Annual Report and Accounts 2012 The premium choice in the automotive industry RIGHT MARKETSRIGHT BRANDS RIGHT CATEGORIES RIGHT FINANCIALS RIGHT GROWTH STRATEGY The premium choice in the automotive industry Central to everything we do is our focus on customer service, operational excellence and world-class governance, which differentiates us in each of our 26 markets globally. Our distinctive business model in the automotive industry makes us the premium choice as we create sustainable, long-term growth for all of our stakeholders. KEY HIGHLIGHTS SALES CASH GENERATED NET ASSETS FROM OPERATIONS £6.1bn £249.2m £1,507.4m 2011: £5.8bn 2011: £244.7m 2011: £1,357.5m 8 350 1,600 7 300 1,400 6 250 1,200 £336.7m 5 1,000 £1,507.4m £6.3bn 200 £6.1bn £1,357.5m £5.9bn £274.3m 4 £5.8bn 800 £1,289.3m £5.6bn £244.7m 150 £249.2m 3 600 £1,089.7m 100 £1,019.6m 2 £183.7m 400 1 50 200 0 0 0 08 09 10 11 12 08 09 10 11 12 08 09 10 11 12 OPERATING PROFIT PROFIT BEFORE TAX ADJUSTED EARNINGS (before exceptional items) (before exceptional items) PER SHARE* (before exceptional items) £261.9m £250.3m 39.7p 2011: £244.4m 2011: £227.7m 2011: 35.5p 300 300 60 250 250 50 200 200 40 50.5p £261.9m £250.3m £244.4m £240.5m 150 150 £227.7m 30 £225.5m 39.7p £214.0m 35.5p £190.7m 100 100 20 32.0p £175.2m 27.1p £155.1m 50 50 10 0 0 0 08 09 10 11 12 08 09 10 11 12 08 09 10 11 12 OPERATING PROFIT PROFIT BEFORE TAX EARNINGS PER SHARE* £263.1m £251.5m 40.0p 2011: £231.0m 2011: £203.4m 2011: 31.0p 300 300 40 35 250 250 40.0p 30 200 200 25 £263.1m 31.0p £251.5m 27.9p 150 £231.0m 150 20 £203.6m £203.4m 22.9p £192.1m 15 100 100 18.9p £158.0m £156.8m 10 50 50 £136.7m 5 £108.2m 0 0 0 08 09 10 11 12 08 09 10 11 12 08 09 10 11 12 * 2008/09 numbers restated to reflect the bonus element of the Rights Issue and the Share Consolidation BUSINESS REVIEW GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION DIRECTORS’ REPORT: Strategic partnerships with the BUSINESS REVIEW 2 The premium choice world’s leading automotive brands 5 Five performance differentiators Inchcape is a global premium automotive group, operating 12 Chairman’s statement 14 Group Chief Executive’s as a strategic partner to the world’s leading car brands in the strategic review fast growing luxury and premium automotive sector. The 19 Key performance indicators Group provides a professional and well fi nanced route to 22 Operating review 31 Finance review market for vehicle and parts manufacturers across fi ve 32 Principal risks continents. Working across the value chain with brand 34 Corporate Responsibility report partners, Inchcape operates as both a distributor and retailer. DIRECTORS’ REPORT: GOVERNANCE 38 Board of Directors 40 Executive committee 42 Corporate governance report RETAILER 50 Directors’ report on remuneration 62 Other statutory information VEHICLES, F&I,* MANUFACTURER PARTS & SERVICE FINANCIAL STATEMENTS DISTRIBUTOR CUSTOMER 66 Consolidated income statement 67 Consolidated statement VEHICLES & PARTS of comprehensive income 68 Consolidated statement of fi nancial position 69 Consolidated statement of changes in equity 70 Consolidated statement INCHCAPE of cash fl ows 71 Accounting policies * F&I: fi nance & insurance 80 Notes to the accounts 125 Five year record OUR ROLE AS A DISTRIBUTOR 126 Auditors’ report – Group In 22 of our 26 markets, Inchcape is responsible for the fulfi lment of the entire 127 Company balance sheet marketing, supply and sales programme for our brand partners’ vehicles and spare 128 Accounting policies parts. As the exclusive brand representative, we provide the local expertise, unrivalled 129 Notes to the accounts market understanding and scale to deploy market leading operational standards 135 Auditors’ report – Company and world class governance: tProduct development – specifying the models and volumes for each market tLogistics – from factory gate to retail centre SHAREHOLDER INFORMATION tNational marketing and sales – all promotional and pricing activities to enhance 136 Company details the brand tRetail network management – appointing, managing, training and supporting franchised dealer networks tOperational excellence – delivering competitive advantage through unrivalled levels of customer service. In city-state markets (e.g. Hong Kong and Singapore) Inchcape operates as both the exclusive distributor and the exclusive retailer for its brand partners, capitalising on important margin opportunities. OUR ROLE AS A RETAILER In our four retail only markets (UK, Russia, China and Poland) where our partners manage their brand themselves, Inchcape provides high quality brand More information within Report representation through large-scale retail facilities on a regional basis. Inchcape’s competitive advantage is achieved through exceptional customer service standards More information online delivered globally through our unique Inchcape Advantage programme. www.inchcape.com 1 The premium choice in the automotive industry... OUR SHAREHOLDERS OUR CUSTOMERS tDistinct business model, disciplined performance management tUnwavering Customer 1st focus and a clear strategy delivering profitable, sustainable growth tInsights gained through 14,000 interviews every tStrong earnings growth in the last three years and record profit month with buyers and non-buyers enable on-going before tax and profit after tax in 2012 refinement of customer-centric operating standards and value-for-money propositions tLeading presence in high-margin, high-growth Asia Pacific and Emerging Markets – strategic partnerships with the world’s best tProprietary operating processes of our unique Inchcape luxury and premium automotive brands Advantage programme deliver consistently superior customer service, every day, every time, everywhere tLow fixed cost, cash generative business with considerable growth prospects, set to outperform in a dynamic market place +52% 14,000 2012 total shareholder return monthly customer interviews 2 Inchcape plc Annual Report and Accounts 2012 BUSINESS REVIEW GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION ...creating sustainable, long- term value for all stakeholders OUR BRAND PARTNERS OUR PEOPLE tFocus on six leading premium manufacturer groups ensures tEvery individual is encouraged to be a leader, empowered deep business understanding, close relationships and a to make decisions that make a positive difference matchless product portfolio tLeadership teams are proactively developed through industry- tAs their strategic partner, manufacturers value Inchcape as leading talent review and planning process a provider of a comprehensive, financially sound and trusted tReward and recognition is focused on differentiating high route to market performers and driving high performance tWorld class retail operating standards, global scale and local tGlobal training and education programmes enable us to share agility drive enhanced market share experience and best practices between teams across the world tDistribution model uniquely embraces the automotive tWe leverage our Group structure to provide our people with value chain from factory gate through the entire ownership outstanding growth opportunities life-cycle tExpertise to create superior customer value and pricing power for market leading margins c.90% 14,400 of Group’s profit from six employees globally core manufacturer relationships www.inchcape.com 3 Delivering sustainable growth... Throughout the most challenging trading SALES ADJUSTED EARNINGS PER SHARE conditions that our industry has ever known, (before exceptional items) Inchcape has consistently outperformed the market place – locally, regionally and globally. Our performance in 2012 illustrates that we £6.1bn 39.7p operate in the right markets, work with the right 2011: £5.8bn 2011: 35.5p brands, trade in the right categories and deliver 7 40 the right financials – all driven by our Customer 1st growth strategy, which makes us the 6 35 39.7p premium choice for shareholders, customers, 5 30 35.5p £6.1bn £5.9bn partners and our people. 25 32.0p £5.8bn 4 £5.6bn 20 3 27.1p* 15 2 10 1 5 0 0 09 10 11 12 09 10 11 12 * adjusted for the Share Consolidation 4 Inchcape plc Annual Report and Accounts 2012 BUSINESS REVIEW GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION ...through five performance differentiators: 1 2 3 4 5 Right Right Right Right Right Markets Brands Categories Financials Growth strategy 21 of our 26 markets Focus on the premium Category range Low fixed costs and Unique customer are in high-growth, and luxury brands of provides a well operational discipline focus enables us high-margin economies six world leading balanced profit deliver sustainable to capture growth of Asia Pacific and the vehicle manufacturers, stream and revenue and opportunities Emerging Markets generating c.90% healthy margins earnings growth in existing and of Group’s profits new markets See page 6 See page 7 See page 8 See page 9 See page 10 www.inchcape.com 5 tGrowing population and increasing wealth will tAPAC/EMs value chain growth opportunities drive car penetration growth in Asia Pacific and for used cars, service and parts Right Emerging Markets (APAC/EMs) tPremium brand partners are well positioned to 1Markets tThe structural premiumisation of demand for gain share in developed markets with leading new cars in APAC/EMs positions our premium fuel efficiency technology brand partners to outperform the industry GLOBAL FOOTPRINT UNIQUELY POSITIONS INCHCAPE FOR FUTURE GROWTH Broad international Over portfolio of scale operations in 26 markets 94% 70% APAC/EMs will represent profits from APAC/EMs