the market trends that we discussed at the Q3 trading update, we expect a resilient performance in 2019 before the impact of a meaningful transactional currency headwind.
Against this backdrop, our Ignite strategy continues to enable us to manage the changing landscape and take advantage of the opportunities available to a well-capitalised, professional and global operator. Aftersales gross profit grew 7% in constant currency, excluding the Central America acquisition, with particularly encouraging performances in key regions such as South America, whilst Used cars performed very well over the year. Our global F&I strategy delivered an incremental £15m of profit over the year and our cumulative procurement savings ended the year at £32m.
I am very pleased to say that Indumotora, the South America acquisition we have operated for two years and our largest acquisition under Ignite, has achieved its targeted ROIC a year earlier than expected with earnings outperformance compared to plan. Central America, operated since March 2018, has also integrated well albeit against the short-term backdrop of a weaker market. We remain excited by the opportunities that entry into Central America and a larger scale presence with Suzuki present. Today we also announce two new Distribution contracts with BMW, driven by the OEM’s regional consolidation strategies and enabled by our efforts in becoming the OEM’s partner of choice. We will now operate in Lithuania, becoming BMW’s distributor across the Baltics having been awarded BMW in Estonia in 2017, and Kenya following on from our market entry in 2018 with JLR. Whilst there remain uncertainties in many of our markets, we have much in our control and we look forward to continued momentum in our business as we continue to execute on our Ignite strategy. Our capital allocation priorities remain unchanged and we continue to regularly review buybacks, with a prudent view given current macro uncertainties”.