Note: Spine set to 12.5mm. Please adjust if necessary
### ANNUAL REPORT AND
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
### ACCOUNTS 2021

| STRATEGIC REPORT |  | FINANCIAL STATEMENTS |  |
| --- | --- | --- | --- |
| 2 Our business model |  | 110 Independent auditor’s report to the |  |
| 4 Our strategy |  |  | members of Inchcape plc |
| 6 Chairman’s welcome |  | 120 Consolidated income statement |  |
| 8 Chief Executive’s review |  | 121 Consolidated statement of |  |
| 12 Facing into the future |  |  | comprehensive income |
| 14 Acquisition progress |  | 122 Consolidated statement offinancialposition |  |
| 16 Stakeholder engagement |  | 123 Consolidated statement ofchanges in equity |  |
| 20 Key performance indicators |  | 124 Consolidated statement ofcashflows |  |
| 22 Investment case |  | 125 Accounting policies |  |
| 24 Operating and financial review |  | 136 Notes to the financial statements |  |
| 33 Responsible Business |  | 186 Alternative performance measures |  |
| 40 Task Force on Climate-related |  | 188 Five year record |  |
|  | Financial Disclosures | 189 Company statement of financialposition |  |
| 46 Non-financial information statement |  | 190 Company statement of changes inequity |  |
| 48 Risk management |  | 191 Accounting policies |  |

194 Notes to the Company financial statements
GOVERNANCE
60 Chairman’s statement OTHER INFORMATION
68 Governance at a glance 206 Shareholder information
70 Board of Directors
72 Corporate Governance Report
75 Nomination Committee Report
77 Audit Committee Report
82 CSR Committee Report
84 Director’s Report on Remuneration
104 Directors’ Report
## INCHCAPE IS ON AN
## AMBITIOUS GROWTH JOURNEY
### As the leading automotive distributor in a highly
### fragmented global market, we have developed
### a ‘plug-and-play’ distribution platform and
### built our digital and data capability to create
### a significant competitive advantage. We are
### also uniquely positioned to capture more
### of a vehicle’s lifetime value.
### Our commitment to return shareholder value
### through organic growth, consolidation and
### cash returns will be delivered by our Accelerate
### strategy and is underpinned by our Responsible
### Business framework, ‘Driving What Matters’.
## HIGHLIGHTS

Revenue

**£7.6bn**

2020: £6.8bn

Free cash flow

**£289m**

2020: £177m

Return on capital employed

**30%**

2020: 12%

Dividend per share

**22.5p**

2020: 6.5p

## Our financial metrics

The following table shows the key profit measures that we use throughout this report to most accurately describe operating performance and how they relate to statutory measures.

|  Metric | 5m | Use of metric  |
| --- | --- | --- |
|  Gross Profit | **1,140.9** | Direct profit contribution from Value Drivers (e.g. Vehicles and Affordable)  |
|  Less Segment operating expenses | (80.8) |   |
|  Operating Profit (before exceptional items) | **338.1** | Profit generated by the Group  |
|  Less exceptional items | (10.2) |   |
|  Operating Profit | **226.9** | Statutory measure of Operating Profit  |
|  Less Net Finance Costs | (30.0) |   |
|  Profit before tax | **194.8** | Statutory measure of profit after the costs of financing the Group  |
|  Add basic exceptional items | 10.2 |   |
|  Profit before tax and exceptional items^{1} | **296.5** |   |

1. APM (alternative performance measure), see page 86

![img-0.jpeg](img-0.jpeg)
OUR BUSINESS MODEL: DIFFERENTIATED DISTRIBUTION
## “BRINGING MOBILITY TO THE
## WORLD’S COMMUNITIES –
## FOR TODAY, FOR TOMORROW
## AND FOR THE THE BETTER”
### Inchcape is the world’s leading independent automotive distributor,
### operating in over 40 markets and geographies across Asia, Australasia
### and the Pacific; the Americas; Africa; Europe and the UK
### AT A GLANCE OUR VALUE CHAIN
Inchcape’s value chain comprises six key elements which provide
full spectrum ‘Differentiated Distribution’ services for our original
equipment manufacturer (OEM) partners:
## £ 7. 6 bn
Revenue
Product planning Using our local market expertise to inform
certification and vehicle ordering decisions (model types and
specifications).
Logistics Operating comprehensive post-factory connections to
## 40+ deliver vehicles and parts in our markets.
Brand partners
Brand and marketing Proposition development, brand positioning
(including price setting) and national marketing, aimed to maximise
market share for our partners.
Channel management Defining and building the optimal channels
## 175 + to reach consumers and businesses covering network management,
digital, and omni-channel. This also includes selection and training
Years of successful
international trade of independent dealers, and ongoing performance management.
Retail services Bringing our omni-channel platform to customers
to deliver world-class, digital-first experiences across our OEM and
market portfolio.
## 14,5 0 0+ Aftermarket services Distribution of parts, and customer and
vehicle lifecycle management including aftersales services via
Employees
the omni-channel retail network.
Our value chain is differentiated from others by our investments
in digital customer experience, in data analytics, our global
connected platform – which enables us to deploy our processes
consistently worldwide – and deep local market expertise.
2 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
### OUR GLOBAL REACH
UNITED KINGDOM
## 6
Continents
## 25%
EUROPE
## 1,000+
Distribution & retail
## 33%
network locations
AMERICAS & AFRICA GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
ASIA PACIFIC (APAC)
## 40+
Countries and geographies
## worldwide 14%
## 28%
### 2021 revenue% split
### OUR LONG-STANDING PARTNER RELATIONSHIPS
### One of Inchcape’s core strengths is the length of our main OEM
### relationships. Stretching back to the 1960s when we first began working
### in partnership with Toyota, we have fostered and maintained close
### relationships with some of the world’s leading automotive manufacturers,
### as well as adding new partnerships with many others over the decades.
## 54 51 44 34
Toyota Jaguar Suzuki Mercedes-Benz
Land Rover
## 10 0 +
### years of automotive
### experience

| 33 | 32 | 29 |
| --- | --- | --- |
| Volkswagen | BMW Group | Subaru |
| Group |  | Corporation |

Continuous years of operating with our seven core OEM partners
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 3
OUR STRATEGY
## SUPERCHARGING
## OUR BUSINESS
### Transforming Inchcape to accelerate our growth through
### Distribution Excellence and Vehicle Lifecycle Services
### OUR GROWTH DRIVERS:
### DISTRIBUTION EXCELLENCE VEHICLE LIFECYCLE SERVICES
### OUR ENABLERS:
Culture and Capabilities Digital, Data & Analytics Efficient Scale Operations
Responsible Business
new solutions or take proven solutions digital, technological and process
### Our world, our industry and

|  | from other markets to capture a | capabilities needed to succeed |
| --- | --- | --- |
| our business are experiencing | greater part of the vehicle value chain. | in the future. |
| unprecedented change. | 3. Using our core capabilities and | 2. Use Digital, Data and Analytics to: |
|  | market presence to expand and grow | create the consumer experience |

### This change represents
in new markets and with new partners. relevant to each market based on
### a significant opportunity Manufacturers are now looking for data driven insights; make the
partners in the markets they choose business critical decisions that support
### for Inchcape to grow
not to serve themselves, who have the efficient and effective execution using
### in three ways. scale to be able to exploit technology data; and ensure all of this data is
and data to deliver the omni-channel totally secure.
solution consumers are demanding.

| 1. Generating more value from existing |  | 3. Develop Efficient Scale Operations |
| --- | --- | --- |
| markets and customers through route | To realise these opportunities, we have | to standardise our back office and |
| to market transformation. Success in | identified two strategic growth drivers, | core processes, and apply ‘one best |
| providing OEMs with an omni-channel | Distribution Excellence and Vehicle | way’ to make us more efficient and |
| route to market will mean we sell more | Lifecycle Services (see next page) | more successful. |
| goods and services to consumers | supported by three critical enablers: |  |

This is underpinned by our Responsible
while reducing the cost of taking a
1. Develop the Culture and Business plan, ‘Driving What Matters’
vehicle to market for our partners.

|  | Capabilities we need to build on | which you can read about in detail |
| --- | --- | --- |
| 2. Expanding into new and adjacent | our core strengths of executional | on pages 33-38. |
| areas, capturing more value from our | excellence and automotive |  |
| vehicles as well as others. This provides | knowledge, blending these with the |  |

opportunities for Inchcape to create
4 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
Inchcape has long been a leading
### DISTRIBUTION EXCELLENCE:
automotive distribution partner to many
of the world’s best known and most
trusted automotive manufacturers. The
traditional routes to market, however,
have seen significant disruption in recent
years with far more of the customer
Aftermarket Product
journey and experience moving online.
Services Planning
Additionally, the sector’s supporting
functions and capabilities are becoming
H C A digitalised at pace. However, far from
N C P E
I
seeing this evolution as a threat, we see
it as being in line with our ambition.
To realise the scale of our ambition we
GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
need to accelerate the speed of our
transformation, developing a global
Digital Customer Data platform of connected systems and
Retail Experience Analytics capabilities combined with the
Logistics
Services exceptional talent of our people
worldwide that together comprise our
proposition of Distribution Excellence.
The key to this lies in the development
Connected Local
D Global Market of our globally connected platform of
I N
Platforms Expertise digitalised processes and capability,
F O
F I
E T combining the strength and resilience
R U
E B of a global business with tailored local
N I
T T R
I A S market offering and expertise. Having
T E D D I
developed, tested and rolled out our
Brand &
Channel Management
Marketing proprietary omni-channel platform
(DXP), we have now extended from one
market and OEM to 27 markets and 11
OEMs with more in the pipeline. You can
read more about this and our Data
Analytics Platform (DAP) on page 13.
Our second growth driver is Vehicle
### VEHICLE LIFECYCLE SERVICES:
Lifecycle Services (VLS) which focuses
on how we expand the role we play
in the value chain through new and
% Finance &
Aftermarket Trade-in complementary products and services.
Insurance
We see significantly more value to be
unlocked from the second and third
Currently underserved by Inchcape phase of a vehicle’s lifecycle as from the
first, and our existing assets, relationships
and expertise provide us the platform
to capture more of this value.
The most significant near-term
opportunity comes from the creation
New vehicle
import of a new global model for stand-alone
omni-channel used car retail. Branded
bravoauto and proven in the UK, this
platform is ready to be scaled and
rolled out to our markets globally.
Bravoauto will use best practices
Lifetime 1st phase and standardised technology in all
profits our markets and it will plug into our
%
advanced data analytics platform to
25% deliver an industry-leading customer
experience.
There is further value to be created
75%
and captured from the total Car Parc
2nd phase
aftermarket by leveraging our
%
distribution and technological expertise
in the parts segment. The opportunity
we have identified is to modernise
the distribution of parts by creating a
platform to connect parts distributors
3rd phase with workshops, which we now have
under development.
%
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 5
CHAIRMAN’S WELCOME
NIGEL STEIN
## A CHAIRMAN
## LONG-TERM
## TRUSTED
## PARTNER
### DEAR SHAREHOLDERS AND STAKEHOLDERS
### I am pleased to report a year of good
### progress for Inchcape despite the continuing
### impact of the pandemic across our markets.
### This achievement reflected the hard work
### and ingenuity shown by Inchcape
### colleagues worldwide, who moved quickly
### to adapt to changing local circumstances
### while maintaining the Group-wide priorities
### of safety and customer service. I thank
### them most sincerely for their efforts.
6 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

| In last year’s report, I referred to the | As announced in January 2022, I am |
| --- | --- |
| increasing pace of electrification of | also delighted that Sarah Kuijlaars |
| automotive drivetrains. That pace | has joined the Board as a Non- |
| has accelerated and we are seeing | Executive Director. Sarah is currently |
| that in several key markets OEMs with | Chief Financial Officer at De Beers plc. |
| better electric vehicle (EV) offerings | Further information is given in the |
| are gaining share. We continue to | Nomination Committee Report |
| monitor the market closely and | on page 75. |

remain confident that Inchcape’s
OEM partners, whilst not always being
DIVIDENDS
“first to market”, have the technology,
Based on the strong financial
capability and partnerships to bring
One of the challenges faced in the performance for the year, and
long-term success.
year was the disruption to automotive the unusual circumstances of last
supply chains caused by a shortage year, the Board paid an interim
We have been keen to partner more
of components, particularly 2021 dividend at a higher level than
with winning Chinese brands who are
electronic chips, which progressively its normal practice of one third of
expanding into international markets
impacted OEM vehicle production. the prior year dividend. We intend
and were pleased to sign our first
The inability of output to match to revert to the usual one third of GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
distribution agreement with Geely
recovering demand held back our prior year dividend calculation
Auto in Chile, adding to our presence
sales but, combined with proactive in future years.
in that market. This, and other
management of appropriate
acquisitions announced during the
discounts and product mix, led to The Group remains committed to a
year, will broaden the Group’s profit
better margins on both new and dividend policy which pays out 40%
base across different geographies
used vehicles. of net income per annum. We are
reducing the historical reliance on
now pleased to recommend a final
Asia, Singapore and Hong Kong
Supply chain disruption seems likely dividend of 16.1p, bringing the total
in particular.
to continue and we expect to have dividend for the year to 22.5p.
to live with a shortage of new vehicles
Businesses in emerging markets often
well into 2022. SHARE BUYBACK
come with additional political risk
which, as set out in the Group’s Risk The extremely strong cash generation
As well as achieving a pleasing
Management report, is part of the of the Group also allowed us to restart
financial out-turn, the Inchcape team
Inchcape business model of a share buyback programme in
took important strides during the year
representing OEM partners in lower August 2021 with a £100m buyback
to improve the business for the future.
volume global markets. The Board completed in February 2022.
This included significantly enhancing
carefully review the risk environment,
our digital capabilities to improve our
Our cash allocation strategy of
and its risk appetite, when considering
omni-channel customer experience,
prioritising organic growth, dividends
potential acquisitions.
to step-up our data analytics
and bolt-on acquisitions, before
capability and to streamline our
Not withstanding the sale of the St. returning surplus cash to shareholders,
back-office processes. The latter is
Petersburg business during 2021, the remains in place.
important to our ability to successfully
Board continues to closely monitor
integrate acquisitions, a key
developments in Russia to assess any FUTURE PROSPECTS
opportunity for future growth.
impact on our business in that market.
In the next few months, performance
seems likely to be restricted to some
STRATEGIC PROGRESS
BOARD degree by continuing supply chain
The new “Accelerate” strategy was
We were delighted that Nayantara disruption and the potential impact
launched with two key growth pillars:
Bali joined the Board in May, bringing of the continuing pandemic.
Distribution Excellence – building on
to Inchcape her experience and The Board, however, remains very
the progress made through Ignite –
insights of consumer markets in Asia. confident in the Group’s medium
and VLS, in addition to continuing our
We believe the Board greatly benefits and long-term prospects, based on
long-standing strategy of inorganic
from having a Director based in that the strength of its market positions
growth through new contracts and
important region. and successful implementation
acquisitions. We believe this strategy,
of the Accelerate strategy.
which is set out in more detail on
Till Vestring who has served on the
pages 4 and 5, will put Inchcape
Board for 10 years, will step down
ahead of the competition – offering
at the 2022 Annual General Meeting
OEM partners the most professional, Directors’ approval of the
(AGM) having prolonged his tenure
international and digital distribution Strategic Report
to help induct Nayantara during
partner who they can trust to The 2021 Strategic Report, from
this time of Covid-19 restricted travel.
represent them in fast growing, pages 2 to 58, were reviewed and
We are indebted to Till for the
developing markets. approved by the Board of Directors
farsighted and independent thinking
on 25 February 2022
he has brought to the Board and
the excellent contribution he made
NIGEL STEIN
in his time at Inchcape.
CHAIRMAN
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 7
GROUP CHIEF EXECUTIVE’S REVIEW
DUNCAN TAIT
## AN GROUP CEO
## OUTSTANDING
## BUSINESS WITH
## AN EXCITING
## FUTURE
### I am pleased to report on a year of significant
### momentum for the Group. We’ve seen sharp
### recovery, made great strategic progress and,
### to a large extent, a return to some of the growth
### trajectory more familiar to a pre-Covid Inchcape.
8 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

| Additionally in 2021, we launched | which has significantly increased |
| --- | --- |
| our new strategy and our Responsible | our internal digital delivery capability. |
| Business plan, which you can read | In the year we also established our |
| more about below. In all, we can look | Global Business Services in |
| back on 2021 as a year of significant | partnership with Cognizant to |
| recovery and progress that I am | manage the majority of our |
| confident will prove to be a | transactional finance operations and |
| springboard to accelerated | enable smarter business partnering |
| performance and growth in the | within the finance function. |

years to come.
Collectively, these services are
helping the Group to be more
Like businesses the world over, we STRATEGIC DEVELOPMENT
responsive and efficient, providing an
faced some uncertainty at the start In last year’s Report, I described how
ecosystem of connected technology
of the year because of the continued we were embarking on a new phase
– a ‘plug and play’ platform for our
challenges brought by the pandemic. of the Group’s journey. With strong
OEM partners that facilitates their
I am delighted to report, however, foundations in place following a
preferred route to market. I firmly
that we recovered well, adapted to period of growth and forward
believe this platform can help us
new ways of working, and achieved momentum, our new strategy is all GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
build a highly effective automotive
a performance during 2021 that about preparing the Group for the
distribution capability and service
has exceeded expectations. It’s future and has Distribution Excellence
for automotive partners.
testament to the resilience of our and Vehicle Lifecycle Services (VLS)
business, and the determination at its heart.
While Distribution Excellence is one
and ingenuity of our people, that
cornerstone of our Accelerate
we performed ahead of the market We have called our new strategy
strategy, the other is centred around
and we emerged with great optimism ‘Accelerate’, and it will build on our
VLS which has untapped potential
for the future. strong foundations through cutting-
for us across all our markets. This will
edge digital technology and smart
be all about placing more emphasis
use of data as described on page 13.
PERFORMANCE on capturing the lifetime value of
The momentum we built coming out both customers and vehicles.
Over the past year, we’ve made
of the most severe restrictions of 2020
progress in rolling out Accelerate
Specifically, we have developed
propelled the business to an excellent
across the Group. In particular, we’ve
an approach to maximising the
performance overall, thanks to the
advanced our digital capabilities in
opportunity presented by the second
hard work of our thousands of
a number of important areas.
and third stages of a vehicle’s
colleagues around the world. Having
lifecycle – in other words, its life
joined the Group during the first year Our omni-channel platform, (known
beyond the original sale as a new
of the pandemic, seeing the resolve internally as DXP for Digital eXperience
vehicle. We’ll do this by providing an
and resilience of our people left me Platform) offers customers a seamless,
aggregator service in markets where
in no doubt that we would quickly continuous customer experience,
the service doesn’t already exist;
thrive again, and I am delighted to however they choose to interact with
something that fits with our well-
say this confidence was borne out us. At the start of the year, the
established approach of building
in our results. platform was available in just one
distribution businesses in small to
country. During 2021 we’ve extended
Revenues were £7.6bn, an increase medium-sized markets. Our omni-
its availability to 27 markets, with 11
of 12% on 2020 as we began our channel used vehicle platform,
OEMs now live on the platform. The
recovery to pre-pandemic levels. bravoauto is now ready to scale and
initial signs are very exciting with the
We delivered profit (before tax and is rolling out globally. This represents
platform driving significantly better
exceptional items) of £296m, a 131% an exciting new opportunity for us, as
sales conversion rates.

| rise on the prior year and driven by |  | does our digital parts platform which |
| --- | --- | --- |
| both strong execution and higher | DXP is part of a wider platform that | is at an earlier stage of development |
| vehicle gross margins. We were also | we’ve been further developing during | but will also accelerate during 2022. |
| highly cash generative in the year, | the past year. It spans a host of digital |  |
| booking free cash flow of £289m | capabilities that I believe can position | BUSINESS DEVELOPMENT |
| which has resulted in the further | Inchcape as the undisputed number |  |

In line with our focus on markets with
strengthening of our financial position. one distribution partner of choice for
high growth potential, we continued
OEMs. DAP (our Digital Analytics to further expand our distribution
We talked in our updates during the
Platform) is another component of this footprint, agreeing deals that will
year about the global shortage of
wider platform. It provides advanced add annualised revenue of £200m.
semiconductors which has affected
analytics and machine learning, In addition to leveraging our existing
manufacturers’ post-pandemic
leveraging our data and driving geographic and brand footprint,
recovery. Although demand is high,
smarter, faster and better business these deals will give us access to
there’s a significant impact on the
decisions which results in improved new markets and brand partners.
supply of new vehicles and we are
performance across lead
expecting constraints to continue
management, customer retention In December 2021 we announced an
well into 2022.
and pricing. acquisition of a distribution business
in the Caribbean, a new territory for
Despite the external challenges we
During 2021, we established two the Group, where we will distribute
have seen in 2021, our teams
digital delivery centres (DDCs) as we vehicles for Suzuki, Mercedes-Benz,
continued to deliver against
embarked on our technological Subaru and Chrysler – a new OEM
expectations every day. They also
transformation. There are already over brand partner in our portfolio.
continued to innovate at speed, to
500 ‘Inchcapers’ working in the DDCs,
build our capabilities in digital, and to
providing 24/7 services and solutions
grow the business through acquisition
and contract wins.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 9
GROUP CHIEF EXECUTIVE’S REVIEW CONTINUED

| During 2021 we also signed a global | of EV adoption and infrastructure | people will need both now and |
| --- | --- | --- |
| strategic partnership with Geely | development across the markets in | in the future. We have identified |
| (initially launching in Chile). We | which we operate; the impact on | data leadership as a crucial |
| bolstered our presence in Guam | aftersales of EVs becoming dominant | capability, alongside our intent |
| with the acquisition of a distributor | in the market; and the evolution | to develop our workforce so it can |
| of commercial vehicles, and entered | of energy sourcing as we transition | support our globally connected |
| a number of new markets: Indonesia | to a significantly greater reliance | distribution platform. |
| with Jaguar Land Rover; and | on renewables. You can read more |  |
| Guatemala with Mercedes-Benz. | about this in our Task Force on | I would also like to thank my |
| Inchcape has now become | Climate-related Financial Disclosures | colleagues on the Executive team for |
| Mercedes’ largest distribution partner | (“TCFD”) statement on pages 40-44. | their leadership and teamwork during |
| in Central and South America. |  | the last year. As we moved forwards |

with the launch of Accelerate we
RESPONSIBLE BUSINESS
Inchcape is already the leading made some changes to the team,
We have made responsibility a
independent global automotive bringing George Ashford into the
fundamental part of our Accelerate
distributor, and we are extending this centre as Chief Transformation Officer.
strategy, underpinning our purpose
leadership with our investment in With the departure of James Brearley
of bringing mobility to the world’s
technological capability. Our ‘plug at the end of the year, George has
communities – for today, for
and play’ distribution platform will also taken temporary leadership of
tomorrow and for the better.
help drive both organic and inorganic the UK business. Ruslan Kinebas
growth within our current geographic succeeded George as CEO of APAC,
During 2021, we developed our
footprint and even faster expansion our most profitable region, and we
Responsible Business plan, called
in new markets, with both existing were delighted to welcome Romeo
‘Driving What Matters’, which focuses
and new partners. Lacerda to lead Americas & Africa.
on our ‘4Ps’ of responsible business –
Planet, People, Places and Practices.

| RESPONDING TO AN | Collectively, these topics reach into | LOOKING AHEAD |
| --- | --- | --- |
| EVOLVING SECTOR | those areas of our operations where | The Group’s strong performance |
| Our industry is changing rapidly, and it | we can make a positive difference | in 2021 was supported by robust |
| is clear that electrification will play an | for our stakeholders. | consumer demand and high vehicle |
| important role in the transformation |  | gross margins (particularly in Retail), |
|  | I believe what we are doing through | largely due to vehicle supply |

of the mobility industry. In the second
‘Driving What Matters’ will help create shortages. Looking ahead, our 2022
half of 2021, electric vehicle (EV) sales
a stronger Inchcape, supporting performance to date has seen
and penetration accelerated in major
sustainable growth and performance a continuation of the trends
markets despite the economic crisis
in the future. You can read more experienced last year, although there
caused by the Covid-19 pandemic.

|  | about our Responsible Business plan | is ongoing uncertainty relating to |
| --- | --- | --- |
| While the consensus is that EVs | on pages 33-38. | vehicle supply and the impact of |
| will spearhead the transformation from |  | the pandemic. We expect the Group |

We have also developed a new set
use of the internal combustion engine, to continue to make good progress
of values for the Group as we seek
we believe hybrid will continue to form with its strategic priorities in 2022. The
to deliver great experiences through
a major part of the transitional mix and strength of our business model and
fresh thinking and working better
that hydrogen will also have a role to financial position means Inchcape
together. You can read more about
play. The ‘e-volution’ is an exciting is well placed to continue to grow
this on page 74.

| development within our industry and |  | profits and generate cash, and we |
| --- | --- | --- |
| we are fully embracing the changes |  | are confident in the medium-term |
| that it’s bringing. Consequently, we’re | OUR PEOPLE | outlook set out at the Capital Markets |
| looking at a wide range of related | I would like to pay tribute to and | Day in November: |
| topics and opportunities, such as the | thank all our colleagues for their |  |
| evolving nature of aftersales, re-skilling | contributions individually and as | • Distribution Excellence: mid-to-high |
| our employees and developing | teams in a year of great progress | single digit profit CAGR plus M&A |
| software that meets the needs of | and delivery. | • Vehicle Lifecycle Services: >£50m |
| EV-led mobility. |  | of incremental profit |

Our people will play an essential role
Climate change presents a number in helping us achieve the goals we’ve
of potential risks, as well as set out in our Accelerate strategy.
DUNCAN TAIT
opportunities, which are monitored Given the extent of the challenges
GROUP CEO
alongside changes in the developing and opportunities presented by
powertrain mix. Some of the factors our evolving sector, we have been
we consider include the varying pace evaluating the capabilities our
10 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## OUR GROUP
## EXECUTIVE TEAM
### The Executive leadership is a global team of business leaders that combines a strong focus
### on operational excellence with awealth of experience in automotive andawide range
### of other industries, including FMCG, management services, utilities and finance. The Group
### Executive Team (GET) drives the strategic vision and operational direction ofthe Company
### on behalf of the Board.
GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
DUNCAN TAIT GIJSBERT DE ZOETEN GEORGE ASHFORD
GROUP CHIEF EXECUTIVE CHIEF FINANCIAL OFFICER CHIEF TRANSFORMATION OFFICER
CEO UK (INTERIM)
MIKE BOWERS HELEN CUNNINGHAM RUSLAN KINEBAS
GROUP GENERAL COUNSEL CHIEF HUMAN RESOURCES OFFICER CEO APAC
MARK DEARNLEY GLAFKOS PERSIANIS ROMEO LACERDA
CHIEF DIGITAL OFFICER CEO EUROPE CEO AMERICAS & AFRICA
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 11
FACING INTO THE FUTURE
## EMBRACING CHANGES
## TO OURINDUSTRY
### CHANGING AUTOMOTIVE CHANGING CONSUMER FOCUS ON
### INDUSTRY DYNAMICS ENVIRONMENT
### &SOCIETY
OEM AMBITIONS RETAIL TRENDS EMISSIONS
Partners are expected to align with Expectations for a personalised Low emission vehicles and corporate
long-term vision, including ESG goals. digitally integrated experience. greenhouse gas reductions expected
CASE TRENDS CONSUMER INSIGHT CIRCULAR ECONOMY
Growing BEV/PHEV market supported Being smart with data and analytics Resource scarcity and waste
by regulation: rise of mobility as a to create advantage prevention front of mind
service
ROUTE TO MARKET CONSUMER HABITS EMPLOYEE EXPECTATIONS
Helping OEMs get even closer Catering to different vehicle Young workforce looking for
tocustomers. ownership models. purpose-driven employers.
We provide OEMs with a solution Our digital and data capabilities are We are a forward-thinking
in lower volume and high growth focused on the consumer experience purpose-driven employer
potential emerging markets
We collaborate with OEMs to Our expertise supports customers We take our environmental
helpthem reach their goals throughout the buying journey and responsibilities seriously across
their ownership lifecycle our markets
12 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

| Across almost every sector, | interaction both on– and offline, |
| --- | --- |
| automotive retail trends and customer | with which we then use predictive |
| dynamics are changing with more | modelling to analyse customer |
| of the experience people demand | behaviours. This supports both our |
| being driven online – now between | dealer networks and, crucially, our |
| 85-95% of all automotive customer | OEM partners by delivering a customer |
| journeys have a digital starting point. | experience that anticipates their |

needs and exceeds their expectations.
## DIGITAL
The Digital Experience Platform,
or DXP, is Inchcape’s proprietary DXP is globally scalable – a factor
## EXPERIENCE
omni-channel customer and dealer that is critical to its success. It can
platform, providing access to our be tailored to any market and OEM
## PLATFORM
full range of configurable products partner, and can be deployed in
### OMNI-CHANNEL and services, from first search and multiple languages and currencies.
comparison through to aftersales The approach to roll-out has been
care. It enables any combination to ensure we develop the optimum
of digital, in-person or blended solution for each OEM, working closely
interactions from fully online purchase with them to make sure we have
GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
with contactless delivery to combining the right brand experience for each
Providing consumers with a fully
online reservation with test drives and partner prior to implementing in
functioning digital showroom

| pickup in-store. This delivers a truly | market. Since the start of 2021 we |
| --- | --- |
| omni-channel experience for both | have rapidly deployed DXP, building |
| our customers and our dealer staff. | from one market and OEM at the start |

of the year (with Subaru in Australia,
The power of the platform lies in where we developed the platform)
connecting our people’s expertise, to our position by December: live
Built on a platform with the ability
the retail networks and our customers in 27 markets with 11 OEM partners.
to scale, quickly, to new markets
with our Data Analytics Platform (see

| below) and partnership with software | The roll-out will continue in 2022 as |
| --- | --- |
| providers such as Salesforce, Google | we bring more markets and OEMs |
| and SAP. The platform collects data | onto the platform. |

from every type of customer
The automotive industry is We have now developed a globally
transforming rapidly and data integrated data repository that feeds
analytics has the opportunity to DAP/DXP and other enterprise-level
deliver significant competitive initiatives, such as customer
advantage. The enabler Data & experience dashboards and
Digital is at the heart of Inchcape’s regulatory compliance reporting.
Accelerate strategy, and we will use
## DATA This future-proofed data
analytics to improve every part of
our value chain from Vehicle Sales, management strategy has helped
## ANALYTICS us move away from legacy systems
to Aftersales, to marketing and
operations. with fragmented, local databases
## PLATFORM that come with deployment and
Since we began work on the strategy, scalability challenges. Thanks to
### DATA ANALYTICS
we have developed a range of Inchcape’s DAP/DXP platforms both
predictive machine-learning distribution and customer experiences
algorithms including: are being reimagined to boost
experience and performance.
• Lead scoring
• Demand forecasting Inchcape has also developed new
Central capability to drivebetter
• Parts pricing ways of reaching customers and
decisions acrossthe Group
• Churn prediction and for them to access services through
• Sales promotion assessment online/offline/hybrid channels.
Fusing digital, data and analytics,
All these align with our growth drivers
the Company has improved its
of Distribution Excellence and VLS.
decision-making abilities to offer
Capturing significant data for better These use-cases have enabled us to
more digitalised and personalised
customer and vehicle lifecycle unlock the value of our data helping
customer journeys. In fact, each
management us to drive up customer experience
customer interaction is contextual
and commercial performance.
to each market because they are
all based on data-driven insights.
Analytics allows us to gain greater
insight into all areas of our business.
Inchcape’s digital empowerment has
It translates data into intelligence
also driven more customer traffic to
that fuels our decision-making,
websites. With every visit we are able
providing us not only with operational
to track and analyse the data so that
improvements but also putting
leads can be converted. It also helps
Inchcape at a competitive
us increase aftersales value, improve
advantage.
customer retention, and improve
their potential to purchase again.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 13
ACQUISITION PROGRESS

# ACCELERATED GROWTH THROUGH ACQUISITION

Inchcape's focus on building and maintaining close and long-standing OEM partnerships provides the foundation for our ability to execute strategic and accretive inorganic growth through acquisition.

The Group is a proven consolidator in a fragmented marketplace, which we have accelerated since embarking on a new strategy of expansion in 2016. In that time we have focused on the development of a 'plug and play' distribution platform which has resulted both in scale acquisitions and important built-on deals, adding new OEM partnerships, markets and significant revenue to the business. Our ambition is for Inchcape to become the undisputed number one distribution partner of choice

for automotive manufacturers, many of which are looking for consolidation in their partnerships. Key factors in achieving this objective include: our track record of successful integration; investment in technology and digital capabilities that can be deployed at scale; our people's capabilities and approach to retaining key management; and the firepower we have available to execute deals through a strong balance sheet and disciplined approach to capital allocation.

## A NUMBER OF EXCITING DISTRIBUTION WINS IN 2021

![img-1.jpeg](img-1.jpeg)

(c) Centres of distribution operation serving broad local geography

## OUR M&A FRAMEWORK:

### Strategic

- Additive to existing brand footprint
- Broadens geographic reach
- Enhanced by Inchcape's distribution platform

### Financial

- Focus on markets with higher growth prospects
- Take a nonreduced approach to valuing targets
- ROIC's project WACC targeted in years 2-4

### Organisational

- Focus on retaining and nurturing talent
- New 'Responsible Business' programme
- Opportunity to professionalise processes

## DISTRIBUTION DEALS HAVE ACCELERATED OVER THE PAST 5 YEARS

|   | 2010 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | Today  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  Number of deals | 0 | 2 | 2 | 3 | 3 | 5 | 5 |   |
|  Revenue added | - | c.$400m | c.$100m | c.$250m | c.$150m | c.$200m | c.$200m |   |

14 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT STRATEGIC REPORT
## TOYOTA MOTOR
## CORPORATION (TMC)
LOCATIONS Our partnership with Toyota is the longest in our portfolio,
DISTRIBUTION with 54 years of representation as a distributor in
geographies that reach from South East Asia to East Africa
Belgium, Brunei, Bulgaria,
and from Europe to the Americas. Our partnership with
Djibouti, Ethiopia, Greece,
TMC includes all variations of our business model –
Guam, Hong Kong,
distribution with exclusive retail, such as in Hong Kong
Luxembourg, Macau, North
and Singapore; distribution with a managed retail network,
Macedonia, Saipan, Romania,
such as Greece; and retail only, such as our operations
Singapore, Chile & Colombia
in the UK. The partnership extends to both passenger and
(Hino only)
commercial vehicles, a segment that we have expanded
RETAIL more recently in South America.
Russia, UK
FINANCIAL STATEMENTSGOVERNANCE
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 15
STAKEHOLDER ENGAGEMENT
## FORGING STRONG
## RELATIONSHIPS
### STAKEHOLDER ORIGINAL EQUIPMENT CUSTOMERS EMPLOYEES SHAREHOLDERS COMMUNITIES
### MANUFACTURERS (OEMS)
We provide our OEM brand partners We provide access to automotive We aim to enable every colleague Our objective is to deliver outstanding We have a balanced approach to
### HOW WE
with professional and efficient routes ownership and support services to achieve their personal goals at returns on long-term investment based engagement with the communities
### CREATE VALUE
to market for the post-factory throughout the customer journey and each stage of the employee journey; on a sustainable platform for growth, in which we operate, empowering
automotive chain aim to deliver the best experiences to recognise and develop talent; and disciplined approach to capital ownership at local level with structural
for customers in our industry globally to foster a socially conscious culture allocation and cash returns through support from Group
based on inclusion, empowerment and dividends and share buyback
optimised potential through learning
• Strategy • Access to vehicle products and • Reward, training and development, • Strategy • Local employment
### INTERESTS
• Long-term commercial sustainability services diversity and inclusion • Long-term commercial sustainability • Health and safety, including local
and business viability • World renowned automotive brands • Strong approach to health and safety and business viability environmental concerns e.g. waste
• Trusted partnerships • Specialist product and service – duty of care • Company purpose and values disposal
• Health and safety knowledge • Strategy • Capital allocation • Support of local communities
• Environment, Social, Governance • Customer service • Company purpose and values • Financial returns and strength • Responsible approach to local law
(ESG) • Aftersales • Long-term commercial sustainability of balance sheet and regulations
• Safe facilities • Security of employment stemming • Investment in responsible business
• Tailored experiences, both on- from business viability
and offline • Responsible employer
• Business viability (for long-term
contracts, e.g. fleet management]
Management Management Management Management Management
### HOW WE ENGAGE
• Regular top to top executive • Daily reporting of customer feedback • Launch of new Codes of Conduct • Regular dialogue with institutional • Market-specific activity co-ordinated
management meetings on reputation.com • Employee Engagement Survey investors at local level
• Market level operational meetings • Analysis of Salesforce customer • One Inchcape Performance • Webcasts • Group-level support for extraordinary
• Pan-market brand development journey management platform Management Framework • Annual Report and plc website events affecting our market
• Ongoing surveys at market level • Employee intranet • Capital Markets Day communities
Board
• Culture and Reward Forums
Board Board Board
• Brand partner deep dive review
Board
annually • Update on the customer satisfaction • AGM • Updates on community activities
• Presentations from OEM management analytics from reputation.com at • Employee engagement surveys • Capital Markets Day included in regional market updates
at Strategy Day each meeting and action plans • Chairman’s periodic one-to-one from CEOs
• Designated non-executive director meetings
• Annual Board visit
• Entered into a new global strategic • Customer omni-channel platform • Colleague communications • During the year a mixture of virtual • Around 14,500 people employed in
### OUTCOMES
partnership with Geely Auto, one rolled out to 27 markets with 11 OEMs frequency and content enhanced and physical meetings were held over 40 countries and geographies
### AND PROGRESS

| of China’s leading vehicle | • Reputation.com: Total reviews in 2021: | to drive better engagement during | with both potential shareholders and | • Strong levels of local community |
| --- | --- | --- | --- | --- |
| manufacturers | 81,362 up 89% on 2020. Average rating | period of extreme challenge for | existing shareholders, representing | involvement reinforced during |
| • Contracts agreed with new OEM | was 4.7/5 up from 4.6/5 in 2020. | individuals | 63% of issued share capital | pandemic with support initiatives |
| partners |  | • Reviewed Colleague Experience | • Votes received from shareholders |  |
| • New distribution contracts including |  | Survey outputs for themes and insights | representing 92% of share capital |  |
| the Caribbean focused on Barbados, |  | • Launched Employee Assistance | at the 2021 AGM |  |
| and Pacific island groups focused |  | Programme to promote health | • In November the Group hosted a |  |
| on Guam. |  | • Leadership communications | Capital Markets Day with over 150 |  |
|  |  | framework established to improve | attendees (with both physical and |  |
|  |  | top-down visibility, including | virtual attendance). A full replay of the |  |
|  |  | management townhalls and regular | event is available on the plc website |  |

videos from Group CEO
16 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
### Inchcape’s success is dependent on the continued trust and support of all its stakeholders;
### strong relationships that allow us to work with our key stakeholders are therefore fundamental
### to the long-term success of the Group.
READ MORE by visiting www.inchcape.com
GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
### STAKEHOLDER ORIGINAL EQUIPMENT CUSTOMERS EMPLOYEES SHAREHOLDERS COMMUNITIES
### MANUFACTURERS (OEMS)
We provide our OEM brand partners We provide access to automotive We aim to enable every colleague Our objective is to deliver outstanding We have a balanced approach to
### HOW WE
with professional and efficient routes ownership and support services to achieve their personal goals at returns on long-term investment based engagement with the communities
### CREATE VALUE
to market for the post-factory throughout the customer journey and each stage of the employee journey; on a sustainable platform for growth, in which we operate, empowering
automotive chain aim to deliver the best experiences to recognise and develop talent; and disciplined approach to capital ownership at local level with structural
for customers in our industry globally to foster a socially conscious culture allocation and cash returns through support from Group
based on inclusion, empowerment and dividends and share buyback
optimised potential through learning
• Strategy • Access to vehicle products and • Reward, training and development, • Strategy • Local employment
### INTERESTS
• Long-term commercial sustainability services diversity and inclusion • Long-term commercial sustainability • Health and safety, including local
and business viability • World renowned automotive brands • Strong approach to health and safety and business viability environmental concerns e.g. waste
• Trusted partnerships • Specialist product and service – duty of care • Company purpose and values disposal
• Health and safety knowledge • Strategy • Capital allocation • Support of local communities
• Environment, Social, Governance • Customer service • Company purpose and values • Financial returns and strength • Responsible approach to local law
(ESG) • Aftersales • Long-term commercial sustainability of balance sheet and regulations
• Safe facilities • Security of employment stemming • Investment in responsible business
• Tailored experiences, both on- from business viability
and offline • Responsible employer
• Business viability (for long-term
contracts, e.g. fleet management]
Management Management Management Management Management
### HOW WE ENGAGE
• Regular top to top executive • Daily reporting of customer feedback • Launch of new Codes of Conduct • Regular dialogue with institutional • Market-specific activity co-ordinated
management meetings on reputation.com • Employee Engagement Survey investors at local level
• Market level operational meetings • Analysis of Salesforce customer • One Inchcape Performance • Webcasts • Group-level support for extraordinary
• Pan-market brand development journey management platform Management Framework • Annual Report and plc website events affecting our market
• Ongoing surveys at market level • Employee intranet • Capital Markets Day communities
Board
• Culture and Reward Forums
Board Board Board
• Brand partner deep dive review
Board
annually • Update on the customer satisfaction • AGM • Updates on community activities
• Presentations from OEM management analytics from reputation.com at • Employee engagement surveys • Capital Markets Day included in regional market updates
at Strategy Day each meeting and action plans • Chairman’s periodic one-to-one from CEOs
• Designated non-executive director meetings
• Annual Board visit
• Entered into a new global strategic • Customer omni-channel platform • Colleague communications • During the year a mixture of virtual • Around 14,500 people employed in
### OUTCOMES
partnership with Geely Auto, one rolled out to 27 markets with 11 OEMs frequency and content enhanced and physical meetings were held over 40 countries and geographies
### AND PROGRESS

| of China’s leading vehicle | • Reputation.com: Total reviews in 2021: | to drive better engagement during | with both potential shareholders and | • Strong levels of local community |
| --- | --- | --- | --- | --- |
| manufacturers | 81,362 up 89% on 2020. Average rating | period of extreme challenge for | existing shareholders, representing | involvement reinforced during |
| • Contracts agreed with new OEM | was 4.7/5 up from 4.6/5 in 2020. | individuals | 63% of issued share capital | pandemic with support initiatives |
| partners |  | • Reviewed Colleague Experience | • Votes received from shareholders |  |
| • New distribution contracts including |  | Survey outputs for themes and insights | representing 92% of share capital |  |
| the Caribbean focused on Barbados, |  | • Launched Employee Assistance | at the 2021 AGM |  |
| and Pacific island groups focused |  | Programme to promote health | • In November the Group hosted a |  |
| on Guam. |  | • Leadership communications | Capital Markets Day with over 150 |  |
|  |  | framework established to improve | attendees (with both physical and |  |
|  |  | top-down visibility, including | virtual attendance). A full replay of the |  |
|  |  | management townhalls and regular | event is available on the plc website |  |

videos from Group CEO
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 17
STAKEHOLDER ENGAGEMENT CONTINUED
## S172 STATEMENT
### The Directors have exercised their duties under the Companies Act 2006
### throughout the year, including under Section 172, the duty to promote the
### success of the Company while having regard for the factors under Sections
### 172(1)(a) to (f). These and other factors are taken into consideration by the
### Directors when making decisions in their role as the Board of Inchcape plc.
CONSEQUENCES OF LONG-TERM DECISIONS The Digital Analytics Platform has enabled new ways
Many of the decisions the Board make today will affect of reaching out to customers and the feedback
the success of the Group in the longer term, the most obtained from them allows us to continually improve
significant of which is the Group’s strategy. Agreeing and the customer journey.
implementing the strategic direction means considering
IMPACT OF COMMUNITIES AND THE ENVIRONMENT
how the Group will need to evolve in order to achieve
its purpose of bringing mobility to the world’s We developed the Driving What Matters plan (the Plan)
communities – for today, for tomorrow and for the during 2021, as detailed on page 33. Two of its pillars,
better. By setting purpose and strategy, the Board can Places and Planet, will assess the impact of the Group’s
ensure all outcomes are aligned with the Group’s culture. operations on the community and the environment.
Decisions made during the year with a long-term impact The Responsible Business framework was designed
include the transition to digital, expansion into new and collaboratively, and is owned and delivered by our
adjacent Vehicle Lifecycle Services and acquisitions of colleagues around the Group. Their input has shaped
new businesses. Please see pages 4 and 5 and pages the way we approach responsibility and set
12 to 15 for further information. out what responsible business means for Inchcape.
When making these decisions the Board considers what The CSR Committee, and the Board, will regularly review
value will be created for shareholders, if the appropriate progress against targets as the Plan matures alongside
resources are available, how current and future monitoring the Group’s corporate responsibility,
employees will be impacted and what impacts these sustainability and stakeholder engagement activities.
decisions will have on communities and the environment Please see page 85 for details of how responsible
in which Inchcape operates. Consideration is also given business will be built into the remuneration structure.
to the ‘what ifs’ as long-term decisions, by their nature, The Board’s risk management procedures identify
contain a degree of uncertainty about what may the potential consequences of decisions in the short,
happen in the future. The management team provides medium and long term so that mitigation plans can
detailed analysis to the Board to aid in the decision- be put in place to prevent, reduce or eliminate risks
making process via performance reporting, industry and to the business and wider stakeholders. Please see
economic trends data, OEM ambitions, forecasting and pages 48 to 56 for further details.
scenario planning. The Board also takes into account
HIGH STANDARDS OF BUSINESS CONDUCT
global mega-trends and CASE (connected, autonomous,
shared, electric) trends when making decisions. It is important to the Board to maintain a reputation for
high standards of business conduct. During 2021, the
INTERESTS OF EMPLOYEES AND FOSTERING BUSINESS Board approved the employee Code of Conduct which
RELATIONSHIPS sets out the ethical behaviours expected of all who work
Due to the changing nature of the industry and the for Inchcape. We also rolled out a new Supplier Code of
evolution of strategy over the longer term the Board has Conduct in 2021. This sets out the behaviours we expect
regard to the interests of employees to make sure they from our suppliers which, combined with our Policy
have the training, skills and support to enable them to Statements on anti-bribery and corruption and modern
deliver the Accelerate Strategy. The People pillar of the slavery, provide a strong governance framework in which
plan is focusing on diversity and inclusion, safety and to do business. Both Codes of Conduct are available
wellbeing, and skills and talent, to future-proof our at www.inchcape.com.
people skills. Further information on engagements with
SHAREHOLDERS
employees, and the outcomes, are given throughout
this report. We held a Capital Markets Day in November 2021, giving
investors the opportunity to learn about the Accelerate
Our OEM relationships are of paramount importance
strategy in detail and to give their views on financial
and the length of these relationships is testament to their
and operational performance and future prospects.
strength. The OEMs with which we partner are some of
All shareholders are invited to attend the Annual General
the most foremost drivers of technological innovation
Meeting and have the opportunity to speak or ask
in the automotive industry, from advances in hybrid and
questions to the Board members.
battery electric drivetrains to future mobility. All these
elements are taken into consideration by the Board when Please see pages 16 and 17 for further information
considering acquisitions and new partnerships as they on stakeholder engagement.
will be fundamental to achieve the Group’s purpose.
18 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT STRATEGIC REPORT
## JAGUAR LANDROVER
Inchcape and Jaguar Land Rover’s partnership is one
of long standing, reaching back over 50 years in total.

| LOCATIONS | We have continued our JLR growth story right up to the |
| --- | --- |
| DISTRIBUTION | present day, with distribution contracts awarded for |
| Colombia, Estonia, Finland, | Thailand, Colombia, Kenya and Poland in recent years, |
| Hong Kong, Indonesia, Latvia, | with the addition of Indonesia in 2021. We now represent |
| Lithuania, Kenya, Macau, | Jaguar and Land Rover as either a distributor or retailer |
| Poland, Thailand | in 13 markets on four continents. |

RETAIL
Russia, UK
FINANCIAL STATEMENTSGOVERNANCE
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 19
KEY PERFORMANCE INDICATORS
## MEASURING PROGRESS

|  |  | 2 |  |  |  | 2 |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| KPI REVENUE | OPERATING MARGIN |  | PROFIT BEFORE TAX AND |  | FREE CASH FLOW |  | RETURN ON CAPITAL |  |
|  |  |  |  | 2 |  |  |  | 2 |
|  |  |  | EXCEPTIONAL ITEMS |  |  |  | EMPLOYED |  |

## £ 7. 6 bn 4.3% £296m £289m 30%
2020: £6.8bn 2020: 2.4% 2020: £128m 2020: £177m 2020: 12%
1

| 2017 £9.0bn | 2017 4.5% |  |  |  |
| --- | --- | --- | --- | --- |
| 2018 £9.3bn | 2018 |  | 4.3% |  |
| 2019 £9.4bn | 2019 |  | 4.0% |  |
| 2020 £6.8bn | 2020 | 2.4% |  |  |
|  | 2021 |  | 4.3% | [XX] |

Consideration receivable from Operating profit (before Represents the profit made after Net cash flows from operating Operating profit (before
### DEFINITION
the sale of goods and services. exceptional items) divided by sales. operating and interest expense activities, before exceptional cash exceptional items) divided by the
It is stated net of rebates and any excluding the impact of flows, less net capital expenditure average of opening and closing
discounts, and excludes sales exceptional items and before and dividends paid to non- capital employed where capital
related taxes. tax is charged. controlling interests. employed is defined as net assets
add net debt/less net funds.
Top-line growth is a key financial A key metric of operational A key driver of delivering A key driver of the Group’s ability to ROCE is a measure of the Group’s
### WHY WE MEASURE
measure of success. efficiency, ensuring we are sustainable growth and growing fund inorganic growth and to make ability to drive better returns for
leveraging our scale to translate earnings to shareholders. distributions to shareholders. investors on the capital we invest.
sales growth into profit.
The Group has delivered £7.6bn, up Operating margin is 4.3%, up In 2021 this increased 131% to The Group delivered free cash flow ROCE for the period was 30%,
### 2021 PERFORMANCE

| 21% organically (excluding currency | 190bps versus 2020. This is owing to | £296m, reflecting the strong | (FCF) of £289m, an increase of 63% | compared to 12% for the equivalent |
| --- | --- | --- | --- | --- |
| effects and net M&A) and up 12% | a combination of higher vehicle | improvement in revenue and | on 2020 and representing a | period last year. This increase was |
| reported versus prior year. This has | gross margins, driven largely by the | operating profit. | conversion of operating profit of | primarily driven by the recovery |
| been driven by volume recovery | combination of robust consumer |  | 88%, exceeding the long-term | in Group profits. |
| and strong pricing. On a | demand and supply shortages, and |  | average of 60-70%. |  |
| comparable basis (adjusted for | the benefits of our cost-restructuring |  |  |  |
| currency and net M&A), Group | programme. |  |  |  |

revenue was 3% below 2019.
1. 2017 is not comparable due to adoption of
IFRS 16 with effect from 1 January 2018. 1 1 1
2017 £382m 2017 £314m 2017 30%
2. Alternative performance measure, see page 186.

| 2018 2018 2018 |  |  | £279m | 22% | £351m |  |
| --- | --- | --- | --- | --- | --- | --- |
| 2019 2019 2019 |  | £213m |  | 22% £326m |  |  |
| 2020 2020 2020 | £177m 12% | £128m | 20 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 |  |  |  |
| 2021 2021 2021 |  |  | £289m £296m |  |  | 30% |

2021 £7. 6bn
### Key performance indicators (KPIs) provide insight into how the Board and Group Executive
### Team monitor the Group’s strategic and financial performance, as well as directly linking
### to the key measures for Executive remuneration. KPIs are stated in actual rates of exchange
### and page 186 provides definitions of KPIs and other alternative performance measures.

|  |  | 2 |  |  |  | 2 |  |  | GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| KPI REVENUE | OPERATING MARGIN |  | PROFIT BEFORE TAX AND |  | FREE CASH FLOW |  | RETURN ON CAPITAL |  |  |
|  |  |  |  | 2 |  |  |  | 2 |  |
|  |  |  | EXCEPTIONAL ITEMS |  |  |  | EMPLOYED |  |  |


| £ 7. 6 bn | 4.3% | £296m |  | £289m |  | 30% |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 2020: £6.8bn | 2020: 2.4% | 2020: £128m |  | 2020: £177m |  | 2020: 12% |  |
|  |  |  |  |  | 1 |  | 1 |
|  |  |  | 1 | 2017 £314m |  | 2017 30% |  |

2017 £382m

|  |  |  |  | 2018 |  |  | £279m | 2018 |  | 22% |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2018 |  |  | £351m |  |  |  |  |  |  |  |
|  |  |  |  | 2019 |  | £213m |  | 2019 |  | 22% |
| 2019 |  | £326m |  |  |  |  |  |  |  |  |
|  | £128m |  |  | 2020 | £177m |  |  | 2020 | 12% |  |

2020
2021 £289m 2021 30%
2021 £296m
Consideration receivable from Operating profit (before Represents the profit made after Net cash flows from operating Operating profit (before
### DEFINITION
the sale of goods and services. exceptional items) divided by sales. operating and interest expense activities, before exceptional cash exceptional items) divided by the
It is stated net of rebates and any excluding the impact of flows, less net capital expenditure average of opening and closing
discounts, and excludes sales exceptional items and before and dividends paid to non- capital employed where capital
related taxes. tax is charged. controlling interests. employed is defined as net assets
add net debt/less net funds.
Top-line growth is a key financial A key metric of operational A key driver of delivering A key driver of the Group’s ability to ROCE is a measure of the Group’s
### WHY WE MEASURE
measure of success. efficiency, ensuring we are sustainable growth and growing fund inorganic growth and to make ability to drive better returns for
leveraging our scale to translate earnings to shareholders. distributions to shareholders. investors on the capital we invest.
sales growth into profit.
The Group has delivered £7.6bn, up Operating margin is 4.3%, up In 2021 this increased 131% to The Group delivered free cash flow ROCE for the period was 30%,
### 2021 PERFORMANCE

| 21% organically (excluding currency | 190bps versus 2020. This is owing to | £296m, reflecting the strong | (FCF) of £289m, an increase of 63% | compared to 12% for the equivalent |
| --- | --- | --- | --- | --- |
| effects and net M&A) and up 12% | a combination of higher vehicle | improvement in revenue and | on 2020 and representing a | period last year. This increase was |
| reported versus prior year. This has | gross margins, driven largely by the | operating profit. | conversion of operating profit of | primarily driven by the recovery |
| been driven by volume recovery | combination of robust consumer |  | 88%, exceeding the long-term | in Group profits. |
| and strong pricing. On a | demand and supply shortages, and |  | average of 60-70%. |  |
| comparable basis (adjusted for | the benefits of our cost-restructuring |  |  |  |
| currency and net M&A), Group | programme. |  |  |  |

revenue was 3% below 2019.
1
2017 4.5%
2018 4.3%
2017 £9.0bn
2019 4.0%
2018 £9.3bn
2020 2.4% INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 21
2019 £9.4bn
2021 4.3% [XX]
2020 £6.8bn
2021 £7. 6bn
INVESTMENT CASE
## SUSTAINABLE GROWTH
## AND RETURNS
### We have set ambitious targets to grow our business, responsibly,
### seeking to create significant value for all of our stakeholders.
### INVESTMENT PROPOSITION:
### DELIVERING SUSTAINABLE GROWTH AND CASH RETURNS
ATTRACTIVE
SHAREHOLDER RETURNS
CONSOLIDATION
OPPORTUNITIES
MARGIN
EXPANSION Dividend payout: 40%
STRONG
Track record of share
ORGANIC GROWTH We are a leader with a c.1%
buybacks
share of global distribution
Leverage our global scale
Market consolidation
to improve profitability
expected to accelerate
Exposure to high-growth
Actively pursuing higher
markets
margin activities
History of market
outperformance

| MEDIUM TERM |  | Distribution Excellence: | Vehicle Lifecycle Services: |  |
| --- | --- | --- | --- | --- |
|  | 1 |  |  | 2 |
| FINANCIAL OUTLOOK |  | Mid-to-high single digit profit CAGR plus M&A | >£50m incremental profit contribution |  |

1. based on constant exchange rates as at Nov-21 (>90% profits derived outside of the UK).
2. per annum, within five years.
### INCHCAPE IS THE GLOBAL LEADER, WITH AN AMBITION TO BE BOTH BETTER AND BIGGER

| THE LEADING AUTOMOTIVE | EXPANDING THE REACH | OUR DIGITAL AND |
| --- | --- | --- |
| DISTRIBUTOR IN A HIGHLY | OF OUR PLUG-AND-PLAY | DATA CAPABILITYIS A |
| FRAGMENTED GLOBAL | GLOBAL DISTRIBUTION | SIGNIFICANT COMPETITIVE |
| MARKET | PLATFORM | ADVANTAGE |
| • Presence across >40 markets; | • Well invested operating model | • Created a leading digital |
| covering six continents | a catalyst for further expansion | and analytical platform |
| • We are the leader with c.1% share | • Existing portfolio of >40 OEM | • Global scale, and internal |
| of the global distribution market | brands; continuing to add new | capability a key differentiator |

partners
• Market consolidation is expected • Our technological progress
to accelerate • Constantly sharing expertise is impressing OEM brands
across the Group
22 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
### In addition to our growth ambitions, the business is asset-light with a long history of
### disciplined capital allocation and delivering highly attractive returns to shareholders.
GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
### CAPITAL ALLOCATION POLICY:
### HIGHLY ATTRACTIVE AND DISCIPLINED

| 01 | 02 | 03 | 04 |
| --- | --- | --- | --- |
| INVEST IN THE | DIVIDENDS | VALUE | SHARE |
| BUSINESS |  | ACCRETIVE M&A | BUYBACKS |
| Capex for organic | Policy: 40% annual | Disciplined | Consider |
| growth and | payout of basic | approach to | appropriateness of |
| technological | adjusted EPS (pre | valuation | share buybacks |
| investment | exceptionals) |  |  |

£400m capex spend £470m of dividends £620m of distribution £370m of share
(<1% of sales) acquisitions buybacks
Cumulative
2016 to 2021
STRONG BALANCE SHEET NET DEBT TO EBITDA OF MAX 1x (PRE IFRS16)
### UNIQUELY POSITIONED GROWTH AMBITION DELIVER VALUE THROUGH
### TO CAPTURE MORE OF A UNDERPINNED BY ORGANIC GROWTH,
### VEHICLE’S LIFETIME VALUE OUR ESG STRATEGY: CONSOLIDATION AND
### • Higher margin activities; accounts RESPONSIBLE BUSINESS CASH RETURNS
for 75% of the profit-pool of a
• Responsible Business integral • Distribution markets have higher
vehicle’s life
to our Accelerate strategy growth prospects than average
• Currently significantly underserved
• Established priority areas: Planet, • Leveraging our global scale
by Inchcape
People, Places, Practices to improve profitability
• Clear opportunity to leverage
• Due consideration for all • Highly attractive returns (c.25%
our existing footprint
stakeholders ROCE) and capital allocation
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 23
OPERATING AND FINANCIAL REVIEW
GIJSBERT
DE ZOETEN
CHIEF FINANCIAL
## WELL OFFICER
## PLACED FOR
## OPPORTUNITIES
## AHEAD
### I am pleased to present our Operating and
### Financial Review for 2021, a year in which
### the Group has made substantial strategic
### and operational progress.
### Our teams’ relentless focus on strong execution
### in all our markets drove a rebound of all our
### key financial metrics. Of particular note was
### the delivery of another year of excellent
### cash flow generation.
24 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

| The Group’s performance in 2021 was | Our continued focus on cash |
| --- | --- |
| excellent, amid continuing challenges | management drove another |
| caused by the pandemic and supply | excellent year of cash flow |
| constraints across the globe. All our | generation, highlighting the cash |
| regions saw an improvement in both | generative nature of the business |
| top line and profitability, with strong | model. Over the course of the past |
| demand for vehicles and aftersales | 12 months we have added a number |
| services, following the significant | of new distribution businesses to our |
| disruption caused by Covid-19 in 2020. | portfolio, and have a healthy pipeline |

of opportunities. In line with our

| It is a testament to the resilience of our | capital allocation policy, this enabled |
| --- | --- |
| diverse business, and all our people, | us to launch a £100m share buyback |
| that we successfully navigated | programme in the middle of the year, |
| another year of uncertainty. Our | which is now complete. |

teams worked collaboratively, across
borders, to ensure we were making With the Group’s net cash position
the best possible business decisions. further improved, in addition to a
full-year dividend of 22.5p (final: 16.1p),
Group revenue was supported by GOVERNANCESTRATEGIC REPORT FINANCIAL STATEMENTS
we have launched another £100m
strong consumer demand for both share buyback programme to be
new and used vehicles, and reduced completed over the next 12 months.
discounting as supply was tight,

|  |  | particularly in the second half. | During 2021, the Group launched |
| --- | --- | --- | --- |
|  |  | This favourable pricing dynamic | its new growth strategy, Accelerate, |
| // | It is a testament to |  |  |
|  |  | contributed to the strong profitability | which continues to put distribution |
| the resilience of our |  | out-turn, with the Group’s gross | at the core of our business, and |
|  |  | margin at unprecedented levels. | extends our ambition to capture |

### diverse business, and
At the start of the year we successfully more of a vehicle’s lifetime value.
### all our people, that we

|  | concluded our cost-restructuring | We are embarking on this exciting |
| --- | --- | --- |
| successfully navigated | programme, which targeted a £90m | growth journey, while maintaining |
|  | reduction of overheads. We are still | our disciplined approach to capital |

### another year of
confident of retaining at least half allocation, and as such remain
### uncertainty. of these savings as volumes return focused on delivering long-term
to pre-pandemic levels. benefits to all of our stakeholders.
GIJSBERT DE ZOETEN
CHIEF FINANCIAL OFFICER
### KEY PERFORMANCE INDICATORS
Our results are stated at actual rates of exchange. However, to enhance comparability we also present year-on-year
changes in sales and operating profit in constant currency, thereby isolating the impact of translational exchange
rate effects. Unless otherwise stated, changes are expressed in constant currency and figures are stated before
exceptional items.
% change % change % change
2021 2020³ reported constant FX 1 organic 2
Key financials
Revenue £7,6 40m £6,838m +12 % +15% +21%
1
Operating profit (pre-exceptionals) £328m £164m +10 0% +120%
1
Operating margin 4.3% 2.4% +190 bps +200bps
1
Profit before tax (pre-exceptionals) £296m £128m +131%
1
Basic EPS (pre-exceptionals) 56.2p 23.1p +143%
Dividend per share 22.5p 6.9p +226%
1
Free cash flow £289m £177m +63%
Statutory financials
Operating profit / (loss) £227m £(93)m
Profit / (loss) before tax £195m £(130)m
Basic EPS 30.0p (36.0)p
1. These measures are alternative performance measures, see page 186.
2. Organic growth is defined as sales growth in operations that have been open for at least a year at constant foreign exchange rates.
3. Restated, see note on page 185.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 25
OPERATING AND FINANCIAL REVIEW CONTINUED
## PERFORMANCE REVIEW

| Our performance in the year was | The Group delivered an operating | Daimler Guatemala and a |
| --- | --- | --- |
| strong, with our Group revenue almost | profit pre-exceptional items of £328m, | commercial vehicle business in Guam) |
| back to pre-pandemic levels on | up 100% year-on-year reported and | and dividend payments of £52m. We |
| a comparable basis. While the | 120% in constant currency. The strong | launched a £100m share buyback |
| pandemic continued to cause | rebound reflects the topline increase | programme in July, of which c.£80m |
| disruption across the globe, the | and the year-on-year margin | was complete by the end of the year. |
| impact on the Group was less | improvement. The 2021 out-turn |  |
| pronounced than in 2020, as we had | includes c.£10m of profit from our St. |  |

The Group closed the reporting
adapted our business operations to Petersburg, Russia operations sold
period in a net cash position of
better manage in this environment. towards the end of the first-half.
£379m (excluding lease liabilities),
The widely reported global supply-
which compares to £266m at the
chain issues had a more pronounced Profit before tax and exceptional
end of December 2020, and £435m
impact in the second half. The items (PBT) of £296m (2020: £128m)
as at 30 June 2021.

| demand for vehicles and aftersales | reflects the strong improvement in |  |
| --- | --- | --- |
| remained strong throughout the | revenue and operating profit. The net |  |
|  | interest expense of £32m is £5m lower | On an IFRS 16 basis (including lease |

period, which created a supply-
than prior year primarily as a result of liabilities), we ended the period with
demand imbalance, and led to
lower inventory levels, which reduced net funds of £55m (December 2020:
higher gross margins and profitability.
the related interest expense. Adjusting net debt of £67m).
for the impact of currency and
Over the course of the year, the Return on capital employed over the
changes to our portfolio, profit before
Group generated revenue of £7.6bn, period was 30%, compared to 12%
tax and exceptional items is back to
operating profit pre-exceptionals of for the equivalent period last year.
2019 pre-pandemic levels (£296m).

| £328m and free cash flow of £289m. |  | The increase was primarily driven |
| --- | --- | --- |
|  | During the reporting period, we | by the recovery in Group profits, |
| Group revenue of £7.6bn rose 12% | incurred exceptional charges of | and supported by our portfolio shift |
| year-on-year reported and 15% in | £101m. The majority of the charge | towards distribution and asset |
| constant currency. The growth rate | relates to the £72m loss on the | impairments in 2020 triggered |
| was dampened by the disposal of | disposal of a part of our Retail | by the pandemic. |
| several retail businesses (including | operations in Russia, where we |  |
| sites in St.Petersburg, Russia), which | realised £108m of accumulated | FOURTH QUARTER 2021 |
| further reduced our standalone retail | foreign exchange losses upon | Group revenue for the fourth quarter |
| revenue exposure by c.£0.3bn. In | disposal. In addition, we booked £13m | was £1.8bn, down 4% reported. On |
| terms of M&A, over the past 12 months | of restructuring costs, largely related | an organic basis revenue increased |
| we secured five new distribution | to the conclusion of our Covid-19 cost | 5%, compared to a 10% increase |
| agreements across both the Americas | restructuring programme, and £20m | in Q3 – with the lower growth rate |
| and Asia, gaining entry into three new | of accelerated amortisation of | primarily owing to the shortage |
| markets. As well as broadening our | software assets (following a change | of vehicles globally, amid low |
| geographic footprint, we secured our | in accounting policy). | vehicle production levels. |

first distribution relationships with

| Geely (Chile), and Chrysler (Barbados | The highly cash-generative nature of | In Distribution, revenue increased 8% |
| --- | --- | --- |
| and Caribbean). | our business model was evident with | organically, following a 20% increase |
|  | free cash flow generation of £289m | in Q3. In addition to lapping a tough |
| On an organic basis, excluding | (2020: £177m) – this represents a | comparator, during Q4 most regions |
| currency effects and net M&A, | conversion of operating profit | were impacted by vehicle supply |
| revenue increased by 21%. The growth | pre-exceptionals of 88% (2020: 108%), | constraints, although aftersales |
| was broad-based across all regions, | exceeding the long-term average of | performance proved resilient. |
| driven by a combination of volume | 60-70%. During the period we |  |
| recovery and strong pricing. In 2020, | benefitted from a net working capital | In Retail, while revenue was flat |
| pandemic-related restrictions were | inflow of £44m, and lower net capital | year-on-year on an organic basis (Q3: |
| most pronounced during the second | expenditure (£40m), owing to | fell 2%), the comparable period was |
| quarter, and weighed significantly on | proceeds from the disposal of surplus | impacted by pandemic related |
| our performance. On a comparable | capital assets and the reallocation | restrictions. The shortage of vehicle |
| basis (adjusting for currency and | of expenditure on intangible assets | availability (both new and used) had |
| portfolio changes), the Group’s | to operating costs (due to a change | a meaningful impact on topline |
| revenue in 2021 was 3% below 2019. | in accounting policy). | performance. |

Other notable elements of the cash
flow bridge include: net acquisitions
and disposals, which amounted to an
inflow of £56m (proceeds from Retail
disposals offset by the acquisition of
26 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

| The combination of an encouraging | introduction of innovative financing |
| --- | --- |
| topline and margin improvement | products and a material reduction of |
| resulted in an operating profit¹ of | overheads, the business is structurally |
| £246m (2020: £140m). The operating | stronger. We expect these |
| margin rose 160bps to 5.3%. | improvements will support margins |

in the period ahead.
Asia revenue grew 11% year-on-year,

| and operating profit¹ rose 25%. While | Europe revenue was up 36% year-on- |
| --- | --- |
| countries continued to be impacted | year, with operating profit¹ rising 72%. |
| by pandemic-related uncertainty, | While the pandemic continued to |
| all our markets delivered both topline | cause uncertainty across markets, |
| and profit growth in 2021. However, | demand remained robust. The |
| the region remains significantly below | encouraging demand backdrop |
| 2019 levels owing to the vehicle | supported performance, with revenue |

## DISTRIBUTION
licence cycle in Singapore and and profits recovering towards 2019
general softness in Hong Kong. During levels, in spite of vehicle supply
### The Distribution segment
the first half, Singapore benefitted constraints. The topline recovery was
### saw revenue rise 27% year-
from greater availability of vehicle in part driven by market share gains
GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
### on-year, with all regions licences (the government’s phasing in a number of markets, with a solid
of missed licences over 12 months contribution from new models e.g.
### growing versus the prior year.

| concluded in June 2021), which did | Toyota Yaris. Our newly acquired |
| --- | --- |
| not repeat in the second half. In 2022 | JLR Poland business, was adversely |
| we expect vehicle volumes in | impacted by supply constraints, |
| Singapore to be broadly in line with | although the launch of the new |
| the run-rate observed in the second | Range Rover is expected to support |
| half of 2021. In Hong Kong, the | performance in 2022. |

business grew in 2021, although

| volumes remain relatively subdued. | Americas & Africa revenue grew 44% |
| --- | --- |
| Performance across the rest of Asia | year-on-year, and operating profit¹ |
| was solid, with an encouraging | recovered to pre-pandemic levels as |
| revenue and profit outturn. Having | margins rebounded. In the Americas, |
| won the distribution rights for JLR in | robust consumer demand enabled us |
| Indonesia during Q2, towards the end | to deliver positive growth across all |
| of the year we acquired a business | key markets, despite some pandemic |
| which distributes commercial vehicles | related disruptions. A combination |
| in Guam, further bolstering our | of the strong demand and pricing |
| presence in the region. | environment, and our cost- |

restructuring efforts have supported

| Australasia revenue grew 19% | the region’s performance such that |
| --- | --- |
| year-on-year, and operating profit¹ | both 2021 revenue and profits are |
| recovered considerably. The revenue | above 2019 levels. Over the past |
| performance was supported by the | 12months the region has secured a |
| launch of the new Subaru Outback | number of new distribution businesses, |
| and Forester models. This helped the | which in aggregate will add c.£200m |
| brand gain market share in the first | of annualised revenue. In Africa, our |
| sixmonths of the year, although this | performance continues to be solid, |
| momentum was disrupted by supply | not least given the backdrop of a |
| shortages in the second half. The | challenging environment. Looking |
| combination of supply-chain | further ahead, given the low |
| bottlenecks and various pandemic | penetration of vehicles per capita in |
| related restrictions held back margin | the Americas & Africa region, we are |
| recovery. Nevertheless, following a | optimistic about the growth prospects |
| number of actions, including an | over the medium and long term. |

adapted pricing strategy, the
### REGIONAL BREAKDOWN
1
Revenue Operating profit

|  |  | 4,672 | 2021 |  | 246 |  | 5.3% |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 2020 | 3,820 |  | 2020 | 140 |  |  | 3.7% |
|  |  | 4,917 | 2019 |  |  | 333 | 6.8% |

Asia Australasia Europe Americas & Africa
Operating margin
2021
1. Operating profit and operating margin stated pre-exceptionals.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 27
2019
OPERATING AND FINANCIAL REVIEW CONTINUED
Supported by strong gross margins contributed c.£110m of revenue and
and our cost mitigation measures, c.£10m of profit to the year’s result.
## RETAIL
we delivered operating profit¹ of £82m As indicated at our Capital Markets
(2020: £24m). The operating margin Day, as and when supply situation
### The Retail segment saw
was particularly strong at 2.8%. normalises we expect margins will
### revenue rise 1% year-on-year, trend towards c.1.5%.
UK & Europe delivered organic
### or 19% on an organic basis

|  | revenue growth of 19% and operating | Australasia: following a significant |
| --- | --- | --- |
| when adjusting for the Retail | profit¹ rose significantly, resulting in an | disposal programme, which |
|  | operating margin of 2.8%. We | concluded in 2020, we no longer |

### disposals over the period.
experienced solid demand for New have a Retail segment in Australasia.
and Used Vehicles against a
backdrop of supply constraints. This
drove gross margins to unprecedented
levels across all three of our retail-only
markets in the UK, Russia and Poland.
The profit out-turn also benefitted from
a lower overhead base, following
the implementation of our cost-
restructuring programme. In the first
half of 2021, we disposed of our
operations in St. Petersburg which
### REGIONAL BREAKDOWN
1
Revenue Operating profit
### 2,968 2021 82 2.8%
### 3,018 2020 24 0.8%
Asia Australasia UK & Europe
### 4,463 2019 40 0.9%
Operating margin
2021
2020
1. Operating profit and operating margin stated pre-exceptionals.
2019
28 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

| OTHER FINANCIAL ITEMS | Non-controlling interests | Financing |
| --- | --- | --- |
| Exceptional items | Profits attributable to our non- | As at 31 December 2021, the |
| During the year, we have incurred | controlling interests were £5m (2020: | committed funding facilities of the |
| exceptional charges of £101m (2020: | £3m). The Group’s non-controlling | Group comprised a syndicated |
| £257m). The charge arose largely | interests comprise a 40% holding in | revolving credit facility of £700m |
| from the recycling of £108m of foreign | PT JLM Auto Indonesia, a 33% share in | (2020: £700m) and sterling Private |
| exchange losses previously | UAB Vitvela in Lithuania, a 30% share | Placement loan notes totalling £210m |
| recognised in other comprehensive | in NBT Brunei, a 30% share in Inchcape | (2020: £210m). As at 31 December |
| income in relation to the disposal of | JLR Europe, a 10% share of Subaru | 2021, none of the £700m syndicated |
| the Russia Retail business, partially | Australia and 6% of the Motor | revolving credit facility was drawn |
| offset by gains on the disposal of other | Engineering Company of Ethiopia. | (£nil as at 31 December 2020). |

retail businesses in the UK and Europe.
Dividend Acquisitions
Additionally, there was £13m of
The Board has declared a final In 2021 the Group continued to further
restructuring costs and £20m of
dividend of 16.1p per ordinary share expand its distribution footprint,
accelerated amortisation on software
which will be paid on 21 June 2022 to completing four deals during the year.
assets. Further details can be found
shareholders on the register at close Towards the end of the fourth quarter
in note three on page 194.
of business on 13 May 2022. This follows the Group agreed terms to acquire
GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT

| Net finance costs | an interim dividend of 6.4p, and takes | an additional distribution business: |
| --- | --- | --- |
| Net finance costs were £32m (2020: | the total dividend in respect of FY21 | Simpson Motors in the Caribbean. |
| £37m). The decrease is largely due to | to 22.5p (2020: 6.9p). The Dividend | The deal remains subject to |
| a reduction in the cost of financing | Reinvestment Plan is available to | customary conditions, and upon |
| inventory following our retail disposals, | ordinary shareholders and the final | completion (anticipated in the first |
| and the overall reduction in inventory | date for receipt of elections to | half of 2022) we expect an aggregate |
| and associated inventory financing | participate is 27 May 2022. | cash outflow of c.£60m. |

following our S&OP improvements and
Cash flow and net debt Pensions
restrictions in supply globally. The
The Group generated free cash flow At 31 December 2021, the IAS 19 net
interest charge is stated on an IFRS 16
of £289m (2020: £177m) driven primarily post-retirement surplus was £82m
basis and, excluding interest relating
by an improvement in profitability, (2020: £20m), with the increase driven
to leases, our net finance charge was
the level of working capital and largely by a rise in the discount rate
£21m compared to £23m in 2020.

|  | continued careful capital allocation. | used to determine the value of |
| --- | --- | --- |
| Tax | After the proceeds received from our | scheme liabilities. In line with the |
| The effective tax rate for the year is | Retail disposals, as well as the | funding programme agreed with the |
| 24% before exceptional items (2020: | acquisition of the Distribution business | Trustees, the Group made additional |
| 26%). Compared to the prior year, the | in Guatemala and Morrico in Guam, | cash contributions to the UK pension |
| effective tax rate before exceptional | the Group had net cash excluding | schemes amounting to £4m (2020: |
| items benefits from improved | lease liabilities of £379m (2020: £266m). | £4m). Discussions with the Trustees of |
| operational performance reducing | Including lease liabilities (IFRS 16), the | the Inchcape Motors Pension Scheme |
| the adverse impact of unrecognised | Group had net funds of £55m (2020: | in respect of the actuarial valuation |
| losses. The effective tax rate for the | net debt of £67m). | as at 5 April 2019 were finalised during |
| year, after exceptional items, is 37% |  | the first half of the year and the Group |
|  | Capital expenditure | has agreed to contribute an |

(2020: negative 7%), and is not
During 2021, the Group incurred net additional £3m per annum to the
comparable to the prior year due
capital expenditure of £40m (2020: scheme over the next seven years.
to the impact of the pandemic on
£35m), consisting of £65m of capital
the Group’s performance in the
expenditure and £25m of proceeds
prior period.
from the sale of property. In 2022,
we continue to expect net capital
expenditure of less than 1% of
Group sales.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 29
OPERATING AND FINANCIAL REVIEW CONTINUED

## VALUE DRIVERS

We provide disclosure on the value drivers behind our gross profit (pre-exceptional). This includes:

- Gross profit attributable to Vehicles: New Vehicles, Used Vehicles and the associated F&I (Finance & Insurance) income; and
- Gross profit attributable to Afftersales, Service and Parts.

|   | 2021 $m | 2020 $m | % change reported | % change constant FY  |
| --- | --- | --- | --- | --- |
|  **Group** |  |  |  |   |
|  Vehicles | 749.5 | 56.9 | 45% | 50%  |
|  Afftersales | 391.4 | 372.5 | 5% | 10%  |
|  **Total** | **1,140.9** | **889.4** | **28%** | **33%**  |

We operate across the automotive value chain, and during the year we generated 34% of gross profit through Afftersales, compared to 42% in 2020. This reflects the rebound in vehicle sales from the prior year, when sales were significantly disrupted as a result of the pandemic.

## RECONCILIATION OF FREE CASH FLOW¹

|   | 2021 $m | 2021 $m | 2020* $m | 2020* $m  |
| --- | --- | --- | --- | --- |
|  Net cash generated from operating activities |  | 377.0 |  | 249.2  |
|  Add back: Payments in respect of exceptional items |  | 12.0 |  | 24.3  |
|  Net cash generated from operating activities, before exceptional items |  | 389.0 |  | 273.5  |
|  Purchase of property, plant and equipment | (48.5) |  | (27.4) |   |
|  Purchase of intangible assets | (16.1) |  | (14.5) |   |
|  Proceeds from disposal of property, plant and equipment | 24.6 |  | 6.7 |   |
|  Net capital expenditure |  | (40.0) |  | (35.2)  |
|  Net payment in relation to leases |  | (57.0) |  | (56.7)  |
|  Dividends paid to non-controlling interests |  | (3.0) |  | (8.3)  |
|  **Free cash flow** |  | **289.0** |  | **177.3**  |

Included within free cash flow are movements where prior approval is required to transfer funds abroad, as described in note 9 on page 103.

1. APM (alternative performance measure), see page 103

2. Restated, see note on page 103

## RETURN ON CAPITAL EMPLOYED¹

|   | 2021 $m | 2020* $m  |
| --- | --- | --- |
|  **Operating profit (before exceptional items)** | **328.1** | **164.1**  |
|  Net assets | 1,130.5 | 1,050.2  |
|  Less (net cash) / add net debt | (54.7) | 66.5  |
|  Capital employed | 1,075.8 | 1,027.7  |
|  Effect of averaging | 26.0 | 200.0  |
|  **Average capital employed** | **1,101.8** | **1,027.7**  |
|  **Return on capital employed** | **29.8%** | **12.8%**  |

1. APM (alternative performance measure), see page 103.

2. Restated, see note on page 103.

30

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## REGIONAL BUSINESS MODELS
### DISTRIBUTION
AMERICAS & AFRICA
Country Brands
Argentina Subaru, Suzuki
1
Barbados Chrysler, Freightliner, FUSO, Isuzu, JCB, Jeep, John Deere, Mercedes-Benz, Subaru, Suzuki, Western Star
GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
Chile BMW, BMW Motorrad, DFSK, Geely, Hino, MINI, Rolls Royce, Subaru
Colombia DFSK, Dieci, Doosan, Hino, Jaguar, Land Rover, Mack, Mercedes-Benz, Subaru
Costa Rica Changan, JAC, Suzuki
Ecuador Freightliner, Mercedes-Benz, Western Star
El Salvador Freightliner, Mercedes-Benz, Western Star
Guatemala Freightliner, Mercedes-Benz, Western Star
Panama Suzuki
Peru BMW, BMW Motorrad, BYD, DFSK, MINI, Subaru
Uruguay Freightliner, Fuso, Mercedes-Benz
Djibouti BMW, Komatsu, Toyota
Ethiopia BMW, Hino, Komatsu, New Holland, Suzuki, Toyota
Kenya BMW, BMW Motorrad, Jaguar, Land Rover
1. Distribution agreements for these brands across a range of Caribbean islands, centred on Barbados
APAC
Country Brands
Brunei Lexus, Toyota
2
Guam BMW, Chevrolet, Freightliner, Hyundai, Kohler, Lexus, Mercedes-Benz, New Holland, Toyota
Hong Kong Daihatsu, Ford, Hino, Jaguar, Land Rover, Lexus, Maxus, Toyota
Indonesia Jaguar, Land Rover
Macau Daihatsu, Ford, Hino, Jaguar, Land Rover, Lexus, Maxus, Toyota
Saipan Toyota
Singapore Hino, Lexus, Suzuki, Toyota
Thailand Jaguar, Land Rover
Australia Citroen, Peugeot, Subaru
New Zealand Subaru
2. Distribution agreements for these brands across a range of Pacific islands, centred on Guam
EUROPE
Country Brands
Belgium Lexus, Toyota
Bulgaria Lexus, Toyota
Estonia BMW, BMW Motorrad, Ford, Jaguar, Land Rover, Mazda, MINI
Finland Jaguar, Land Rover, Mazda
Greece Lexus, Toyota
Latvia BMW, BMW Motorrad, Ford, Jaguar, Land Rover, Mazda, MINI
Lithuania BMW, BMW Motorrad, Ford, Jaguar, Land Rover, Mazda, MINI, Rolls Royce
Luxembourg Lexus, Toyota
North Macedonia Lexus, Toyota
Poland Jaguar, Land Rover
Romania Lexus, Toyota
### RETAIL
Country Brands
Australia³ Isuzu Ute, Jeep, Kia, Mitsubishi, Volkswagen
Poland BMW, BMW Motorrad, MINI
Russia Audi, BMW, Jaguar, Land Rover, Lexus, MINI, Rolls Royce, Toyota, Volvo
UK Audi, BMW, Jaguar, Land Rover, Lexus, Mercedes-Benz, MINI, Porsche, Smart, Toyota, Volkswagen
3. Following scale disposal of retail businesses in Australia, Retail is no longer reported as a separate segment in APAC.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 31
## SUZUKI
We have a partnership with Suzuki stretching over 40 years,
significantly expanding this relationship in 2018 through
LOCATIONS acquisition and the awarding of distribution contracts in
DISTRIBUTION Costa Rica and Panama. This expansion added to our
+
Argentina, Barbados , Costa established South America platform with our first move
Rica, Panama, Singapore into Central America and in 2021 we added Barbados
and several Caribbean islands to our portfolio.
+ Indicates the base of care distribution
operations which also serves
neighbouring islands.
32 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
RESPONSIBLE BUSINESS
## DRIVING WHAT MATTERS
### Being a responsible business is a fundamental part of our strategy, mapping
### the way Inchcape will create sustainable value for all our stakeholders.
Developing our approach to responsible business is central our organisation, as well as full accessibility for our
GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
to our future plans at Inchcape. We know it will provide customers; by ensuring the safety and supporting the
measurable benefits to Inchcape, bringing us closer to health and wellbeing of our employees; and in supporting
our customers and partners: it will make Inchcape a more mobility and economic development in the communities
rewarding and safer place to work; it will help us recruit, in which we operate.
engage and retain the best talent; and it will ensure we
remain a trusted partner to the OEMs with whom we work. To deliver this requires us to have a plan that is supported
These elements are fundamental to the successful delivery with a robust framework. Our ‘Driving What Matters’ plan
of our Accelerate strategy and to ensuring Inchcape’s has been designed collaboratively with our markets, for
sustainability for the long-term. ownership and delivery by our teams, locally. The plan
concentrates on our 4Ps (or pillars) of Responsible Business
We are united with the interests of all our stakeholders in – Planet, People, Places, and Practices.
the need to play our role in making a positive contribution
to the communities in which we operate, for our people, Mindful of the need to reflect the different laws, regulations,
for society and for the planet. For Inchcape though, being and cultures where we operate, we have designed a
a responsible business extends into other key areas of our global framework with workstream charters that local
operations where we can make a positive difference to markets will use to respond to what is important to meet
our stakeholders: by improving inclusion and diversity in the needs of their local stakeholders.
### PRACTICESPLACESPEOPLE PLANET
• Prioritising safety and • Having a positive impact • Strengthening our • Mapping the risks and
wellbeing on local communities governance policies opportunities of climate
• Creating an inclusive and • Supporting safer roads reflecting our position change
diverse colleague base • Facilitating mobility asaninternational plc • Setting GHG targets
solutions for those with • Reducing waste
disabilities
### KEY MILESTONES ACHIEVED IN FY21 NEXT STEPS
• Global workstreams established for each pillar • 2022 priorities towards our science-based targets
• Science based targets set: reducing scope 1 and 2 – Switch to renewable tariffs;
emissions by 46% by 2030 in line with a 1.5ºC target – Invest in solar PV; and
• Climate-related risks and opportunities identified – Reduce base energy usage.
• Workstreams started on Inclusion & Diversity and • Scope 3 emissions to be considered in 2022
wellbeing
• TCFD aligned reporting in 2021 ARA
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 33
RESPONSIBLE BUSINESS CONTINUED
## PEOPLE CURRENT PRIORITIES AND INITIATIVES
INCLUSION & DIVERSITY
• Inclusive Leadership Programme
• Create an inclusive environment
Current focus for the People pillar is on establishing our Inclusion
and diverse colleague base
and Diversity frameworks, narrative and internal communication.
SAFETY & WELLBEING This comprises our Inclusive Leadership Programme for which
• Ensure the safety and wellbeing we are targeting rollout to 100% of our senior leadership population
of our people (c.75 employees) by end of June 2022. Stage two will be to the
next level of management (c.400 employees total) by end Q1 2023.
TALENTS & SKILLS
### • Equip the organisation with the • Lifeworks Employee Assistance Programme
skills and capability to establish
Under Safety and Wellbeing, we launched the Lifeworks Employee
and sustain Inchcape in being
a commercially successful Assistance Programme which was completed in December 2021,
Responsible Business use of which is being tracked monthly and success will be measured
in wellbeing questions in future employee experience surveys.
• Women in Leadership Programme
We launched our Women in Leadership Programme in 2021
with three pilot cohorts and will run three further cohorts in 2022
with satisfaction measurement as well as retention and progression
as measures of success.
CREATE AN INCLUSIVE ENSURE THE SAFETY AND WELLBEING EQUIP THE ORGANISATION WITH
ENVIRONMENT AND DIVERSE OF OUR PEOPLE THE SKILLS AND CAPABILITY TO
COLLEAGUE BASE We believe the physical and mental ESTABLISH AND SUSTAIN INCHCAPE
We believe differences drive ideas wellbeing of our people is paramount IN BEING A COMMERCIALLY
and innovation. We will create an to the success of Inchcape. We will SUCCESSFUL RESPONSIBLE BUSINESS
organisation that actively attracts, make sure every person both feels
We believe that providing continuous
recruits and develops people across safe and is safe at work. We’ll make
opportunities for professional and
all aspects of diversity, that reflects sure they are able to raise concerns,
personal growth will guarantee our
our customer base and the doubts and fears – and that we listen,
collective success as a responsible
communities in which we operate. take action and help them when
business. We will develop and source
An organisation that actively enables needed, so we can support their
skills, capabilities, behaviours and
every person to feel valued and fully mental health and wellbeing.
mindsets that enable every person,
contribute, generating the broadest team and Inchcape as a whole to
breadth in contribution, ideas and succeed, delivering in a sustainable
thinking to business performance way as a truly responsible business;
and decision making. for our people, for our customers, for
the communities in which we operate
and for our planet.
34 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## INCLUSION AND DIVERSITY
### Our employees are at the heart of the People pillar of our ‘Driving What Matters’ plan,
### which aims to ensure we have a safe operating environment with an inclusive and
### diverse culture as well as the best talent and skills to power our future success.
Our vision for Inclusion & Diversity (I&D) is to reflect the – Visibility and Progress: we are creating global I&D
world’s communities across Inchcape. We believe the standards through policy development and have
more voices, experiences and backgrounds we include committed to tracking and measuring the performance
at Inchcape, the more we will all thrive. To achieve this of our programmes on I&D.
vision we created our first I&D Framework in 2021.
– Campaigns and Events: our programme of global I&D
campaigns and events empower us to raise awareness
Our I&D Framework sets out the guiding principles and GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
and celebrate I&D progress together.
foundational actions we will take:
– Colleague Voice: a series of structured forums have
Our I&D Framework will evolve as we continue to embed
been set up so that the conversation and action on
the actions and it will enable us to develop global priorities
Inclusion & Diversity is influenced by our colleagues.
alongside providing the opportunity for local markets to
– Knowledge and Understanding: we are building a suite tailor initiatives to the needs of their communities.
of tools, development, learning and practical guidance
to help to reduce bias and drive more inclusive decisions
across the business.
## EMPLOYEE EXPERIENCE SURVEY
### Understanding what our employees think about the business and their
### experience as ‘Inchcapers’ is critical to driving performance, maintaining
### the highest standards of safety and wellbeing, and attracting and retaining
### the best available talent. In 2021 we ran a full survey and some of the high
### level results are shown below.
SURVEY CATEGORIES IN ORDER OF PERCEIVED
IMPORTANCE TO EMPLOYEES
100

|  |  | 91 | 90 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  | vs |  | vs |
| 90 |  |  |  | 83 |  |  |  |  |  |
|  | 81 |  |  |  | 80 | Category | 2019 | Category | 2019 |

79
80

|  |  |  |  | My Reward +8 | Leadership Team +8 |
| --- | --- | --- | --- | --- | --- |
| 70 |  | 64 |  |  |  |
|  | 62 |  | 61 | Work Environment, Working | Working from home* N/A |

59
60 Practices & Tools +1
Way we do things +8
50 My Team & Colleagues +3
Wellbeing -3
40
My Role –
Organisation +2
30
My Manager +4
My Career Development +1
20
My Learning +2
Employee
10
Communication* N/A
0
Response rate Total Employee Intention How likely to
Experience Satisfaction to stay recommend
OUTCOMES
Sentiment analysis of verbatim comments was combined
with quantitative results to produce consolidated insights.
We focus on four key engagement metrics: Total While this gave some strong indication of potential action
Experience, Employee Satisfaction, Intention to Stay, points, it was critical to properly digest, discuss and share,
Improved scores on all key engagment metrics and How Likely to Recommend (Inchcape as a place expanding on the insights with further focus groups and
to work). All global key engagement measures were up linking to the strategy.
with Intention to Stay and How Likely to Recommend
Culture focus groups including one-to-one discussions with
both very strong. 73% of employees provided over
the Executives took place with findings incorporated as an
13,000 verbatim comments for analysis
organisational health check overlay; this was then shared
to help shape regional and functional action plans.
Improvement action plans were completed and “you said,
we heard, we will improve” communications took place
after final results were shared with the Group Executive
and Board in November.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 35
2021 2019
RESPONSIBLE BUSINESS CONTINUED
## PLACES CURRENT PRIORITIES AND INITIATIVES
SAFE MOBILITY
• Community activities
• An advocate for safer roads
There is currently a wide range of community-based activity taking
INCLUSIVE MOBILITY place across all markets, including support for S.O.S. Children’s
Village and the Red Cross as well as Safe Drive mobility training
• Support people with disabilities to
access mobility solutions to employees and their relatives in our Africa and Central
America markets.
SOCIAL MOBILITY
• Supporting equal opportunities • Road safety campaigning
through education, training access Our first internal road safety campaign rolled out in December and
and social levelling up
a key initiative in 2022 will be to develop externally facing campaigns
and potentially partnerships with relevant bodies and organisations.
SAFE MOBILITY INCLUSIVE MOBILITY SOCIAL MOBILITY
Inchcape promotes the safe use of We will support people with disabilities We will develop specific global
roads with the objective of becoming to access the right mobility solutions and local projects and initiatives
a strong and visible advocate for through sponsorship and promotion of that support and enable equal
reduced road accidents and deaths specific initiatives in our markets. We opportunities for young people;
across all markets in which we will also support key programmes that for example through internship,
operate. We will support and promote promote activities and topics such apprenticeship, technical education
safe driving through sponsorship of as sports, education, skills acquisition and female education. Focus of
educational programmes, awareness and health of those with disabilities. such programmes will be on the less
creation and campaigns on safe use We will also ensure all Inchcape privileged and/or disadvantaged
of roads. We will also partner with facilities and operations provide full young people in communities in
relevant bodies, stakeholders and and inclusive access to mobility for all. which we operate to give those
advocates to develop and implement selected a better chance to live, grow
accident prevention initiatives and and realise their potential. Inchcape
support emergency responses to will be a key proponent of upward
save lives on the roads. We will aim mobility for all by helping and being
to develop and roll-out a proprietary seen to help young people out of
digital engagement platform poverty and deprivation.
dedicated to promoting Safe
Mobility globally.
36 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## PRACTICES CURRENT PRIORITIES AND INITIATIVES
CODES OF CONDUCT (EMPLOYEES
• Employee Code of Conduct
AND SUPPLIERS
In line with the launch of our Accelerate strategy and Driving
• Everyone knows what is expected GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
What Matters plan, we updated the Employee Code of Conduct,
of them
launched, distributed and trained the workforce to a target of 95%
FRAMEWORK FOR REPORTING of all employees. The Code has been made available in 19 official
languages spoken in Inchcape markets to ensure understanding
(EXTERNAL STATEMENTS)
across all employee groups.
• Ensure transparency and ethical
behaviour
• Supplier Code of Conduct
WHISTLEBLOWING We also developed and rolled out our first Supplier Code of Conduct
• Drive integrity and responsibility to ensure consistency of approach within our third-party supplier
community.
POLICIES
• Clear and consistent communication • Speak Up!
and access
Additionally, our Speak Up! whistleblowing hotline and other
contact channels were refreshed and rolled out to all employees
and suppliers, with communications extended to our corporate
website to ensure accessibility to any stakeholders that may need
to raise concerns.
STRENGTHEN CODES OF CONDUCT ENSURE A ROBUST LEGAL COMMUNICATION
We believe in a culture where AND REGULATORY SYSTEM We will ensure that we communicate
everyone knows what is expected We believe trust reinforces our bond our policies and controls effectively
of them. We will make sure we are with our stakeholders. We will maintain and consistently and that colleagues
an organisation that has a strong, the high legal and regulatory are given access to training where
clear code of conduct ensuring standards vital to building confidence required. Our InControl Standards risk
compliance with laws, such as and trust with all our stakeholders. management framework will enable
those on respecting human rights, We will publish a set of guidelines and long-term growth protecting the
environmental protection, labour rules to comply with Inchcape goals fundamentals that underpin the
relations and financial accountability. in relation to good practices and laws. Group’s success.
An organisation where everyone
knows what is expected of them and
WHISTLEBLOWING
helps us to make ethical decisions,
We believe all colleagues should
with clear processes for identifying
be able to report their concerns in
misconduct.
confidence and drive responsible
behaviour. We will create a culture of
PROVIDE A FRAMEWORK
integrity by empowering colleagues
FOR REPORTING to make the right choices. We will give
We believe transparency drives colleagues clarity and transparency
ethical responsible behaviour. We will over all polices and enable a
ensure we make appropriate external confidential method of reporting.
statements of our approach to
compliance in a given policy area
through the Group’s website and
Annual Report.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 37
RESPONSIBLE BUSINESS CONTINUED
## PLANET CURRENT PRIORITIES AND INITIATIVES
CLIMATE CHANGE IMPACT • Planet Pillar
• Understand risks to and opportunities
Scopes 1 and 2 remain the key focus of the Planet workstream,
for Inchcape
where we can make the biggest contribution to our stated target
of 46% reduction in emissions by 2030 (in line with 1.5°C). Scope 1
GREENHOUSE GAS EMISSIONS
focus is to increase the proportion of new energy vehicles in the
• Set science based targets for
share of our owned fleet and to reduce the amount of fossil fuel
Inchcape (scopes 1 and 2)
used in our operations.
• Support OEM partners in their
reduction efforts
• Influence non-OEM suppliers to • Reduce electricity consumption
reduce their carbon footprint In scope 2, we are increasing the proportion of our electricity sourced
from renewable tariffs as well as installing and measuring peak power
WASTE AND RECYCLING
output from on-site renewables such as solar pv, ground- and air-
• Reduce impact of waste
sourced heat pumps and implementing energy efficiency measures
to reduce our overall electricity consumption where possible.
HELPING OUR OWN PEOPLE
ACHIEVE THEIR OWN CARBON • Reduce emissions
REDUCTION GOALS
During 2022, we aim to develop an understanding of our scope 3
• Educate our own people
emissions, both up- and downstream, and are focusing on measuring
and improving the proportion of waste recycled.
• Climate change projects
In order to understand the risks and opportunities associated with
climate change, a project was carried out in 2021, to enable us
to report in line with recommendations under the TCFD. Further
information is given on pages 40 to 44.
WE WILL UNDERSTAND THE RISKS WE WILL SUPPORT OUR OEM WE WILL DEAL RESPONSIBLY WITH
AND OPPORTUNITIES FOR OUR PARTNERS IN THEIR EFFORTS THE WASTE THAT WE PRODUCE
BUSINESS THAT WILL ARISE AS TO REDUCE GREENHOUSE AS A BUSINESS
A RESULT OF CLIMATE CHANGE GAS EMISSIONS As a minimum, we will comply with
We will report on those risks and Where appropriate, we will make sure all applicable laws and regulations.
opportunities regularly and we comply with their building and We will progressively increase the
transparently so that all our energy management policies. We will amount of waste products that we
stakeholders can have confidence actively promote the sales of vehicles recycle in order to reduce our impact
that we are safeguarding their with lower emissions. upon the planet over time.
interests over the long-term.
WE WILL INFLUENCE OUR NON-OEM WE WILL EDUCATE OUR PEOPLE
WE WILL MEASURE AND REPORT SUPPLIERS TO REDUCE THEIR We will show our people the ways
ON OUR DIRECT AND INDIRECT CARBON FOOTPRINT in which they can contribute to
GREENHOUSE GAS EMISSIONS reducing their impact upon the
We will incorporate environmental
planet in both their working lives and
We will set science-based targets considerations into our decision-
their personal lives. Our leadership
for our scope 1 and scope 2 emissions making processes and favour
teams will model those behaviours.
and take the measures necessary suppliers that set ambitious science-
to meet those targets. based targets for their greenhouse
gas emissions.
38 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT STRATEGIC REPORT
## MERCEDES-BENZ
In 2019 we signed our first distribution contracts with
Mercedes-Benz for both passenger and commercial
LOCATIONS vehicles in Uruguay and Ecuador, followed by a further
DISTRIBUTION agreement in January 2020 to become the distributor
+

| Barbados | , Colombia, | for Mercedes-Benz passenger vehicles in Colombia. |
| --- | --- | --- |
| Ecuador, El Salvador, Guam+, |  | During 2020 and 2021 we continued our consolidation |
| Guatemala, Uruguay, |  | and are now Mercedes’ number one distribution partner |

in Latin America.
RETAIL
UK
+ Indicates the base of care distribution
operations which also serves
neighbouring islands.
FINANCIAL STATEMENTSGOVERNANCE
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 39
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES
## CLIMATE CHANGE
### Climate change is the biggest environmental threat faced by the world today
### and every business is affected in numerous ways.

| The Paris Agreement sets out an | be reported in the next year’s Annual | and initiate discussion regarding the |
| --- | --- | --- |
| international ambition to hold | Report and Accounts. Please see | areas of exposure for the Group. The |
| the increase in global average | page 44 for further information. | Carbon Trust also interviewed regional |
| temperature well below 2°C above |  | market heads, and other senior |
| pre-industrial levels, and to pursue |  | leaders, investor relations, strategy, |

TCFD PROJECT
efforts to limit this to 1.5°C. Governments finance, and risk management teams.
The Company engaged the Carbon
are looking to businesses for help to The findings from these interviews
Trust, an independent sustainability
keep global temperatures within a informed our initial list of climate-
consultant, to assist the Group in
safe range. UK listed companies are related risks and opportunities
analysing climate-related risks and
now required to report in line with the (“CCR&Os”), and shaped our
opportunities over the short, medium
recommendations set out in the Task approach.
and long-term. The project began
Force on Climate-Related Financial
in January 2021, with the purpose
Disclosures (TCFD).
of identifying climate-related risks GOVERNANCE
and opportunities and assessing Duncan Tait, Group Chief Executive,
This section of the Annual Report sets
how these may impact strategic is the Board Director with ultimate
our disclosures in compliance with the
and financial planning. responsibility for climate-related
10 of the 11 TCFD recommendations
issues, with the support from the
and recommended disclosures
A range of stakeholders within the Group Executive Team (GET).
as required by LR9.8.6R. The
business were invited to participate
recommendation on the assessment
in the project. Initial workshops were The Group’s response to climate
of the resilience of the Group’s strategy
facilitated by the Carbon Trust to change has been scheduled as a
will be carried out during 2022, and will
educate colleagues on climate-risk regular agenda item for either the
### ULTIMATE
### BOARD
### RESPONSIBILITY
### OVERSIGHT
### GROUP
### CSR AUDIT MONITORING
### EXECUTIVE
### COMMITTEE COMMITTEE TARGET SETTING
### TEAM
### KPI
### DEFINING
### ACTIONS,
### TCFD WORKING GROUP
### REPORTING AND
### DISCLOSURE
Responsible for embedding
processes toidentify, monitor
### FINANCE STRATEGY RISK LEGAL
and mitigate climate risks
andopportunities
40 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
Board or one of its Committees (as The remit of the TCFD Group is to RISK MANAGEMENT
appropriate) to cover impacts upon monitor the governance around Regional and Group risk
the business of climate change; and CCR&Os, continuing identification and management committees monitor
the impact of the business upon the verification of CCR&Os, and ensuring and manage risks as part of the
environment. the CCR&Os are considered in context continuous risk management process.
of strategy and financial performance. Climate-related risks are identified
The Audit Committee, who meet The TCFD Group agrees action plans
and assessed within the Group’s Risk
four times a year, considers emerging to improve disclosure under each of
Management Framework. Climate
and significant risks throughout the the recommended areas with progress
change is not drawn out as a stand
year which include climate-related tracked at each meeting.
alone risk due to its broad nature;
risks. The Audit Committee also
however, the impact of climate
reviews the impact of climate
STRATEGY change is a key element in several
change when considering significant
principal risks including EV supply and
The most material climate change
judgements such as impairment
demand, and supply chain disruption.
risk that we face is where there is a
of goodwill, plant, property and
Principal risks are those which are
misalignment between the speed
equipment etc. as part of the
considered to have a material
at which our OEM partners are able
reporting of financial information.
financial or strategic impact on
to transition their model line up to
See page 77 for further details.
the business.
New Energy Vehicles (NEVs) and the GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
pace of adoption of NEVs in the
The CSR Committee, which met We have developed actions plans
markets in which we operate.
four times during 2021, has oversight to embed climate-related assessment
of the Driving What Matters plan, and management throughout the
It is plausible that in some of our
which comprises four pillars: People, Group and to improve climate-related
markets NEV adoption will outpace
Places, Planet, Practices. The Planet processes and decision making.
the speed at which our OEM partners
workstream has three principal areas
are able to produce NEVs at scale or Further information on how risks are
of focus which include understanding,
vice versa. In those instances we may identified, assessed and managed
reporting and acting upon CCR&Os.
experience periods of market share can be found in the Risk Management
loss. However, we remain confident Report on pages 48 to 56.
Where climate-related issues have
that these impacts will be short-lived
been considered at Committee level, In addition to the risk management
as the resilience of our strategy is
updates are given to the full Board process, climate-related risks are
built on:
following each meeting. considered as part of the strategic
and financial planning process
• having decades of experience of
The Board and the CSR Committee
which is monitored by the TCFD
delivering successful market entries
delegate responsibility for assessing
Working Group.
for OEMs, and introducing their
and monitoring climate-related risks
latest vehicle innovations. Establishing climate-related risks
to the GET, who considered climate-
• expertise in our markets, with and opportunities
related issues as part of the following
domain expertise in regulation, To determine the risks identified,
discussions:

|  | government policy, understanding | a value chain/business model |
| --- | --- | --- |
| • Design of strategy – considering our | consumer preferences and | approach was taken, combining |
| strategic choices through a climate | infrastructure readiness. | desk-based research findings and |
| change lens; | • fostering long-term relationships | learnings from the interviews to |
| • Implementation of Risk | with the world’s leading OEMs, | develop the longlist of 192 risks. |
| Management framework – related | who are investing and innovating | Scenario data was then brought into |
| oversight of how climate-related | to ensure they have a vehicle | the prioritisation assessment. |
| risks are being continually assessed | line-up which will meet consumer | Structuring the longlist development |
| at regional level; | preferences | in this way ensured the potential risk |
| • Financial planning – impact of | • working in close collaboration with | of being biased/led by scenario data |
| climate on future cash flows and | our OEM partners across our regions | availability was minimised. Of the 192 |
| impairment; and | and markets, ensuring the most | risks identified, 119 were taken through |
| • Business development – assessment | appropriate vehicle line-ups. This | the likelihood, velocity and materiality |
| of current and future OEM partners’ | requires careful planning regarding | analysis. A threshold was applied |
| new energy vehicle line up and | the suitability of particular vehicle | to determine which risks would |
| market infrastructure. | powertrains, when to introduce new | be shortlisted. |

vehicle technologies, and ensuring
The TCFD Working Group (TCFD
vehicles will meet local-market The GET spent time reviewing the
Group) meets on a quarterly basis
homologation requirements.. findings to establish which risks and
and comprises the Group General
opportunities are the most relevant
Counsel, Group Company Secretary, In setting our strategic direction we
taking into account both likelihood
Head of Internal Audit, Risk Manager, concluded that we have relationships
and impact. The team also
the Group Financial Controller, with OEMs that will successfully
considered how the risks are currently
Head of Investor Relations, Group navigate the energy transition.
being built into strategic thinking
Head of Strategy and the Group We are also actively engaged in
and how they will be considered on
Strategy Manager. discussions with newer OEM entrants
an on-going basis. Additionally, they
(e.g. those manufacturing only
established a process for identifying
battery EVs), which, if successful,
and assessing CCR&Os in the future.
will support a further broadening
of our brand footprint.
Please see the table on page 42
for further information on our climate-
related risks and opportunities.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 41
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES CONTINUED
### SUMMARY OF KEY FINDINGS AND COMPARATIVE A Reduced market share as NEV vehicles
commercialised
### IMPORTANCE OF RISKS
B Water stress related interruption
to servicing
### Our most significant risk is a potential misalignment between
C Drought related interruption
### model line-up in a given geography and the pace of to servicing
D H&S impacts from increased heat stress
### EV adoption in that market. Conversely, close alignment
E Aftersales impact from reduced EV
### presents opportunities. Physical risks are less pronounced
lifecycle and maintenance
### than transition risks and manifest over longer-term. F Direct impacts to property and
inventories from flooding
Highly
G Market share impacts from misalignment
consistent
between OEM and market on EV
outcome
A
under all H Carbon tax costs from logistics
I scenarios I EV availability constraints due to rare
earth metals
J Direct impacts to property and
G inventories from wildfire
J
B
Key
D
F Physical Transition
E
risk risk
H LIKELIHOOD SCORE
Bubble size represents materiality
colour coded by risk type
Only
C expected
under
extreme
Increasing
scenarios
impact
Expected to occur VELOCITY SCORE Expected to occur
beyond 2030 before 2025
CLIMATE RELATED RISKS AND OPPORTUNITIES
The CCR&Os detailed below are considered to have the most significant impact on the Group over the short, medium
and long-term.
Type Description Length Impact on strategy and financial planning
Transition risk – Market share impact Short and When evaluating investment opportunities, we consider the speed
Market from misalignment between Medium-term at which the geography is moving to EV adoption and the pace at
OEM and market on EV which our OEM partners are transitioning their product pipeline from
ICE to EV. This is likely to be the most material risk to strategy.
Transition risk – Aftersales impact from EV Medium and We have considered the Infrastructure required on company
Technology lifecycle andmaintenance long-term premises for EV aftersales. A reduced number of moving parts in
EV could lead to reduced sales of secondary and replacement
components. As the percentage of EV sales is still relatively low,
this will not impact aftersales in the near term.
Transition Risk – Tax levied on the carbon Medium and Carbon taxes could increase cost of operations (including transport
Policy and legal emissions required to produce long-term and logistics) and of parts and vehicles with potential impact on
goods and on logistics size of market. We continue to monitor the likelihood of carbon taxes
impacting costs.
Transition risk – EV availability constraints due Medium to We have not seen any supply chain disruption attributable to this
Technology to rare earth metals long-term issue and, in the event of battery shortage, would apply the usual
measures we would take to deal with any supply chain issues. This is
an emerging risk which is kept under review.

| Physical Risk – | Disruption to operations | Medium and | Extreme weather events and water stress could result in an increase |
| --- | --- | --- | --- |
| Extreme weather | and supply due to flooding, | long-term | in the costs of mitigation measures i.e. relocating sites and insurance |
| event | wildfires and drought, and |  | costs. We have concluded that this will not be a direct impact in |
|  | impact from water stress |  | the near-term. However, we continue to monitor this closely. |
| Transition | EV-enablement partner to | Medium-term We can leverage our scale, and our growing experience, to help |  |
| Opportunity – | position Group to partner with |  | our OEM partners manage the transition in the markets in which |
| Market | OEMs as they transition to EV |  | we operate. |
| Energy source | Energy savings from global | Short, medium | Setting science-based targets for our scope 1 and scope 2 |
| opportunity | greenhouse gas emission | andlong-term | emissions drives us to reduce our base energy usage. In doing so, |
|  | reduction targets/resource |  | we can also generate significant cost savings. |

efficiency
42 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
CCR&O DEVELOPMENT METHODOLOGY
To help us quantify our CCROs, we used data from the following sources:
• Representative Concentration Pathways (RCP): Defined emission pathways, which can be input into global climate
models to derive the physical climate futures;
• Shared Socioeconomic Pathways (SSP): Contain a narrative about what the world looks like from a socioeconomic
perspective, including qualitative assumptions on important elements, such as technology transfer, global cooperation,
societal preferences, and the paradigm underpinning global development; and
• International Energy Agency (IEA): model focused on production and demand for fossil fuel.
There are benefits and limitations to each set of scenario data which we have considered, along with availability of
modelled data, when selecting the appropriate scenario for the parameter data. The public scenarios use different
underlying assumptions. RCP and SSP scenarios have been developed to be interoperable together in climate models;
however, this is not possible with IEA models. The scenarios are broadly grouped for analysis under the follow categories:
below 2°C, current policy (3°C) and 4°C.
Below 2 degrees scenarios
RCP SSP IEA IEA
GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
IPCC Climate Scenario: Complementary Sustainable Development Net Zero Emissions: NZE
RCP 2.6 socioeconomic pathway: Scenario: SDS
SSP 1

| Average global | Average global | Average global | Average global |
| --- | --- | --- | --- |
| temperature increase | temperature increase by | temperature increase by | temperature increase |
| by 2050*: 1.6 ± 0.3°C | 2100*: 1.6 ± 0.4°C | 2100*: 1.5 ± 0.15°C | by 2100*: 1.5 |

The pathways grouped in the below 2°C scenario are those considered to be consistent with this outcome and a low
carbon transition towards a net-zero global economy in the second half of the 21st century. As with most low carbon
transition scenarios this pathway requires significant development of negative emissions options by 2100 to keep
temperatures to this 2°C limit. The 2°C scenario shown below sets out a rapid decarbonisation pathway in line with
the Paris Agreement that limits peak warming compared to pre-industrial times.
Current policies scenarios
RCP SSP IEA
IPCC Climate Scenario: Complementary Stated Policy Scenario: SPS
RCP 4.5 socioeconomic pathway:
SSP 2

| Average global | Average global | Average global |
| --- | --- | --- |
| temperature increase by | temperature increase | temperature increase by |
| 2050*: 2.0 ± 0.3°C | by 2100*: 2.4 ± 0.5°C | 2100*: 2.4 ± 0.5°C |

The current policies scenarios represents an intermediate scenario in which temperatures are more likely than not to
exceed 2°C, with significant resultant impacts to global climate systems. As part of the wider scenario development,
this IEA scenario considers existing climate and energy policies. This pathway involves significant decarbonisation in
the second half of the 21st Century.
Worst case scenarios
RCP SSP
IPCC Climate Scenario: Complementary
RCP 8.5 socioeconomic pathway:
SSP 5

| Average global | Average global |
| --- | --- |
| temperature increase | temperature increase by |
| by 2050*: 2.6 ± 0.4°C | 2100*: 4.3 ± 0.7°C |

Under the worst-case scenarios, existing climate and energy policies are unsuccessful. These pathways will result in
significant increases in global GHG emissions without constraint. Under these warming scenarios physical risks are expected
to intensify substantially, whilst transition risks associated with policy changes are less likely to be present. Data for the
parameters was collected externally from the latest climate models for the above scenarios including:
• Physical Climate Models;
• EA World Energy Model;
• Integrated Assessment Models
• Specific reports for regional/sectoral projections, including the World Bank report on the Growing Role of Minerals
and Metals, the IEA’s report Global EV Outlook 2021 and McKinsey’s Shared Mobility report; and
• Review of relevant academic research papers including the IPCC’s 5th Assessment Report, the Physical Science Basis
and those referenced in the footnotes of this section.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 43
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES CONTINUED

| The nature of assessing CCR&Os | Velocity – assessing the time period in | REDUCTION TARGETS FOR |
| --- | --- | --- |
| means that the assessment | which the exposure to each CCR&O | SCOPE 1 & 2 |
| undertaken is not without its | is expected to become significantly |  |

Baseline 50,801

| limitations. Some of the key challenges | different to today. The purpose of this |  |
| --- | --- | --- |
| through the process were associated | measure is to assess how fast external | 2020* 53,119 |
| with the estimation of financial | pressures are changing. Velocity was | 2021 45,674 |
| materiality and use of climate | assessed using the following time |  |

Target 27,331
projections in the prioritisation of risk. horizons;
Furthermore, availability of physical * the figures for 2020 have been restated to
• Short-term – before 2025;

| risk projections through established |  | include a correction on vehicle fuel which |
| --- | --- | --- |
|  | • Medium-term – between 2025 and | was incorrectly classified as scope 3 during |
| climate models is limited (in some |  | that reporting period. |

2030; and
cases) thus limiting the conclusion
• Long-term – beyond 2030. To deliver the reduction in emissions,
that can be drawn related to these
regional plans have been agreed
risk factors. Additionally, there were Materiality – The annual financial
which focus on the following
challenges in acquiring the relevant impact of each identified CCR&O
measures:
financial data at suitable granularity was estimated. The process for
for use in materiality calculations. assessing financial materiality started
• Switching to renewable tariffs;
with a collection and extrapolation of
Risks were assessed on the basis of: • Install solar PVs were possible;
relevant financial data. Subsequently,
• Implementing energy efficiency
the analysis focused on determining
Likelihood – the probability of a measures;
the relationship between the scenario
climate-related risk or opportunity • Increase the number of NEVs in
parameter assigned to each CCR&O
taking place, considering outcomes our owned fleet; and
and the impacted value driver from
across all scenarios assessed. The • Reduce the amount of fossil fuel
the CCR&O. To understand and
direction of travel of each relevant in our operations
compare the relevant materiality of
scenario parameter was assessed
these financial impacts, thresholds We will target net zero for scope 1 and
(i.e. whether under each scenario,
were developed based on the risk scope 2 emissions by no later than
a parameter is projected to increase,
management financial materiality 2040 and are developing short-term
decrease, or not change).
thresholds. objectives to drive near-term actions.
• For transition risks and opportunities,
We carried out a high level
During 2022, we will measure our
projections based on current
quantification exercise to assess the
scope 3 emissions and assess
commitments and trends were
potential materiality of each risk in
appropriate reduction targets. Further
compared to the accelerated
the longlist compared to one another.
details will be disclosed in next year’s
transition aligned to a 2°C, Paris
This enabled us to rank risks to inform
Agreement aligned scenario. Annual Report and Accounts.
shortlisted risks for further detailed
• For physical risks and opportunities
quantification in the future.
ASSESSING THE RESILIENCE OF
this projection based on current
commitments and trends was OURSTRATEGY
METRICS AND TARGETS
compared to a scenario with failure Over the next 12 months we will assess
During the year, the GET and the
of climate mitigation actions and the financial impacts and identify
Board agreed to set science based
correspondingly high emissions. responses to manage outcomes by:
targets to reduce absolute scope 1
We assessed likelihood using the and scope 2 emissions by 46% by 2030 • Performing a deep dive analysis
following categorisations: from a 2019 base year. on priority CCR&Os to incorporate
into financial planning;
• Very high – Strong alignment
• Develop metrics to monitor existing
between current policies and 2°C
CCR&Os;
scenario (transition risks) or worst-case
• Apply agreed scenarios to assess
scenario pathways (physical risks);
how impacts play out and affect
• High – Good alignment between
KPIs and financial metrics;
current policies and 2°C or worst-
• Carry out an assessment of the
case scenario pathways, but 2°C
resilience of the organisation
more ambitious and worst-case
strategy, taking into consideration
more accelerated;
different climate-related scenarios;
• Medium – Much greater change
and
expected under 2°C or worst-case
• Identify additional high-level
scenario, but trends are
responses to protect and enhance
directionally the same; and
value creation.
• Low – Only expected under a 2°C
or worst-case scenario pathway
and not part of current trends/
trajectories.
44 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT STRATEGIC REPORT
## BMW GROUP
Our partnership with BMW Group is over 30 years strong
and has been a key focus for consolidated growth,
LOCATIONS especially in the Baltic region where we now represent
DISTRIBUTION the brand in all three countries: Estonia, Latvia and
Chile, Estonia, Guam, Kenya, Lithuania. In 2020 we were awarded the Distribution
Latvia, Lithuania, Peru contracts for MINI in Chile and for MINI and BMW Motorrad
(the brand’s motorcycle division) in Peru, consolidating
RETAIL our position in those markets. As well as holding Distribution
Poland, Russia, UK contracts in South America, we also have significant
operations of BMW Group’s brands in our Retail-only
markets: UK, Poland and Russia.
FINANCIAL STATEMENTSGOVERNANCE
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 45
NON-FINANCIAL INFORMATIONSTATEMENT
## NON-FINANCIAL
## INFORMATION STATEMENT
### EMPLOYEESENVIRONMENTAL HUMAN RIGHTS
### MATTERS

| Environmental matters are considered | Our employees are at the heart of | We embrace, support and respect |
| --- | --- | --- |
| as part of the Planet pillar of the | the People pillar of the Driving What | the human rights of everyone we work |
| Driving What Matters plan. | Matters plan, which aims to ensure we | with and we comply with appropriate |
|  | have a safe operating environment | human rights legislation in the |
| • The Health and Safety (H&S) | with an inclusive and diverse culture | countries in which we operate. |
| framework is designed to ensure | and the best talent and skills for our |  |
| employees comply with relevant | future success. | • Employment policies are |
| environmental legislation. |  | implemented at local level and are |
| • The Group has set science based | • The Inclusion and Diversity | designed to protect employees’ |
| targets for scope 1 and 2 emissions. | framework was developed on 2021. | human rights. |
| Each region has developed their | • The H&S framework is designed to | • The Modern Slavery statement |
| own policies in order to achieve | protect the health and safety of | describes the actions taken in |
| these targets. | employees. | respect of our supply chain. |
| • Energy efficiency policies are also | • The Code of Conduct provides |  |

Modern slavery training is rolled out
implemented at local level . guidance on the ethical behaviour
to those employees whose roles
we expect from all employees.
The Planet Charter, which was and remit require additional focus
• The whistleblowing policy provides
developed in 2021 is given on page 38. in this area.
guidance to employees to raise
concerns without fear of reprisal.
The Modern Slavery statement is
The People Charter, which was available at www.inchcape.com.
developed in 2021 is given on page 34.
POLICY IMPLEMENTATION To ensure effective implementation of The GET and the Board review certain
our policies we communicate clearly policies on an annual basis, such as
through employee induction, the the Tax Strategy Policy, Risk Policy and
Group-wide intranet, updates and Delegated Authorities Policy. Other
briefings and via the Practices pillar of polices are overseen at regional and
the Driving What Matters plan. local level by the subsidiary
management teams.
46 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
Non-financial information
People Places Planet Practices
Where to find more information

| Responsible Business Report – | Responsible Business Report – | Responsible Business Report – | Responsible Business Report – |
| --- | --- | --- | --- |
| pages 34 and 35 | page 36 | page 38 | page 37 |
| CSR Committee Report – |  | TCFD – pages 40 to 44 | Risk Management Report – |
| pages82 and 83 |  | Risk Management Report – | pages48 to 55 |
| Directors’ Report – pages 106 |  | pages48 to 55 |  |
| and 107 |  | Directors’ Report – page 106 |  |

The non-financial reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006 are addressed in this section and by means of cross
reference. The Group’s business model is given on pages 2 and 3. The Group’s KPIs are stated on pages 20 and 21. Principal risks are given on page 50.
GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
### SOCIAL MATTERS ANTI-BRIBERY AND CODE OF CONDUCT
The Group’s Code of Conduct
### CORRUPTION
was refreshed in 2021 to reflect the
Accelerate strategy and the Driving
What Matters plan and was
reviewed and approved by the
GET and the Board. The Code sets
out the behaviours and conduct
expected from all employees and
contains ethical decision-making
guidance highlighted through
‘Live It’ examples.
Social matters cover a vast range of It is important that the Group operates
potential issues including responsible to high ethical standards and
It is available in 19 languages and is
business policies. We have in place complies with all applicable laws.
accompanied by an online training
the following Group-wide policies: To support this the Group has in place
module. Employees are expected
the following policy statements:
to complete the training every
• Tax strategy.
two years, with senior managers
• Data protection/data privacy. • Anti-bribery and corruption.
confirming on an annual basis that
• Competition/anti trust. • Anti-money laundering.
they, and their teams, are aware
The Group’s tax strategy is available The policy statements are available of and fully understand the Code.
at www.inchcape.com at www.inchcape.com. New joiners are expected to
complete the Code of Conduct
Social matters can also include the
training within four weeks of joining
impact on the communities in which
the business. Where employees
we operate. We do not have a global
do not have access to a computer,
policy covering community matters
they are made aware of the Code
as any initiatives are championed at
through various non-digital means.
local level. Social matters form part
of the Places pillar of the Driving What It is important to the Board to
Matters plan. maintain a reputation for high
standards of business conduct.
The Places Charter, which was
During 2021, the Board also
developed in 2021, is given on
approved a new Supplier Code
page 36.
of Conduct which sets out the
behaviours we expect from our
suppliers. The Supplier Code of
Conduct aligns with the Group’s
Policy Statements on anti-bribery
and corruption and modern slavery,
Code of Conduct training is rolled The Internal Audit function monitors
providing a strong governance
out to all employees, and bespoke policy implementation. Our
framework in which to do business.
training, such as anti-bribery and whistleblowing helpline, Speak Up!,
corruption, anti-tax evasion facilitation enables employees to raise concerns
and modern slavery are rolled out to confidentially and without fear of
those employees whose roles and reprisal, including non-compliance
remit require additional focus and with policies and procedures. READ MORE Both Codes of
expertise in these areas. Conduct are available at
www.inchcape.com.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 47
RISK MANAGEMENT
## ACCELERATING
## RISK MANAGEMENT
### Our industry is transforming on an unprecedented scale. Structural changes are underway,
### with new routes to market opening up. Digitalisation is removing barriers to entry and enabling
### us, and our competitors, to rapidly scale up business models and enter new sectors of our
### value chain. Climate change is driving the transformation of vehicle drivetrains and presents
### us with a wider set of opportunities and new risks.
A CHANGING BUSINESS pace. This is transforming our value Using the updated approach, our
ENVIRONMENT protection, core processes and operating companies, Group functions
back-office activities. Our stakeholders and major change programmes
Consumers expect the same levels
expect Accelerate to be executed conducted risk assessments and action
of convenience, service and online
responsibly, and ethically, with due planning for the most significant risks to
interaction in automotive that they
care for our people, our planet, the delivery of the Accelerate strategy
have experienced elsewhere. The
and the places in which we operate. and to their related objectives and
post-pandemic economic rebound
plans. The Group Executive Team
is testing supply chains in all sectors
More than ever, our approach to risk and the Board reviewed the Group’s
around the globe, including
management and internal control Principal and Emerging Risks and Risk
automotive. The potential for the
needs to reflect these trends while Appetite in July and November 2021.
rapid growth of shared ownership
actively supporting the rapid
models, fully autonomous vehicles
deployment of Accelerate and our
and fully connected cars remains,
Responsible Business agenda. In 2021,
even if they still lie some way ahead.
we launched a refreshed enterprise
risk management programme to
Within Inchcape, we are responding
do just that – to focus on the risks
to these changes by deploying our
that matter.
refreshed strategy – Accelerate – at
Table 1: How the changing external and internal business environment is reflected in our risk profile
Changes in the business environment Related principal risk(s) (see page 50) Related emerging risks (see page 55)
Accelerating digitalisation and Electric vehicle supply and demand; Shared mobility; technology vendor
disruptive automotive trends People: future skills landscape; maintaining new OEM
(Connected vehicles; autonomous relationships
driving; shared mobility; electrification)
Climate change Electric vehicle supply and demand; Availability of rare earth materials;
margin pressure; health, safety, government restrictions on car usage;
environment extreme weather patterns; developing
and growing new OEM relationships
Consumer expectations of service Change delivery
and digital capability
Covid-19 Covid trading restrictions; health, Future pandemic (increased frequency
safety environment; political risk or severity)
foreign exchange volatility
Deployment of Accelerate – our Change delivery; acquisition ROI
refreshed strategy
Growing economic recovery Supply chain disruption; People: Inflation and interest rate growth, incl.
retention; skills; foreign exchange salary; inflation; economic slowdown
volatility
Increased pressure on OEM margins Loss of a distribution agreement; margin Developing and growing new
and structural changes in the route pressure; new market entrants; change OEM relationships
to market delivery
People: People: engagement, retention; People: inclusion and diversity
– New ways of working; People: future skills; health, safety,
– War for talent (as economies recover) environment
Stakeholder expectations of a Electric vehicle supply and demand; People: inclusion and diversity
responsible business People: engagement, retention; health,
safety, environment; political risks; legal
and regulatory compliance; fraud
48 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
### OUR APPROACH TO RISK MANAGEMENT RISK APPETITE
A cornerstone of the Group’s
### ANDINTERNAL CONTROL
approach to risk management is
the Board’s determination of its risk
Inchcape deploys three lines of defence to manage risk,overseen by
appetite. This definition provides
the Board and its Committees. During 2021, we refreshed our approach to
direction to all areas of the Company
Enterprise Risk Management and embedded the new framework for internal on acceptable levels of risk and when
control. Our Risk Management framework brings this and other data points further action should be taken to
together to provide a summary view of risk and control. The Executive and reduce risk. In July and November,
Board review the Group’s Principal and Emerging Risks and Risk Appetite the Board considered its risk appetite
in relation to each of the Group’s
twice per year. The Audit Committee reviews the effectiveness of the systems
principal risks. Risks were allocated
of risk management and internal control at least annually.
to one of three acceptable levels
of exposure (aligned to the risk
heatmap), indicating tolerable
### BOARD, AUDIT Sets strategy; sets risk appetite; levels of risk:
### COMMITTEE AND reviews principal and emerging
HIGHER APPETITE FOR RISK
### GROUP EXECUTIVE TEAM risks twice per year; reviews
system of risk management We are prepared to (or may have
to) accept elevated levels of risk
and internal control. GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
exposure (even after mitigation is
applied). We will tolerate these risks
being in the upper

| RISK, CONTROL | dark blue area of the heatmap. |
| --- | --- |
| AND ASSURANCE | B – Supply chain disruption |
| DATA | C – Covid-19 |

I – Change Delivery
M – Acquisition ROI
MEDIUM APPETITE FOR RISK
We are prepared to accept moderate
### 1ST LINE 2ND LINE 3RD LINE
levels of risk in this area (after mitigation is
applied). We aim to keep these risks in the
mid-blue area of the heatmap. We will
take action to reduce risk levels if they are
above the mid-grey area of the heatmap.
D – People: engagement, retention
E – Political risk/social unrest
• Front line business • Corporate • Independent G – Margin pressure
H – OEM: Loss of distribution contract
operations. functions. assurance.
J – People: future skills
• Implement • Set policies and • Tests the design
K – New market entrants: new business
strategy, policies, procedures. and effectiveness
models or technology
procedures and • Monitor risks and of policies,
L – EV: Supply and demand

|  | controls. | controls. | procedures and |  |  | N – Loss of technology systems (non-cyber) |
| --- | --- | --- | --- | --- | --- | --- |
| • Primary |  | • Oversee risk | controls |  |  | P – Foreign exchange volatility |
|  | responsibility for risk | improvement | implemented by |  |  |  |
|  |  |  |  | st | nd | LOW APPETITE FOR RISK |
|  | identification and | programmes. | the 1 | and 2 | lines. |  |
|  | assessment. |  |  |  |  | We have little appetite for risk exposure in |

these areas. We aim to keep these risks no
• Manage risks on a
higher that the lower light-grey area of the
day-to-day basis.
heatmap. We will take action to reduce risk
levels if they are above the light-grey area.
F – HSE: Health, safety or environmental
incident
O – Financial reporting, fraud
Q – Legal and regulatory compliance
PRINCIPAL RISKS The following risks were removed from the list of principal risks during 2021:
The Group’s principal risks are
summarised in the heatmap on 2020 Principal Risk – Removed Commentary
page 50.
Brexit Risk materialised without significant
impact.
An updated heatmap (5x5) and set of
Credit retrenchment impacts demand Risk was linked with the economic
rating scales were introduced in 2021.
impacts of Covid-19, which have
Increases or decreases are based
not materially impacted the supply
on business assessments of risk trends,
of credit. Risk reduced. Monitored
rather than direct comparisons to
as a potential emerging risk.
previous risk scores.
Portfolio optimisation Risk reduced in light of the improved
Risks are shown on a ‘net’ basis, performance of Retail businesses and
taking into account existing mitigation redefined strategic priorities in the
measures. Group’s Accelerate strategy.
Growth in mobility solutions The growth of these solutions was
slowed by Covid-19. Risk reduced.
Monitored as a potential emerging risk.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 49
RISK MANAGEMENT CONTINUED CLIMATE CHANGE RISKS
AND OPPORTUNITIES
Managing our climate-related risks
and opportunities (CCR&Os) supports
The following risks have been redefined during 2021: delivery of our Accelerate strategy
and forms part of our Responsible
2020 Principal Risk 2021 Principal Risk Business agenda (see page 33).
In 2021, working with a specialist
Digitisation Change Delivery
external advisor, we completed
Disruption: go to market model New market entrants with
an initial assessment of CCR&Os,
new business models
indentifying approximately 200
Electrification EV Supply and Demand physical and transition risks and
opportunities. In addition, we
Legal and regulatory change Legal/regulatory compliance*
benchmarked our current practices
for identifying, assessment and
*This change is incorporated as an underlying cause of compliance risks.
managing CCR&Os against good
practices in a range of industries,
including specialist distribution
and automotive.
### HEATMAP OF PRINCIPAL RISKS
In the near-term, the Company may
### (‘Net’ risk position with existing mitigation)
face commercial risks as it seeks to
accurately align the supply of electric
vehicles with changing market
demand (see Principal risk L, ‘EV
supply and demand’). In addition,
the transition to electric vehicles may
CriticalMajorModerateMinorMinimal
temporarily put pressure on margins
achieved per EV, as our OEM partners
invest to make the switch to an
electrified drivetrain. This margin
H G F A pressure (see risk ‘G’) could be passed
onto our businesses, or it could lead
to the development of new routes
to market or (lower margin) business
models. The Accelerate strategy
I J C K
is designed to address these issues.
O P B
L M N Over the medium to longer-term,
D E
IMPACT
there are potentially emerging supply
chain risks relating to the availability
of rare earth materials for EV batteries;
and increased physical risks in the
Q forms of more frequent or intense
flooding, wildfire and heat stress.
These medium to longer-term risks
cannot yet be quantified with
certainty and form part of our list
of emerging risks. The Company is
reviewing its business continuity
arrangements to address these and
other events, should they materialise.
Rare Unlikely Possible Likely Almost The output from this initial work is
certain
being integrated into our Enterprise
LIKELIHOOD
Risk Management framework, such
that CCR&Os can be re-assessed
A Cyber security incident J People: future skills repeatedly each year.
B Supply chain disruption K New market entrants: new
business models or technology
C Covid-19
L EV supply and demand
D People: engagement, retention
E Political risk/social unrest M Acquisition ROI
F HSE: Health, safety or N Loss of technology systems
environmental incident (non-cyber)
G Margin pressure O Financial reporting, fraud
P Foreign exchange volatility
H OEM: loss of Distribution contract
Q Legal/ regulatory compliance
I Change Delivery
Key: Risk to operational delivery Risk to strategic growth
New/redifined Increasing Decreasing
Climate
50 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

| Cyber security risks remain a priority | market demand. The increased | as economies recover. The Group |
| --- | --- | --- |
| for the Group. In 2021, the Group | costs of EV transition will need to be | regularly monitors employee |
| launched a multi-year security | recovered, potentially through a | engagement levels and develops |
| improvement programme, | reordering of routes to markets and | action plans. Updated mental health |
| recognising the constantly-changing | different business models, which may | programmes have been introduced |
| nature of the threat and the | lead to temporary pressures on our | and are subject to continual review |
| importance of technology to the | margins. The changing climate | and improvement to address |
| Group in the future. | presents a larger set of emerging risks | emerging issues. |

(see page 55).

| Risks of supply chain disruption |  | The materialisation of any of the risks |
| --- | --- | --- |
| have increased and are expected | We continue to expand our focus | shown on the heatmap could have |
| to continue well into 2022. The Group | on mental health within our Health, | an adverse effect on the Group’s |
| has well-established planning | Safety and Environmental (HSE) | results or financial condition. If more |
| procedures and the strength of our | programme, as our colleagues | than one of these risks occur, the |
| OEM relationships has enabled the | around the globe manage disrupted | combined effect may be |
| Company to offset volume impacts | ways of working in light of the | compounded. Various strategies are |
| through margin improvements, to | pandemic. This risk will remain a | employed to reduce these inherent |
| date. Despite these measures, we | priority as the Group works through | risks to an acceptable level. These |

GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT

| expect headwinds from product | a multi-year programme of | are summarised in the tables on the |
| --- | --- | --- |
| shortages and further volatility | improvement and cultural change | following pages. The effectiveness |
| through 2022. | (in all areas of HSE). | of these mitigation strategies can |

change over time, for example with

| The risk of further Covid-19 business | The potential for disruption from a | the acquisition or disposal of |
| --- | --- | --- |
| interruption and trading restrictions | range of political risks is increasing | businesses. Some of these risks remain |
| remains material, although we | in Africa, Europe and Russia, and Asia. | beyond the direct control of |
| recognise some reduction in this risk | Contingency measures are in place. | management. The Risk Management |
| as vaccination programmes take |  | programme, including risk |
| effect and we continue to improve | As we go through a period of |  |

assessments, can therefore only
our ability to trade in the current accelerated business change,
provide reasonable but not absolute
environment. we may experience a heightened
assurance that risks are managed
people risks. This may be in the form
to an acceptable level.
Climate change underlies two of of challenges to secure the skill sets
our principal risks, both related to needed for our future business; or
the electrification of the drivetrain. reduced engagement and increased
As markets ultimately transition to attrition as change is delivered
electric vehicles (EVs), all distributors and workload increases. This is
and retailers will be challenged to exacerbated by increased
align EV supply with changing competition for the best talent
In addition to regular reviews of strategy and operational performance (and associated risks), our governance committees
have reviewed the following topics relating to the Group’s Principal Risks:
Board Audit Committee Group Executive Team
January Legal and regulatory risks; Cyber; n/a Change delivery; Covid-19
Covid-19; Strategy: Disruptive
industry trends; Acquisition ROI
February/ Viability: Loss of distribution Internal controls (fraud, financial People update; Climate (carbon
March/April agreement and cyber (financial reporting, technology systems risks) emissions; risk assessment);
impacts) Change delivery; Acquisition ROI
(M&A)
May Health, safety, environment; Cyber security; Internal controls Health, safety, environment;
Strategy: disruptive trends, EV (fraud, financial reporting, Supply chain; People: future skills
supply and demand technology systems risks)
July Principal and Emerging Group Internal controls (fraud, financial Climate-related risks and
Risks; Risk Appetite; Financial reporting, technology systems risks) opportunities; Principal and
forecasts: supply chain disruption Emerging Group Risks; Risk
Appetite; Cyber; Change Delivery
September/ Health, safety, environment n/a Health, safety, environment;
October People risks (employee survey);
Supply chain disruption
(semiconductors); Cyber security;
Legal and regulatory compliance;
Change delivery; People: future
skills; Climate (carbon emissions)
November/ Strategy: Disruptive industry Effectiveness of risk management; Principal and Emerging Group
December trends, change volume and major Internal controls (fraud, financial Risks; Risk Appetite; Change
programme delivery; Principal reporting, technology systems delivery; People
and Emerging Group Risks; Risk risks); Cyber security
Appetite; Climate-related risks and
opportunities
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 51
RISK MANAGEMENT CONTINUED
## PRINCIPAL RISKS
### Of the principal risks assessed, the following have the highest relative impact or likelihood
### scores and are assessed as the most significant ‘net’ risks, after mitigation has been applied.
### A) CYBER SECURITY B) SUPPLY CHAIN F) HEALTH, SAFETY,
### INCIDENT DISRUPTION ENVIRONMENT
[No leaf] [No leaf] [Leaf]
DRE, VLS, DRE, VLS, DRE, VLS,
M&A M&A
K NL

| As we invest in our digital capability, | Disruptions to product availability have | The Group’s activities include manual |
| --- | --- | --- |
| gather and hold more data and rely | increased in all businesses, driven by | activities and the operation of |
| ever more heavily on technology | a worsening shortage of a range of | machinery and vehicles, sometimes in |
| platforms, we open up new | components, including semiconductors. | confined spaces. These activities expose |
| opportunities for cyber attacks, many | This has led to reduced distribution | our colleagues to the risk of serious or |
| of which are well-funded and well- | volumes, a shortage of vehicles | fatal injury. The use of and disposal of |
| organised. Attacks can be aimed at | available for sale and delays or | chemicals and other substances risks |
| accessing confidential data, extracting | cancellations of customer orders. | harm to the environment. Our |
| money, or causing business interruption. | Some of these shortages have been | colleagues’ mental and physical |
| The Group is developing new | exacerbated by Covid-19 and the | wellbeing could be harmed as a result |
| technology platforms and digital | growing global economic recovery, | of continued remote working, workload, |
| capabilities, which underpin our | however, others are structural in nature. | organisational restructuring or as a result |
| Accelerate strategy. | Disruption and component shortages are | of external factors. |

expected to continue throughout 2022.
The Group places significant emphasis
MITIGATING ACTIONS
on the wellbeing of our employees and
• Benchmarking exercise. MITIGATING ACTIONS
this is reflected in the relatively high
• Multi-year security improvement • Close liaison with our OEM partners.
priority given to this risk in our assessment
programme launched as an integral • Inventory planning processes.
method. In the longer-term, this risk may
component of Accelerate, our • Close monitoring and management
be exacerbated by the physical risks
refreshed strategic plan. of margins.
presented by a changing climate
• Chief Information Security Officer
These measures have to date enabled e.g. extreme weather events.
appointed.
us to largely manage these disruptions,
MITIGATING ACTIONS

| The initial phase of work has established | although the risk will remain material |  |
| --- | --- | --- |
| the Group’s cyber security strategy and | throughout 2022. | • Ongoing implementation of a series |
| resourcing and has introduced tactical |  | of 10 Group-wide risk mitigation. |
| measures to reduce malware, DDoS and |  | programmes. |
| phishing exposures. Training has been |  | • Common set of HSE KPIs. |
| delivered to the Board and Group |  | • Standardised technology platform |
| Executive Team, and to managers |  | to provide a consistent view of HSE |
| throughout the organisation. Immediate |  | performance. |
| next steps include the development |  | • Regular review of performance by |
| of enhanced asset inventories; more |  | Group Executive Team and Board. |

detailed risk assessments and
These programmes are designed to
improvements to the business continuity
cover our highest risk areas, including
plan and disaster recovery capability
the management of hoists, traffic,
in 2022.
chemicals and electricals, along with
working at height. This year, additional
focus has been placed on mental
health and management of contractors.
All of these HSE programmes are
applied to newly acquired operations,
where performance is monitored as
soon as practical post-completion.
RISK LEVEL WITH CURRENT RISK LEVEL WITH CURRENT RISK LEVEL WITH CURRENT
MITIGATION MITIGATION MITIGATION
Impact: Likelihood: Trend: Impact: Likelihood: Trend: Impact: Likelihood: Trend:
Major Likely Moderate Almost Major Possible
certain
52 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
### G) MARGIN PRESSURE H) LOSS OF A
### DISTRIBUTION
### [Leaf] CONTRACT [No leaf]
DRE DRE
GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
A F
In response to a changing climate, The Group has individual distribution
our OEM partners are developing new contracts, several of which have been
ranges of electric vehicles (EVs). For most in place for many years. The loss of
manufacturers, EVs are more costly such contracts would have a significant
to produce and offer lower margins impact on revenue and profit, as well
compared to vehicles powered by as future growth opportunities. The
internal-combustion engines (ICE). Our cancellation of a number of smaller
OEM partners are having to invest heavily contracts at the same time could have
in retooling to develop new models and a similar impact. The underlying factors
platforms. In some cases, EVs may not which could contribute to this risk may
be profitable at all. It may take several include:
years for this situation to improve.
• Unattractive value proposition for
As EV market share grows, supported by OEM partners;
government incentives, there is a risk • Failure to meet OEM standards;
that lower margins will be available to • Non-compliance with the terms
all participants in the value chain, of distribution agreements;
including distributors and retailers, such • Failure to deliver growth strategy;
as Inchcape. • New competitors;
• Major operational incident, e.g.
MITIGATING ACTIONS cyber incident, fraud.
The Group’s refreshed strategy,
Accelerate, is designed to address this MITIGATING ACTIONS
risk in three ways: The Group’s refreshed strategy,
• Through a compelling offering to our Accelerate, is designed to address this
OEM partners known as Distribution risk in three ways:
Excellence by transforming the route • Through a compelling offering to our
to market via the development of OEM partners known as Distribution
a consistent, technologically- Excellence – transforming the route
advanced, low-cost, low-carbon to market via the development
distribution and retail offering; of a consistent, technologically-
• Through Vehicle Lifecycle Services advanced, low-cost, low-carbon
– enabling the Group to capture new distribution and retail offering;
sources of value throughout the • Through Vehicle Lifecycle Services –
vehicle and customer lifetime; and enabling the Group to capture new
• Through expanded M&A, enabling sources of value throughout the
our growth into new, margin-accretive vehicle and customer lifetime (and
markets and with potentially new potentially offsetting the impact of
OEM partners. a loss of any one contract); and
• Through expanded M&A, diversifying
our contract base across more markets
and potentially more OEM partners.
RISK LEVEL WITH CURRENT RISK LEVEL WITH CURRENT
MITIGATION MITIGATION
Impact: Likelihood: Trend: Impact: Likelihood: Trend:
Major Possible Major Rare
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 53
RISK MANAGEMENT CONTINUED
## OTHER PRINCIPAL RISKS
### The following principal risks were also identified:
Ref # Risk title Description and impact Trend Key mitigating actions

| C Covid-19 |  | DRE, | The possibility of continued or more severe | A range of local market measures were |
| --- | --- | --- | --- | --- |
|  | pandemic | VLS, | incidences of Covid-19, along with continued | introduced in 2020, enabling us to respond |
|  |  | M&A | restrictions on movement and commercial | to changing levels of infection and trading |
|  |  |  | trading. The re-emergence of the new variants | restrictions. This included: |
|  |  |  | in markets is unpredictable, and may lead to | • The formation of dedicated pandemic |
|  |  |  | a subsequent delayed economic recovery. A | response teams; |
|  |  |  | worsening of the current situation may again | • Measures at all sites to reduce infection risk; |
|  |  |  | impact the Group’s global trading performance | • Working from home rules; |

• A wellbeing programme to support colleagues
and cash flows. It may lead to increased
through the pandemic and increased
pressure on margins; reduced capital availability
frequency of employee surveys and customer
for both the Company and for our customers;
communications;
and supply chain interruptions. This risk remains
• Enhanced monitoring of working capital;
material, but has been reduced to reflect the
• Delayed discretionary spend where needed to
deployment of vaccination programmes and
reflect market conditions; and
our increased experience in operating through
• Accelerated roll-out of digital trading
periods of restricted movement or trading.
capabilities.
D People: DRE, Following the global pandemic and the business • Employee experience surveys followed
engagement VLS, transformation underway, there is a risk of by analysis and action planning at senior
and retention M&A increased wellbeing issues (driven by workload management level.
and working arrangements) and of ‘change • Wellbeing programmes and support.
fatigue’. As economies return to growth, there • Enhanced career development programmes.
• Pay and reward reviews and benchmarking.
will be increased competition for key skills.
E Political risk/ DRE, The Group operates in markets, where there may • Close monitoring of political situation in higher-
social unrest VLS, be greater volatility in the political, economic risk markets.
M&A and social environment, for example in, and • Business continuity planning.
adjacent to: Latin America, Russia, Ethiopia and • Collaboration with OEM partners on stock
Hong Kong. This may threaten the safety of our allocation flexibility.
• Expansion of digital trading capabilities.
employees and disrupt business operations.
I Change DRE, Delivery of our strategic priorities is rapidly • Oversight by the Group’s Transformation
delivery VLS, transforming many aspects of our business. There Committee, supported by Portfolio
M&A is a risk that we lack the capacity to deliver the Management tool to track status.
total portfolio of business change at pace while • Ongoing reviews and reprioritisation of
maintaining expected performance levels. initiatives to ensure focus on strategic
imperatives.
Success depends on delivery of a number of
• Programme and project management,
enabling programmes, including improving our
supported by consistent software tool.
omni-channel; data and analytics capabilities;
• Risk and issue management.
and back office and customer-facing systems
• Oversight by Steering Committees and
capabilities. If these programmes are affected
reporting to senior management.
it could result in delays or increased costs.
J People: DRE, As we transform our business, we need new skills • Development of in-house capability (Digital
future skills VLS, and capabilities, relating to digital marketing Delivery Centres).
M&A and data analytics; M&A; used car retailing; • Strategic resource planning & recruitment.
change management and leadership skills. • Training & development programmes, e.g.
These skills are in demand across many industries digital academies.
• Salary benchmarking.
and may be harder to recruit and retain.
K New market DRE New competitors may enter our markets with • Existing value proposition: digitisation and
entrants new business models and/or new technology, enhanced omnichannel offering.
leading to a fall in revenue or a gradual • Cost efficiencies and economies of scale
degradation of margins. Examples include the passed to end consumers.
growth of direct online retail, subscription/rental • Monitoring of competitor activity.
• Brand profile and service levels.
models, mobility solutions or combined EV and
• Diversification of brand relationships,
charging packages.
geographies and revenue streams.
L EV Supply and DRE Risk of misalignment between market uptake of Redefined • Monitoring of emerging EV-related legislation
Demand EVs and OEM EV supply leading to lost market in each market.
share if we are unable to meet demand, or • Close liaison with OEMs to understand their
conversely, to increased costs if we stock EVs for ambitions and feedback on the EV readiness
which there is not yet demand. of individual markets.
54 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
Ref # Risk title Description and impact Trend Key mitigating actions
M Acquisition M&A Inorganic growth will form an increasingly • Pipeline of opportunities.
ROI important role in growing the Group’s PBT. As • Experienced M&A teams at Group and
M&A activity accelerates, future transactions in Regions.
may become larger and more complex. M&A • M&A playbook.
activity will be undertaken in regions which may • Post-merger reviews and audits.
• Board review of larger transactions.
have had relatively little exposure to this. GOVERNANCE FINANCIAL STATEMENTSSTRATEGIC REPORT
N Loss of DRE, The Group relies on a diverse and complex • Consolidation of existing systems.
technology VLS, range of technology systems, some of which • Physical and logical security in place with
systems M&A have been operating for a number of years. active monitoring for core systems.
(non–cyber) These systems may be prone to interruption • Cloud-hosting, incident management, disaster
or failure, e.g. due to issues such as hardware recovery and continuity plans.
• IT General Controls in place and audited.
failure, software glitches, systems complexity or
• Availability criteria in service level agreements.
capacity or the management of changes.
O Financial DRE, The Group may be subject to fraud or its • Established financial control framework.
reporting VLS, financial reports may be misstated either in • Defined programme of work to document
andfraud M&A error or deliberately. The Group is currently controls and owners through the transition.
reorganising aspects of its financial reporting • Monthly monitoring of control performance.
and control arrangements. Once established, • Change management and staff retention
arrangements to enable a smooth transition.
these new ways of working will provide a
• Established Group and Regional Shared
more robust environment, with reduced risk.
Service Governance including Stage Gate
There is, however, an inherent and temporarily
sign off; Internal Audit Assurance Reviews;
increased risk of delayed or inaccurate
Group and Regional Controls oversight.
reporting, or fraud during the transition.
P Foreign DRE, With a geographically diverse structure and • Treasury policy and hedging strategies.
exchange VLS, transactions in multiple currencies, Inchcape • Central treasury function and regional treasury
M&A is exposed to movements in exchange rates centres (in relevant regions).
differences which affect results. Exposures exist • Monthly monitoring of foreign exchange
particularly in Australia (AUD vs JPY) , Ethiopia impacts and hedging positions.
(ETB vs USD) and in South America (JPY and
USD vs CLP). Additionally, our results and
asset values are translated back from local
currencies to GBP for consolidated reporting,
which can lead to year-on-year fluctuations in
asset values.
Q Legal, DRE, This risk relates to our ability to meet the • Group-wide Code of Conduct, with
regulatory VLS, standards required in our diverse markets. associated training.
compliance M&A Key legal and regulatory obligations relate • Market-level policies and procedures,
to anti-bribery and corruption, privacy, supported by Group-wide policies for higher
competition, anti-money laundering and the risk areas.
• Nominated legal representative and/or
distribution and sale of finance and insurance
retained counsel in major markets to monitor
products. Other areas of risk relate to the terms
existing and emerging legislation.
of our distribution and retail contracts; and
• Online training for specific regulations.
contractual risks assumed during acquisitions.
EMERGING RISKS
Emerging risks have been identified in a number of ways: through our strategic re-planning process; through analysis of external publications (including
peer and OEM risk disclosures); through dedicated risk studies (e.g. climate risk and opportunity assessments); and through the regular discussions
and analysis which take place as part of our updated risk management framework, including with the Board. By considering and monitoring we can
appropriately respond to such risks, preparing contingency plans or adjusting our operations and Group strategy as required.
Climate-change related Macro-economic Technological Other
Reporting regulation Interest rate rises CASE: growth of connected and Developing and growing new
compliance autonomous vehicles OEM relationships
Vehicle-related legislation Cost inflation, incl. salary costs CASE: growth of shared mobility New pandemic
Rare-earth materials and Economic slowdown Changing technology vendor landscape Regional conflicts disrupt
battery supply shortages semiconductor supply
Government car restrictions Retrenchment of consumer credit Increased automation of cyber attacks
Extreme weather patterns International tax reforms Growth of Bitcoin usage in markets
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 55
RISK MANAGEMENT CONTINUED

# VIABILITY STATEMENT

The Directors have assessed the viability of the Group by reference to the Group's current financial position. Its recent and historical performance, current forecasts of future performance, its business model (page 2), strategy (page 4) and the principal risks and mitigating factors (page 48). The Board regularly reviews the Group's performance, cash flow projections and funding requirements to ensure that the Group has sufficient liquidity to fulfil its financial obligations. The diagram below illustrates the variety of relevant time horizons.

The Directors consider three years to be the most appropriate period for the viability assessment as it strikes a balance between the different time horizons used to manage the business and for which detailed financial forecasts exist, and is a reasonable period for a shareholder to expect a distribution business to be assessed.

Our financial planning process incorporates an Annual Operating Plan (AOP) for the next financial year, together with financial forecasts/models for the remaining years covered by the Viability Assessment. These financial forecasts/models consider the Group's profitability, gearing, cash flows and other key financial metrics over the period to December 2024. These metrics are subjected to sensitivity analysis, in which a number of the main underlying assumptions are adjusted and tested to consider alternative risk-based scenarios. Using the Group's most significant risks, unlikely but realistic worse-case scenarios are created and their impact projected onto the three-year projections. The scenarios modelled were as follows: (i) a major cyber incident in a core market resulting in business interruption (loss of revenue and gross profit) and remedial costs (additional operating expenses) in 2022; (ii) further periods of Covid-19 restrictions similar in nature and impact to those seen both in late 2020 and early 2021, impacting half of the Group's markets simultaneously for

a period of time in 2022; (iii) a reduction in new vehicle sales due supply chain disruption, impacting gross profit in the second half of 2022 and the first half of 2023; (iv) the loss of material distribution arrangements from the beginning of 2023, impacting both profits and working capital; and (v) digital disruption to our markets and pricing impacting margins in our Affordable business in 2023 and 2024.

These risks have been modelled individually and concurrently, i.e. assuming all five materialise during the three-year period. Modelling these risks tests the Group's ability to withstand a material reduction in revenue (distribution contract loss, supply chain risks, and Covid-19 restrictions), a material degradation in margins (digital disruption) and the impact of an unexpected operational expense (cyber attack). The viability scenario also assumes that a portion of uncommitted inventory financing facilities is withdrawn. The testing recognises that some mitigating actions would remain available to management to partially mitigate the impact of these risks, including reductions in operational and capital expenditure and shareholder returns.

In the most severe scenario modelled, the test indicates that the Company would not breach the single financial (interest) covenant on its committed facilities. Details of the Company's financing arrangements can be found in note 23 to the financial statements on pages 168 to 169.

Based on the outcomes of the scenarios and considering the Group's financial position, and principal risks, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment. The Directors' statement regarding the adoption of the going concern basis for the preparation of the financial statements can be found on page 125.

![img-2.jpeg](img-2.jpeg)

56

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT STRATEGIC REPORT
## SUBARU
Inchcape’s Distribution partnership with Subaru
is one of the most important in our portfolio and an
LOCATIONS example of the close collaboration between the Group
DISTRIBUTION and our brand partners. We distribute and operate the
Argentina, Australia, Chile, brand in Australia, maintaining Subaru’s highest share
Colombia, New Zealand, Peru globally in that market. Subaru was the OEM brand
central to our first significant expansion in South America
in 2016 which has helped to create a platform for further
growth in the region.
FINANCIAL STATEMENTSGOVERNANCE
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 57
## VOLKSWAGEN GROUP
Inchcape has a retail-only partnership with VWGroup and
represents the core VW brands as well as the performance

| LOCATIONS | marque Porsche. Our VW Group relationship extends |
| --- | --- |
| RETAIL | to over 30years and we are present today as a Retail |
| UK, Russia | operator in the UK and Russia. |

58 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## GOVERNANCE
60 Chairman’s Statement
70 Board of Directors
72 Corporate Governance Report
84 Directors’ Report on Remuneration
104 Directors’ Report
FINANCIAL STATEMENTSSTRATEGIC REPORT GOVERNANCE
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 59
CORPORATE GOVERNANCE

# CHAIRMAN'S STATEMENT

![img-3.jpeg](img-3.jpeg)

## DEAR SHAREHOLDERS AND STAKEHOLDERS

I am pleased to present the Corporate Governance Report for the year ended 31 December 2021. The next few sections explain how the Board and its Committees have discharged their duties throughout the year and I hope you find it informative.

### LOOK BACK OVER 2021, ACCELERATE STRATEGY, RESPONSIBLE BUSINESS

As the automotive industry continues to undergo a period of immense change, the Board focused on the refreshed Accelerate strategic plan which was rolled out across the Group in 2021. The Board spent time agreeing the activities required to achieve our strategic ambition and defining the financial benefits we anticipate Accelerate will deliver. Further information on the Board's decisions can be found on page 72 and details of the Accelerate strategy are given on pages 4 and 5.

Also rolled out in 2021, was the Driving What Matters plan (Plan) which was developed alongside the Accelerate strategy and underpins our purpose. The Plan is built on four strategic pillars: People, Places, Planet and Practices. The Plan has a global workstream for each of the pillars whose remit is to identify key priority actions in both the short, medium and longer term. The CSR Committee has updated its terms of reference and will have oversight of performance against objectives, reporting to the Board on progress throughout the year.

I am excited by both the Accelerate strategy and the Plan and the enthusiasm by which they have both been adopted by our colleagues. It is by delivering this holistic approach to our ambitions that we can achieve our purpose and deliver long-term value for stakeholders.

### BOARD CHANGES

Nayantera Bali joined the Board as a Non-Executive Director in May 2021. Nayantera is currently director and co-owner of ANV Consulting Pte, a boutique management consultancy and has held several senior global positions during her career at Procter & Gamble giving her extensive international skills and knowledge. Nayantera is based in Singapore. As announced in January 2022, I am also delighted that Sarah Kuijiaars has joined the Board as a Non-Executive Director. Sarah is currently Chief Financial Officer and Executive Director of De Beers plc and was previously a Non-Executive Director at Aggreko plc.

I am sure both Nayantera and Sarah will be valuable additions to the Board during this period of change for the industry.

Till Vestling prolonged his tenure to assist with the recruitment process and induction on Nayantera which we are grateful. However, he intends to step down at the 2022 AGM and I would like to thank him for his excellent contribution to the Board and to the Company.

### TASK-FORCE ON CLIMATE RELATED FINANCIAL DISCLOSURES (TCFD)

TCFD reporting became mandatory for UK listed companies in 2021 and the Board has spent time assessing how climate change will impact the business over the coming years. This is of increasing focus, and of upmost importance, with urgent action needed by governments, businesses and individuals alike. Various aspects of the impact of climate change have been a topic of conversation by the Board for many years as we have discussed the move to alternative powertrams and what this will mean for our OEM brand partners, our customers, our employees and of course our business model over the longer term. However, the work carried out during the year to enable us to comply with the recommendations of TCFD have helped focused our thoughts on our business model vulnerabilities, and resilience, and how these can be managed effectively in the long-term. Climate-related issues will be considered by the Board on an ongoing basis as the rapidly evolving subject progresses over time. Further details are given on pages 40 to 44.

### LOOKING FORWARD

At the beginning of 2022, continuing supply chain disruption and the impact of new strains of Covid-19 may impact performance, however, the Board remains confident that we will be able to deliver success over the longer term. The Accelerate strategy, and the Plan, which are now fully embedded within the Group underpin a strong sense of purpose to bringing mobility to the world's communities - for today, for tomorrow and for the better.

I would like to take this opportunity to thank all our Inchcape colleagues for their hard work during the year. Their strenuous effort and resilience have contributed to our great performance against the backdrop of continued uncertainty.

I thank you for your support in 2021 and look forward to the coming year.

### NIGEL STEIN

CHAIRMAN

60

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
COMPLIANCE WITH THE UK CORPORATE GOVERNANCECODE
The 2021 Annual Report and Accounts is prepared with reference to the 2018 UK Corporate Governance Code (Code)
which is published by the Financial Reporting Council (FRC) and available at www.frc.org.uk. We have complied with
the Code throughout the year ended 31 December 2021. Under Code provision 10, the criteria for director independence
is set out. The reasons why the Board is satisfied that Till Vestring remains independent, despite having served on the Board
for 10years, are outlined on pages 75 and 76. Our compliance statement, along with the Corporate Governance Report
on pages 72 to 108, describes how we apply the principles of the Code.
### BOARD LEADERSHIP AND COMPANY PURPOSE
### BOARD’S ROLE The Board is collectively responsible for defining, FURTHER READING
approving, and monitoring the Group’s strategy to ensure STRATEGY – pages 4 to 5
it delivers long-term sustainable success.
DIRECTOR BIOGRAPHIES –

| The Directors’ judgement and objectivity enable the | page 70. |
| --- | --- |
| Board to operate effectively within a structured | REMUNERATION STRUCTURE |
| governance framework to: | THAT SUPPORTS STRATEGIC AIMS |

– pages 84 to 103
• Assist in the delivery of strategy;
MATTERS RESERVED FOR
• Promote long-term sustainability;
THE BOARD –
• Generate value of shareholders; and
www.inchcape.com
• Contribute to wider society.
If a Director has a concern about the running of the
Company which cannot be resolved, it would be
recorded in the Board minutes. No such concerns arose
during 2021.
### PURPOSE, VALUES The Group’s purpose is underpinned by the Accelerate FURTHER READING
strategy and Responsible Business plan. A global STRATEGY – pages 4 to 5
### AND CULTURE
communication programme was rolled out during 2021
RESPONSIBLE BUSINESS PLAN
to ensure that all employees understand the behaviours
– pages 33 to 38
expected of them.
CULTURE FORUM AND EMPLOYEE
In order to operate effectively, it is important that the ENGAGEMENT– pages 74 and 83
appropriate culture is embedded throughout the
RECRUITMENT AND INDUCTION
business and this is approached in several ways:
PROCESS – pages 75 to 76
• Code of Conduct;
• Whistleblowing hotline;
• Remuneration policies and practices;
• Setting appropriate financial targets and monitoring
performance against targets throughout the year;
• Employee engagement survey; and
• Delegated authorities.
Alex Jensen, the designated Non-Executive Director
responsible for workforce engagement, held a forum
with a group of employees from various regions and roles
to enable two-way dialogue on understanding the
culture of the organisation.
We are committed to adapting our operations to help
tackle climate change and have launched sustainability
targets for 2030.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 61
CORPORATE GOVERNANCE CONTINUED
### BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED
### RESOURCES AND The Board is responsible for ensuring that the appropriate FURTHER READING
people are employed to deliver the strategic objectives STRATEGIC REPORT –
### CONTROLS
and that they have the resources available in order to pages 2 to 58
do so.
PRINCIPAL RISKS –
pages 48 to 56
The Board also ensures that the necessary controls,
processes and procedures are in place to drive a strong INTERNAL CONTROLS –
ethical culture to facilitate the delivery of the strategy. pages 79 to 80

| ENGAGEMENT | Inchcape has a broad group of clearly defined | FURTHER READING |
| --- | --- | --- |
|  | stakeholders and the Board engage with each of them | STAKEHOLDER ENGAGEMENT |
|  | on a regular basis through a variety of channels. This | – pages 16 to 18 |

engagement allows the Board to understand what issues
SECTION 172 STATEMENT –
are important to stakeholders. page 18
### WORKFORCE A new Code of Conduct was rolled out in 2021 which FURTHER READING
sets out the behaviours expected of our employees RESPONSIBLE BUSINESS REPORT
### POLICIES
and ensures our policies remain aligned to culture and – pages 33 to 38
support long-term success. Other polices include health
NON-FINANCIAL INFORMATION
and safety, anti-bribery and corruption, inclusion and STATEMENT– pages46to 47
diversity framework, and whistleblowing.
REMUNERATION COMMITTEE
Speak Up!, the Group’s externally hosted whistleblowing – pages 84 to 103
line, is a compliance and ethics reporting solution which
allows both hotline and web reporting capabilities in
multiple languages, integrated with case management
software to support efficient and effective investigation,
remediation and reporting.
62 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
### DIVISION OF RESPONSIBILITIES
### THE ROLE OF THE The Chairman is responsible for the leadership of the FURTHER READING
Board and is separate from the role of Group Chief BOARD EVALUATION OUTCOMES
### CHAIRMAN
Executive Officer. He sets the strategic agendas which – page 73
are designed to encourage constructive debate and
promote a culture of openness and inclusion.
He was considered independent on appointment and
continues to be.
The Chairman is also mindful of the need for the Directors
to receive information which is accurate, timely and
clear, and is supported by the Group Company
Secretary.
### COMPOSITION As at 31 December 2021, the Board was comprised of two FURTHER READING
Executive Directors, six Non-Executive Directors and the DIRECTOR BIOGRAPHIES –
### OF THE BOARD
Chairman. All Non-Executive Directors are considered pages 70 to 71
independent. None of the Directors or their connected
COMMITTEE TERMS OF
persons have, or have had, a material relationship with REFERENCE – www.inchcape.com
the Company or any of its subsidiaries. Non-Executive
Directors receive a fee only and do not participate in
shares award schemes or the pension scheme.
The Executive Directors are responsible for developing
the Group’s strategy, leading the Group Executive Team,
running the day-to-day operations, managing risk and
implementing controls, engaging with stakeholders, and
reporting to the Board on progress against objectives.
The Senior Independent Director acts as a sounding
board for the Chairman, to serve as an intermediary to
other Board members and is available to shareholders
should they wish. The Senior Independent Director leads
the annual Non-Executive DIrectors only meeting during
which they appraise the performance of the Chairman.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 63
CORPORATE GOVERNANCE CONTINUED
### DIVISION OF RESPONSIBILITIES CONTINUED
### ROLE OF THE NON- The Non-Executive Directors have a wide range of FURTHER READING
skills and experience which enable them to provide BOARD SKILLS MATRIX AND
### EXECUTIVE
independent and strategic advice, and to MEETING ATTENDANCE TABLE–
### DIRECTORS
constructively challenge management. An explanation page 69
of the contribution of each Director is given in the 2022 DIRECTOR’S BIOGRAPHIES
Notice of Annual General Meeting, which is available – pages 70 to 71
on our website.
MATTERS RESERVED FOR THE
BOARD – www.inchcape.com
The time expected is set out in the letter of
appointment, which is available for inspection at the
Company’s registered office and at the Annual General
Meeting. The Non-Executive Directors are required to
allocate sufficient time to the Company to discharge
their responsibilities and Board dates are agreed two
years in advance to ensure that Directors are able to
plan accordingly and for other commitments to be
taken into account. Non-Executive Directors are
informed of the time commitment expected from them
upon appointment and this is reviewed annually to
ensure that the time expected is still relevant in light of
the Company’s strategic agenda. The Board’s policy on
multi-board appointments requires Directors to obtain
prior approval from the Nomination Committee and the
Board before taking on another directorship where the
additional demand will be assessed to ensure that all
Directors are able to allocate sufficient time to the role.
### COMPANY The Group Company Secretary supports the Board by FURTHER READING
providing advice on the governance framework and MATTERS RESERVED FOR THE
### SECRETARY
ensuring that the appropriate policies and procedures BOARD – www.inchcape.com
are in place to allow it to function effectively.
64 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
### COMPOSITION, SUCCESSION AND EVALUATION
### APPOINTMENTS TO Ensuring there is the right mix of individuals on the Board FURTHER READING
to support, and challenge, management, to avoid NOMINATION COMMITTEE
### THE BOARD AND
group think and to make the right decisions to facilitate – pages 75 to 76
### SUCCESSION
the long-term success of the Group is a key element
BOARD DIVERSITY POLICY
### PLANNING
of the succession planning process. – page 76
The Nominations Committee engages external search
consultancies when searching for Board position
candidates. Appointments to the Board are agreed by
the Nomination Committee to be put to the Board for
approval.
### SKILLS, EXPERIENCE The Nomination Committee regularly reviews the tenure FURTHER READING
of each Board member and the skills matrix ensuring BOARD TENURE – page 68
### AND KNOWLEDGE
the Board’s succession plan remains aligned with the
### OF THE BOARD BOARD SKILLS MATRIX – page 69
natural rotation of Directors off the Board and the
strategic objectives of the business. When appointing NOMINATION COMMITTEE
– pages 75 to 76
Directors to the Board, the Nomination Committee
considers the longer-term strategic objectives and the
skills and experience needed to deliver these
successfully.
The Committee considers breadth of perspective on
the Board which can only be achieved by appointing
directors from a diverse range of backgrounds, with the
range, experience and skills to achieve the strategic
aims.
The Board consists of several Board members from
outside the traditional UK plc environment, which adds
to diversity of thought. The Board believes it has a good
balance of new and longer-serving Directors.

| BOARD EVALUATION | The Directors provide feedback on how the Board | FURTHER READING |
| --- | --- | --- |
|  | operates, its culture and effectiveness during the | SECTION 172 STATEMENT |
|  | evaluation process. | – page 18 |
|  | During 2021, the Board considered the areas of focus | NOMINATION COMMITTEE |

REPORT – pages 75 to 76
following the external evaluation in 2020 and carried
out an internal evaluation consisting of an online
questionnaire covering:
• Board effectiveness;
• Knowledge and contribution;
• Succession planning; and
• Committee performance.
The specific reasons why the Board considers that
each Director’s contribution is, and continues to be,
important to the Company’s long-term sustainable
success may be found in the Notice of Annual General
Meeting. The Board recommends that shareholders
vote in favour of the re-election or election of all the
Directors at the 2022 Annual General Meeting.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 65
CORPORATE GOVERNANCE CONTINUED
### AUDIT, RISK AND INTERNAL CONTROL
### INTERNAL AND The Board delegates responsibility for ensuring the FURTHER READING
independence and effectiveness of internal and AUDIT COMMITTEE REPORT
### EXTERNAL AUDIT
external audit functions and the integrity of the – pages 77 to 81
financial statements. The Chair of the Audit Committee
reports to the Board following each meeting.
The Committee regularly meets with the auditor without
the presence of management to discuss any areas of
concern they might have. John Langston, Chair of the
Audit Committee, also meets with the Chief Financial
Officer and Head of Internal Audit in one-to-one
meetings which enable him to fully understand the
key issues ahead of Committee meetings.
### FAIR, BALANCED The Board reviews the Annual Report and Accounts FURTHER READING
as a whole, the interim financial statements and the AUDIT COMMITTEE REPORT
### AND
trading updates prior to publication to ensure that – pages 77 to 81
### UNDERSTANDABLE
they provide a fair, balanced and understandable
assessment of the Group’s position and prospects.
The Board considers the weight given to published
information to ensure that it is balanced and there are
no omissions. The Board also ensures that the narrative
reporting is consistent with the financial statements.
### RISK MANAGEMENT The Group has a system of risk management and FURTHER READING
internal control which is designed around an RISK MANAGEMENT REPORT
### AND INTERNAL
established three lines of defence model. This model – pages 48 to 56
### CONTROLS
engages management teams, corporate functions
AUDIT COMMITTEE REPORT
and independent assurance to manage risk, which is – pages 77 to 81
overseen by the Board and its Committees.
The Board approved the Risk Policy in January 2021,
reviewed the Risk Management Framework in July and
November and agreed its risk appetite in respect of
the principal risks at the half year. At the November
meeting, the Board also carried out a robust
assessment of the emerging and principal risks.
See pages 48 to 55 for the Principal Risks.
The risk management and internal control processes
are designed to manage rather than eliminate the
risk of failure to achieve business strategic objectives.
In establishing and reviewing the system of internal
control, the Directors have regard for the nature and
extent of relevant risks, the likelihood of loss being
incurred and the costs of control. The system can only
provide reasonable but not absolute assurance against
material misstatement or loss and cannot eliminate
business risk.
The Audit Committee carry out a review of the
effectiveness of internal control, on behalf of the Board,
with any significant control failings or weaknesses
reported to the Board, with a detailed review of the
findings and mitigation plans being put in place. The
Board monitor progress against plans until it is satisfied
that the matter has been resolved appropriately.
The Directors are satisfied that the Group’s risk
management and internal control systems accord with
the FRC’s guidance on Risk Management, Internal
Control and Related Financial and Business Reporting.
66 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
### REMUNERATION
### POLICIES AND The Board has delegated responsibility for oversight FURTHER READING
of remuneration policies and practices to the DIRECTORS’ REPORT ON
### PRACTICES
Remuneration Committee. The Chair of the REMUNERATION
Remuneration Committee reports to the Board – pages 84 to 103
following each meeting.
When setting Executive remuneration, the
Remuneration Committee takes into account purpose,
strategy, and responsible business and is designed to
promote the long-term success of the Company. The
Remuneration Committee oversee Executive Directors
receiving a pension contribution of 10% of salary,
which is aligned to the UK employee average.
### PROCEDURE FOR There is a clear procedure in place to develop the FURTHER READING
remuneration policy. The Remuneration Committee DIRECTORS’ REPORT ON
### DEVELOPING
has delegated responsibility for setting the Executive REMUNERATION
### REMUNERATION
Directors’ remuneration under the shareholder- – pages 84 to 103
approved Directors’ remuneration policy, as well as
the Chairman of the Board and the wider workforce.
No Director determines their own remuneration.
The Committee is supported by external advisors to
provide guidance on best practice and consults with
shareholders prior to a policy renewal to ensure their
interests are supported. No Executive Director is
involved in deciding the remuneration outcome.
### EXERCISING The Remuneration Committee is made up of only FURTHER READING
independent Non-Executive Directors. When agreeing DIRECTORS’ REPORT ON
### INDEPENDENT
Executive remuneration outcomes, the Committee uses REMUNERATION
### JUDGEMENT
its independent judgement to reach its decisions taking – pages 84 to 103
into account financial performance, personal
objectives, wider business context and the longer-term
impacts.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 67
CORPORATE GOVERNANCE
## GOVERNANCE
## AT A GLANCE
### GOVERNANCE STRUCTURE
### THE BOARD OF INCHCAPE PLC
### Collectively responsible for the long-term success of the Company
Audit Remuneration Group Executive Nomination CSR
Committee Committee Team Committee Committee
Delegated authorities:
• Financial Reporting • Remuneration Policy • Group Strategy • Board Composition • Responsible Business
• Risk Management • Incentive Plans • Operational • Diversity • Workforce
• Internal Control • Performance Targets Management • Succession Planning Engagement

| COMMITTEE | COMMITTEE | COMMITTEE | COMMITTEE |
| --- | --- | --- | --- |
| REPORT | REPORT | REPORT | REPORT |
| on page 77 | on page 84 | on page 75 | on page 82 |

Delegated Delegated
authorities: authorities:
Group Risk Investment
Risk oversight Oversight of
Committee Committee
InControl Group capital
Standards expenditure
### OUR BOARD
1 1
2
1
3
2
4
1
6 6
### LENGTH OF SERVICE NATIONALITY 7
2

| GENDER RESIDENCE |  |  |  |  |
| --- | --- | --- | --- | --- |
|  | 0 to 3 years | Female | British | Singapore |
|  | 3 to 6 years | Male | Dutch | United Kingdom |
|  | 6 to 9 years |  | German |  |

68 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
9+ years Singaporean
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
### BOARD ATTENDANCE
### The table below shows the Board and Committee meetings held during the year
Audit Remuneration Nomination CSR
Board Committee Committee Committee Committee
Scheduled/ Scheduled/ Scheduled/ Scheduled/ Scheduled/
Attended Attended Attended Attended Attended
Nayantara Bali* 4/4 1/1 2/2
Jerry Buhlmann 7/7 4/4 3/3 2/2 4/4
Gijsbert de Zoeten 7/7
Rachel Empey** 2/2 1/1 1/1
Alex Jensen 7/7 2/2 4/4
Jane Kingston 7/7 3/3 3/3 2/2
John Langston 7/7 4/4 2/2
Nigel Stein 7/7 3/3 2/2 4/4
Duncan Tait 7/7 4/4
Till Vestring 7/7 3/3 2/2 4/4
* Nayantara Bali joined the Group on 27 May 2021.
** Rachel Empey left the Group on 30 April 2021.
### COMMITTEE HIGHLIGHTS BOARD SKILLS MATRIX
The Board recognises the
NOMINATION COMMITTEE AUDIT COMMITTEE
importance of the right mix of

| • Review of skills, experience and | • Reviewed the Group’s enterprise | skills, experience and diversity |  |
| --- | --- | --- | --- |
| diversity on the Board. | risk management system. | to deliver the Group’s strategic |  |
| • Appointment of Nayantara Bali | • Reviewed the Group’s climate | objectives and contribute |  |
| and Sarah Kuijlaars as Non- | change risks TCFD disclosure plan. | towards long-term success. |  |
| Executive Directors. | • Bi-annual review of the global |  |  |
| • Monitored Board members’ | cyber security plan and | FINANCE | 3 |
| independence and other | monitoring progress against | DIGITAL/TECHNOLOGY |  |

3

| commitments to avoid | improvement plan. |  |  |  |
| --- | --- | --- | --- | --- |
|  |  | AUTOMOTIVE/RETAIL | 4 |  |
| overboarding. | • Review of the Global Business |  |  |  |
|  |  | EMERGING MARKETS |  | 5 |

Services transformation
programme. REMUNERATION 4
CSR COMMITTEE REMUNERATION COMMITTEE
### DEVELOPMENT
• Oversight of the Group’s • Set executive and senior
### Responsible Business plan. management bonus targets and OFBOARD SKILLS
• Approved the Driving What approved the grant of long-term
### PROFILE

| Matters plan. | incentives for 2021. |  |
| --- | --- | --- |
| • Reviewed and approved the | • Approved salary increases for | The review of skills and |
| Group’s climate change risks | Executive Directors, Group | experience on the Board provides |
| and opportunities. | Executive Team and wider | input into the Board’s succession |
| • Agreed the scope 1 and scope 2 | workforce employees. | planning process. As the digital |
| science-based emissions | • Approved remuneration | transformation of the automotive |
| reduction targets. | package for newly appointed | industry continues, the Board |
| • CSR Committee Chair attended | Group Executive Team members. | has focused on increasing the |
| employee townhalls and chaired | • Remuneration Committee Chair | digital skillset on the Board. |
| employee forum on culture. | hosted an employee forum |  |

on reward.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 69
CORPORATE GOVERNANCE
CONTINUED
## BOARD OF
## DIRECTORS
### The Board is collectively responsible for agreeing and
### continually reviewing the Accelerate strategy to ensure
### that it delivers long-term sustainable success. The Board
### is also responsible for ensuring that the appropriate
### resources are in place to deliver the strategic objectives.

| NIGEL STEIN | DUNCAN TAIT | GIJSBERT DE ZOETEN |
| --- | --- | --- |
| CHAIRMAN | CHIEF EXECUTIVE OFFICER | CHIEF FINANCIAL OFFICER |
| Appointed – October 2015 | Appointed – July 2020 | Appointed – August 2019 |
| Skills and experience – Nigel was | Skills and experience – Duncan was | Skills and experience – Gijsbert was |
| Chief Executive of GKN plc until his | on the Board of Fujitsu Ltd, a global | CFO at LeasePlan Corporation NV, |
| retirement in December 2017. He has | technology services company with | the international fleet management |
| a wide range of international, | responsibility for EMEIA & Americas, | and mobility services company. |
| general management and finance | a business with $10bn turnover and |  |

Previously, Gijsbert has held a range
experience gained in various roles at 35,000 people. He has significant
of senior financial and operational
GKN plc and also has experience in international experience, holding
roles at Unilever plc over 27 years,
the automotive and manufacturing senior roles at Unisys, Hewlett
including his six-year position as
sectors. Nigel is also a Non-Executive Packard and Compaq in a
the CFO of Unilever Europe.
Director of James Hardie Industries technology focused career
plc and is a chartered accountant. of over 30 years. Other appointments – Gijsbert is
also a member of the supervisory
Committee membership – Chair of Other appointments – Duncan
board of Technical University Delft.
the Nomination Committee and is also a Non-Executive Director
member of the Remuneration and at Agilisys.
CSR Committees.
70 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE

| JERRY BUHLMANN | ALEX JENSEN | JANE KINGSTON |
| --- | --- | --- |
| SENIOR INDEPENDENT DIRECTOR | NON-EXECUTIVE DIRECTOR | NON-EXECUTIVE DIRECTOR |
| Appointed – March 2017 | Appointed – January 2020 | Appointed – July 2018 |
| Skills and experience – Jerry has over | Skills and experience – Alex was CEO | Skills and experience – Jane served |
| 30 years’ experience in the media | Mobility and Convenience, Europe | as Group Human Resources Director |
| and advertising industries. He was | and Southern Africa at bp plc. She | for Compass Group plc from 2006 |
| formerly CEO of Dentsu Aegis | led the region’s fleet, retail and | until her retirement in 2016. Jane |
| Network and Aegis Group plc. | convenience food business across | also held senior positions at Enodis |
|  | 14 countries. Alex joined bp plc in | plc, Blue Circle plc (now Lafarge SA) |

Jerry is Non-Executive Chair of
1991 and held roles based in the and Coats Viyella plc. Jane
Croud and Hybrid Ltd, Non-
UK and China. She graduated from has significant remuneration
Executive Director of Serviceplan
Oxford University with a degree experience and is Remuneration
Group and Tulchan Limited, and
in Chinese, holds a Masters from Committee Chair of Spirax-Sarco
Senior Advisor for OC&C’s TMT
Stanford and is on the Board of Engineering plc.
Practice.
the charity Mind.
Committee membership – Chair
Committee membership – Audit,
Committee membership – Chair of of Remuneration Committee and
Remuneration, CSR and Nomination
the CSR Committee and member member of Audit and Nomination
Committees.
of the Nomination Committee. Committees.

| JOHN LANGSTON | TILL VESTRING | NAYANTARA BALI |
| --- | --- | --- |
| NON-EXECUTIVE DIRECTOR | NON-EXECUTIVE DIRECTOR | NON-EXECUTIVE DIRECTOR |
| Appointed – August 2013 | Appointed – September 2011 | Appointed – May 2021 |
| Skills and experience – John has | Skills and experience – Till is an | Skills and experience – Nayantara |
| corporate finance, accounting and | Advisory Partner with Bain & Co, | is director and co-owner of ANV |
| international experience acquired in | based in Singapore. He has | Consulting Pte. She previously |
| senior financial roles in the | extensive experience advising | held several senior management |
| engineering sector. He is an | multinationals on growth strategy | positions in Procter & Gamble. |
| experienced Non-Executive Director | across Asia and leading Asian | Nayantara holds a Bachelor of Arts |
| who has a strong governance | companies on strategy, M&A | in Economics and a Post Graduate |
| background and was the Audit | and organisation. Till is also | Diploma in Business Management |
| Committee Chair of Rexam plc until | a Non-Executive Director | from the Indian Institute of |
| its sale to Ball Group in 2016. | of Keppel Corporation. | Management (Ahmedabad). |
| John is a chartered accountant. | Committee membership – CSR, | Nayantara is an independent |
|  | Remuneration and Nomination | director of Torrent Pharma, and a |

Committee membership – Chair
Committees. Non-Executive Director of Starhub.
of Audit Committee and member
of Nomination Committee. Committee membership – CSR
and Nomination Committees.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 71
CORPORATE GOVERNANCE REPORT
PRINCIPAL DECISIONS IN 2021 Throughout the transition, a two-way communications
Accelerate Strategy and ongoing engagement plan was put in place. A key
The Board spent time debating the five-year plan required principle was to actively listen to, and act on, feedback
to deliver the Accelerate strategy. The Board’s discussions from colleagues throughout all phases and to support the
focused on industry and macro trends which create both various market finance teams across all regions. The strategy
risks and opportunities for the Group, the underlying recognised the need to provide multiple communication
assumptions used to drive growth, and the strategic channels to suit every audience, such as meetings, round
initiatives which contribute to the strategic ambition. table events, leadership communications, forums and
videos, embracing the latest digital technology where
The Board were fully informed of stakeholder considerations
possible. Every effort to ensure that colleagues involved
and impacts by both management and external
in the changes, and especially those whose employment
consultants. Key considerations included:
was impacted by the transition, were to be treated fairly,
• Customer expectations and the move to online; consistent with the Group’s values, and in accordance
• Electrification which is a fundamental component of our with local employment law. The engagement programme
original equipment manufacturer (OEM) brand partners resulted in a high retention rate throughout the first phases
agenda and other connected, autonomous, shared, of the project. The Board also agreed that the Internal
electric elements which will have an impact on our Audit team would carry out a GBS Programme Assurance
suppliers in the longer term; review to give assurance over the robustness of overall
• The culture and capabilities needed to deliver the governance, project delivery, people and change
strategic ambition and how this will impact our management, cost monitoring and risk management.
colleagues; and The Audit Committee reviewed the internal audit reports
• How the strategy will be delivered sustainably and during the year.
how the business will contribute towards a cleaner
Despite these challenges, the Board and management
energy world.
believe that transitioning to a GBS organisation provides
The Board approved the strategic framework in May 2021 a competitive advantage for the long-term.
with the global strategy launch in September 2021.
Business Development
Responsible Business A key element of the Accelerate strategy is the growth
The Driving What Matters plan was developed alongside opportunities through M&A. During the year, the Board
the Accelerate strategy and underpins the Group’s approved several new acquisitions including distribution in
purpose. During the year the Board, along with the CSR Indonesia, Daimler distribution in Guatemala, a partnership
Committee, discussed the strategic priorities of the plan, with Geely in Chile, and acquisition of ITC and Simpsons
and how these activities create value by supporting Motors in the Caribbean. Building and maintaining strong
Accelerate. OEM relationships is critical to the Group’s growth strategy
and continuous engagement via top to top and regional
The Board were able to give consideration to the impact
meetings with OEM partners allows opportunities to be
on stakeholders by reviewing the ‘Discovery Report’
explored. For each transaction, the Board received
which was commissioned to get an understanding of
detailed reports from the M&A team, and external
OEM ambitions, customer expectations, the employee
consultants covering areas such as:
experience and the requirements of shareholders and
other regulatory bodies. • Economic outlook;
• Market and reputational risks;
The four strategic pillar approach built on People, Places,
• Climate related ambitions for both OEM and market;
Planet and Practices was endorsed by the Board and the
• Brand performance;
CSR Committee, with four global workstreams established
• Strategic rationale; and
to identify key priorities and targets. Each workstream has
• Business integration plans.
developed a charter to tackle the sustainability challenges
facing business, our society, and our planet. These reports allow the Board to make considered
judgements on the impact to stakeholders. When
Global Business Services
considering acquisitions the Board pays particular
During the year, the Board approved the establishment of
attention to the OEM relationship, employees whose roles
a Global Business Services organisation (GBS). The
will be affected by the changes, the culture and reputation
implementation of GBS is necessary to transform the way
of the business being acquired and the communities in
the finance functions work, standardise and consolidate
which the OEMs operate. In relation to the recent
core accounting processes, add additional controls and
acquisitions, the Board weighed up the OEM’s stated
introduce a platform that supports rapid M&A integration,
ambition for transitioning to EV, the CO 2 emissions plans,
which are key features of the strategic enabler to create
the current and future infrastructure expectations, and
efficient scale operations.
the regulatory direction within each market.
The Board considered the GBS business case which
In April 2021, the Board agreed the disposal of its retail
included the identification of the preferred solution, the
operations in St Petersburg. This decision is aligned with the
vendor selection process and the GBS solution design.
Group’s strategy to focus on global distribution ambitions.
When regarding the impact to stakeholders, the Board
During the process, management engaged with the OEM
largely considered these impacts to be positive for OEMs,
brand partners who confirmed their understanding of the
customers and suppliers, due to the increased efficiency of
strategic rationale and gave their support for the
processes and for shareholders, with increased value in the
transaction. The Board also considers the impact on
longer-term. However, it was clear to the Board that there
employees and whether they will be treated fairly under
could be negative impacts on employees whose jobs are
new ownership.
affected by the transition to GBS. The Board reviewed the
detailed transition plan and risk mitigation approach to
ensure business continuity.
72 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
# PROGRESS FROM 2020 BOARD EVALUATION

|  Board | The Board made sure that it had sufficient time to focus on the refreshed strategy and its oversight of purpose by scheduling time to review at the January, February, May, and November meetings. The Board increased its awareness of the broader environmental, social, and governance (ESG) agenda during the year and formally incorporated ESG considerations into its decisions on strategy, risk and performance. Oversight of climate related impacts will be considered at least annually with regular updates provided throughout the year by the CSR Committee. Strategic Report pages 2 to 56. Responsible Business Report page 33.  |
| --- | --- |
|  CSR Committee | The Committee determined its scope and remit and re-defined its terms of reference to ensure appropriate oversight of the Responsible Business agenda. Workforce engagement was improved with the designated Non-Executive Director attending employee townhalls and facilitating an employee forum on Culture. Climate change reporting was added to the agenda with external consultants providing an overview of the impacts to the business and what actions are needed to enable the Group to meet its reporting obligations. Responsible Business Report page 33. CSR Committee Report on page 82.  |
|  Nomination Committee | The Committee continued to focus on diversity both at Board level and throughout the organisation. The composition of the Board remained a priority with the appointment of two Non-Executive Directors. Nomination Committee Report on page 75.  |

# OUTCOME OF 2021 EVALUATION

A evaluation of the Board is carried out each year with an external review every third year. In 2020, the Board evaluation was an external review consisting of interviews with the members of the Board, Group Executive Team, external auditor and remuneration consultants, as well as Board and Committee meetings being observed. Progress made from the outcome of the 2020 evaluation is reported above.

The internal Board evaluation in 2021 consisted of an online questionnaire for each Board member to complete, anonymously. The questionnaire covered strategy, knowledge and contribution, succession planning, risk management, workforce culture, and committee effectiveness. The Directors were invited to give further comment when answering the questions to provide additional insight into the effectiveness of the Board. The results of the questionnaire were collated into a report which was then discussed at a Board meeting to agree outcomes to focus on in 2022.

The overall impression from this evaluation is that the Board is one of unity and respect, which functions well. The Board feels there is sufficient engagement with stakeholders to be comfortable of a rounded view and that the current strategy has an appropriate balance between short and long-term success. The Board's considerations on the impact on ESG matters when making decisions has increased in importance and will be further integrated into decision making in 2022.

Board members feel that their experience and contributions are valued and welcomed. Unanimous agreement was given to the open communication both within Board meetings and between Board members and senior management, particularly during the volatile Covid-19 climate, enabling an optimal collaborative and constructive environment. This transparency results in the ability to challenge and support decisions leading to quality discussion where everyone has the opportunity to express themselves.

The Board feels that there is the right level of focus on succession and diversity, with good progress made on identifying and developing future talent. There needs to be a continued focus on enhancing representation of minority diversity groups in senior management to ensure the Company is leading in best practice. Clearer criteria for assessing potential successors is desired ahead of future Board appointments where a sound understanding of the automotive industry and use of digital and technology data is seen as important. Being a global company, over time it will be important to build a balance of UK and non-UK Directors to enhance foreign market representation.

Overall the Board is satisfied with the risk management processes and believe that these are effective and functioning well. Whilst progress with technology usage has excelled, care needs to be taken when evaluating digital risks as this is an evolving area of the business and it is imperative that the Company is well positioned to adapt to such changes.

On culture and workforce engagement, it is viewed that the Company deals with any breaches of rules and conduct sufficiently and that the increase of workforce engagement on wider Company issues has proved insightful and will develop further as time progresses.

The assessment showed that there is a solid platform of competences, however, there is still a strive for continuous development by the directors. Areas of improvement to be built upon throughout 2022 include:

- Improved Board training/induction with greater emphasis on the industry and regulatory environment;
- Greater focus on ethnic diversity at senior management level;
- Review of succession criteria to enable more focused assessment of candidates;
- Seek further Board representation of global operations/regional markets; and
- Continued focus on ESG issues and ensuring they are sufficiently considered during Board decision making.

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

73
CORPORATE GOVERNANCE REPORT CONTINUED
FOCUS ON CULTURE introduced following several culture workshops, results of
The cultural tone within the Group guides employee the EES, and a review of brand and OEM offering which
decision making and interactions. It is important to was supported by analysis from external consultants.
the Board that an open, honest and inclusive culture
Aligned to the Accelerate strategy, the One Inchcape
is in place to encourage employees to make a positive
Values and Behaviours are:
contribution to achieve the Company’s purpose.
• We deliver;
With the global launch of the Accelerate strategy in 2021,
• Great experiences;
the Board also approved a refreshed Code of Conduct.
• Fresh thinking; and
The benefits of the Code include:
• Better together.
• Behaviour: sets out desired behaviours;
These Values & Behaviours are to be used as a guide
• Risk Mitigation: in event of misconduct/wrongdoing;
for everyone in Inchcape, across all levels and locations
• Central guide and reference: supports day-to-day
of our organisation, to drive business performance by
decision making;
improving how we do things. The intention is to build
• Ethical dilemmas: empowers employees to handle
them into how we work and how we recognise great
ethical dilemmas; and
performance. By doing this, we will continue to lead
• Reference point: for locating relevant services and
our industry and make Inchcape a stronger and more
other resources related to ethics within the Group.
rewarding place to work.
The Board has further agreed a set of key performance
indicators (KPIs) to monitor compliance:
## THE ONE INCHCAPE VALUES
• Roll-out of new Code – 95% compliance by year-end
## & BEHAVIOURS
2021;
• New joiners – training completed within first four weeks
of joining;
• Awareness – senior leaders to confirm on an annual
basis, that they, and their team members, are aware
of the Code; and
• Ongoing training – current employees to complete
We Great Fresh Better
training every two years.
deliver experiences thinking together
The Board also approved policy statements in respect
of anti-bribery and corruption, competition, anti-money
We deliver great experiences through fresh thinking
laundering, and data protection and privacy which
and working better together
demonstrate the Group’s approach to compliance,
provides transparency for stakeholders and clear
guidance for colleagues, is drafted in line with EMPLOYEE CULTURE FORUM
Accelerate strategy and Company purpose and the
In January 2022, Alex Jensen hosted an employee
Board’s defined risk appetite.
forum focusing on culture. The forum was attended by
The Board monitors and assesses the indicators culture employees from across the UK, Europe, Africa and the
throughout the organisation via: Americas. The attendees were from a broad range of
backgrounds and functions, with length of service
• Regular meetings with management both as part
spanning 28 years with the business to newly appointed
of the Board’s annual agenda and one-to-ones with
employees who have been with the business for a few
key senior leaders;
months. Alex Jensen, in her role as Chair of the CSR
• Reviewing the outcome of the employee engagement
Committee and designated Non-Executive Director
survey (EES);
(under Provision 5 of the UK Corporate Governance
• Reviewing People and Capability metrics including
Code), facilitated the meeting and updated the Board
voluntary turnover, leadership development
on the views of the workforce.
programmes, employee assistance programme,
code of conduct compliance, and health and The forum consisted of interactive questions and
safety statistics; discussions followed by a Q&A session and covered
• Whistleblowing reports and follow up actions; topics such as:
• Promptness of payments to suppliers; and
• What words come to mind when you think of our
• Independent assurance via external advisors.
company’s culture?
Through reviewing compliance with the Code of • What are your thoughts on the new company values?
Conduct, reports on the indicators of culture listed
The feedback obtained from colleagues was
above, and from feedback from employee forums, the
overwhelmingly positive, with many commenting on how
Board is satisfied that the Company’s culture is aligned
initiatives such as these are a good reminder that they
with its purpose, values and strategy and no corrective
work for a global company representing many brands.
action has been taken during 2021.
As an outcome of the forum, it was agreed that the
subject matters to be discussed at employee forums
ONE INCHCAPE VALUES & BEHAVIOURS
would be chosen by the employees so they represent
The new values framework was developed during 2021,
matters which are truly important to them. The attendees
and rolled out in January 2022, to support the delivery
also gave their input on the new values before they were
of Accelerate and the achievement of the Company’s
rolled out across the Group, which they described as
purpose. An evolution of the previous Drive5 framework,
clear, modern, aspiring and aligned to Accelerate.
the new One Inchcape Values & Behaviours was
74 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
### DEAR SHAREHOLDER
## NOMINATION
### I am pleased to present the report of the
### Nomination Committee for the year ended
## COMMITTEE
### 31 December 2021 which aims to set out
### how we have discharged our duties
## REPORT
### during the year.
Board composition and succession planning continues
NIGEL STEIN to be the main focus of the Committee. 2021 saw several
CHAIR changes, with the appointment of Nayantara Bali and the
departure of Rachel Empey.
Nayantara Bali joined the Board following the AGM in
May 2021 and is co-owner and director of ANV Consulting,
a boutique management consultancy specialising in
leveraging data analytics, Prior to this, Nayantara was with
Procter & Gamble for over 28 years holding several senior
regional and global positions based in Singapore, Thailand,
and India.
Rachel Empey left the Board in April 2021 to join the
supervisory board of BMW Group in Germany and I would
like to thank her for the strong contribution she made to the
Board over the past five years. We began the recruitment
process to find a successor during 2021 and had a clear
### MEMBERSHIP
idea of the skills and attributes required to support the
Number of Ad hoc achievement of the strategic goals in the short and
meetings held/ meetings held/
longer-term.

|  | attendance | attended |  |
| --- | --- | --- | --- |
| Nigel Stein (Chair) 2/2 2/2 |  |  | Following a rigorous search process, I am delighted |
| Jerry Buhlmann 2/2 2/2 |  |  | that Sarah Kuijlaars joined the Board as a Non-Executive |

Director in January 2022. Sarah is currently Chief Financial
Nayantara Bali* 1/1 0/0
Officer and Executive Director of De Beers plc and was
Rachel Empey** 1/1 1/1
previously a Non-Executive Director at Aggreko plc. Sarah
Alex Jensen 2/2 2/2 was also previously CFO of Arcadis NV, deputy CFO at
Jane Kingston 2/2 1/1 Rolls-Royce Holdings plc, and has held a number of senior
financial leadership roles during a 25-year career at
John Langston 2/2 2/2
Royal Dutch Shell plc. Sarah’s extensive financial and
Till Vestring 2/2 2/2
international experience will both strengthen and
* Nayantara Bali joined the Group in May 2021. complement the existing Board’s skill set.
** Rachel Empey left the Group on 30 April 2021.
Till Vestring completed nine years’ service in 2020,
The Committee’s terms of reference can be found at however, agreed to remain on the Board to assist with the
www.inchcape.com/governance. recruitment of Nayantara Bali, and to provide additional
support for Ruslan Kinebas who assumed the role of CEO
APAC in April 2021. As we were unable to travel for the
majority of 2021, Till’s support in the recruitment process and
the onboarding of Nayantara has been invaluable as they
are both based in Singapore. Till will remain a member of
the Board before he intends to step down at the 2022 AGM.
30
NIGEL STEIN
Board composition
CHAIR OF THE NOMINATION COMMITTEE
50 Corporate governance
Succession planning
DIRECTOR INDEPENDENCE
20
Provision 10 of the Code sets outs circumstances which
“which are likely to impair, or could appear to impair”
a director’s independence. During 2021, Till did not:
• Act as employee of the Group within the last five years;
• Have a material business relationship with the Group
within the last three years;
### ALLOCATION OF TIME SPENT (%) • Receive additional remuneration from the Company
(apart from his basic remuneration);
• Participate in the Company’s share option or
performance-related pay schemes;
• Become a member of the Company’s pension scheme;
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 75
CORPORATE GOVERNANCE REPORT CONTINUED
• Have close family ties with any of the Company’s APPOINTMENT PROCESS
advisers, directors or senior employees; An external recruitment consultant is appointed to assist
• Hold cross-directorships or have significant links with with the recruitment of directors. The Chairman will develop
other directors through involvement in other companies an appropriate job specification, and set out any other
or bodies; desirable attributes, and agree a long-list of potential
• Represent a significant shareholder; or candidates with the consultant. From this, a short-list is
• Chair any Committee meeting. agreed, and the interview process begins. Potential
candidates meet with the Chairman, Senior Independent
There were no agreements or relationships which could
Director and other Board members. Once a preferred
compromise Till’s ability to hold management to account.
candidate has been identified, the Committee makes its
By serving the Board whilst we looked to appoint two new
recommendation to the Board for approval. During the
Non-Executive Directors – which has since taken place – Till’s
recruitment process a comprehensive assessment is carried
continued service was in the best interests of the Company
out to evaluate each candidate’s capability, strengths and
and its stakeholders. The Committee is satisfied that despite
personal attributes needed to complement and enhance
having over nine years’ service, Till continues to demonstrate
the skills, experience and knowledge of the Board members.
independent character, judgement and objectivity, and
Till’s continued service has not impaired his independence. Korn Ferry was appointed to assist with the recruitment of
Nayantara Bali and Odgers Berndtson was appointed to
The Board ensures, through the Nomination Committee,
assist with the recruitment of Sarah Kuijlaars. Korn Ferry and
that Board composition is kept under review, that
Odgers Berndtson are signatories of the Voluntary Code of
appropriate succession plans are in place, that the
Conduct for Executive Search Firms and neither firm has any
independence of Non-Executive Directors is not
other connection to the Company or any individual director.
compromised and that they have the time and resources
necessary to devote to the role.
DIVERSITY POLICY STATEMENT
SKILLS, EXPERIENCE AND DIVERSITY
We value diversity in the broadest sense, including but
The Committee recognises the importance of the right mix
not limited to, gender, race, social and ethnic
of skills, experience and diversity to deliver the Accelerate
backgrounds, skills, industry experience, professional
strategy. With digital, data, analytics and cyber security
and educational backgrounds. We believe increasing
as key enablers for Distribution Excellence and the
diversity adds fresh perspectives which enrich our
acceleration of omni-channel, this remains a key skill
decision making and the aim of the policy is to reflect
area for the Board. Experience and knowledge were
this ethos. The Board’s policy on diversity is a verbally
strengthened during the year with the appointment of
agreed principles-based policy. The importance of
Nayantara Bali who also brings international experience.
Board diversity is clearly understood by our recruitment
consultants and is built into the process of succession
During the year the Committee:
planning and external hires. We continue to consider
• Carried out a review of skills, experience and diversity;
all aspects of diversity in our nomination process while
• Reviewed the length of service and re-appointment
also appointing candidates with the skills and
following three-year term;
experience that are necessary for the continuing
• Assessed the Non-Executive Directors’ independence;
growth of our operations.
• Recommended election and re-election at the AGM;
The Board remains dedicated to meeting
and
recommendations set-out in the Hampton-Alexander
• Approved the policy on multi-board appointments.
and Parker reviews and has an overall ambition of
SUCCESSION PLANNING achieving gender parity and greater representation
of diverse ethnic backgrounds over time.
When considering succession planning, the Committee
looks at length of service in addition to the required skills
With the appointment of Nayantara Bali in May 2021
and experience. It is usual practice for Non-Executives to
and Sarah Kuijlaars in January 2022 , the Board has
complete nine years’ service and the succession planning
40% female representation and 10% diverse ethnic
process takes this into account to ensure the continual
representation therefore has exceeded the minimum
refreshment of the Board. However, a director may resign
diversity requirements of both the Hampton-Alexander
before they have completed nine years’ service. In these
and Parker reviews.
circumstances, a long-list of potential candidates is
The Board’s philosophy on diversity is also reflected
continually kept up to date so the appointment process
throughout Inchcape and the business has continued
can begin immediately to fill vacancies as they arise.
to strive for increased diversity of all identities,
During the year the Committee recommended the
backgrounds and experiences across its workforce
appointment of Nayantara Bali to the Board for approval
and is building a more inclusive environment where
and continued the search for a Non-Executive Director
everyone believes they can belong, be themselves
to fill the current vacancy.
and succeed. For more information on workforce
inclusion and diversity see page 35.
The performance of the Group Executive Team is
considered by the Board as a whole during the annual
organisational health check and the Non-Executive
Directors discuss succession planning for senior leadership
during the year without the presence of executive
management. There were several changes to the
executive team, including internal moves and external
hires, during 2021. George Ashford assumed the role of
temporary CEO of the UK business and Romeo Lacerda
was appointed as CEO of Americas & Africa.
76 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
## DEAR SHAREHOLDER
## AUDIT
### I am pleased to present the Audit
### Committee Report for the year ended
## COMMITTEE
### 31December 2021. The aim of this report is to
### provide an overview of how the Committee
## REPORT
### has discharged its responsibilities during the
### year and to highlight the significant issues
### considered by the Committee.
JOHN LANGSTON
CHAIR
CLIMATE CHANGE
Tackling the impacts of climate change is critical for UK
companies and the Committee spent time during the year
reviewing the direct consequences using best estimates,
both positive and negative, of climate change in so far as
it relates to impairment. A preliminary risk assessment was
carried out ahead of the broader project to calculate risks
and opportunities. Further details can be found in the
TCFD report on pages 40 to 44.
The Committee spent time reviewing the electric vehicle (EV)
impact on going concern and viability assessments, specific
analysis of goodwill and distribution assets in markets with
a lower EV offering and/or infrastructure and the impact
of the transition to EVs on aftersales. The Committee also
## MEMBERSHIP

|  |  | Number of |  | Ad hoc | considered the incorporation of climate risks into the risk |
| --- | --- | --- | --- | --- | --- |
|  | meetings held/ |  | meetings held/ |  | management process. Further details are given on page 50. |
|  |  | attendance | attendance |  |  |
| John Langston (Chair) 4/4 1/1 |  |  |  |  | CYBER SECURITY |
| Jerry Buhlmann** 4/4 0/1 |  |  |  |  | Following the appointment of a Chief Information Security |

Officer in 2021, the Committee approved a three-year
Rachel Empey* 1/1 1/1
cyber security plan and a target to improve the Group’s
Jane Kingston* 3/3 0/0
National Institute of Standards and Technology (NIST)
* Jane Kingston joined the Committee in May 2021 following the departure cyber security benchmarking assessment. The Committee
of Rachel Empey on 30 April 2021. reviewed the progress made against the plan, any cyber
** Jerry Buhlmann was unable to attend the additional meeting due to
incidents or near misses, the remediation plans in place
a prior engagement.
and approved the cyber security programme for 2022.
The Committee’s terms of reference can be found at The Committee will monitor the cybersecurity programme
www.inchcape.com/governance. on a six-monthly basis.
GLOBAL BUSINESS SERVICES
As detailed on page 72, the Group commenced a
major finance transformation programme during the year.
The Internal Audit team carried out a GBS Programme
10
Assurance review reporting to the Committee on its findings
Corporate governance
10 and key recommendations. The Committee challenged
Cyber security
the management team on the control gaps identified and
40
External audit
sought the views of the external auditor on the programme,

| 20 | Financial reporting | and was satisfied that management have taken swift |
| --- | --- | --- |
|  | Internal audit, | action to start remediating the actions arising from the |
|  | controls and risk | internal audit report. The Committee will continue to |

20
monitor the programme to ensure the risks are being
appropriately managed.
CORPORATE REFORM
During the year the Committee received briefings on the
proposed changes to the regulatory framework and how
these could impact the Audit Committee and Board. As
yet, the Government have not confirmed which changes
will be put in place; however, a steering group has been
formed to manage any new frameworks for the financial
### ALLOCATION OF TIME SPENT (%)
reporting control environment.
JOHN LANGSTON
CHAIR OF THE AUDIT COMMITTEE
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 77
CORPORATE GOVERNANCE REPORT CONTINUED
SIGNIFICANT ISSUES CONSIDERED BY THE COMMITTEE DURING THE YEAR
Impairment – see note 11 to 13 on pages 153 to 160
Impairment reviews are carried out annually in respect of goodwill and indefinite life assets, and if there is an indicator
of impairment, reviews are carried out on a more frequent basis. In addition, other intangible assets, property, plant
and equipment, including site assets, and right-of-use assets are reviewed for impairment if events or circumstances
indicate that the carrying value may not be recoverable. This is a judgemental process which requires assessing
whether there is an indicator of impairment, estimating future cash flows based on future business prospects,
determining long-term growth rates and discount rates. It is the Committee’s view that management’s approach to
impairment is robust, based on reliable supporting data supplied by external sources, and with appropriate challenge
from the external auditor. The Audit Committee focused on the following aspects of the impairment:
• The Committee debated the cash flow projections used to calculate the value in use, considering whether these
reflect a reasonable expectation of future performance;
• The Committee considered how management had determined the discount rates and long-term growth rates;
• The Committee discussed the impact of climate change, including electrification on impairment and the impact
of electric vehicles on aftersales;
• The Committee assessed the reliability of data provided by external advisors and independent specialists used in
key assumptions; and
• The Committee also discussed the appropriateness of the disclosures to be made in the Annual Report to satisfy itself
that they provided users of the financial statements with sufficient information to understand the judgements made
by the Group.
After considering all available information and reviewing the findings and supporting evidence from Deloitte LLP, the
Committee concluded that management’s impairment reviews of non-financial assets were appropriate and that
a net impairment credit of £0.6m relating to goodwill, indefinite-life intangible assets, property, plant and equipment
and right-of-use assets should be recognised for the financial year ending 31 December 2021.
Software as a service – see note 35 on page 185
The IFRS Interpretations Committee (IFRS IC) recently issued two agenda decisions on cloud computing arrangements:
one in 2019 which considered whether a customer received a software asset at the start of a contract or received a
service over the term of the contract; and the second in 2021 considered how a customer should account for
configuration or customisation costs when an intangible asset is not recognised – that is, where the customer receives
a service over the term of the contract. Although the IFRS IC agenda decisions have not resulted in either a new
standard, an amendment to an existing standard or a new interpretation, they do provide guidance/clarification
as to how existing standards should be interpreted/applied and the IFRS IC has noted that agenda decisions may result
in a change in accounting policy. The Audit Committee considered the key judgements needed to be made as part
of the assessment, the conclusions reached and the corresponding consequences for the Group. The Committee
considered:
• The IFRIC guidance;
• The assessment of asset or service contract;
• Accounting treatment of costs of configuration and customisation;
• Changes in accounting policy;
• The impact of the guidance on plans to migrate the Group’s existing ERP applications to a cloud-based solution;
• The financial statement implications from a change in accounting policy; and
• The resulting statutory accounting, transfer pricing and tax implications of the Group accounting outcome.
The Audit Committee is of the view that management’s assessment of the Group’s software applications, and whether
they should be regarded as an asset or a service is appropriate. The Audit Committee sought assurance from Deloitte
LLP that they concur with this approach. The Audit Committee will keep software as a service under review as
guidance and best practice develop in this area.
Indefinite life of assets – see note 11 on pages 153 to 156
The Group’s principal intangible assets, recognised on the Group balance sheet, are distribution agreements with
manufacturers acquired as part of a business combination. A value has been attributed to those distribution
agreements on acquisition in accordance with IFRS 3, Business Combinations. The Group’s policy is to assign these
assets an indefinite useful life in accordance with IAS 38, Intangible Assets. The Audit Committee considered whether it
is appropriate to continue to assign an indefinite useful economic life to these assets, based on the current events and
circumstances of the Group and our relationships with the relevant OEMs and whether they still support the assumption
of an indefinite life. The Committee considered:
• The expected usage of the distribution agreements by the Group and whether it could be managed efficiently
by another management team;
• Typical lifecycles for similar agreements and public information on estimates of useful lives of similar assets that
are used in a similar way;
• The stability of the automotive industry and the relevant brand partners and changes in the market demand for
the products or services covered by the agreements; and
• The period of control over the agreement and legal or similar limits on their use.
The Audit Committee concluded that the assignment of an indefinite useful life to the Group’s distribution agreements
is appropriate as per the requirements set out in IAS 38.
78 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRUCTURE OF THE COMMITTEE
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
Jane Kingston joined the Audit Committee during the year following the departure of Rachel Empey, whilst the search for
a new Non-Executive Director commenced. Jane will step down from the Committee following the successful appointment
of Sarah Kuijlaars as announced in January 2022. Sarah joined the Audit Committee upon appointment to the Board. Sarah
is currently CFO of De Beers and has held several senior finance positions during her career. Sarah’s extensive financial and
international experience will both complement and strengthen the Committee.
John Langston is a qualified chartered accountant and Sarah Kuijlaars is a Fellow of the Chartered Institute of Management
Accountants. Both are considered to have recent and relevant financial experience. In addition, the Committee as a
whole has competence in the sector in which the Company operates.
Only members of the Committee are entitled to attend Committee meetings. However, the Chairman, Group Chief
Executive Officer, Chief Financial Officer, Group Financial Controller and Group Head of Internal Audit attend the
Committee meetings along with the external auditor. Other senior executives, such as the Group Tax Director and Group
General Counsel, attend during the year to present to the Committee.
FINANCIAL REPORTING RISK MANAGEMENT
The role of the Committee in relation to financial reporting The Audit Committee has delegated responsibility for
is to review with both management and the external ensuring that:
auditor the appropriateness of the half year and annual
• There is an appropriate mechanism in place to identify
financial statements, taking into account:
the risks the Group faces;
• The quality and acceptability of accounting policies • Management teams have the correct focus on those
and practices; risks and the action plans in place to mitigate or respond
• Material areas in which significant judgements have to those risks;
been applied or where significant issues have been • A compliance programme is in place in all markets
discussed with the external auditor; that meets or exceeds external benchmarks and is
• The clarity of the disclosures and compliance with appropriate in terms of legal requirements, content,
financial reporting standards and relevant financial and sector, cost and resources;
governance reporting requirements including the Code; • Internal controls are appropriate, well designed and
• Any correspondence from regulators in relation to the operating consistently across the Group to manage risk
Group’s financial reporting; and effectively; and
• Reviewing assumptions and providing assurance to • The Group’s whistleblowing programme is appropriately
support the long-term viability statement. managed to reduce the risk of fraud or respond quickly
and decisively in the event the Group falls victim to fraud.
FAIR, BALANCED AND UNDERSTANDABLE
Reports are provided at each meeting, detailing the risk
The Audit Committee also carries out its own assessment of
environment to allow the Committee to monitor and assess
the financial statements, and the Annual Report as a whole,
the effectiveness of the Group’s risk management
and is satisfied that it provides the necessary information
approach.
for shareholders. The Committee considered whether the
information given in the financial statements is a true During the year the Committee:
reflection of the narrative reporting throughout the Annual
• Monitored the principal and emerging risks;
Report and Accounts, whether the key performance
• Assessed the appropriateness of the risk management
indicators give a true indication of the health of the business
framework and carried out a robust assessment of
and if the issues considered of significant risk by both the
principal risks;
external auditor and the Committee are aligned.
• Monitored the emerging risks and the process used
The processes and procedures in place to satisfy the Board to identify them;
of the integrity of the financial and narrative statements • Reviewed the risk profile and any changes to the risks;
include a robust disclosure verification process, monthly • Climate-related risks and the TCFD reporting
financial performance updates, and meetings with the recommendations; and
internal and external audit functions without the presence • Major whistleblowing reports and any mitigating plans
of management. implemented by management.
A statement of the Directors’ responsibilities is set out on
INTERNAL CONTROL
pages 104 to 108, going concern statement is set out
The Internal Control framework encompasses all controls
on page 125 and the strategy and business model are
including those relating to financial reporting processes,
set out on pages 2 to 5.
preparation of consolidated Group accounts, operational
During the year the Committee: and compliance controls and risk management processes.
• Considered all key audit issues, accounting treatment InControl Standards
and judgements in relation to the financial statements; The InControl Standards (ICS) are designed to enable
• Where risks were identified, either in relation to processes, management to establish, assess and enhance strong
key transactions or employees the Board undertook a and consistent risk and control governance. The framework
deeper review of matters, challenging management to is regularly reviewed and updated in line with emerging
improve the control environment and tighten processes; Group risks, in response to emerging internal audit issues,
• Challenged management on the assumptions used and and following any investigation activity.
the judgements that have been applied, with assurances
given from both external and internal sources; and
• Assessed whether the Annual Report and Accounts
were fair, balanced and understandable.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 79
CORPORATE GOVERNANCE REPORT CONTINUED
The standards form part of the broader control environment The Audit Committee Chair reports to the Board on any
consisting of: significant issues or resolutions made by the Committee
following each meeting. All Directors have full access to the
• Culture and behaviours;
whistleblowing reports and other Audit Committee papers.
• Code of Conduct;
• Group, regional and local policies and procedures, During the year the Committee:
including legal and regulatory compliance;
• Received updates on cases reported during the year;
• Delegation of authorities;
• Reviewed themes and trends of reported cases;
• Risk management process; and
• Reviewed the detailed briefings on material cases; and
• Roles and responsibilities.
• Monitored follow-up action plans and resolution.
The ICS has been designed to mitigate the most significant
risks across the Group providing robust governance and INTERNAL AUDIT
a sound controls framework to ensure: The aim of the Internal Audit function is to provide
independent and objective risk-based assurance for the
• Reliability of financial reporting;
Group by bringing a systematic and disciplined approach to
• Effectiveness and efficiency of operations; and
evaluate the effectiveness of risk management, governance
• Compliance with applicable laws and regulations.
and control. An annual programme of audit activity is
They are also there to help protect us from: approved by the Audit Committee; this is flexed if required
throughout the year in accordance with the risk profile
• Fraud and misappropriation of cash and assets; and
of the organisation and any subsequent amendments
• Material error in the financial statements.
are discussed in detail and agreed by the Committee.
The central and regional Internal Controls teams support
The function carries out audits across a selection of Group
the business by providing the framework, tools and training,
businesses, functions and programmes which include the
and ongoing support to embed the ICS across the business
management of risks and controls over financial,
which in turn enables management to monitor the
operational, IT and other compliance areas, such as GDPR
effectiveness of controls in the business and to implement
and anti-bribery and corruption.
actions plans where improvement is required. The Internal
Control function is separate from the Internal Audit function The Internal Audit function, led by the Group Head of
and works with management teams to design controls that Internal Audit, consists of appropriately qualified and
are proportionate to the level of risk, supported by systems experienced employees with an in-depth understanding
and easy to follow. of the business culture, systems, and processes. The Group
Head of Internal Audit reports to the Audit Committee and
The Audit Committee receives reports from the Group
has direct access to, and has regular meetings with, the
Head of Internal Audit at each meeting covering Internal
Audit Committee Chair, prepares formal reports for Audit
Audit, Internal Controls and Risk Management. The reports
Committee meetings on the activities and key findings of
provide an update on the control framework, compliance
the function and reports on progress against mitigation
scores, status of management actions and control gaps.
plans. The purpose, authority and responsibility of Internal
This information enables the Committee to assess the
Audit are defined in the Internal Audit Charter, which the
effectiveness of internal controls on an on-going basis. The
Committee reviews annually.
external auditor also provides an annual report on control
improvement recommendations and other observations During the year the Committee:
which allows the Committee to assess effectiveness annually.
• Approved the 2021 Internal Audit plan;
The reports are available to all Board members to allow • Monitored progress against the plan;
them to keep informed, and other Board members are also • Approved the Internal Audit Charter;
able to attend any Committee meetings should they wish. • Reviewed status of open issues; and
However, the Audit Committee also provides an update on • Monitored mitigation plans for any internal control failings.
the control and risk environment to the full Board following
each Committee meeting. EXTERNAL AUDIT
Following an audit tender process during 2017, Deloitte LLP
Any significant control failings or weaknesses are reported
was appointed as the Group’s auditor with shareholder
to the Board, with a detailed review of the findings and
support for the appointment given at the 2018 Annual
mitigation plans being put in place. The Board monitors
General Meeting. Anna Marks is the lead audit partner and
progress against plans until it is satisfied that such matters
has been in position since the appointment of Deloitte LLP.
are resolved appropriately. The Board has determined that
there were no significant failings or weaknesses identified The Company confirms that it complied with the provisions
during the review of risk management and internal control of the Competition and Markets Authority’s Order for the
processes during the year and further confirms that these financial year under review.
systems were in place during 2021 and to the date of this
Auditor effectiveness, independence and objectivity
report. The Board is satisfied that the control environment
Ensuring that the external auditor provides a high quality
was materially effective during the course of the year.
audit is a key activity of the Audit Committee as a high
quality audit provides stakeholders with assurance that the
WHISTLEBLOWING
financial statements give a true and fair view. The
The Group Head of Internal Audit reports to the Committee
Committee carries out its assessment on an ongoing basis
at each meeting on fraud and whistleblowing claims that
by considering its interactions with the auditor, its
have been received since the last Audit Committee
observations of the auditor and the relationship between
meeting, and significant currently open issues. The new and
the Audit Committee, the auditor and management.
open cases which are reported to the Committee are those
of sufficient significance to warrant attention, however, a list The Committee encourages a culture of open
of all reports is also provided to the Committee along with communication and debate and the Committee believes
a breakdown by market, report type and source. that it is able to ask questions on key issues and to
80 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
challenge when it feels more information is needed. The NON-AUDIT SERVICES
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
Committee also looks at how management responds to Implementing a Non-Audit Services Policy (Policy) is also
requests from the auditor and carefully reviews the auditor’s key to ensuring the independence of the external auditor.
findings and recommendations. The Policy for non-audit services sets out the permitted and
non-permitted non-audit services as well as the approval
When the auditor supports management’s approach, the
levels required by the Audit Committee and is designed
Committee considers the evidence supplied by the auditor
to ensure that the external auditor’s objectivity is not
to support its decision to ensure that the auditor is not
compromised by earning a disproportionate level
compromised and remains objective.
of fees for non-audit services or by performing work that, by
The auditor also meets with the Committee without the its nature, may compromise the auditor’s independence.
presence of management on a regular basis, usually However, using advisors who have an understanding of the
following each meeting. This gives the auditor an Group’s business can be a benefit and the Committee will
opportunity to confirm its view that management are consider non-audit services supplied on an ongoing basis.
addressing any issues raised appropriately or to raise any
The Group’s Policy on non-audit services to be provided by
concerns they may have.
the Group’s auditor defines two types of non-audit services
External evidence of the quality of the audit is also vital in that may be performed:
assisting the Committee in its review of the effectiveness
• Regulatory services, which are services undertaken as
of the audit.
auditor or reporting accountant which are outside the
scope of the statutory audit but which are consistent
FACTORS CONSIDERED TO ASSESS QUALITY OF THE
with the role of statutory auditor; and
EXTERNAL AUDIT
• Permitted non-audit services, which are services that
Mindset and culture
the auditor may be permitted to undertake subject
The ethical and professional principles adhered to by
to the appropriate level of approval.
the auditor; whether the auditor has any personal or
commercial interests in the Group; and how they have The aggregate fees incurred for permitted non-audit
demonstrated high standards of independence, integrity, services relative to the audit fee should not exceed 70%
objectivity and challenge throughout the year. of the average audit fee over the previous three years,
with such cap applicable to both Group and UK audit fees.
Skills, character and knowledge
The auditing skills of the audit team; level of knowledge of The provision of permitted non-audit services will only be
the automotive distribution and retail industry possessed by approved by the Audit Committee if:
the audit team; the auditor’s understanding of its obligations
• Engagement of the auditor to provide the services does
to users of the financial statements; and ability to challenge
not impair the independence or objectivity of the
where appropriate whilst maintaining strong relationships.
external auditor;
Quality control • The skills and experience of the external auditor make
The processes the auditor has in place to identify and it the most suitable supplier of the non-audit service;
address risks to the audit and assessing the steps taken • The auditor does not have a conflict of interest due
to complete the annual audit plan. to a relationship with another entity; and
• The aggregate fees incurred for permitted non-audit
Feedback from business
services relative to the audit fee do not exceed 70%
The Committee receive feedback from management on
of the average audit fee over the previous three years.
the quality of the auditor’s delivery, communication and
interaction with the various finance teams across the Group, Permitted non-audit services above a certain level are
which is communicated back to the external auditor. approved on a case-by-case basis by the Audit
Committee.
The auditors’ report to the Committee sets out the audit plan,
materiality, scoping, the risk assessment process, significant The fees for permitted non-audit services relate to the audit
risks, other areas of focus, the purpose of the report and of processes for payments and receipts in Russia, local tax
responsibility statement. The Committee reviews at each audit in El Salvador, review opinion on 2020 financial
stage of the audit to ensure that it is satisfied that the audit statements for the Group’s Dutch subsidiary, review of the
plan is appropriate, if the auditor is meeting its obligations, interim financial statements and a turnover certificate in
and to agree any changes to the audit if they arise. Hong Kong. The Group remains within the Audit Committee
approved ratio of audit to non-audit fees.
Deloitte continually monitor their independence and ensure
that appropriate safeguards are in place including but not The following non-audit fees incurred with Deloitte were:
limited to the rotation of senior partners and staff and the
2021 2020
involvement of other partners and staff to carry out reviews
£’000 £’000
of the work performed and to otherwise advise if necessary.
Regulatory services – 25
After considering all of the above elements, the conclusion
Permitted non-audit services 123 349
of the Committee is that the auditor carried out their audit
effectively and that the auditor is independent and
The ratio for audit/non-audit work for the year ended
objective.
31December 2021 is 0.03:1. Full details are shown in note 3d
During the year the Committee: of the notes to the financial statements (page 142).
• Reviewed the report from the external auditor in relation AUDIT FEES PAID TO THE AUDITOR
to the 2020 Annual Report and Accounts;
Fees paid for services provided by Deloitte (three-year
• Assessed the auditor’s approach to, and findings in
average) were:
relation to, the audit to assess independence and
objectivity; 2021 2020
£’000 £’000
• Agreed materiality, scope and fees for the annual
audit plan; and Audit fees 3,524 3,365
• Received updates on upcoming corporate reform
and other regulatory topics.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 81
CORPORATE GOVERNANCE REPORT CONTINUED
## DEAR SHAREHOLDER
## CSR
### I am pleased to present the report of
### the CSR Committee for the year ended
## COMMITTEE
### 31December 2021. The aim of this report
### is to provide an overview of how the
## REPORT
### Committee has discharged its responsibilities
### during the year
ALEX JENSEN
My first year as Chair has seen enormous progress in
CHAIR
the Group’s ESG journey, with the implementation of the
Driving What Matters plan, a Group-wide project with
the assistance of the Carbon Trust to establish the climate-
related risks and opportunities which could have an impact
on the Accelerate strategy, and the setting of ambitious
scope 1 and scope 2 emissions reduction targets.
Excellent progress has been made during 2021, and I would
like to thank colleagues for their dedication and hard work
in moving the ESG agenda forward. As we look to the
future, the Committee will monitor the scope 3 project,
as we begin to understand the overall emissions landscape
both downstream and upstream.
During 2021, we held the first employee forum on culture.
## MEMBERSHIP
The level of openness and engagement from the
Number of attendees and the continued passion and motivation
meetings held/
demonstrated is a testament to the healthy corporate
attendance
culture within the organisation. We plan to have more
Alex Jensen (Chair) 4/4
employee forums during 2022, to enable the Board to hear
Nayantara Bali* 2/2 the views of the Group’s employees on a range of topics
Jerry Buhlmann 4/4 which are important to them.
Nigel Stein 4/4
Following the Board evaluation in 2020, the Committee
Duncan Tait 4/4
spent time during the year discussing its remit beyond the
Till Vestring 4/4 current terms of reference, the interplay with the Board and
its other Committees, and how it can enhance the Board’s
* Nayantara Bali joined in May 2021.
deliberations on ESG matters. As ESG matters become of
The Committee’s terms of reference can be found at increasing importance we will work with the Remuneration
www.inchcape.com/governance. and Audit Committees to ensure appropriate oversight
and will report to the Board on all aspects to aid the
Board’s decision making process.
ALEX JENSEN
CHAIR OF THE CSR COMMITTEE
10
30
Corporate governance
CSR strategy
30
Health & Safety DRIVING WHAT MATTERS PLAN
The Plan was developed alongside the Accelerate strategy
and underpins the Group’s purpose. The focus of each
30 strategic pillar will create a stronger Company, supporting
sustainable growth and performance in the future.
Under People, the aim is to have a safe operating
environment and an inclusive and diverse culture, with
the right talent and skills for future success.
Places focuses on the communities in which Inchcape
operates to support road safety and enable more inclusive
mobility. It also supports social mobility, initially focusing
### ALLOCATION OF TIME SPENT (%) on career development opportunities for the less privileged
in our communities.
82 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
Workforce engagement
The Planet workstream is looking at the Group’s impact split between regions. The Committee, and the Board,
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
on the environment, and the impact of climate change however believe this is the most effective mechanism for
on the Group’s business model and future viability. engaging with the workforce given the structure and
spread of the Group’s operations.
Practices focuses on the ethical culture within the business
and how this is understood by employees. Obtaining the views of employees is a vital source of insight
and information and it is proposed that forums will be held
The Driving What Matters plan impacts many areas and the
on a regular basis covering a wide range of issues.
Committee works closely with the other Board committees
where there is a crossover of responsibilities. In addition to the culture forum detailed below, Jane
Kingston also held a reward forum with a group of UK-
During the year the Committee:
based employees to get their views on Executive
• Reviewed the framework and activation plan for remuneration and the UK reward structure as a whole.
embedding responsible business into the Group; Further details can be found on page 85.
• Considered the insights and ideas from the Group’s
employees on each of the four pillars; CULTURE FORUM
• Reviewed the materiality matrix and stakeholder In January 2022, I hosted an employee forum on culture,
engagement process; and with the support from the Group Talent and Organisational
• Agreed the priorities and governance structure for the Design Director.
Driving What Matters plan.
The Group has undergone a significant amount of change
in recent years, with the appointment of a new CEO and
The Committee updated its terms of reference to ensure
CFO since 2019, the implementation of the Accelerate
that it has appropriate oversight of the Plan. The terms
strategy, the fast paced digital advances, including a
define the scope and remit of the Committee and are
finance change programme, and the acquisition of various
available on the website www.inchcape.com.
new businesses. All of these can impact a company’s
culture both positively and negatively so it was felt that
CLIMATE CHANGE
an employee forum on culture would give the Board an
Climate change has also been a significant topic for the
indication of the current culture and whether that was
Committee during the year. Members of the Planet
aligned to Company’s purpose. This also coincided with
workstream completed a project with the Carbon Trust on
the development of the new values framework and
the Taskforce on climate related financial disclosures (TCFD).
attendees were asked for their input into the ‘One
Following on from the Board’s review of climate change Inchcape’ values and behaviours. Please see page 74
risks and opportunities, the Committee carried out a review for further details.
of stakeholder benchmarking and gap analysis to
The Board, the Group Executive Team and senior
understand the Group’s current position and to identify
management pride themselves on creating a culture
priority recommendations to improve disclosure, and to
of openness and this was evident during the forum. The
agree a pathway of future steps alongside current actions
attendees were comfortable in expressing their views, both
to meet the requirements of the UK’s listing rules.
positive and negative, in a constructive manner. The forum
During the year the Committee: consisted of interactive questions followed by open
discussion where we discussed a myriad of topics including:
• Determined whether the Responsible Business framework
supported, and helped progress, the Accelerate • What words come to mind when you think of Inchcape’s
strategy; culture;
• Increased its awareness and knowledge of the TCFD • How leadership performed during the pandemic;
recommendations and climate change issues; • How wellbeing is considered by senior management;
• Agreed expectations for the TCFD programme and what • Language barriers which arise in a global organisation;
inputs would add value; • What career development actually means and how
• Increase knowledge of science-based targets and it can be achieved; and
understanding of the importance of setting targets for • What is the ‘way we do things’ at Inchcape.
the Group;
I update the Board on the forum and any outcomes,
• Approved science-based targets for scope 1 and 2, and
to allow additional perspective and insights which are
approved plan for reviewing scope 3 targets in 2022; and
not always clear from the results of employee engagement
• Agreed goal of putting climate aligned strategy that
surveys.
mitigates risks, capitalises on opportunities and
ambitiously reduces the Group’s own impacts.
HEALTH & SAFETY
The HSE risk management programmes are in place
WORKFORCE ENGAGEMENT across all regions with solid improvement across all key
performance indicators. A cultural shift is emerging as
As the designated Non-Executive Director for workforce
safety in its broadest meaning becomes more prominent
engagement (DNED), I attended several employee
with regular meetings and discussions driving awareness,
townhalls which were held virtually. The townhalls gave me
engagement and ownership. The HSE reporting tool now
an opportunity to see how employee engagement worked
gives the Committee and the Board oversight of
in practice and it was positive to see such a supportive,
compliance, with regular updates given to the Board
and transparent forum led by the Group Chief Executive,
throughout the year.
Duncan Tait. Employees are encouraged to ask any
questions on any topics and the responses were detailed
and informative.
The role of DNED is relatively new and as such is evolving.
We have not been able to have face-to-face meetings so
any engagement has been virtual. This has the benefit of
being able to reach a wider range of employees but time
zone differences have meant that engagement has been
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 83
CORPORATE GOVERNANCE REPORT CONTINUED
### DEAR SHAREHOLDER
## DIRECTORS’
### On behalf of the Board, I am pleased
### to present the Directors’ Report on
## REPORT ON
### Remuneration (DRR) for the year ended
### 31December 2021.
## REMUNERATION
2021 presented just as many challenges as we experienced
in 2020, with many of our markets impacted by pandemic
JANE KINGSTON related restrictions, especially in the first half of the year.
However, drawing on all we learnt in 2020, the business has
CHAIR
performed remarkably well as we have learned to operate
effectively in the continuing uncertainty of the Covid-19
world and throughout 2021 the Company did not furlough
any employees.
Where we have seen restrictions, we have found ways to
continue to operate to meet customers’ needs, receiving
orders remotely and delivering directly to the customer’s
home. This was further enabled by the significant progress
made on our digital capabilities allowing us to trade in
a near normal way for both new and used vehicles
and providing a seamless, more convenient customer
experience.
In addition, we have found Covid-19 safe ways to operate
### MEMBERSHIP our aftersales businesses despite the restrictions across
Number of some of our markets. All the above, together with the
meetings held/ Ad hoc meetings diversity of OEMs and revenue streams, and the launch of
attendance held/attendance
the Accelerate strategy which added renewed spirit within
Jane Kingston (Chair) 3/3 1/1 the organisation, has led to very strong results for the year
Jerry Buhlmann 3/3 1/1 ended 31 December 2021.
Nigel Stein 3/3 1/1 Once again, our employees have shown dedication and
Till Vestring 3/3 1/1 resilience throughout the year, for which we thank everyone.
Other regular attendees at meetings at the invitation of BUSINESS PERFORMANCE AND REMUNERATION
the Committee include the Group Chief Executive Officer, OUTCOMES FOR 2021
Chief Financial Officer, Chief HR Officer, Group Reward Targets for the 2021 bonus and long-term incentive plans
and Pensions Director, and the external independent were set by the Committee in the context of Covid-19’s
remuneration advisor Ellason LLP. continuing and uncertain impact on business
performance, taking into account the reasonably
foreseeable impact of disruption during the year.
As noted above, in all markets we found ways to trade
successfully though the Covid-19 restrictions, with higher
new and used vehicle prices supporting revenue and
20
stronger margins resulting in a high level of profitability
and gross margins have exceeded historical averages
40
(most notably in used cars).
Incentives
40
### ALLOCATION OF TIME SPENT (%)
Corporate governance
Executive remuneration
84 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
The Group delivered revenue of €7.6bn, profit before tax of €29bn, EPS of 56.2p (brain adjusted), and ROCE of 30% which have resulted in the following outcomes:

# 2021 BONUS

The 2021 bonus was based on a matrix of PBT and revenue, with results exceeding the stretch targets resulting in a pay-out of the maximum level for the financial elements of the bonus. Strong progress was also made on the strategic objectives which account for 20% of the annual bonus opportunity. Duncan Tait received a bonus of 147% of salary and Gijsbert de Zoeten received a bonus of 150% of salary. Please see pages 96 and 97 for further details.

# 2019 PSP/CIP

The 2019 awards vested based on EPS and ROCE performance over the three years ending 31 December 2021. Under the EPS component (60% of the award), the threshold growth of 4% p.a. was not achieved. The ROCE component (60% of the award), however, will vest in full as the three-year ROCE average, of 21.5%, is above the maximum target of 20.5%. Therefore, the 2019 LTP will vest at 40% of maximum.

Neither Duncan Tait nor Gijsbert de Zoeten were granted awards under the 2019 PSP or CIP.

The Committee is satisfied that the total remuneration received by the Executive Directors in 2021 appropriately reflects the Company's performance over the year and, as such, no discretion was exercised by the Committee to adjust the bonus or long-term incentive outcomes.

# WIDER WORKFORCE REMUNERATION

The Committee receives a broad review of wider workforce remuneration trends and plans at the start of each year and considers this to be important and relevant context for the pay decisions it makes regarding the Executive Directors and senior managers. The review includes analysis of the workforce norms for the major markets in which we operate, together with an overview of the annual review process and notice of any material changes to benefits and incentive arrangements.

# ENGAGEMENT WITH THE WORKFORCE

In October 2021, I chaired an employee forum which focused on executive and employee reward at Inchcape. The forum consisted of a range of Group and UK colleagues from a range of Group and UK employees to get a broad range of perspectives. The reward forum was limited to UK personnel as these teams are part of the same pay structure and tax regime as the Executive Directors, although the forum will be expanded to international teams in the future.

The forum gave me an opportunity to converse with employees, get a clear understanding of their views on remuneration and also to give them an understanding of the role and responsibilities of the Board and the Remuneration Committee; this exercise has been especially relevant as we prepare for our three-year remuneration policy review in 2022.

Topics discussed included:

- The Board and its role at Inchcape - Executive and Non-Executive Directors;
- Executive and senior manager reward arrangements and corporate governance framework;
- Structures of reward at Inchcape - why there are differences of different levels; and
- Wider workforce remuneration policies including pay scales and long-term incentives.

We gained valuable insights from employees whose feedback included the importance of further work on gender pay gap issues, the value of employee vehicle purchase plans and the availability for EVs, and an interest in a personalised reward statement for employees.

# ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)

# METRICS REFLECTED IN REMUNERATION PLANS

The Driving What Matters plan, the Group's responsible business framework, focuses on four pillars: People, Places, Planet and Practices. The plan has been developed alongside the Accelerate strategy and underpins the Company's purpose of bringing mobility to the world's communities - for today, for tomorrow and for the better. Further information can be found on pages 33 to 38.

Please see page 97 for details of the strategic objective for Duncan Tait relating to the responsible business framework.

The science-based reduction targets for scope 1 and 2 GHG emissions have been adapted by the Group and we will begin assessing scope 3 emissions during 2022. The Remuneration Committee is following progress on this and executive accountability will be reflected in the personal goal element of the 2022 bonus plan. At this stage, the Committee believes it is premature to embed such goals in the PSP awards but will consider this further as part of the policy review ahead of the 2023 AGM.

# APPLICATION OF THE REMUNERATION POLICY FOR 2022

# 2022 SALARY

The Committee approved a salary increase of 3.5% for the Executive Directors, which is in line with the UK average salary increase. The salary increases will take effect from 1 April 2022.

# 2022 BONUS

The bonus matrix of revenue and profit before tax will continue to apply for the 2022 performance year. The maximum annual bonus opportunity remains unchanged at 150% of salary. 80% is based on financial measures and 20% on personal objectives.

# 2022 PSP/CIP

The 2022 PSP and CIP performance measures will continue to be based on EPS, ROCE and cash conversion. Awards will be granted at 180% of salary under the PSP and a matching award of up to 100% of salary under the CIP. Please see page 99 for further details.

# LOOKING FORWARD

The current remuneration policy was approved by shareholders of the AGM in May 2020 and as required under the regulations a new remuneration policy will be submitted to shareholders for approval at the AGM in May 2021.

During 2022, the Committee will undertake a review of the policy to ensure that it continues to support the business, the new Accelerate strategy, and meets the expectations of shareholders and other stakeholders. As part of this review, the Committee will engage with colleagues representing the Group, and will consult with major shareholders in advance of any changes to the policy being proposed.

# JANE KINGSTON

CHAIR OF THE REMUNERATION COMMITTEE

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

85
CORPORATE GOVERNANCE REPORT CONTINUED

# REMUNERATION
AT A GLANCE

SUMMARY OF
GROUP FINANCIAL
PERFORMANCE IN 2021

£7.6bn

Revenue

£296m

PBT

30%

ROCE

56.2p

EPS

MEASURES USED
FOR ANNUAL
BONUS (%)

![img-4.jpeg](img-4.jpeg)

Profit before tax
Revenue
Objectives

MEASURES USED
FOR LONG-TERM
INCENTIVE PLANS (%)

![img-5.jpeg](img-5.jpeg)

EPS
ROCE

REVENUE*

![img-6.jpeg](img-6.jpeg)

PROFIT BEFORE TAX*

![img-7.jpeg](img-7.jpeg)

* Targets and performances shown at constant currency rates during year.

## SHARE OWNERSHIP POLICIES

The Executive Directors are required
to hold a fixed number of shares
equivalent to 200% of base salary.
They have five years from the date
of appointment to reach this
shareholding.

Duncan Tait and Glabert de Zoeten
held 99% and 159% of salary
respectively as at 31 December
2021, using the share price as at
31 December 2021 of 909.5p.

![img-8.jpeg](img-8.jpeg)

+ DETAILS OF CURRENT HOLDINGS can be found on page 99

86

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
### REMUNERATION COMMITTEE SNAPSHOT

| Jane Kingston has chaired the | During the year, the Committee | The Committee will continue to |
| --- | --- | --- |
| Committee since July 2019. | approved salary increases for the | review ESG measures to include in |
|  | Executive Directors and Group | long-term structures to ensure such |
| All members of the Remuneration | Executive Team members, and | measures are appropriate for the |
| Committee are independent | approved updated share plan | business, are transparent and are |
| Non-Executive Directors. The | rules for the CIP and PSP. | measured robustly. |

Committee reviewed its composition

| during the year with no changes | The Remuneration Committee | The Remuneration Committee’s |
| --- | --- | --- |
| being made to its membership | Chair hosted a colleague forum to | terms of reference can be found |
| in 2021. | engage with the wider workforce | online at: www.inchcape.com. |
|  | on executive and senior manager | Following a review of the terms |
| The Remuneration Committee | reward arrangements. More sessions | of reference during the year, |
| reviewed the 2020 LTIP awards, | will continue in 2022 which will widen | no changes were made. |
| determined no bonus was payable | its focus and include a boarder |  |
| for 2020, set 2021 bonus targets for | selection of employees. |  |

the Executive Directors and Group
Executive Team, and approved the
grant of long-term incentives in 2021.
### HOW THE POLICY WILL BE APPLIED IN 2022 PAY SCENARIOS AND
### OUT-TURN FOR 2021

| SALARY | PENSION CONTRIBUTION |  |
| --- | --- | --- |
| • From 1 April 2022, the CEO will | • Executive Directors will receive |  |
| receive a salary of £827,483 | a pension contribution of 10% | £5,440 |
| and the CFO will receive a salary | of salary which is in line with | 62% |

£4,321
of £536,682. the UK workforce average.
52%
• The average UK salary increase
was 3.5%. ANNUAL BONUS
£2,042
• 80% of the 2022 bonus will be 27% 28% 22% £2,054
SHARE PLANS

|  |  | based on a financial | £833 | 29% |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  | 100% | 43% | 20% |  | 16% |  |
|  | • The CEO and CFO will receive | performance matrix of revenue |  |  |  |  |  |  |
| CEO total remuneration (£’000s) |  |  | Minimum | On-target Maximum Maximum |  |  |  | 2021 |
|  | a PSP award of 180% of salary. | and profit before tax with the |  |  |  |  |  |  |
|  |  |  |  |  |  | with share |  | Actual |
|  | • The CEO and CFO will be invited | remaining 20% of the bonus |  |  |  | price growth |  | pay |

out-turn

| to participate in the 2022 SAYE | based on strategic objectives. |  |
| --- | --- | --- |
| scheme. |  | (£,000’s) |
| • The CEO and CFO received a | LTIP PERFORMANCE TARGETS |  |

£3,546
bonus of 147% and 150% of salary
61%
• The performance measures for
respectively, in line with policy, £2,820
PSP and CIP will continue to be
47% of salary for the CEO and 51%
based on EPS (40%), ROCE (40%)
50% of salary for the CFO will
and cash conversion (20%).
automatically be invested in the £1,342
• The ranges reflect current
co-investment plan and be 27% 28% 22% £1,364
performance expectations £590 29%
eligible for a 2:1 match (subject
over the next three years. 100% 44% 21% 17%
to performance).

| CFO total remuneration | Minimum | On-target Maximum Maximum |  | 2021 |
| --- | --- | --- | --- | --- |
|  |  |  | with share | Actual |
|  |  |  | price growth | pay |

out-turn
.
Fixed remuneration
Annual bonus
Long-term incentives
(PSP and CIP)
2021 actual pay outturn
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 87
CORPORATE GOVERNANCE REPORT CONTINUED
## PART 1 —
## DIRECTORS’
## REMUNERATION POLICY
### This section of the report sets out a summary of the policy that was approved by shareholders
### at the Annual General Meeting held on 21 May 2020. The full policy can be found in last year’s
### annual report or at www.inchcape.com
ALIGNMENT OF THE REMUNERATION POLICY
This section outlines how clarity, simplicity, risk, predictability, proportionality and alignment to culture were addressed
when reviewing the current remuneration policy and its implementation as required under provision 40 of the UK
Corporate Governance Code.
• The Committee believes that the disclosure of the remuneration arrangements is transparent with clear rationale
provided on implementation and changes to policy. The Committee remains committed to consulting with
shareholders and other key stakeholders on the policy and its application.
• The Committee believes the performance measures used in the long-term incentive plans, along with those in
the bonus, also aid simplicity due to the clear alignment to Inchcape’s strategy, and are familiar to all stakeholders.
• The Committee has ensured that remuneration arrangements do not encourage and reward excessive risk taking
by setting targets to be stretching yet realistic, with discretion to adjust formulaic bonus and PSP outcomes and
expanding the circumstances in which malus and clawback can be applied.
• The link to strategy of the performance measures used and the setting of targets balances predictability and
proportionality by ensuring outcomes do not reward poor performance in the short and long-term. The policy is
consistent with Inchcape’s culture as well as strategy, therefore driving behaviours which promote the long-term
success of Inchcape.
SUMMARY OF THE REMUNERATION POLICY FOR EXECUTIVE DIRECTORS
Element Objective and link to strategy Opportunity
Base salary To pay a competitive salary which attracts, retains Increases are not expected to exceed the average increase for
and motivates talent to make decisions which senior management, unless a change in scope or complexity
drive the Company’s strategy and create value of role applies.
for stakeholders.
Annual bonus To motivate and reward for the achievement 150% of salary maximum payable for achieving stretch
of the Company’s strategic annual objectives. performance against all measures.
75% of salary payable for target performance.
15% of salary payable for entry level performance.
Performance To provide a meaningful reward to senior executives Normal PSP opportunities will be 180% of salary.
Share Plan (PSP) linked to the long-term success of the business.
Award levels are subject to an individual limit of 300% of salary.
The use of performance shares enables the delivery
Threshold level performance will result in 25% vesting of the
of median pay for median performance and upper
PSP award.
quartile pay for upper quartile performance.
Co-Investment To encourage executive share ownership and Executive Directors may invest up to an overall maximum
Plan (CIP) reinforce long-term success. of 50% of salary. Maximum match of 2:1, threshold of 0.5:1.
Maximum matching award is therefore 100% of salary in
any year, and threshold matching award is 25% of salary.
Save As You Earn To encourage share ownership Participation limits are those set by the UK tax authorities from
(SAYE) time to time.
Pension To provide market competitive pension benefits Executive Directors are entitled to a cash supplement of up to
where it is cost-effective and tax-efficient to do so. 10% of salary.
Other benefits To provide market competitive benefits where It is not anticipated that the costs of benefits provided will
it is cost-effective and tax-efficient to do so. materially exceed 5% of salary for existing Executive Directors.
The Committee retains the discretion to approve a higher cost
in exceptional circumstances (e.g. relocation).
In-post To encourage share ownership and alignment Executive Directors are required to hold a fixed number of shares
shareholding of executive interest with those of shareholders. equivalent to 200% of base salary. They have five years from the
guidelines date of appointment to reach this shareholding.
Post-exit To reinforce long-term alignment of executive A departing Executive Director is required to maintain a
shareholding interests with those of shareholders post-termination. shareholding for two years post-termination, set at the lower of
guidelines the actual shareholding on exit and the in-post shareholding
guideline.
88 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
SUMMARY OF THE REMUNERATION POLICY FOR EXECUTIVE DIRECTORS CONTINUED
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
NOTES TO THE POLICY Targets are set taking into account a range of reference
Payments from existing awards points including the strategy and broker forecasts for the
Executive Directors are eligible to receive payment from Group. The Committee believes that the performance
any award made prior to the approval and implementation targets set are appropriately stretching, set to reward for
of the remuneration policy detailed in this report. Such outperformance of the market and that the maximum
awards include vested but unexercised options. will only be achievable for truly outstanding performance.
Please see pages 98 to 99 for further details on the
Selection of performance measures and target setting
target ranges.
The annual bonus measures have been selected to
incentivise sustainable growth in profits. The matrix structure The Committee retains discretion to adjust the annual
continues to provide a balanced focus between bonus outcome up or down to ensure that it is a fair
commercial and cash initiatives. A mix of strategic reflection of the Group’s underlying performance. The
measures will continue to be selected each year to Committee also has the ability to adjust the number of
reinforce the Group’s strategic objectives. shares vesting under the PSP and CIP to ensure it is a fair
reflection of underlying performance during the
The Committee believes that EPS (adjusted) and ROCE
performance period.
continue to be suitable measures of long-term performance
for the Group. EPS is consistent with the Group’s long-term The Committee also has the discretion to adjust the
strategy focusing on sustainable growth while ROCE performance conditions for long-term incentive plans in
supports the Group’s cash initiatives of controlling working exceptional circumstances, provided the new conditions
capital and capital expenditure. When ROCE is used in are no tougher or easier than the original conditions.
combination with EPS, it ensures there is a balance
Any discretion exercised by the Committee in the
between growth and returns. The cash conversion measure
adjustment of performance conditions will be fully
reflects the criticality of cash generation for Inchcape,
explained to shareholders in the relevant Annual Report on
which is required to support its continued evolution.
Remuneration. If the discretion is material and upwards, the
Performance targets are set to be stretching and Committee will consult with major shareholders in advance.
achievable, taking into account the Company’s strategic
Malus and clawback
priorities and the economic environment in which the
These provisions allow the Committee in certain
Company operates.
circumstances (such as gross misconduct or a material
The Committee has considered the use of other misstatement of the Group financial statements,
performance measures to reinforce the Company’s reputational damage or corporate failure) the discretion to:
long-term objectives, including relative TSR. However, given
• Reduce bonus, PSP and/or CIP;
the diversity of the Group’s operations, it would be difficult
• Cancel entitlement of bonus;
to set a relevant and robust comparator group for assessing
• Prevent vesting of the PSP and/or CIP; or
relative TSR performance and there would be some
• Allow the Company within two years of payment/vesting
difficulty in cascading appropriately down the organisation.
of award to claim back up to 100% of the award.
Participants are informed about the malus and clawback
conditions on their bonus at the start of each year and are
required to confirm acceptance of malus and clawback
provisions on their PSP and CIP awards upon grant.
Composition of remuneration arrangements
A significant proportion of Executive Directors’ pay is variable, long-term and remains ‘at risk’ (i.e. subject to malus and
clawback provisions). Charts are based on maximum payout scenarios for Executive Directors.
7921
Fixed: base salary, benefits and pension Variable: annual bonus, PSP and CIP
### SHORT-TERM VS. LONG-TERM (%)
6337
Short-term: fixed plus annual bonus paid as cash Long-term: PSP, CIP and annual bonus deferred into CIP
### FIXED VS. VARIABLE (%)
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 89
CORPORATE GOVERNANCE REPORT CONTINUED
Remuneration policy for other employees Senior managers also receive PSP awards while
Our approach to salary reviews is consistent across the participation in the CIP is limited to Executive Directors,
Group with consideration given to the level of responsibility, Group Executive Team members and the next level of
experience, individual performance, salary levels in executives (c. 20 individuals). Performance conditions are
comparable companies (using remuneration surveys, consistent for all participants while award sizes vary by
where appropriate) and the Company’s ability to pay. organisational level. In-post share ownership guidelines
apply to Executive Directors.
Senior employees participate in an annual bonus scheme
which has similar performance targets to those of the All UK employees are eligible to participate in the SAYE
Executive Directors. Below this level, local incentive scheme on the same terms.
schemes are in place for management and non-
Pension and benefits arrangements are tailored to local
management employees. Opportunities and performance
market conditions, and so various arrangements are in
conditions vary by country and organisational level, with
place for different populations within the Group. The Group
business unit-specific metrics incorporated where
has calculated the average equivalent pension
appropriate. Commission-based arrangements are also
contribution across UK employees to be 10% of salary.
operated for certain roles.
REMUNERATION POLICY FOR NON-EXECUTIVE DIRECTORS
Objective and link to
strategy Operation and performance metrics Opportunity
To provide fair Non-Executive Directors receive a fixed fee and do not Appropriate adjustments may be made
remuneration, reflecting participate in any incentive schemes or receive any other to fee levels, taking account of:
the time commitment benefits, except the Chairman who receives medical cover.
• increases awarded across the Group as
and responsibilities of a whole and conditions elsewhere in the
Fee levels are reviewed regularly, with any adjustments
the role. Group;
effective immediately after the review is approved.
• Fee levels within organisations of a similar
Additional fees are payable for acting as Senior Independent
size, complexity and type; and
Director and as Chair of any of the Board’s Committees
• Changes in complexity, responsibility or
(excluding the Nomination Committee).
time commitment required for the role.
The Chairman’s fee is determined by the Remuneration
Committee and the fees for other Non-Executive Directors are
determined by the Executive Directors.
Non-Executive Directors may elect to receive up to 20% of their
net fees p.a. as Company shares.
Fees paid to Non-Executive Directors are within the limits approved by shareholders. This limit, currently at an aggregate of
£1,200,000, was last approved by shareholders at the 2021 AGM.
NON-EXECUTIVE DIRECTORS’ TERM OF APPOINTMENT
The Non-Executive Directors are appointed for an initial three-year term which can be terminated by either party on one
month’s notice (six months for the Chairman).
Jerry Buhlmann 01 March 2017 One month
Nayantara Bali 27 May 2021 One month
Alex Jensen 29 January 2020 One month
Jane Kingston 25 July 2018 One month
John Langston 01 August 2013 One month
Nigel Stein 08 October 2015 Six months
Till Vestring 01 September 2011 One month
CONSIDERATION OF CONDITIONS ELSEWHERE IN The remuneration policy is published in the Annual Report
THEGROUP and Accounts and is available to all employees for their
review. The Remuneration Committee is available to
The Committee reviews and approves all remuneration
answer any questions employees may have about the
arrangements for the Group Executive Team and the
policy or to provide clarification on any remuneration
Group Company Secretary. The Committee also reviews
matters. Elements of the policy are cascaded down the
the pay budgets and benefit structures across the general
organisation such as bonus and long-term incentive plans.
population which are considered when determining
The policy also aligns the pension contribution for newly
remuneration for Executive Directors and the Group
appointed Executive Directors with the UK employee
Executive Team.
average which is currently 10% of salary.
The Company has a diverse, international spread of
businesses as well as a wide variety of roles, from petrol CONSIDERATION OF SHAREHOLDER VIEWS
pump attendants and valeters through to Chief Executives When determining remuneration, the Committee takes into
of our individual businesses. Pay levels and structures account the guidelines of representative investor bodies
therefore vary to reflect local market conditions. The Chair and proxy advisors and shareholder views.
of the Remuneration Committee facilitated an employee
The Committee is always open to feedback from
forum on executive remuneration during 2021, and will
shareholders on remuneration policy and arrangements.
continue to engage with employees in this manner at least
We are committed to undertaking shareholder consultation
annually.
90 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
in advance of any proposed changes to remuneration policy, as evidenced by our consultation in 2020 with shareholders
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
representing 70% of the Company’s issued share capital. The Committee will continue to monitor trends and developments
in corporate governance and market practice to ensure the structure of executive remuneration remains appropriate.
PERFORMANCE SCENARIOS
The charts below show the remuneration that Executive Directors could expect to obtain based on varying performance
scenarios. These illustrations are intended to provide further information to shareholders regarding the pay-for-performance
relationship. However, actual pay delivered will be influenced by actual changes in share price and the vesting periods of
awards.
Total remuneration (£’000s) Total remuneration (£’000s)
£5,628
62%
£4,470
52%
£3,674
61%
£2,922
51%
£2,113
27% 28% 22%
£1,391
29% 28% 22%
27%
£914
29%

| 100% 43% | 20% |  | 16% | £613 |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  | 100% 44% | 21% |  | 17% |
| Minimum On-target Maximum Maximum |  |  |  | Minimum On-target Maximum Maximum |  |  |  |
|  |  | with share |  |  |  | with share |  |

price growth
Fixed remuneration
Annual bonus
Notes on the performance scenarios:
Element Assumptions
Fixed • Total remuneration comprises base salary, benefits and pensions
remuneration • Base salary – effective from 1 April 2022
• Benefits– as provided in the single figure table on page 95
Duncan Tait – Group Chief Executive • Pension– 10% cash in lieu of pension Gijsbert de Zoeten – Chief Financial Officer
Minimum On-target Maximum Maximum with share price growth
Variable pay Annual bonus No payout Target payout (50% of Maximum payout
maximum)
CIP No vesting Assumes full voluntary
investment
Threshold match of 0.5:1 Maximum vesting Maximum vesting + 50% share
price growth
PSP No vesting Threshold vesting (25% of Maximum vesting Maximum vesting + 50% share
maximum) price growth
price growth
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 91
Long-term incentives (PSP and CIP)
CORPORATE GOVERNANCE REPORT CONTINUED
APPROACH TO RECRUITMENT REMUNERATION
External appointments
When appointing a new Executive Director, the Committee may make use of any of the existing components of
remuneration, as follows:
Maximum annual grant
Component Approach value
Base salary The base salaries of new appointees will be determined by n/a
reference to the scope of the role, experience of the individual,
pay levels at organisations of a similar size, complexity and type,
pay and conditions elsewhere in the Group, implications for total
remuneration, internal relativities and the candidate’s current base
salary.
Pension New appointees will be eligible to participate in the Group’s n/a
pension plan and receive a cash supplement on similar terms to
Executive Directors appointed after 2019.
Benefits New appointees will be eligible to receive normal benefits n/a
available to senior management, including (but not limited to)
company cars, medical care, life assurance and relocation
allowance.
Annual bonus The annual bonus described in the policy table will apply to new 150% of salary
appointees with the relevant maximum being pro-rated to reflect
the proportion of employment over the year.
PSP New appointees will be granted awards on the same terms as other 300% of salary The combined
Executive Directors as described in the policy table. maximum is not
intended to exceed
CIP New appointees will be granted awards on the same terms as other 100% of salary
400% of salary
Executive Directors as described in the policy table.
Other The Committee will consider on a case-by-case basis if all or some n/a
of the incentives forfeited on leaving a previous employer will be
‘bought-out’.
If the Committee decides to buy-out forfeited awards, the award
will be structured on a comparable basis, taking into account any
performance conditions attached, time to vesting and share price
at the time of buy-out.
The Committee retains the discretion to make use of the relevant
Listing Rule to facilitate such a buy-out.
NOTES TO RECRUITMENT REMUNERATION POLICY
In determining the appropriate remuneration for a new Executive Director, the Committee will take into consideration
all relevant factors to ensure that arrangements are in the best interests of the Group and its shareholders.
INTERNAL APPOINTMENTS
In cases of internal promotions to the Board, the Committee will determine remuneration in line with the policy for external
appointees as detailed above. Where an individual has contractual commitments made prior to their promotion to
Executive Director level, the Company will continue to honour these arrangements. Incentive opportunities for employees
below Board level are typically no higher than for Executive Directors.
NON-EXECUTIVE DIRECTORS
In recruiting a new Non-Executive Director, the Committee will use the policy as set out in the table on page 90. A base fee
in line with the prevailing fee schedule would be payable for Board membership, with additional fees payable for acting as
Senior Independent Director or as Chair of the Audit, Remuneration and CSR Committees as appropriate.
EXIT PAYMENT POLICY, SERVICE CONTRACTS AND CHANGE OF CONTROL
The Company’s policy is to limit severance payments on termination to pre-established contractual arrangements.
In addition, the Company retains discretion to settle any other amount reasonably due to the Executive Director, for
example, to meet legal fees incurred by the Executive Director in connection with the termination of employment, where
the Company wishes to enter into a settlement agreement and the individual must seek independent legal advice.
In the event that the employment of an Executive Director is terminated, any compensation payable will be determined
in accordance with the terms of the service contract between the Company and the employee as well as the rules of
any incentive plans. When considering exit payments, the Committee reviews all potential incentive outcomes to ensure
they are fair to both shareholders and participants.
92 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
The table below summarises how the awards under the annual bonus, PSP and CIP are typically treated in specific
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
circumstances, with the final treatment remaining subject to the rules of the relevant plans (subject to any Committee
discretion):
Payment/vesting date
Component Circumstance Treatment (ifrelevant)
Annual bonus Resignation. Bonus will lapse unless the date of leaving is after the year end Either the end of the
and the individual is not serving their notice period. The bonus performance period
will only be paid to the extent the targets set at the beginning of or at the Committee’s
the year have been achieved. discretion.
Death, ill-health, The bonus will only be paid to the extent the targets set at the Either the end of the
redundancy, beginning of the year have been achieved. performance period
retirement or any or at the Committee’s
other reason which discretion.
the Committee
may, in its absolute
discretion, permit.
Change of control. Any bonus payment will be pro-rated for time served during Either the end of the
the year. performance period
or at the Committee’s
discretion.
PSP and CIP Resignation. Unvested awards will lapse on date of leaving. Any vested At the normal release
awards can be exercised. date (save where
the Committee has
Death, ill-health, Any unvested awards will be pro-rated for time and
discretion to determine
redundancy, performance.
otherwise or the rules
retirement (CIP
provide otherwise).
only) or any other
reason which the
Committee may, in its
absolute discretion,
permit.
Change of control. Any unvested awards will be pro-rated for time and At the time of change
performance. of control.
SERVICE CONTRACTS
The Company’s policy is for Executive Directors’ service contract notice periods to be no longer than 12 months, except
in exceptional circumstances. All current contracts contain notice periods of 12 months.
Name Date of contract Notice period Unexpired term
Duncan Tait 1 June 2020 12 months To retirement
Gijsbert de Zoeten 27 August 2019 12 months To retirement
The Company may terminate an Executive Director’s contract by paying a sum equal to base salary and, in certain
circumstances, benefits including pension and life assurance, company car and entitlement to holiday pay for the
12-month period. Executive Directors’ service contracts are available to view at the Company’s registered office.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 93
CORPORATE GOVERNANCE REPORT CONTINUED

# PART 2 —

# ANNUAL REPORT ON REMUNERATION

The following section provides details of how the Company's remuneration policy was implemented during the financial year to 31 December 2021 and how it will be implemented in the financial year to 31 December 2022.

# THE PRINCIPAL DECISIONS MADE BY THE COMMITTEE:

# LONG-TERM INCENTIVE TARGETS

The impact of Covid-19 on the Group's performance continued into 2021, creating unprecedented levels of uncertainty and volatility of outcomes. The difficulty in forecasting how the measures would perform created a risk that predictions may lead to outcomes which do not fairly represent underlying business performance over the period. When considering whether the proposed targets were challenging enough, the Committee spent time discussing internal forecasts and investor expectations, the stakeholder experience, and stress-testing specific scenarios. The Committee made the decision to delay setting the targets for the PSP and CIP to May 2021, to ensure that the latest and most accurate information around external market dynamics was used.

The Committee approved the following performance measures for the PSP and CIP awards granted in 2021:

- The relative weighting on EPS, ROCE and FCFC remained unchanged at 40:40:20 respectively;
- EPS targets were set as a pence range of 0.3p to 56p;
- ROCE targets were increased from 16.5% to 20.5%, to 19% to 23%;
- The FCFC range remained at 56% to 70%; and
- Grant sizes remained as per the approved Remuneration Policy.

Please see page 98 for details of the performance target outcomes for the awards granted in 2019, and page 99 for the performance targets for the 2022 long-term incentive awards.

# 2021 BONUS

The Committee considered the possibility of intermittent lockdowns, the roll-out of the vaccine in each market, and the potential of new strains of the virus impacting the Group's ability to conduct business in 2021. As such, the potential Covid-19 impact was included in the AOP figures agreed by the Board which was reflected in the performance volatility in the threshold and maximum levels used for the 2021 Bonus Plan. The Committee agreed that the bonus matrix be amended for 2021 to broaden the ranges around Plan to +/- 7.5% on Revenue and +/- 15% on PBT, with the broader range reflecting the differing scenarios which could present over the financial year.

Please see page 96 for details of the performance achieved in 2021 and the resulting bonus outcomes.

# EXECUTIVE DIRECTOR'S REMUNERATION

# 2021 salary review

As disclosed in last year's Annual Report and Accounts, Duncan Tait received a salary increase of 2.5% and Gijsbert de Zoeten received a salary increase of 3.8% with effect from 1 April 2021. The increase for Gijsbert de Zoeten was above the average workforce increase as the Committee agreed that this was appropriate to reflect the significant additional responsibilities the CFO has in his role and also his performance and contribution to the business to date.

# 2022 salary review

The Committee approved a salary increase of 3.5% for each of the Executive Directors. This is in line with the average UK workforce increase.

# GROUP EXECUTIVE REMUNERATION

The Committee reviewed, and approved, the remuneration packages for members of the Group Executive Team taking into account pay for employees across the Group and in the relevant regional markets.

# WIDER WORKFORCE REMUNERATION

The Committee considered the reward landscape for the wider workforce including total bonus outcomes for all senior management, the achievement of regional financial targets, and the distribution of performance outcomes for personal objectives.

94

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED)
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
The table below sets out the total remuneration received by the Directors for the year ended 31 December 2021:

| Base salary/ |  |  | Taxable |  | Single-year |  | Multiple-year |  |  |  |  |  |  |  |  | Total |  | Total |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | fees | (a) | benefits | (b) | variable | (c) | variable |  | (d) | Pension | (e) | Other | (f) | Total | Fixed | (a+b+e+f) | variable |  | (c+d) |
|  | £’000 |  | £’000 |  | £’000 |  |  | £’000 |  | £’000 |  | £’000 |  | £’000 |  | £’000 |  | £’000 |  |

Name 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
Current Executive
Directors
Duncan Tait 795 416 4 3 1,176 0 0 0 79 46 0 3 2,054 468 878 468 1,176 0
Gijsbert de
Zoeten 514 461 21 194 778 0 0 0 51 49 0 3 1,364 707 586 707 778 0
Current
Non-Executive Directors
Nigel Stein 333 277 3 2 – – – – – – – – 336 279 336 279 – –
Nayantara Bali* 38 – – – – – – – – – – – 38 – 38 – – –
Jerry Buhlmann 83 70 – – – – – – – – – – 83 70 83 70 – –
Alex Jensen 75 48 – – – – – – – – – – 75 48 75 48 – –
Jane Kingston 78 67 – – – – – – – – – – 78 67 78 67 – –
John Langston 78 65 – – – – – – – – – – 78 65 78 65 – –
Till Vestring 63 63 – – – – – – – – – – 63 63 63 63 – –
Former Directors**
Stefan Bomhard – 343 – 10 – – – – – 114 – 4 – 471 – 471 – –
Rachel Empey 21 55 – – – – – – – – – – 21 55 21 55 – –
Total 2,078 1,865 28 209 1,954 0 0 0 130 209 0 10 4,190 2,293 2,236 2,293 1,954 0
* Nayantara Bali joined in May 2021.
** Stefan Bomhard left in June 2020 and Rachel Empey left in April 2021.
a. Base salary/fees for 2020 include the voluntary 20% pay cut taken by the Directors during the year.
b. Taxable benefits comprise car allowance, medical cover and mileage allowance. In 2020, Gijsbert de Zoeten received a relocation allowance of £173,904.
No relocation payments were received in 2021.
c. Payment for performance under the annual bonus, including amounts paid in shares.
d. Neither Duncan Tait nor Gijsbert de Zoeten received PSP or CIP awards in 2019, hence no value is given for multi-year variable.
e. Gijsbert de Zoeten and Duncan Tait received a pension supplement of 10% of salary.
f. The 2020 figure for both Duncan Tait and Gijsbert de Zoeten includes the value of the 2021 SAYE and is based on the embedded value at date of grant.
BASE SALARY
Salaries are reviewed annually and typically take effect from 1 April each year. The quantum of total executive
remuneration was reviewed against four comparator groups: retailers, distributors, companies of a similar market cap,
and companies with similar revenues, consistent with the benchmarking exercise conducted in prior years.
The salaries for 2020, 2021 and 2022 are set out below:
01-Apr-20
(or date of
appointment if
Name later) % increase 01-Apr-21 % increase 01-Apr-22 % increase
Duncan Tait £780,000 – £799,500 2.5% £827,483 3.5%
Gijsbert de Zoeten £499,550 3.0% £518,333 3.8% £536,682 3.5%
UK average workforce increase* – 3.18% – 3.28% – 3.5%
* As set out in last year’s report, Gijsbert de Zoeten was awarded a salary increase of 3.8% in April 2021, in recognition of the additional responsibilities undertaken
following the departure of the Group Strategy Director and reflecting his performance and contribution to the business since his appointment.
* The average increases for 2020 and 2021 were for Group employees only. The average increase for 2022 is the average increase for UK employees.
CHAIRMAN AND NON-EXECUTIVE DIRECTORS’ FEES
In 2021, the Chairman received a fee of £334,560 per annum, the Senior Independent Director received a fee of £83,025 per
annum, and the Non-Executive Directors’ received a fee of £63,550 per annum with an additional fee of £15,000 per annum
for the Chair of the Audit and Remuneration Committee and £12,000 per annum for the Chair of the CSR Committee.
With effect from 1 April 2022, the fees will be increased by 3.5%. The Chairman fee will be £346,270 per annum, the Senior
Independent Director’s fee will be £85,930 per annum, and the Non-Executive Directors’ fee will be £65,774 per annum.
The additional fees for chairing a committee will increase to £17,000 for the Chair of the Audit and Remuneration
Committee and £14,000 for the Chair of the CSR Committee.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 95
CORPORATE GOVERNANCE REPORT CONTINUED

# ANNUAL BONUS

The annual bonus is based on annual financial measures and strategic objectives. The measures are selected to incentivise sustainable growth and the financial measures, based on a matrix of revenue and profit before tax, are designed to provide a balanced approach. The strategic objectives are selected each year to reinforce the Group's strategic priorities and include personal objectives linked to the delivery of the strategy.

The principles for setting the bonus framework are such that it:

- Drives the desired behaviours underpinned by our performance drivers;
- May be easily cascaded through the organisation to reinforce alignment of our collective goals; and
- Has clear measures and targets.

# 2021 BONUS

For 2021, 80% of the bonus was based on financial performance via a matrix of revenue and profit before tax with the remaining 20% of the bonus based on strategic objectives, therefore linking an individual's bonus outcome to their contribution to the Accelerate strategy. The maximum opportunity for the Executive Directors was 150% of salary, which is payable for achieving stretch performance against all measures.

Duncan Tait received a bonus of 147% of salary and Gijsbert de Zoeten received a bonus of 150% of salary.

# The structure of the 2021 bonus

Up to 80% of total bonus or 120% of salary is earned according to the following matrix of financial measures (%s are of salary):

Revenue

|  Stretch | 24% | 72% | 120%  |
| --- | --- | --- | --- |
|  Target | 16% | 60% | 96%  |
|  Threshold | 12% | 36% | 72%  |
|   | Threshold | Target | Stretch  |

Profit before tax

Up to 25% of the total bonus, or 30% of salary, is earned for the achievement of strategic objectives.

# ACTUAL PERFORMANCE AGAINST BONUS TARGETS

Achievement of financial targets (80% of total bonus or 120% of salary)

In 2021, revenue performance was $7.8bn and profit before tax was $308m. The table below provides further detail on the revenue and profit before tax targets.

Actual performance for determining bonus outcomes has been calculated using the same currency rates as used to set the bonus targets. This approach helps ensure that the bonus is linked to underlying financial performance.

|  Measure | Targets |   |   | Actual performance | Outcome for element of bonus % of salary  |
| --- | --- | --- | --- | --- | --- |
|   |  Threshold | Target | Stretch  |   |   |
|  Revenue | $6.3bn | $6.8bn | $7.3bn | $7.8bn | 120%  |
|  Profit before tax | $270m | $200m | $230m | $308m  |   |

# Adjustments made during the year

The revenue and profit before tax targets for 2021 were adjusted to take into account strategic acquisitions and disposals during the year; to ensure target and performance outcomes were assessed on a like-for-like basis.

96

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
Achievement of strategic targets (20% of total bonus, or 30% of salary)
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
We provide as much detail below as commercially appropriate on the objectives linked to the strategic element of the 2021
bonus and the resulting outcomes.
Outcome at % of
Executive Director Objective Weighting (%) Further details on objectives salary (%)
Duncan Tait Strategy 10% Develop and launch Inchcape’s new strategy 15%
• Ensure this strategy is bought into and supported by all stakeholders
including OEMs and employees.
• Put in place initiatives to build future revenue streams that support
the Company’s strategy to take share in the under-served vehicle
lifestyle.
Conclusion:
The strategy has been extremely well received and is being
executed across the Group. Inchcape is making strong progress in
distribution excellence and building out the VLS businesses.
Omni-channel 5% Ensure Inchcape is a leader in route to market 7.5%
solutions transformation
• Achieve this by accelerating our omni-channel solution both in
terms of the number of OEMs and functionality of the technology.
• Improve Inchcape’s ability to drive data-driven decision making via
data analytics.
Conclusion:
• DxP has been successfully deployed to a number of markets
positioning Inchcape as a recognised leader.
Responsible 5% Determine and scope the responsible business 4.5%
Business strategic priorities and ensure they adhere to regulatory
requirements
• Specifically oversee the setting of scope 1 & 2 targets for carbon
reduction.
• Ensure external reporting is relevant and compliant with TCFD
mandatory reporting requirements.
• Develop an informed view regarding scope 3 target for carbon
reduction.
• Engage all stakeholders in Inchcape’s Responsible Business
strategy. Ensure that investors are informed at the capital markets
day (CMD).
Conclusion:
• The Responsible Business plan is in place and each region has an
execution plan.
• The Planet workstream has set CO 2 reduction targets for scope 1
and 2 and these were communicated at the CMD.
Gijsbert de Finance 10% Lead the finance function to the next level with the 15%
Zoeten transformation delivery of key milestones of the finance transformation
project
• Complete partner selection and contract, establish change
management plan and transition to new model.
Conclusion:
The finance function is performing extremely well and the ambitious
Global Business Services (GBS) programme is delivering ahead of
expectations.
Overheads 10% Maintain strong cost controls as per plan 15%
Conclusion:
• The GBS programme is being successfully rolled out and is on track
to deliver savings and strong cost controls maintained across the
Group.
ANNUAL BONUS FOR 2022
The maximum annual bonus opportunity in 2022 will remain unchanged from previous years and will be 150% of salary.
For the Executive Directors, 80% of the bonus will be based on a financial performance matrix, linked to revenue and profit
before tax, and 20% of the bonus will be based on specific, measurable objectives that relate to the Group’s strategy.
For target performance, the payout will be 50% of the maximum bonus opportunity.
Given the close link between performance targets, the longer-term strategy, and the advantage this may give competitors,
the 2022 targets for the Executive Directors are not disclosed in this report because of their commercial sensitivity. The
Committee intends to publish the financial targets and provide more details of the strategic measures in next year’s
Directors’ Remuneration Report.
PSP AND CIP AWARDS VESTING IN RESPECT OF THE YEAR
In 2019, awards were granted under the PSP and CIP schemes which vested dependent on certain performance targets
measured over three years to 31 December 2021. These awards are also subject to an additional post-vest two-year
holding period.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 97
CORPORATE GOVERNANCE REPORT CONTINUED
2019 PSP/CIP performance targets
Three-year EPS growth p.a. (60% weighting) Vesting % Three-year average ROCE (40% weighting) Unexpired term
Less than 4% 0% Less than 16.5% 0%
4% 25% 16.5% 25%
12% 100% 20.5% 100%
Between 4% and 12% Straight line basis Between 16.5% and 20.5% Straight line basis
VESTING OF 2019 PSP/CIP AWARDS
Over the 2019-2021 performance period an EPS growth of -6.6% and three-year average ROCE of 21.5% were achieved,
which resulted in the following vesting outcomes:
Award Performance measure Wtg. Vesting outcome (% of element)
PSP EPS 60% 0%
ROCE 40% 100%
Total (overall vesting outcome
ofPSP) 40%
Award Performance measure Wtg. Vesting outcome (% of element)
CIP EPS 60% 0%
ROCE 40% 100%
Total (overall vesting outcome
ofCIP) 40% = 0.8:1 match
Neither Duncan Tait or Gijsbert de Zoeten received PSP or CIP awards in 2019 and the awards granted to the former CEO
and CFO lapsed when they left the company.
PSP and CIP awards granted during the year
During 2021, PSP awards were granted at 180% of salary and under the CIP, the Executive Directors invested 50% of salary
and were granted a matching award of 100% of salary respectively. The performance targets for the 2021 PSP/CIP grants
are as follows:
2021 PSP/CIP
Three-year cumulative EPS (40% weighting) Vesting % Three-year average ROCE (40% weighting) Unexpired term
Less than 133p 0% Less than 19% 0%
133p 25% 19% 25%
150p 100% 23% 100%
Between 133p and 150p Straight line basis Between 19% and 23% Straight line basis
Cash conversion (20% vesting) Vesting %
Less than 55% 0%
55% 25%
70% 100%
Between 55% and 70% Straight line basis
Threshold level performance will result in 25% of the 2021 PSP and CIP awards vesting.

|  | Share |  |  | Number of |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | price |  | shares/options |  | Face value |  |  |  |  |
| Date of grant |  | (p) 1 |  | awarded |  | at grant | 2 | Performance period Exercise period | 3 |

Duncan Tait
PSP 7 June 2021 790.00p 182,210 £1,439,459 Jan 2021 – Dec 2023 Jun 2024 – Jun 2025
CIP 7 June 2021 790.00p 101,228 £799,701 Jan 2021 – Dec 2023 Jun 2024 – Dec 2024
Gijsbert de Zoeten
PSP 7 June 2021 790.00p 118 ,176 £933,590 Jan 2021 – Dec 2023 Jun 2024 – Jun 2025
CIP 7 June 2021 790.00p 65,653 £518,659 Jan 2021 – Dec 2023 Jun 2024 – Dec 2024
1. Mid-market share price on date of grant.
2. Face value has been calculated using the share price at date of grant.
3. The awards are structured as a nil-cost option. Any shares vesting and exercised under the PSP and CIP (net of tax) are required to be held [until the fifth
anniversary of grant).
98 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
LONG-TERM INCENTIVES FOR 2022
The Committee reviewed the performance measures for PSP and CIP agreeing that targets will continue to be based
on EPS (40%), ROCE (40%) and cash conversion (20%). The ranges reflect current performance expectations over the
next three years.
Three-year cumulative EPS (40% weighting) Vesting % Three-year average ROCE (40% weighting) Unexpired term
Less than 184p 0% Less than 23% 0%
184p 25% 23% 25%
208p 100% 28% 100%
Between 184p and 208p Straight line basis Between 23% and 28% Straight line basis
Cash conversion (20% vesting) Vesting %
Less than 50% 0%
50% 25%
65% 100%
Between 50% and 65% Straight line basis
PENSION
Duncan Tait and Gijsbert de Zoeten receive a pension contribution of 10% of salary, which is aligned to the UK
employee average.
EXECUTIVE SHARE OWNERSHIP AND DIRECTORS’ INTERESTS (AUDITED)
The table below shows the total number of shares, options and awards held by each Director at 31 December 2021.
Share awards held Options held

| Shares held at |  |  | Subject to |  |  | Subject to |  |  | Vested |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 31December |  | performance |  | Subject to | performance |  | Subject to | but notyet |  |
|  | 2021 |  | conditions | deferral |  | targets | deferral | exercised Guideline met |  |

Duncan Tait 82,665 674,462 0 0 4,774 0 No
Gijsbert de Zoeten 86,063 470,365 0 0 4,774 0 No
Nigel Stein 66,834 n/a n/a n/a n/a n/a n/a
Jerry Buhlmann 15,233 n/a n/a n/a n/a n/a n/a
(1)
Nayantara Bali 0 n/a n/a n/a n/a n/a n/a
(2)
Rachel Empey 6,760 n/a n/a n/a n/a n/a n/a
Jane Kingston 3,500 n/a n/a n/a n/a n/a n/a
John Langston 9,326 n/a n/a n/a n/a n/a n/a
Till Vestring 47,796 n/a n/a n/a n/a n/a n/a
Alex Jensen 1,034 n/a n/a n/a n/a n/a n/a
1. Nayantara Bali joined the Board on 27 May 2021.
2. Rachel Empey left the Board on 30 April 2021.
There have been no changes to the number of shares held by the Directors between 31 December 2021 and 25 February 2022.
SHARE OWNERSHIP POLICIES
The Executive Directors are required to hold a fixed number of shares equivalent to 200% of base salary. They have five years
from the date of appointment to reach this shareholding. Duncan Tait and Gijsbert de Zoeten held 99% and 159% of salary
respectively as at 31 December 2021, using the share price as at 31 December 2021 of 909.50p.
A departing Executive Director is required to maintain a shareholding for two years post-termination, set at the lower of
the actual shareholding on exit and the in-post shareholding guideline. Enforcement of this is facilitated through a holding
requirement for Executive Directors applied to share-based incentives awards from 2020 onwards. The application of this
requirement will be at the Committee’s discretion (which will be applied only in exceptional circumstances).
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 99
CORPORATE GOVERNANCE REPORT CONTINUED

# PERCENTAGE CHANGE IN BOARD REMUNERATION

The table shows the percentage change in Board remuneration, compared with the average percentage change in remuneration for senior management. For the purposes of this disclosure, remuneration comprises salary, benefits (excluding pension) and annual bonus only.

|   | % change for 2020 |   |   | % change for 2021  |   |   |
| --- | --- | --- | --- | --- | --- | --- |
|   |  Salary | Benefits | Bonus | Salary | Benefits | Bonus  |
|  Executive Directors  |   |   |   |   |   |   |
|  Duncan Tait | n/a | n/a | n/a | 2.5% | 0% | 100%  |
|  Gilabert de Zoeten | 3% | 0% | -100% | 3.8% | -90% | 100%  |
|  Non-Executive Directors  |   |   |   |   |   |   |
|  Nigel Stein | 2% | 0% | n/a | 2.5% | 0% | n/a  |
|  Jerry Buhlmann | 0% | n/a | n/a | 2.5% | n/a | n/a  |
|  Nayantara Bali | n/a | n/a | n/a | 0% | n/a | n/a  |
|  Rachel Empey | 0% | n/a | n/a | 2.5% | n/a | n/a  |
|  Jane Kingston | 0% | n/a | n/a | 2.5% | n/a | n/a  |
|  John Langston | 0% | n/a | n/a | 2.5% | n/a | n/a  |
|  Till Vestring | 0% | n/a | n/a | 2.5% | n/a | n/a  |
|  Alex Jensen | 0% | n/a | n/a | 2.5% | n/a | n/a  |
|  Average pay based on senior management | 3.16% | 0% | -82.97% | 3.28% | 0% | 73.2%  |

1. Change in salaries and fees are shown as difference between position of April 2020 against April 2021 when scheduled annual review takes place.

2. Change in Gilbert de Zoeten's benefits was due to relocation support being available for 12 months in the prior year (2020). This has now ceased. Taxable benefits comprise of non-allowance, medical costs and mileage allowance.

3. No bonus awards were made in 2020 due to the financial gateway not being achieved. In line with performance outcomes for FY2020, bonus awards are being made at 73.2% of total salary for Bond 2 & 3 senior managers.

As Inchcape plc has no direct employees, employees representing the most senior executives have been selected as this group is large enough to provide a robust comparison, whilst also providing data that is readily available on a matched sample basis. These employees also participate in bonus schemes of a similar nature to Executive Directors and therefore remuneration will be similarly influenced by Company performance.

# CEO PAY RATIO

The CEO pay ratio is based on comparing the CEO's pay to that of Inchcape's UK-based employee population, a large proportion of whom are in customer-facing roles in retail outlets with remuneration which is commission-driven. The Committee anticipates that the ratios are likely to be volatile over time, largely driven by the CEO's incentive outcomes which are dependent on Group-wide results whereas employee pay variability will be primarily driven by UK market conditions.

The ratios have increased year-on-year due to the increase in the reportable remuneration for the CEO which includes a bonus pay out of 147% of salary reflecting strong business performance in 2021.

|  Financial year | Calculation methodology | P25 (Lower quartile) | P50 (median) | P75 (Upper quartile)  |
| --- | --- | --- | --- | --- |
|  2021 | C | 751 | 551 | 381  |
|  2020 | C | 451 | 281 | 91  |
|  2019 | C | 671 | 461 | 221  |

Consistent with 2019 and 2020, calculation methodology C was used.

Full-time equivalent remuneration was calculated for all UK employees using the single total figure valuation methodology, with (two amendments: using 2020 bonus outcome as a proxy for 2021 bonus outcomes and excluding SAYE grants. The employees at the 25th, 50th and 75th percentile (P25, P50, P75) were identified. The total remuneration for 2021 of the three employees identified was updated after the year-end to include any annual bonus and SAYE values (if applicable).

100

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
This method was chosen as it is in line as much as possible with methodology A which is the government's preferred approach whilst taking account of operational constraints. The Committee is satisfied that the selected employees are representative.

The table below sets out the remuneration details for the individuals identified.

|  Year | Salary | CBO | P25 | P50 | P75  |
| --- | --- | --- | --- | --- | --- |
|  2021 | Basic salary ($'000) | $799 | $22 | $26 | $21  |
|   |  Total remuneration ($'000) | $2,054 | $28 | $37 | $54  |
|  2020 | Basic salary ($'000) | $789 | $23 | $32 | $34  |
|   |  Total remuneration ($'000) | $939 | $24 | $33 | $49  |
|  2019 | Basic salary ($'000) | $757 | $15 | $28 | $28  |
|   |  Total remuneration ($'000) | $1,639 | $24 | $34 | $52  |

The Committee is satisfied that the overall picture presented by the 2021 pay ratios is consistent with the reward policies for Inchcape's UK employees. The Committee takes into account these ratios when making decisions around the Executive Director pay packages, and Inchcape takes seriously the need to ensure competitive pay packages across the organisation.

#### RELATIVE IMPORTANCE OF SPEND ON PAY

The chart shows the percentage change in total employee pay expenditure and shareholder distributions (i.e. dividends and share buybacks) from 2020 to 2021.

#### Relative importance of spend on pay ($M)

![img-9.jpeg](img-9.jpeg)

The Directors are proposing a final dividend for 2021 of 16.0p per share (2020: 6.9p).

#### DILUTION LIMITS

During the year, options and awards granted under the Group's incentive plans were satisfied on exercise by market purchase shares. Dilution limits are monitored throughout the year by the Committee and the Company complies with the limits set by the Investment Association.

STARFISIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 101
CORPORATE GOVERNANCE REPORT CONTINUED
Issued share capital as at 31 December 2021 384m
All schemes – 10% over 10-year rolling period 38m
Remaining headroom for all schemes 21m
Executive schemes – 5% over a 10-year rolling period 19m
Remaining headroom for executive schemes 6m
PAY FOR PERFORMANCE
The graph below shows the Total Shareholder Return (TSR) of the Company over the 10-year period to 31 December 2021.
The FTSE Mid 250 Excluding Investment Trust Index has been chosen as the most suitable comparator group as it is the
general market index in which the Company appears. The table below details the Group Chief Executive’s single figure
remuneration and actual variable pay outcomes over the same period.
Historical TSR performance
Growth in the value of a hypothetical £100 holding over the 10 years to 31 December 2021.
Value (£)
450
400
350
300
250
200
150
100
50
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Inchcape PLC FTSE Mid 250 Excluding Investment Trust Index
Group Chief
Executive 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
1

| CEO single figure | André Lacroix 2,165 4,400 5,265 294 | n/a n/a n/a n/a n/a n/a |  |  |
| --- | --- | --- | --- | --- |
| of remuneration |  |  | 2 |  |
|  | Stefan Bomhard n/a n/a n/a 2,906 1,403 3,006 2,430 1,522 471 |  |  | n/a |

(£’000)
Duncan Tait n/a n/a n/a n/a n/a n/a n/a n/a 468 2,054
Annual bonus
Value of £100 invested at 31 December 2011 outcome
6
(% of maximum) 68% 48% 100% 56.8% 40.3% 67.6% 38.5% n/a 0% 100%
3
LTI vesting
outcome
4 5 7 8
(% of maximum) 100% 66% 68% n/a n/a 79.6% 58% 40% n/a n/a
1. The amount for André Lacroix reflects remuneration received until he left the Group in March 2015.
2. The amount for Stefan Bomhard reflects remuneration received until he left the Group in June 2020.
3. LTI includes CIP, ‘normal’ PSP, ‘enhanced’ PSP and options prior to 2013.
4. Neither André Lacroix nor Stefan Bomhard received a vested award under the 2013 PSP or CIP. However, for those participants who did receive an award,
65.5% of the 2013 normal PSP vested and there was a 1.31 match for each share invested into the 2013 CIP.
5. Stefan Bomhard did not receive an award under the 2014 PSP or CIP. However, for those participants who did receive an award, 86.5% of the normal PSP vested
and there was a 1.73:1 match for each share invested into the CIP.
6. Stefan Bomhard did not receive a bonus in 2019.
7. Neither Stefan Bomhard nor Duncan Tait received a vested award under the 2018 PSP or CIP. However, for those participants who did receive an award, 28.5%
of the 2018 PSP vested and there was a 0.57:1 match for each share invested into the 2018 CIP.
8. Duncan Tait did not receive an award under the 2019 PSP or CIP. However for those participants who did receive an award, 40% of the PSP vested and there
was a 0.08:1 match for each share invested into the 2019 CIP.
102 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
2021
## SHAREHOLDER CONTEXT

The table below shows the advisory vote on the Remuneration Report at the 2021 AGM:

|   | Total number of votes | % of votes cast  |
| --- | --- | --- |
|  For (including discretionary) | 357,761,605 | 98.6%  |
|  Against | 5,054,989 | 1.39%  |
|  Total votes cast (excluding votes withheld) | 362,186,594 | 100%  |
|  Votes withheld | 12,806 |   |
|  (Total votes cast including votes withheld) | 362,829,400 |   |

The table below shows the binding vote on the remuneration policy at the 2020 AGM:

|   | Total of votes | % of votes cast  |
| --- | --- | --- |
|  For (including discretionary) | 323,620,872 | 94.50%  |
|  Against | 18,822,513 | 5.50%  |
|  Total votes cast (excluding votes withheld) | 342,443,385 | 100%  |
|  Votes withheld | 4,359,434 |   |
|  (Total votes cast including votes withheld) | 346,802,899 |   |

Withheld votes are not included in the final proxy figures as they are not recognised as a vote in law.

## EXIT PAYMENTS DURING THE YEAR

No exit payments were made to Directors during the year.

## PAYMENTS TO PAST DIRECTORS

No payments were made to past Directors in 2021.

## OTHER DIRECTORSHIPS

The Executive Directors are generally permitted to take one non-executive directorship as long as it does not lead to conflicts of interest or undue time commitment and is approved in advance by the Nomination Committee and the Board.

Gijsbert de Zoeten is a member of the supervisory board of Technical University Delft, for which he received a fee of €17,651 during 2021.

Duncan Tait currently serves as a non-executive director on the board of Agitsys Ltd for which he received a fee of $25,000 during 2021.

## ADVISORS TO THE COMMITTEE

Ellason LLP was appointed as the independent remuneration advisor to the Committee effective 1 January 2021 following a tender process and was paid a fee of $66,613 for its services during the year.

Ellason LLP is a signatory to the Remuneration Consultant Group's Code of Conduct which sets out guidelines to ensure that any advice is independent and free of undue influence (which can be found at www.remunerationconsultantsgroup.com).

None of the individual Directors have a personal connection with Ellason LLP.

The Committee is satisfied that the advice it receives is objective and independent and confirms that Ellason LLP does not have any connection with the Company that may impair their independence. The Committee's advisors attend Committee meetings as required and provide advice on remuneration for executives, analysis of the remuneration policy and regular market and best practice updates. The advisors report directly to the Committee Chair. Fees are charged at an hourly rate in accordance with the terms and conditions set out in the relevant engagement letter.

The Directors' Report on Remuneration was approved by the Board and has been signed by Jane Kingston on its behalf.

## JANE KINGSTON

CHAIR OF THE REMUNERATION COMMITTEE

SHAREHOLDER CONTEXT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

103
DIRECTORS' REPORT

# DIRECTORS' REPORT

The Directors' Report for the year ended 31 December 2021 comprises pages 104 to 108 of this report (together with sections incorporated by reference).

Information required in the Management Report under DTR 43.8B can be found in the following sections: a review of the business and future developments on pages 2 to 39; principal risks and uncertainties on pages 48 to 56; a description of the Group's internal control framework is given on pages 79 and 80; a description of the Board's activities and the structure of its Committees is given on pages 60 to 103.

# CORPORATE GOVERNANCE STATEMENT

The statement of compliance with the 2018 UK Corporate Governance Code is given on page 61. The Code is published on the Financial Reporting Council's website www.ftc.org.uk. Information required under DTR 7 is given in the Corporate Governance Report on pages 68 to 103.

# BOARD OF DIRECTORS

The Directors of the Company who were in office during the year and up to the date of signing the financial statements were:

Nayantara Boli - joined May 2021

Jerry Buhlmann

Gijibert de Zoeten

Rachel Empey - left April 2021

Alexandra Jensen

Jane Kingston

Sarah Kujilaars - joined January 2022

John Langston

Nigel Stein

Duncan Tait

Till Vestring

In accordance with the 2018 UK Corporate Governance Code, all Directors will stand for election or re-election at the Annual General Meeting (AGM) on 19 May 2022. The Chairman has reviewed the performance of each Director and is satisfied that each continues to be effective and demonstrates commitment to the role. The appointment and replacement of Directors is governed by the Company's Articles of Association (the Articles), the UK Corporate Governance Code, the Companies Act 2006 and related legislation.

Subject to the Articles, the UK Corporate Governance Code and relevant legislation, the business of the Company is managed by the Board which may exercise all the powers of the Company.

# SHAREHOLDERS

Engaging with our shareholders is important to the Company so that we are able to understand their views on the business and the key issues of importance to them. Any updates regarding the business, including presentations by the CEO, are available on the Group's website so that all shareholders have access to the same Company information at the same time.

As the top 20 shareholders own over 70% of the business, shareholder consultations, such as the remuneration policy, are carried out with this group. Extending the consultation to all shareholders would not be cost effective, and shareholders not involved in the consultation process are encouraged to use the AGM forum to express their views either by asking questions or voting on the relevant resolutions.

A dedicated email was put in place during the pandemic to allow shareholders to contact the Board members with any questions if they are unable to attend the AGM in person. This resource will remain in place to allow all shareholders to engage with the Company on any matters of interest to them.

# CONFLICTS OF INTEREST

The Articles of Association permit the Board to authorise any matter which would otherwise involve a Director breaching his duty under the Companies Act 2006 to avoid conflicts of interest. When authorising a conflict of interest, the Board must do so without the conflicted Director counting as part of the quorum. In the event that the Board considers it appropriate, the conflicted Director may be permitted to participate in the debate but will be permitted neither to vote nor count in the quorum when the decision is being agreed. The Directors are aware that it is their responsibility to inform the Board of any potential conflicts as soon as possible and procedures are in place to facilitate disclosure.

# DIRECTORS' INDEMNITY

A qualifying third-party indemnity (Q2P1), as permitted by the Company's Articles of Association and sections 232 and 234 of the Companies Act 2006, has been granted by the Company to each of the Directors of the Company. Under the provisions of the Q2P1 the Company undertakes to indemnify each Director against liability to third parties (excluding criminal and regulatory penalties) and to pay Directors' costs as incurred, provided that they are reimbursed to the Company if the Director is found guilty or, in an action brought by the Company, judgment is given against the Director. The indemnity has been in force for the financial year ended 31 December 2021 and until the date of approval of this report.

# RESULTS AND DIVIDENDS

The Group's audited consolidated financial statements for the year ended 31 December 2021 are shown on pages 120 to 255. The level of distributable reserves is sufficient to pay a dividend.

The Board recommends a final ordinary dividend of 16.0p per ordinary share. If approved at the 2022 AGM, the final ordinary dividend will be paid on 21 June 2022 to shareholders registered in the books of the Company at the close of business on 13 May 2022.

The Company may, by ordinary resolution, declare a dividend not exceeding the amount recommended by the Board. Subject to the Companies Act 2006, the Board may pay interim dividends when the financial position of the Company, in the opinion of the Board, justifies its payment.

164

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
SHARE CAPITAL DIRECTORS’ INTERESTS
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
As at 31 December 2021, the Company’s issued share The table showing the beneficial interests, including family
capital of £38,392,923.80 comprised 383,929,238 ordinary interests, in the ordinary shares of the Company of the
shares of 10.0p. Holders of ordinary shares are entitled to persons who were Directors at 31 December 2021 is shown
receive the Company’s Report and Accounts, to attend in the Directors’ Report on Remuneration on page 99. There
and speak at General Meetings and to appoint proxies and have been no changes to the number of shares held by
exercise voting rights. The shares do not carry any special Directors between 31 December 2021 and 25 February 2022.
rights with regard to control of the Company. The rights are
set out in the Articles of Association of the Company. CHANGE OF CONTROL
The Company is not party to any significant agreements
RESTRICTIONS ON TRANSFER OF SECURITIES that would take effect, alter or terminate upon a change
There are no restrictions or limitations on the holding of of control of the Company following a takeover bid apart
ordinary shares and no requirements for prior approval from certain of the Group’s third-party funding
of any transfers. There are no known arrangements under arrangements which would terminate upon a change
which financial rights are held by a person other than of control of the Company, such as the Group’s revolving
the holder of the shares. Shares acquired through the credit facility agreement. Further details are given in note
Company share schemes rank pari passu with the shares 23 to the financial statements on page 168.
in issue and have no special rights.
The Group’s relationships with its OEM brand partners are
managed at Group level, but the relevant contracts are
AUTHORITY TO PURCHASE SHARES
entered into at a local level with day-to-day management
At the Company’s AGM on 27 May 2021, the Company was
being led by each operating business. Certain of the
authorised to make market purchases of up to 39,860,597
contracts may terminate on a change of control of the
ordinary shares (representing approximately 10.0% of its
local contracting company.
issued share capital).
The Company does not have agreements with any Director
In the year ended 31 December 2021, the Company
or employee providing compensation for loss of office or
purchased for cancellation, 9,422,455 ordinary shares of
employment that occurs because of a takeover bid,
10.0p each at a cost of £80.5m, representing 2.45% of the
except for provisions in the rules of the Company’s share
issued share capital as at that date as part of the share
schemes which may result in options or awards granted
buyback programme announced in July 2021.
to employees to vest on a takeover.
The Directors have authority to issue and allot ordinary shares
pursuant to article 9 of the Articles of Association and TRANSACTIONS WITH DIRECTORS
shareholder authority is requested at each AGM. The Directors No transaction, arrangement or agreement, other than
have authority to make market purchases for ordinary shares remuneration, required to be disclosed in terms of the
and this authority is also renewed annually at the AGM. Companies Act 2006 and IAS 24, ‘Related Parties’ was
outstanding at 31 December 2021, or was entered into
INTERESTS IN VOTING RIGHTS during the year for any Director and/or connected person
During the year, the Company had been notified of the (2020: none).
following interests pursuant to the Financial Conduct
Authority’s Disclosure and Transparency Rules. The OTHER INFORMATION – LISTING RULES
information below was correct at the date of notification. For the purposes of LR 9.8.4 R, the information required to
It should be noted that these holdings are likely to have bedisclosed by LR 9.8.4 R can be found on the pages set
changed since notified to the Company. However, further out below:
notification of any change is not required until the next
Section Information Page
threshold is crossed.
1 Interest capitalised Not material to
Number Date Percentage
theGroup
Shareholder of shares notified notified
2 Publication of unaudited 102 (TSR graph)
The Capital Group
financialinformation
Companies Inc 19,200,206 16/02/2022 5.03%
4 Details of long-term incentive 99
abrdn plc 25,560,314 26/10/2021 6.60%
schemes

| Polaris Capital | 5 Waiver of emoluments |  | Not applicable |
| --- | --- | --- | --- |
| Management LLC 15,693,793 13/09/2021 4.02% |  | byadirector |  |
| Mr George Horesh 15,258,133 08/09/2021 3.90% | 6 Waiver of future emoluments by |  | Not applicable |

a director
Source TR-1 notifications. These are updated on the Company’s website.
7 Non pre-emptive issues of equity Not applicable
for cash
RESTRICTIONS ON VOTING RIGHTS
8 Non pre-emptive issue by a Not applicable
There are no restrictions on voting rights.
major subsidiary undertaking
9 Parent participation in a placing Not applicable
EMPLOYEE BENEFIT TRUST
by a listed subsidiary
The Executive Directors of the Company, together with
10 Contracts of significance Not applicable
other employees of the Group, are potential beneficiaries

| of the Inchcape Employee Trust (the “Trust”) and, as such, | 11 Provision of services by a |  | Not applicable |
| --- | --- | --- | --- |
| are deemed to be interested in any ordinary shares held |  | controlling shareholder |  |
| by the Trust. At 31 December 2021, the Trust’s shareholding | 12 Shareholder waiver ofdividends 105 |  |  |
| totalled 349,149 ordinary shares. | 13 Shareholder waiver of |  | 105 |

futuredividends
In respect of LR 9.8.4R(12) and (13), the trustee of the Trust
14 Agreements with controlling Not applicable
agrees to waive dividends payable on the shares it holds
shareholders
for satisfying awards under the various share plans.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 105
DIRECTORS’ REPORT CONTINUED
STREAMLINED ENERGY AND CARBON REPORTING REGULATIONS (SECR)
We collect data for all material emissions for which we deem ourselves to be responsible and look for ways in which to
minimise our footprint. Data is collected for two key performance indicators – Scope 1, our use of gas and fuel in vehicles
we own and Scope 2, our global energy usage.
Methodology
Our carbon footprint is calculated by gathering monthly and quarterly energy consumption data. The methodology used
to calculate the Group’s greenhouse gas emissions is based on the GHG Protocol Corporate Accounting and Reporting
Standard, and Mandatory Greenhouse Gas Reporting in line with HM Government guidance. The methodology uses
conversion factors as published by the Department for Business, Energy and Industrial Strategy in 2021 and international
electricity emission factors as published in the International Energy Agency’s ‘CO 2 Emissions from Fuel Combustion (2021
edition)’.
Data collection and reporting period
Data has been collected for all markets from 1 January 2021 to 31 December 2021. The level at which we report is by
business unit for each market. This covers our retail operations, distribution operations and business service operations,
which fall within our operational control boundary.
Intensity ratio
The Group’s intensity ratio is revenue per tonne of CO 2 e. This allows for a fair comparison over time of CO 2 e emissions given
the growth trajectory envisaged for the Group and cyclical variations in business activity. As required under the SECR
regulations the following information relates to the energy consumed in our operations. The list of UK entities is given on
page 204.
2020 2021
UK & Offshore Global* UK & Offshore Global*
Total Energy Consumption – Used for Emissions Calculation (kWh) 42,598,399 143,020,042 42,956,543 148,226,980

| Gas Combustion Emissions, Scope 1 (tCO |  | 2 e) 1,849 5,574 2,486 5,746 |  |  |  |
| --- | --- | --- | --- | --- | --- |
| Purchased Electricity Emissions, Scope 2 (tCO |  |  | 2 e) 11,457 41,092 6,100 37,078 |  |  |
| Vehicle Fuel Combustion Emissions, Scope 1 (tCO |  |  |  | 2 e) 0 6,453 0 2,850 |  |
| Vehicle Fuel Combustion Emissions, Scope 3 (tCO |  |  |  | 2 e) 10,403 10,866 9,151 9,561 |  |
| Purchased Heat, Steam and Cooling Emissions, Scope 2 (tCO |  |  |  |  | 2 e) 0 0 0 0 |
| Total Gross Reported Emissions (tCO | 2 e) 24,309 112,090 17,807 131,867 |  |  |  |  |

Revenue (£m) 1.98 6.84 1.89 7.64
Intensity Ratio: Revenue (tCO 2 e/£m) 12,284 16,393 9,400 17,260
Energy efficiency measures
As reported last year, no specific new energy efficiency measures were taken during 2020, to provide a comparison
however during 2021, the energy management programme continued, including monitoring and targeted reporting
of energy consumption on a daily basis at the majority of sites. Through the service provided by our energy consultants,
the energy management programme we run enables us to identify and address any consumption issues as and when
they arise, allowing us to eliminate unnecessary energy waste. Energy efficiency measures introduced in 2021 include:
• The installation of solar panels, totalling 493 kWH, at three sites by the end of 2021. This will save around 160 tonnes
in CO 2 per year. In 2022, we have funding to install solar panels to every freehold property owned in the UK.
• Feasibility study and lighting plan is in progress to identify opportunities for the roll-out of LED lighting to the whole
of the UK estate.
• Three new Jaguar Land Rover sites planned in 2022 will be the first in our UK estate to be ‘gas free’ with alternatives
to as heating to be employed such as air and ground source heat pumps.
• We are replacing older heating, ventilation, and air conditioning control units with newer programmable controls
to allow us to reduce the temperature swings and to set auto off times to avoid units running out of hours, including
PIR and LUX sensors on lighting so they only turn on as and when someone is present, and light is needed.
EMISSIONS REDUCTIONS TARGETS
During 2021, the Group set emissions reduction targets for scope 1 and scope 2. Further details are given in the Responsible
Business Report on page 38.
EMPLOYEES AND EMPLOYEE INVOLVEMENT
The Company is committed to a policy of treating all its colleagues and job applicants equally. We are committed to
the employment of people with disabilities and will interview those candidates who meet the minimum selection criteria.
We provide training and career development for our employees, tailored where appropriate to their specific needs,
to ensure they achieve their potential. If an individual becomes disabled while in our employment, we will do our best
to ensure continued development in their role, including consulting them about their requirements, making appropriate
adjustments and providing suitable alternative positions.
Successfully delivering the Accelerate strategy requires to evolve both what we do and how we do things. This includes
continuing to build the winning culture we need to help deliver on our ambitions, a culture that is built through effective
teamwork, fresh thinking, a focus on delivery, and putting our customers at the centre of everything we do.
106 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
In support of this, we have developed our new BUSINESS RELATIONSHIPS
STRATEGIC REPORT FINANCIAL STATEMENTSGOVERNANCE
performance framework, called the One Inchcape Having positive relationships with our OEM brand partners,
Values & Behaviours. This framework sets out the values our main suppliers, and our customers is imperative for
and behaviours we all need to live by at Inchcape. We the long-term success of the Company. Our OEM brand
have developed One Inchcape over the last couple of partner relationships are key to every part of our value
months based on research and testing with colleagues. chain and the length of these relationships, which are
given on page 3, is testament to this strength.
The Company has various employee policies in place
covering a wide range of issues, such as family friendly We provide access to automotive ownership and support
policies, employment rights and equal opportunities. services throughout the customer journey and aim to
Policies are implemented at a local level and comply deliver the best experiences for customers in our industry
with any relevant legislation in that market. All policies globally. The Board and management engage with
are available on the Group’s intranet and compliance customers through:
is monitored at local level.
• Receiving daily reporting of customer feedback on
The Group’s bonus and long-term incentive schemes are www.reputation.com;
designed to encourage involvement in the Company’s • Analysing sales force customer journey management
performance. UK employees are eligible to join the SAYE platform; and
scheme, which is offered annually. Further details can • Ongoing surveys at market level.
be found in the Directors’ Report on Remuneration on
Further detail on engagement with our customers can
pages 84 to 103.
be found on pages 16.
EMPLOYEE COMMUNICATION
CULTURE
Townhall meetings are held in each market on a regular
Please see page 74 for further information on how the
basis and also following the release of any financial
Board monitors culture.
updates by the Company. The townhall meetings provide
employees with information on the Group’s performance
PRINCIPAL FINANCIAL RISK FACTORS
and provide an opportunity for consulting employees on
These risks are shown on pages 48 to 56.
new initiatives or other matters that concern them. The
Group’s global intranet, iConnect, also provides a means
FINANCIAL INSTRUMENTS
of communicating important issues to employees.
The information required under Schedule 7 of the Large
The employee experience survey is the primary tool for and Medium-sized Companies and Groups (Accounts and
obtaining the views of employees and the results of the Reports) Regulations 2008 in respect of financial instruments
survey are reported to the CSR Committee on an annual is given in note 24 to the financial statements on pages 170
basis. The Chair of the CSR Committee is the designated to 178.
Director for communicating the views of employees to the
Board and she reports the findings to the Board following BRANCHES OUTSIDE THE UK
each meeting. The Company does not have any branches outside the UK.
The consultation enables the Board to gain an
EVENTS AFTER THE REPORTING PERIOD
understanding of how the employee experience is
On 15 February 2022, the Group’s contract with a broker
perceived and what actions can be taken to enhance
to purchase its own shares completed. A further 2,189,677
this experience so employees feel challenged, excited,
shares were repurchased, at a cost of £19.5m, and
engaged and supported in their roles.
subsequently cancelled during this period. An amount of
Further details can be found in the CSR Committee Report
£0.2m equivalent to the nominal value of the cancelled
on pages82 and 83.
shares, has been transferred to the capital redemption
reserve.
DIVERSITY
The breakdown of the number of female and male POLITICAL DONATIONS
employees who were (i) Directors of the Company, (ii)
The Company did not make any political donations in 2021
senior managers and (iii) employees of the Company
and does not intend to make any political donations in 2022.
as at 31 December 2021 is as follows:
DIRECTORS’ RESPONSIBILITIES
Male Female Total
The Directors are responsible for preparing the Annual

| Board 6 66.7% 3 33.3% 9 | Report and the financial statements in accordance with |
| --- | --- |
| Senior 60 82.2% 13 17.8% 73 | applicable law and regulation. |
| All employees 10,766 74% 3,786 26% 14,553* | Company law requires the Directors to prepare financial |

statements for each financial year. Under that law the
*one employee was non-defined Group financial statements have been properly prepared
in accordance with United Kingdom adopted international
The Nomination Committee is responsible for succession
accounting standards and International Financial
planning on the Board and as such considers the
Reporting Standards (IFRSs) as issued by the International
recommendations of the Hampton-Alexander review
Accounting Standards Board (IASB)’ and parent company
and Parker review as part of the recruitment process. The
financial statements in accordance with United Kingdom
Nomination Committee ensures that a broad mix of suitable
Generally Accepted Accounting Practice (United Kingdom
candidates is put forward for consideration for vacancies.
Accounting Standards, comprising FRS 101 “Reduced
As at 31 December 2021, the Company complies with Disclosure Framework”, and applicable law).
the recommendations of the Hampton-Alexander review
to have 33.3% female representation and the Parker review
to have one board member of ethnic minority. With the
appointment of Sarah Kuijlaars in January 2022, we now
have 40% female representation on the Board.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 107
DIRECTORS’ REPORT CONTINUED
Under company law the Directors must not approve the The Directors considered the key messages contained
financial statements unless they are satisfied that they give in the Strategic Report along with the disclosures made
a true and fair view of the state of affairs of the Group and throughout to ensure that they are consistent, transparent
parent company and of the profit or loss of the Group and and a true reflection of the business. The Directors also
parent company for that period. In preparing the financial reviewed supporting documentation which addresses
statements, the Directors are required to: specific statements made in the report and the evidence
to support those statements.
• Select suitable accounting policies and then apply them
consistently; Following this review, the Directors consider, when taken
• State whether applicable United Kingdom Accounting as a whole, that the Annual Report and Accounts is fair,
Standards have been followed, subject to any material balanced and understandable and provides the
departures disclosed and explained in the financial information necessary for shareholders to assess the
statements; and Company’s position and performance, business model
• Make judgements and accounting estimates that are and strategy.
reasonable and prudent; and prepare the financial
statements on the going concern basis unless it is GOING CONCERN
inappropriate to presume that the Group and parent Having assessed the principal risks and the other matters
company will continue in business. discussed in connection with the viability statement on
page 56, the Directors consider it appropriate to adopt
The Directors are responsible for keeping adequate
the going concern basis of accounting in the financial
accounting records that are sufficient to show and explain
statements for the next 12 months.
the Group and parent company’s transactions and
disclose with reasonable accuracy at any time the
AUDITOR AND DISCLOSURE OF INFORMATION TO THE
financial position of the Group and parent company and
AUDITOR
enable them to ensure that the financial statements and
The auditor, Deloitte LLP, has indicated its willingness to
the Directors’ Remuneration Report comply with the
continue in office. A resolution to reappoint Deloitte as
Companies Act 2006 and, as regards the Group financial
auditor will be proposed at the AGM.
statements, Article 4 of the IAS Regulation.
So far as the Directors are aware there is no relevant audit
The Directors are also responsible for safeguarding the
information of which the Company’s auditor is unaware.
assets of the Group and parent company and hence for
The Directors have taken all the steps that they ought to
taking reasonable steps for the prevention and detection
have taken as Directors in order to make themselves aware
of fraud and other irregularities.
of any relevant audit information and to establish that the
The Directors are responsible for the maintenance and Company’s auditor is aware of that information.
integrity of the parent company’s website. Legislation
in the United Kingdom governing the preparation and ANNUAL GENERAL MEETING
dissemination of financial statements may differ from The AGM will be held at 11.00 a.m. on Thursday, 19 May
legislation in other jurisdictions. 2022 at The Royal Automobile Club, 89 Pall Mall, London
SW1Y 5HS. The notice convening the meeting and the
The Directors consider that the Annual Report and
resolutions to be put to the meeting, together with the
Accounts, taken as a whole, is fair, balanced and
explanatory notes, are given in the Circular to all
understandable and provides the information necessary
shareholders.
for shareholders to assess the Group and parent company’s
performance, business model and strategy. The Directors’ Report was approved by the Board and
has been signed by the secretary of the Company.
Each of the Directors, whose names and functions are listed
in the Board of Directors, confirm that, to the best of their
knowledge:
TAMSIN WATERHOUSE
• The parent company financial statements, which have
GROUP COMPANY SECRETARY
been prepared in accordance with United Kingdom
Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, comprising FRS 101
“Reduced Disclosure Framework”, and applicable law),
give a true and fair view of the assets, liabilities, financial
position and loss of the Company;
• The Group financial statements, which have been
properly prepared in accordance with United Kingdom
adopted international accounting standards and
International Financial Reporting Standards (IFRSs) as
issued by the International Accounting Standards Board
(IASB), give a true and fair view of the assets, liabilities,
financial position and profit of the Group; and
• The Directors’ Report includes a fair review of the
development and performance of the business and the
position of the Group and parent company, together
with a description of the principal risks and uncertainties
that it faces.
108 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
## FINANCIAL
## STATEMENTS
110 Independent auditor’s report to the members of
Inchcape plc
120 Consolidated income statement
121 Consolidated statement of comprehensive income
122 Consolidated statement of financial position
123 Consolidated statement of changes in equity
124 Consolidated statement of cash flows
125 Accounting policies
136 Notes to the financial statements
186 Alternative performance measures
188 Five year record
189 Company statement of financial position
190 Company statement of changes in equity
191 Company accounting policies
194 Notes to the Company financial statements
OTHER INFORMATION
206 Shareholder information
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 109
## INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INCHCAPE PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
1. OPINION
In our opinion:
• the financial statements of Inchcape plc (the ‘parent company’) and its subsidiaries (the ‘Group’) give a true and fair
view of the state of the Group’s and of the parent company’s affairs as at 31 December 2021 and of the Group’s profit for
the year then ended;
• the Group financial statements have been properly prepared in accordance with United Kingdom adopted international
accounting standards and International Financial Reporting Standards (IFRSs) as issued by the International Accounting
Standards Board (IASB);
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including Financial Reporting Standard 101 “Reduced Disclosure Framework”; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent company statements of financial position;
• the consolidated and parent company statements of changes in equity;
• the consolidated statement of cash flows;
• the accounting policies; and
• the related notes 1 to 35 to the consolidated financial statements and the related notes 1 to 14 to the parent company
financial statements.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable
law, United Kingdom adopted international accounting standards and IFRSs as issued by the IASB. The financial reporting
framework that has been applied in the preparation of the parent company financial statements is applicable law and
United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally
Accepted Accounting Practice).
2. BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Ourresponsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the Group and the parent company in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard
as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. The non-audit services provided to the Group and parent company for the year are disclosed in note 3 to the
financial statements. We confirm that we have not provided any non-audit services prohibited by the FRC’s Ethical
Standard to the Group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
110 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
3. SUMMARY OF OUR AUDIT APPROACH
Key audit matters The key audit matters that we identified in the current year were:
• Central America goodwill and indefinite-life intangible asset impairment
• UK site impairment
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality The materiality that we used for the Group financial statements was £14.6m which equates
to5%ofstatutory profit before tax and exceptional items including net acquisition costs.
In making our judgement we considered the focus of the users of the financial statements as well
asarange of benchmark metrics such as profit before tax, revenue and net assets, before selecting
5% of profit before tax and exceptional items including net acquisition costs as the benchmark for
determining materiality (2020: 1% of net assets).
In 2020, we used net assets as the benchmark for determining materiality. This was due the volatility
inprofit when compared to previous years, resulting from the impact of the Covid-19 pandemic on
the Group’s operations and consumer demand in the markets in which the Group operates. We have
reverted back to the use of a profit-based benchmark in determining materiality in the current year,
due to the stabilisation of the Group’s profit metrics.
Scoping We conducted our work in 12 countries (2020: 18 countries), engaging 12 (2020: 18) component
auditteams.
The reporting units where we conducted our audit work accounted for 76% (2020: 90%) of the
Group’srevenue, 78% (2020: 90%) of the Group’s profit before taxation and exceptional items
and80%(2020: 90%) of the Group’s net assets.
Significant In the prior year we had identified a key audit matter relating to Goodwill impairment in the UK,
changes in whichis no longer a key audit matter because it was fully impaired in 2020.
ourapproach
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 111
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INCHCAPE PLC CONTINUED
4. CONCLUSIONS RELATING TO GOING CONCERN
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting
inthe preparation of the financial statements is appropriate.
Our evaluation of the directors’ assessment of the Group’s and parent company’s ability to continue to adopt the going
concern basis of accounting included:
• Understanding the Group’s processes and related controls over the assumptions in the going concern assessment;
• Assessing the Group’s available committed borrowing facilities;
• Evaluated the reasonableness of the projections and the appropriateness of the sensitivities performed by management;
• Assessing the impact of global supply chain constraints due to semi-conductor shortages, Covid-19 and political
uncertainties on the forecast cashflows;
• Engaging our modelling specialists to perform consistency checks and integrity checks over the going concern model,
including checking for mathematical and clerical accuracy;
• Evaluating the accuracy and completeness of the covenant calculation within the model;
• Testing the consistency of the forecast cash flows with the forecasts prepared for the impairment models;
• Performing additional sensitivity scenario analysis; and
• Assessing the disclosures relating to going concern in the financial statements.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the Group’s and parent company’s ability to continue as
agoing concern for a period of at least twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material
to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors
considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
5. KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
112 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
5.1. Central America goodwill and indefinite-life intangible asset impairment
Key audit matter Account balances: Intangible assets. Refer to the Audit Committee report on page 77, the
description Critical accounting judgements and sources of estimation uncertainty in the Accounting
policies section on page 134, note 2 Exceptional items on page 140 and note 11 Intangible
assets on page 153.
In addition to goodwill of £116.3 million (2020: £119.0 million) the Group has distribution agreements
of£239.0 million (2020: £246.6 million) which are classified as indefinite-life intangible assets.
£24.8 million (2020: £37.6 million) of the goodwill is allocated to Central America and £65.8 million
(2020: £52.2 million) of the value of the distribution agreements relates to the exclusive right to
distribute Suzuki vehicles in Costa Rica and Panama.
The goodwill and distribution agreement assets were recognised after the acquisition of the
GrupoRudelman business in 2018. Since acquisition, political instability, in Costa Rica in particular,
hasimpacted demand for vehicles in that market.
Management performed impairment reviews on the Suzuki CGU and then the Central America Group
of CGUs, which resulted in an impairment of £12.9 million against the goodwill (2020: £6.2 million) and a
£12.9 million reversal of impairment against the distribution agreement (2020: £31.2 million impairment).
There continues to be uncertainty over market level performance in the short term given the ongoing
supplier constraints, as a result of semi-conductor shortages and Covid-19 and there is continuing
uncertainty over the strength and timing of the recovery of the market.
As noted on page 56, management’s financial planning process incorporates an Annual Operating
Plan (“AOP”) for the next financial year (2022), together with financial forecasts/models for the
remaining years based on external market benchmarks. When determining recoverable amount
cashflows are discounted using a discount rate and long-term growth rate determined by
management’s expert.
Management’s forecast is reliant upon continued supply of vehicles into the market. As noted
withinnote 11, the cash flows used within the impairment models are based on assumptions which
aresources of estimation uncertainty and small movements in these assumptions could lead to
afurtherimpairment.
Although the penetration of electric vehicles in each market is currently low, in Costa Rica as part
ofits‘National Decarbonization Plan’ there are commitments to move to full electrification of its
transport network by 2050.
How the scope Our procedures in response to the key audit matter identified included:
ofour audit
• Obtaining an understanding of relevant controls, including Group oversight and management
responded to the
review controls, over the preparation and use of cash flow forecasts used in the impairment reviews;
key audit matter
• Assessing the integrity of the models used by management including reviewing their mechanical
accuracy;
• Assessing management’s historical forecasting accuracy by comparing budgets to actuals;
• Benchmarking management’s assumptions against views of internal industry experts, reputable
third-party industry growth forecasts, publications, news articles, government legislation and
economic data;
• Challenging management’s analysis through comparison to external market data and considering
contradictory evidence of the risks and opportunities arising from the transition to electric vehicles
and the impact this has on forecast future cash flows;
• Evaluating the competence, capabilities and objectivity of management’s expert who were
engaged to determine the discount rate and long-term growth rate used;
• Engaging with our internal fair value specialists to independently evaluate the appropriateness
ofinputs and methodology used in determining the discount rates used;
• Assessing the impact of global supply chain constraints due to semi-conductor shortages
andCovid-19 has on the forecast cashflows;
• Performing sensitivities in order to challenge the reasonableness of management’s assumptions;
and
• Assessing the appropriateness of management’s disclosures.
Key observations We concluded that the judgements management have made are reasonable.
There are uncertainties which remain, particularly the strength of the recovery in demand for vehicles
and aftersales services after the impact of the Covid-19 pandemic. Furthermore, the ongoing supply
shortage of semi-conductors, in what has historically been a volatile market, and the risks and
opportunities resulting from the transition to electric vehicles add to this uncertainty.
We are satisfied that the Group’s disclosures in the Critical accounting judgements and sources of
estimation uncertainty in the Accounting policies section and note 11 Intangible assets appropriately
highlight these uncertainties.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 113
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INCHCAPE PLC CONTINUED
5.2. UK site impairment
Key audit matter Account balances: Intangible assets, property, plant and equipment and right-of-use assets.
description Refer to the Audit Committee report on page 77, the Critical accounting judgements and
sources of estimation uncertainty in the Accounting policies section on page 134, note 2
Exceptional items on page 140, note 11 Intangible assets on page 153, note 12 Property, plant
and equipment on page 157 and note 13 Right-of-use assets and Lease liabilities on page 159.
The Group has goodwill of £116.3 million (2020: £119.0 million), property, plant and equipment of
£548.0million (2020: £569.8 million) and right-of-use assets of £261.4 million (2020: £257.3 million).
£nil (2020: £nil) of the goodwill, £209.5 million (2020: £203.6 million) of property, plant and equipment
and £59.9 million (£73.6 million) of right-of-use assets relate to the UK.
The UK automotive retail market continues to be subject to volatility, principally caused by the
semi-conductor shortage and continued COVID-19 disruption.
In line with IAS 36 “Impairment of assets” management performed an impairment indicator
assessment for the UK sites and where an indicator of impairment existed, an impairment review
wasperformed.
The estimation of the recoverable amount requires management to assess the ‘value in use’ of the
individual sites. This is particularly judgemental due to the forecasting of future cash flow assumptions,
and accordingly we determined these to be the key estimates in management’s determination of
thelevel of impairment charge to record. Given the impact of the continued automotive disruption,
forecasting demand for vehicles and aftersales services in the short and medium term is particularly
uncertain. Furthermore, with the announcement that the sale of new petrol and diesel vehicles will be
banned from 2030, the electrification of the UK’s car parc adds further complexity to forecasting cash
flows. Management also engaged specialists to assess the fair values of some of its sites which showed
indicators of impairment and may not be supported by value in use. In line with the accounting
standard, the impaired assets were written down to the higher of its value in use or fair value less
costto sell.
How the scope Our procedures in response to the key audit matter identified included:
ofour audit
• Obtaining an understanding of relevant controls, including Group oversight and management
responded to the
review controls, over the preparation and use of cash flow forecasts used in the impairment reviews;
key audit matter
• Assessing the completeness of management’s impairment indicators assessment;
• Assessing the integrity of the models used by management including reviewing their
mechanicalaccuracy;
• Assessing management’s historical forecasting accuracy by comparing budgets to actuals;
• Benchmarking management’s assumptions against views of internal industry experts, reputable
third-party industry growth forecasts, publications, news articles, government legislation and
economic data;
• Challenging management’s analysis through comparison to external market data and considering
contradictory evidence of the risks and opportunities arising from the transition to electric vehicles
and the impact this has on forecast future cash flows;
• Evaluating the competence, capabilities and objectivity of management’s expert for both discount
rate and property valuations;
• Engaging our internal real estate valuation specialists to assist in assessing valuation reports
prepared by management’s expert;
• Involving internal fair value specialists to independently evaluate the appropriateness of inputs
andmethodology used in determining the discount rates used;
• Assessing the impact of global supply chain constraints due to semi-conductor shortages
andCovid-19 has on the forecast cashflows;
• Performing sensitivities in order to challenge the reasonableness of management’s assumptions;
and
• Assessing the appropriateness of management’s disclosures.
Key observations We concluded that the judgements management has made are reasonable.
There are sources of estimation uncertainty which remain, particularly the strength of the recovery
indemand for vehicles and aftersales services after the impact of the Covid-19 pandemic, the risks
and opportunities resulting from the transition to electric vehicles and in the short term, supply
chaindisruption.
We are satisfied that the Group’s disclosures in the Critical accounting judgements and sources of
estimation uncertainty in the Accounting policies section, in note 11 Intangible Assets, note 12
Property, plant and equipment and note 13 Right-of-use-assets and lease liabilities appropriately
highlight these uncertainties.
114 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
6. OUR APPLICATION OF MATERIALITY
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the
economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality
bothinplanning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements Parent company financial statements
Materiality £14.6 million (2020: £10.7 million) £6.0 million (2020: £9.0 million)

| Basis for | Our materiality was determined on the basis | Parent company materiality equates to 1.0% |
| --- | --- | --- |
| determining | of5% of profit before tax and exceptional items | ofnetassets. |
| materiality | including net acquisition costs. In the prior year, |  |

In the prior year parent company materiality
materiality was determined on the basis of 1.0%
equated to 1.1% of net assets.
of net assets and equated to 8.3% of profit
before tax and exceptional items.

| Rationale for the | Profit before tax and exceptional items | As the Company is non-trading, operates primarily |
| --- | --- | --- |
| benchmark | including net acquisition costs is £292.6 million | as a holding company for the Group’s trading |
| applied | which shows a marked improvement from the | entities, and is not profit orientated, we consider |
|  | 2020 position as the impact of COVID-19 is | the net asset position to be the most appropriate |
|  | reduced (2020: £123.4 million and 2019: £323.8 | benchmark to use. |

million). Therefore, we consider it appropriate
torevert back to a profit-based benchmark
formateriality, as this is a key metric for users
ofthe financial statements.
Profit before tax and
exceptional items
including net
acqusition costs
£292.6m Group materiality
£14.6m
Component materiality range
£2.3m – £6.0m
Audit Committee
reporting threshold £0.7m
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate,
uncorrectedand undetected misstatements exceed the materiality for the financial statements as a whole.
Group financial statements Parent company financial statements
Performance 70% (2020: 70%) of Group materiality 70% (2020: 70%) of parent company materiality
materiality
Basis and We set our performance materiality after considering:
rationale for
• our cumulative experience from prior year audits, including the low value of misstatements
determining
identified in prior periods and management’s willingness to correct any misstatements identified;
performance
• our risk assessment, including our understanding of the entity and its environment and the impact
materiality
ofCovid-19 on the financial statements; and
• our assessment of the Group’s overall control environment.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £0.7 million
(2020: £0.5 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation
ofthe financial statements.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 115
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF INCHCAPE PLC CONTINUED

# 7. AN OVERVIEW OF THE SCOPE OF OUR AUDIT

# 7.1. Identification and scoping of components

In selecting the components which are in scope for audit procedures to be performed as part of the Group audit, we consider:

• the inherent risk in each of the markets that the Group operates;
• the Group's control environment;
• the significance of identified risks in each of the components;
• the financial significance of the component to the Group's revenue, profit/loss and net assets; and
• the nature of any acquisitions and disposals within the year.

We conducted our work in 12 (2020: 18) countries, engaging 12 (2020: 18) component audit teams. Changes in the number of components identified were driven by the disposal of certain of the Group's operations, as well as acquisitions and changes in the relative prominence and risk of other components within the Group.

Our significant components which were subject to full audit procedures, consistent with the prior year, were in Australia, Chile, Colombia, Ethiopia, Hong Kong, Russia, Singapore and the UK. Our components performed audits of specific account balances in Costa Rica, Poland, Romania and Peru.

As noted on page 72, during the year, the Board approved the establishment of a Global Business Services organisation ("GBS"). We considered the impact of this on our audit, noting that the transition was completed in some markets towards the end of the year, with management retaining a number of their finance team members in the affected components. We therefore retained our audit approach to use component teams in the relevant markets. Our component teams assessed the impact on the control environment and processes before and after the transition and performed additional audit procedures where these had changed significantly.

The range of component materialities applied, excluding the parent company, is $2.3 million to $6.0 million (2020: $19 million to $9 million). The reporting units where we conducted our audit work accounted for 76% (2020: 90%) of the Group's revenue, 78% (2020: 90%) of the Group's profit before taxation and 80% (2020: 90%) of the Group's net assets.

REVENUE

![img-10.jpeg](img-10.jpeg)

• Full audit scope
• Specified audit procedures
• Review of group level

PROFIT BEFORE TAX

![img-11.jpeg](img-11.jpeg)

• Full audit scope
• Specified audit procedures
• Review of group level

NET ASSETS

![img-12.jpeg](img-12.jpeg)

• Full audit scope
• Specified audit procedures
• Review of group level

# 7.2. Working with other auditors

We engaged component auditors from Deloitte member firms to perform procedures at these components under our direction and supervision. This approach also allows us to engage local auditors who have appropriate knowledge of local regulations to perform the audit work. We issued detailed instructions to the component auditors and held planning meetings, interim update meetings and year end close meetings with each component team. In the continued response to the Covid-19 pandemic which limits our ability to make component visits, frequent calls were held between the Group and component teams throughout the year and remote access to relevant documents was provided. A dedicated senior member of the Group audit team was assigned to facilitate an effective and consistent approach to component oversight, which focused on their audit work over key judgements.

In addition to the work performed at a component level the Group audit team also performed audit procedures on the parent company and consolidated financial statements, corporate activities such as treasury and pensions, goodwill and indefinite-life intangible asset impairments, litigation provisions, the consolidation, going concern assessment and financial statement disclosures. The Group audit team also performed analytical reviews on out-of-scope components.

# 7.3. Our consideration of the control environment

A part of our overall audit procedures, we have considered the control environment of the Group including the understanding of the key information technology (IT) controls in place designed to address the IT risks faced by the Group and how these relate to the entity's financial reporting processes.

Due to the nature of the IT structures of the Group we have not adopted a single centralised approach to auditing IT controls across the Group and across global locations. As such, whilst our IT audit work continues to be co-ordinated by our

116

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
UK Group team, we have utilised component teams to test locally operated IT controls in audit relevant business units round
the world, with the scope of IT work driven by local audit requirements and the maturity of the local control environment.
During the year, the transition to GBS across certain regions of the business commenced. We along with our component
teams considered the impact on the control environment and processes before and after the transition and performed
additional audit procedures where these had changed significantly.
Some components adopted a control reliance approach for certain business processes.
7.4. Our consideration of climate-related risks
As part of our audit procedures, we have considered the potential impact of climate change on the Group’s business
andits financial statements.
The Group continues to develop its assessment of the potential impacts of climate change which is currently premised
uponthree scenarios; a low carbon scenario, a current policies scenario and a high carbon scenario, as explained
intheStrategic Report on pages 40 to 44.
As a part of our audit, we have obtained management’s climate-related risk assessment and held discussions with the
management to understand the process of identifying climate-related risks, the determination of mitigating actions and
the impact on the Group’s financial statements. Management has considered that climate change is not expected to
have a significant impact on short-term forecasts, have applied these adjustments to the outer years in the impairment
models. Whilst at this stage there is significant uncertainty regarding what the long-term impact of climate change
initiatives may be on the markets in which Inchcape operate in, the forecasts reflect managements assessment of their
bestestimate made in the financial statements as explained in note 11 on page 154.
We performed our own qualitative risk assessment of the potential impact of climate change on the Group’s account
balances and classes of transaction and did not identify any reasonably possible risks of material misstatement. Our
procedures were performed with the involvement of our climate change and sustainability specialists and included
reading disclosures included in the Strategic Report to consider whether they are materially consistent with the financial
statements and our knowledge obtained in the audit.
8. OTHER INFORMATION
The other information comprises the information included in the annual report, other than the financial statements and
ourauditor’s report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise
explicitlystated in our report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears
tobematerially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether
thisgives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s
ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the Group or the parent company or to cease
operations, or have no realistic alternative but to do so.
10. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonableassurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with
ISAs(UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. EXTENT TO WHICH THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES, INCLUDING FRAUD
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with
our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent
to which our procedures are capable of detecting irregularities, including fraud is detailed below.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 117
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INCHCAPE PLC CONTINUED
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance
with laws and regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Group’s
remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit, in-house legal counsel and the audit committee about their own
identification and assessment of the risks of irregularities;
• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures
relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances
ofnon-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected
orallegedfraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
• the matters discussed among the audit engagement team including significant component audit teams and relevant
internal specialists, including tax, fair value, real estate, pensions, financial instruments and IT specialists regarding
howand where fraud might occur in the financial statements and any potential indicators of fraud; and
• understood the process by which management understood and identified fraud risk factors across the business,
payingparticular attention to any specific fraud risk factors identified and tailoring our audit response accordingly.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation
forfraud and identified the greatest potential for fraud in the judgements related to Central America goodwill and
indefinite-life intangible asset impairment as well as UK site impairment. In common with all audits under ISAs (UK),
wearealso required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on
provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures
in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act,
Listing Rules, pensions legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the Group’s ability to operate or to avoid a material
penalty. These included the Group’s environmental regulations.
11.2. Audit response to risks identified
As a result of performing the above, we identified UK site impairment and Central America goodwill and indefinite-life
intangible asset impairments as key audit matters related to the potential risk of fraud. The key audit matters section of our
report explains the matters in more detail and also describes the specific procedures we performed in response to those
keyaudit matters.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with
provisions of relevant laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the audit committee and in-house legal counsel concerning actual and potential litigation
and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing
correspondence with HMRC; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries
and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of
apotential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the
normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and significant component audit teams and remained alert to any indications of fraud or
non-compliance with laws and regulations throughout the audit.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
12. OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance
withthe Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the parent company and their environment obtained
inthe course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
118 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
### 13. CORPORATE GOVERNANCE STATEMENT

The Listing Rules require us to review the directors' statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the Group's compliance with the provisions of the UK Corporate Governance Code specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:

- the directors' statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 108;
- the directors' explanation as to its assessment of the Group's prospects, the period this assessment covers and why the period is appropriate set out on page 55;
- the directors' statement on fair, balanced and understandable set out on page 79;
- the board's confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 55;
- the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 79; and
- the section describing the work of the audit committee set out on page 77.

### 14. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

#### 14.1. Adequacy of explanations received and accounting records

Under the Companies Act 2006 we are required to report to you if, in our opinion:

- we have not received all the information and explanations we require for our audit; or
- adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
- the parent company financial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

#### 14.2. Directors' remuneration

Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors' remuneration have not been made or the part of the directors' remuneration report to be audited is not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

### 15. OTHER MATTERS WHICH WE ARE REQUIRED TO ADDRESS

#### 15.1. Auditor tenure

Following the recommendation of the audit committee, we were appointed by the members on 25 May 2018 to audit the financial statements for the year ending 31 December 2018 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is four years, covering the years ending 31 December 2018 to 31 December 2021.

#### 15.2. Consistency of the audit report with the additional report to the audit committee

Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).

### 16. USE OF OUR REPORT

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1(d), these financial statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed on the National Storage Mechanism of the UK FCA in accordance with the ESEF Regulatory Technical Standard ("ESEF RTS"). This auditor's report provides no assurance over whether the annual financial report has been prepared using the single electronic format specified in the ESEF RTS.

ANNA MARKS FCA

SENIOR STATUTORY AUDITOR

For and on behalf of Deloitte LLP

Statutory Auditor

London, UK

25 February 2022

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 119
## CONSOLIDATED INCOME STATEMENT
## FOR THE YEAR ENDED 31 DECEMBER 2021

|  |  |  |  |  |  |  |  | Before |  | Exceptional |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | Before |  | Exceptional |  |  | exceptional |  |  |  |  | items |  |  |  |  |
|  | exceptional |  |  |  | items |  |  | items |  |  | (note 2) |  |  |  | Total |  |
|  |  | items |  |  | (note 2) | Total |  | 2020 |  |  |  | 2020 |  |  | 2020 |  |
|  |  |  | 2021 |  | 2021 | 2021 | (restated) |  | 1 | (restated) |  |  | 1 | (restated) |  | 1 |
| Notes |  |  | £m |  | £m | £m |  |  | £m |  |  | £m |  |  | £m |  |

Revenue 1, 3 7, 6 4 0 .1 – 7, 6 4 0 .1 6,83 7 .8 – 6,83 7 .8
Cost of sales (6,499 .2) – (6,499 .2) (5 ,9 4 8 . 4) (11. 6) (5,960.0)
Gross profit 1,14 0 . 9 – 1,14 0 .9 8 8 9. 4 (11 . 6) 8 7 7. 8
Net operating expenses 3 (812.8) (101. 2) (9 14 . 0) (725 .3) (245.5) (97 0.8)
Operating profit / (loss) 328. 1 (101.2) 2 2 6 .9 1 6 4 .1 (2 5 7.1) (93.0)
Share of profit after tax of joint
ventures and associates 14 – – – – – –
Profit / (loss) before finance
and tax 328. 1 (101.2) 2 2 6 .9 16 4 .1 (2 5 7.1) (93.0)
Finance income 6 12 . 5 – 12 . 5 14 . 4 – 14 . 4
Finance costs 7 (4 4 . 6) – (4 4 . 6) (51. 0) – (5 1. 0)
Profit / (loss) before tax 296.0 (101.2) 194 . 8 1 2 7. 5 (2 5 7.1) (12 9.6)
Tax 8 (71. 6) (1. 3) (72 .9) (3 3.7) 24 .2 (9 .5)
Profit / (loss) for the year 224.4 (10 2 . 5) 121. 9 93.8 (2 3 2 .9) (1 3 9 .1)
Profit / (loss) attributable to:
– Owners of the parent 11 7. 0 (1 42.0)
– Non-controlling interests 4 .9 2 .9
121. 9 (1 3 9.1)
Basic earnings / (loss)
pershare(pence) 9 30.0p (3 6. 0)p
Diluted earnings / (loss)
pershare (pence) 9 2 9. 6p (36 .0)p
1. See note 35.
The notes on pages 138 to 185 are an integral part of these consolidated financial statements.
120 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021

|   | For the | 2021 £m | 2020 (included) £m  |
| --- | --- | --- | --- |
|  **Profit / (loss) for the year** |  | **121.9** | **(139.3)**  |
|  **Other comprehensive income / (loss):** |  |  |   |
|  *Items that will not be reclassified to the consolidated income statement* |  |  |   |
|  Changes in the fair value of equity investments at fair value through other comprehensive income | 15 | 1.6 | (2.7)  |
|  Defined benefit pension scheme remeasurements | 5 | 58.2 | 14.8  |
|  Deferred tax recognised in consolidated statement of comprehensive income | 17 | (0.4) | (2.5)  |
|   |  | **59.4** | **9.6**  |
|  *Items that may be or have been reclassified subsequently to the consolidated income statement* |  |  |   |
|  Cash flow hedges |  |  |   |
|  - Fair value movements | 26 | 18.5 | (4.7)  |
|  Exchange differences on translation of foreign operations | 26 | (104.3) | (42.8)  |
|  Recycling of foreign currency reserve | 26 | 108.2 | (8.4)  |
|  Current tax recognised in consolidated statement of comprehensive income |  | (2.3) | 0.3  |
|  Deferred tax recognised in consolidated statement of comprehensive income | 17 | (0.5) | (0.9)  |
|   |  | **19.6** | **(56.5)**  |
|  Other comprehensive income / (loss) for the year, net of tax |  | 79.0 | (46.9)  |
|  **Total comprehensive income / (loss) for the year** |  | **200.9** | **(186.0)**  |
|  **Total comprehensive income / (loss) attributable to:** |  |  |   |
|  - Owners of the parent |  | 196.8 | (189.3)  |
|  - Non-controlling interests |  | 4.1 | 3.3  |
|   |  | **200.9** | **(186.0)**  |

1. See note 38.

The notes on pages 138 to 185 are an integral part of these consolidated financial statements.

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 121
## CONSOLIDATED STATEMENT OF FINANCIAL POSITION
## AS AT 31 DECEMBER 2021

|  |  |  | 2020 |  | 1 January 2020 |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2021 | (restated) |  | 1 |  | (restated) | 1 |
| Notes | £m |  | £m |  |  |  | £m |

Non-current assets
Intangible assets 11 394.1 4 25.8 554.4
Property, plant and equipment 12 5 48.0 5 6 9. 8 695. 1
Right-of-use assets 13 2 61. 4 2 5 7. 3 31 3 . 3
Investments in joint ventures and associates 14 4 .9 2. 4 4.3
Financial assets at fair value through other comprehensive
income 15 4.8 3.6 6 .9
Derivative financial instruments 24 3.0 – –
Trade and other receivables 16 45. 4 4 9. 2 3 8.7
Deferred tax assets 17 67. 4 70.5 6 0.9
Retirement benefit asset 5 13 5 . 3 1 01. 0 78.7
1 ,464.3 1 , 4 7 9. 6 1, 75 2 . 3
Current assets
Inventories 18 1,13 4 . 7 1, 216 . 2 1 ,566. 9
Trade and other receivables 16 3 2 4 .1 3 6 9. 6 512 . 3
Financial assets at fair value through other comprehensive
income 15 0.2 0.2 0. 2
Derivative financial instruments 24 24.6 13 . 3 16 . 2
Current tax assets 9. 0 20.6 21. 6
Cash and cash equivalents 19 596. 4 4 81. 2 423.0
2 , 0 8 9. 0 2 ,1 0 1.1 2, 540.2
Assets held for sale and disposal group 20 4.8 31 . 2 14 9. 4
2,093.8 2 ,13 2 . 3 2 , 6 8 9. 6
Total assets 3 , 5 5 8 .1 3 , 6 11 . 9 4 , 4 41.9
Current liabilities
Trade and other payables 21 (1, 5 4 8 . 3) (1 , 61 0 . 3) (1,9 9 6 . 4)
Derivative financial instruments 24 (31.9) (4 2 . 4) (2 7. 4)
Current tax liabilities (6 3 . 0) (6 5 . 0) (82. 4)
Provisions 22 (3 4 .9) (26.8) (23.0)
Lease liabilities 13 (5 6 . 5) (58.5) (5 6 .8)
Borrowings 23 (7. 6) (6 .1) (5 0.1)
(1, 74 2 . 2) (1 , 8 0 9.1) (2 , 2 3 6 .1)
Liabilities directly associated with the disposal group 20 – (7 . 7) (1 0 6 .1)
(1, 74 2 . 2) (1, 81 6 . 8) (2, 34 2. 2)
Non-current liabilities
Trade and other payables 21 (6 3 . 2) (69 .3) (7 7. 2)
Provisions 22 (2 3. 4) (1 9. 8) (12 .9)
Deferred tax liabilities 17 (6 8 .1) (7 9.1) (9 6.7)
Lease liabilities 13 (2 6 7. 6) (2 74 . 3) (2 96.0)
Borrowings 23 (210 . 0) (21 0 . 0) (27 0. 0)
Retirement benefit liability 5 (5 3 . 1) (81. 4) (6 9. 2)
(6 8 5 . 4) (7 3 3 .9) (8 22. 0)
Total liabilities (2 , 4 2 7. 6) (2 ,5 5 0 .7) (3 ,16 4 . 2)
Net assets 1,13 0 . 5 1 , 0 61. 2 1, 2 7 7. 7
Equity
Share capital 25 38.5 3 9. 4 4 0.0
Share premium 14 6 . 7 14 6 . 7 14 6 . 7
Capital redemption reserve 142 .1 14 1. 2 14 0 . 6
Other reserves 26 (2 2 7. 1) (248. 2) (19 0 . 4)
Retained earnings 27 1, 0 0 8 . 7 9 62.8 1 ,1 2 0 . 5
Equity attributable to owners of the parent 1,10 8 . 9 1,0 41.9 1 , 2 5 7. 4
Non-controlling interests 2 1. 6 19. 3 2 0.3
Total equity 1,13 0 . 5 1 , 0 61. 2 1, 2 7 7. 7
1. See note 35.
The notes on pages 138 to 185 are an integral part of these consolidated financial statements. The consolidated financial
statements on pages 120 to 185 were approved by the Board of Directors on 25 February 2022 and were signed on its behalf by:
Duncan Tait, GROUP CHIEF EXECUTIVE Gijsbert de Zoeten, CHIEF FINANCIAL OFFICER
122 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## CONSOLIDATED STATEMENT OF CHANGES IN EQUITY STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
## FOR THE YEAR ENDED 31 DECEMBER 2021
Total
equity

|  |  |  |  |  | Capital |  |  | Other | Retained |  | attributable |  |  | Non- |  | Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Share |  | Share | redemption |  |  | reserves |  | earnings |  | to owners of |  | controlling |  | shareholders’ |  |
|  | capital | premium |  |  | reserve |  | (note 26) |  | (note 27) |  | the parent |  | interests |  |  | equity |
| Notes | £m |  | £m |  |  | £m |  | £m |  | £m |  | £m |  | £m |  | £m |

At 1 January 2020 40.0 14 6 . 7 14 0 . 6 (19 0 . 4) 1,1 41 . 4 1, 2 7 8 . 3 20.3 1, 2 9 8 . 6
Adjustment for IFRIC
(“SaaS”) 35 – – – – (2 0 .9) (2 0 .9) – (2 0.9)
At 1 January 2020
1
(restated) 40.0 14 6 . 7 14 0 . 6 (19 0 . 4) 1 ,1 2 0 . 5 1 , 2 5 7. 4 20.3 1 , 2 7 7. 7
(Loss) / profit for theyear
1
(restated) – – – – (1 42.0) (1 42.0) 2 .9 (1 3 9.1)
Other comprehensive
loss for the year
1
(restated) – – – (59.3) 12. 0 (4 7. 3) 0.4 (4 6 .9)
Total comprehensive loss
1
for the year (restated) – – – (59.3) (13 0 . 0) (18 9. 3) 3.3 (18 6 . 0)
Hedging gains and
losses transferred to
inventory – – – 1. 5 – 1. 5 – 1. 5
Share-based payments,
net of tax 4,17 – – – – 3.7 3.7 – 3.7
Share buyback
programme 25 (0 . 6) – 0.6 – (31. 4) (31. 4) – (31. 4)
Dividends: – – – – – – – –
– Owners of the parent 10 – – – – – – – –
– Non-controlling
interests – – – – – – (4 . 3) (4 . 3)
At 1 January 2021
1
(restated) 3 9. 4 14 6 . 7 141. 2 (24 8. 2) 962 .8 1, 0 41. 9 19 . 3 1, 0 61. 2
Profit for the year – – – – 11 7. 0 117 . 0 4 .9 121. 9
Other comprehensive
income for the year – – – 22 .0 5 7. 8 7 9. 8 (0. 8) 7 9. 0
Total comprehensive
income for the year – – – 22.0 174 . 8 19 6 . 8 4 .1 2 0 0 .9
Hedging gains and
losses transferred to
inventory – – – (0 .9) – (0 .9) – (0 .9)
Share-based payments,
net of tax 4,17 – – – – 10 . 0 10 . 0 – 10 . 0
Share buyback
programme 25 (0 .9) – 0 .9 – (8 0 . 5) (8 0 . 5) – (8 0. 5)
Purchase ofown shares
by theInchcape
Employee Trust – – – – (6 . 2) (6 . 2) – (6 . 2)
Transactions with non-
controlling interests – – – – – – 1. 2 1. 2
Dividends:
– Owners of the parent 10 – – – – (5 2 . 2) (52 . 2) – (52 . 2)
– Non-controlling
interests – – – – – – (3.0) (3.0)
At 31 December 2021 38.5 14 6 . 7 142 .1 (2 2 7. 1) 1, 0 0 8 . 7 1,10 8 . 9 2 1. 6 1,1 3 0 . 5
1. See note 35.
The notes on pages 138 to 185 are an integral part of these consolidated financial statements.
Share-based payments include a net tax credit of £1 .6m (current tax charge of £nil and a deferred tax credit of £1 .6m)
(2020– net tax credit of £0 .4m (current tax charge of £nil and a deferred tax credit of £0. 4m)).
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 123
## CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2021

|   | Notes | 2021 £m | 2020 (included) £m  |
| --- | --- | --- | --- |
|  **Cash generated from operating activities**  |   |   |   |
|  Cash generated from operations | 28a | **469.2** | 333.2  |
|  Tax paid |  | **(63.8)** | (51.8)  |
|  Interest received |  | **12.2** | 13.9  |
|  Interest paid |  | **(40.6)** | (46.1)  |
|  **Net cash generated from operating activities** |  | **377.0** | 249.2  |
|  **Cash flows from investing activities**  |   |   |   |
|  Acquisition of businesses, net of cash and overdrafts acquired | 29 | **(20.2)** | (31.5)  |
|  Net cash inflow from sale of businesses | 29 | **76.2** | 71.8  |
|  Net cash inflow from disposal of investments in joint ventures and associates |  | **-** | 2.0  |
|  Purchase of investment in joint ventures and associates |  | **(2.6)** | -  |
|  Purchase of property, plant and equipment |  | **(48.5)** | (27.4)  |
|  Purchase of intangible assets |  | **(16.1)** | (14.5)  |
|  Proceeds from disposal of property, plant and equipment |  | **24.6** | 6.7  |
|  Proceeds from disposal of intangible assets |  | **-** | 0.2  |
|  Payments made before the commencement date of a lease |  | **(2.5)** | -  |
|  Receipt from finance sub-lease receivables |  | **2.3** | 0.7  |
|  **Net cash generated from investing activities** |  | **13.2** | 8.0  |
|  **Cash flows from financing activities**  |   |   |   |
|  Share-bus-track programme |  | **(80.5)** | (32.1)  |
|  Purchase of own shares by the Inchcape Employee Trust |  | **(6.2)** | -  |
|  Cash inflow from Covid Corporate Financing Facility | 23 | **-** | 99.6  |
|  Repayment of Covid Corporate Financing Facility | 23 | **-** | (99.6)  |
|  Cash outflow from other borrowings |  | **(12.7)** | (66.1)  |
|  Payment of capital element of lease liabilities |  | **(59.3)** | (57.4)  |
|  Transactions with non-controlling interests |  | **1.2** | -  |
|  Equity dividends paid | 10 | **(52.2)** | -  |
|  Dividends paid to non-controlling interests |  | **(3.0)** | (4.3)  |
|  **Net cash used in financing activities** |  | **(212.7)** | (159.9)  |
|  **Net increase in cash and cash equivalents** | 28b | **177.5** | 97.3  |
|  Cash and cash equivalents at beginning of the period |  | **476.3** | 379.2  |
|  Effect of foreign exchange rate changes |  | **(65.0)** | (0.2)  |
|  Cash and cash equivalents at the end of the year |  | **588.8** | 476.3  |
|  **Cash and cash equivalents consist of:**  |   |   |   |
|  - Cash at bank and cash equivalents | 19 | **501.8** | 378.5  |
|  - Short-term deposits | 19 | **94.6** | 102.7  |
|  - Bank overdrafts | 23 | **(7.6)** | (6.1)  |
|  - Cash at bank and cash equivalents included in disposal groups held for sale | 20 | **-** | 1.2  |
|   |  | **588.8** | 476.3  |

1. See note 33.

The notes on pages 138 to 185 are an integral part of these consolidated financial statements.

124 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
# ACCOUNTING POLICIES

## GENERAL INFORMATION

Inchscape plc is a public company limited by shares, domiciled and incorporated in the UK, and registered in England and Wales. The address of the registered office is 22a St James's Square, London, SW1Y 5LP. The nature of the Group's operations and principal activities are set out in note 1 and on pages 1 to 58.

The Group consolidated financial statements have been properly prepared in accordance with United Kingdom adopted accounting standards and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB) and with those parts of the Companies Act 2005 applicable to companies reporting under UK adopted IFRS.

## Accounting convention

The consolidated financial statements have been prepared under the historical cost convention, except for financial assets at fair value through other comprehensive income, and those financial assets and financial liabilities (including derivative instruments) held at fair value through profit or loss, which are measured at fair value.

## Going concern

Based on the Group's cash flow forecasts and projections, the Board is satisfied that the Group will operate within the level of its committed facilities for the foreseeable future. For this reason, the Board continues to adopt the going concern basis in preparing its financial statements. In assessing whether the Group is a going concern, the ongoing implications of Covid-19 have been considered together with measures taken to mitigate its impact on the Group. In making this assessment, the Group has considered available liquidity in relation to net debt and committed facilities, the Group's latest forecasts for 2022 and 2023 cash flows, together with adjusted scenarios. The forecasts used reflect the latest view on the economic impact of Covid-19 on the markets in which the Group operates, with a key emphasis on the latest Group forecasts for 2022 and 2023.

Committed bank facilities and Private Placement borrowings totaling £160m, of which £210m was drawn at 31 December 2021, are subject to the same interest cover covenant based on an adjusted EBITA measure to interest on consolidated borrowings measured on a trailing 12-month basis at June and December.

The latest Group forecasts for 2022 and 2023 indicate that the Group is expected to be compliant with this covenant throughout the forecast period and have sufficient liquidity to continue operating throughout that period.

A range of sensitivities has been applied to the forecasts to assess the Group's compliance with its covenant requirements over the forecast period. These sensitivities included:

- further periods of Covid-19 restrictions similar in nature and impact to those seen both in the second half of 2020 and the first half of 2021, impacting half of the Group's markets simultaneously for a period of time in 2022;
- a reduction in New and Used vehicle sales due to a short-term shortage of semi-conductor chips, reducing gross profit in the second half of 2022 and the first half of 2023;
- an appreciation in sterling against the Group's main trading companies; combined with
- working capital sensitivities.

In a scenario where all of the above sensitivities occur at the same time, the Group has modelled the possibility of the interest cover covenant being breached in 2022 and 2023. With the interest cover covenant measured on a trailing 12-month basis, the sensitised forecasts indicate that the Group is not expected to breach any covenants and would be compliant with the interest cover requirements at June 2022 and throughout the forecast period. Additionally, under these circumstances, the Group expects to have sufficient funds to meet cash flow requirements. In a scenario where such restrictions impacted half of the group markets simultaneously for a period of 24 months, the Group is forecasted to be compliant with the interest cover covenant.

Additionally, reverse stress test scenario analysis has been conducted to assess the scenarios in which the Group would breach its covenant or have insufficient funds to meet cash flow requirements. One such scenario was to model more severe trading restrictions in all markets simultaneously with the impact comparable to those experienced in the Group's markets in the first half of 2020, which amounts to a material cessation in operations and revenue. Under this scenario, the Group could sustain such restrictions for a period of approximately four months before breaching the interest cover covenant, but even in this circumstance, would still have sufficient liquidity. We deem this circumstance to be highly unlikely due to the geographic diversity of the Group's operations and our increased ability to trade digitally.

Therefore, the board concluded that the Group will be able to operate within the level of its committed facilities for the foreseeable future. The directors consider it appropriate to adopt the going concern basis of accounting in preparing the financial statements for the year ending 31 December 2021.

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

135
ACCOUNTING POLICIES CONTINUED

# NEWLY ADOPTED ACCOUNTING POLICIES

From 1 January 2021, the following standards become effective in the Group's consolidated financial statements:

- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Interest rate benchmark reform - Phase 2; and
- Amendments to IFRS 16 - Covid-19 Related Rent Concessions beyond 30 June 2021.

The impact of adopting the amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 as a result of interest rate benchmark reform is described below. The adoption of the amendments due to IFRS 16 COVID-19 Related Rent Concessions beyond 30 June 2021 has not led to any changes to the Group's accounting policies or had any other material impact on the financial position or performance of the Group.

Additionally, due to an IFRS Interpretations Committee's agenda decision on 'Software as a Service' ('SaaS') arrangements, the Group's accounting policy has changed relating to the capitalisation of software costs. The impact on the Group's accounting policy is further discussed below.

All other accounting policies have been applied consistently throughout the reporting period. The Group has not early adopted other standards, amendments to standards or interpretations that have been issued but are not yet effective.

# INTEREST RATE BENCHMARK REFORM

The Group has adopted the 'Interest rate benchmark reform' amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 in the current financial year.

The Group had a number of contracts in the UK with OEM's that make reference to LIBOR. At the end of the reporting period all contracts in scope for amendment had been renegotiated to use the Sterling Overnight Index Average (SONIA) based rate. We will continue to monitor the renegotiation of vehicle funding arrangements throughout the Group that make reference to other Interbank Offered Rates (IBOR) based rates which did not expire during the reporting period.

Our syndicated rolling credit facility incurred interest charged upon a LIBOR based rate. This was renegotiated during 2021 to SONIA. The Group have a total of $nil drawdown on the facility as at 31 December 2021.

# SOFTWARE AS A SERVICE - ACCOUNTING FOR CONFIGURATION AND CUSTOMISATION COSTS

The Group has changed its accounting policy related to the capitalisation of certain software costs. This change follows the IFRS Interpretations Committee's agenda decisions published in April 2021 and relates to the capitalisation of costs of configuring or customising application software under 'Software as a Service' ('SaaS') arrangements.

The Group's accounting policy has historically been to capitalise costs directly attributable to the configuration and customisation of such arrangements as intangible assets on the balance sheet. Following the adoption of the IFRIC agenda guidance, current SaaS arrangements were identified and assessed to determine if the Group had control of the software. For those arrangements where it was determined that the Group did not have control of the developed software, to the extent that the services were considered distinct from the access to the software, the Group derecognised the intangible asset previously capitalised. Amounts paid to the supplier for implementation and customisation services that cannot be performed by third parties, are amortised over the underlying contract period.

The change in accounting policy has resulted in a reduction in the value of the intangible assets recognised as at 1 January 2020 and 31 December 2020 by £23.5m and $24.4m respectively. The comprehensive income reported for the year ended 31 December 2020 has reduced by £19m on account of a corresponding increase in operating expenses within administrative expenses. A third balance sheet as at 1 January 2020 has been presented in accordance with IAS 1 to disclose the impact of the change. See note 35 for further details.

# STANDARDS NOT EFFECTIVE AT THE BALANCE SHEET DATE

The following standards were in issue but were not yet effective at the balance sheet date. These standards have not yet been early adopted by the Group, and will be applied for the Group's financial years commencing on or after 1 January 2022:

- Annual Improvements to IFRS Standards 2018-2020;
- Amendments to IAS 16 - Property, Plant and Equipment - Proceeds before Intended Use;
- Amendments to IAS 37 - Onerous Contracts - Cost of Fulfilling a Contract;
- Amendments to IFRS 3 (May 2020) - Reference to the Conceptual Framework;
- IFRS 17 - Insurance Contracts;
- Amendments to IAS 1 - Classification of Liabilities;
- Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies; and
- Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, Definition of Accounting Estimates.

Management are currently reviewing the new standards to assess the impact that they may have on the Group's reported position and performance. Management do not expect that the adoption of the standards listed above will have a material impact on the financial statements of the Group.

126

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
BASIS OF CONSOLIDATION
The consolidated financial statements comprise the financial statements of the parent company (Inchcape plc) and all of
its subsidiary undertakings (defined as those where the Group has control), together with the Group’s share of the results of
its joint ventures (defined as those where the Group has joint control) and associates (defined as those where the Group has
significant influence but not control). The results of subsidiaries are consolidated and the Group’s share of results of its joint
ventures and associates is equity accounted for as of the same reporting date as the parent company, using consistent
accounting policies.
The results of newly acquired subsidiaries are consolidated using the acquisition method of accounting from the date on
which control of the net assets and operations of the acquired company are effectively transferred to the Group. Similarly,
the results of subsidiaries disposed of cease to be consolidated from the date on which control of the net assets and
operations is transferred out of the Group.
The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases
from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the
carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests
are also recorded in equity.
Investments in joint ventures and associates are accounted for using the equity method, whereby the Group’s share of
post-acquisition profits or losses is recognised in the consolidated income statement, and its share of post-acquisition
movements in shareholders’ equity is recognised in shareholders’ equity. If the Group’s share of losses in a joint venture or
associate equals or exceeds its investment in the joint venture or associate, the Group does not recognise further losses,
unless it has contractual obligations or made payments on behalf of the joint venture or associate.
Intercompany balances and transactions and any unrealised profits arising from intercompany transactions are eliminated
in preparing the consolidated financial statements.
FOREIGN CURRENCY TRANSLATION
Transactions included in the results of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (the functional currency). The consolidated financial statements are
presented in sterling, which is the functional currency of the parent company, Inchcape plc, and the presentation currency
of the Group.
In the individual entities, transactions in foreign currencies are translated into the functional currency at the rates of
exchange prevailing at the dates of the individual transactions. Monetary assets and liabilities denominated in foreign
currencies are subsequently retranslated at the rate of exchange ruling at the end of the reporting period. All differences
are taken to the consolidated income statement, except those exchange differences arising on long-term foreign currency
borrowings that form part of a net investment in a foreign investment, which on consolidation are taken directly to other
comprehensive income.
The assets and liabilities of foreign operations are translated into sterling at the rate of exchange ruling at the end of the
reporting period. The income statements of foreign operations are translated into sterling at the average rates of exchange
for the period. Exchange differences arising from 1 January 2004 are recognised as a separate component of shareholders’
equity. On disposal of a foreign operation, any cumulative exchange differences held in shareholders’ equity are
transferred to the consolidated income statement.
REVENUE AND OTHER INCOME
Revenue is measured at the fair value of consideration receivable, net of any discounts, rebates, trade allowances,
incentives, or amounts collected on behalf of third parties. It is recognised to the extent that the transfer of promised goods
or services to a customer has been satisfied and the revenue can be reliably measured. Revenue excludes sales-related
taxes and intra-group transactions. In practice this means that:
Revenue from the sale of goods is recognised when the obligation to transfer the goods to the customer has been satisfied
and the revenue can reliably be measured. The obligation to transfer goods to the customer is considered to have been
satisfied when the vehicles or parts are invoiced and physically dispatched or collected.
Revenue from the rendering of services to the customer is considered to have been satisfied when the service has been
undertaken.
Where the Group acts as an agent on behalf of a principal in relation to finance, insurance and similar products, the
associated commission income is recognised within revenue in the period in which the related finance or insurance
product is sold and receipt of payment can be assured.
Where a vehicle is sold to a leasing company and the Group undertakes to repurchase the vehicle for a specified value at
a predetermined date, the sale is not recognised on the basis that the possibility of the buyback being exercised is highly
likely. Consequently, such vehicles are retained within ‘property, plant and equipment’ in the consolidated statement of
financial position at cost and are depreciated to their residual value over the life of the lease. The difference between the
initial amounts received from the leasing company and the repurchase commitment is recognised as deferred income in
the consolidated statement of financial position and is released to the consolidated income statement on a straight-line
basis over the life of the lease. The repurchase commitment, which reflects the price at which the vehicle will be bought
back, is held within ‘trade and other payables’, according to the date of the commitment.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 127
ACCOUNTING POLICIES CONTINUED
Where a vehicle is sold subject to a buyback commitment and the possibility of the buyback being exercised by the
customer is not highly likely as the buyback price set is below the expected market value, revenue is recognised in full when
the vehicle is sold. However, an estimate of the value of the buyback payments is deducted from revenue and deferred to
the balance sheet. Similarly, an estimate of the value of the vehicles to be returned is deducted from cost of sales and also
deferred to the balance sheet. These balances are considered to be contract liabilities.
Where additional services are included in the sale of a vehicle to a customer as part of the total vehicle package
(e.g. extended warranty, free servicing, roadside assistance, fuel coupons etc) and the Group is acting as a principal
in the fulfilment of the service, the value of the additional services is separately identified, deducted from consideration
receivable, recognised as deferred revenue on the balance sheet and subsequently recognised as revenue when the
service is provided, or recognised on an input basis with reference to the amount of time elapsed under the contract to
which the service relates. These balances are considered to be contract liabilities. The consideration allocated to
additional services is based on the relative stand-alone selling price of the additional services within the contract. The value
assigned to the additional service is set equal to the value of the additional service being provided, being the expected
cost to the entity plus an appropriate profit margin.
Amounts relating to accrued income are balances primarily due from manufacturers in relation to volume / target related
bonuses or commissions or warranty related where the work has been completed prior to being invoiced. Any amount
previously recognised as accrued income is reclassified to trade receivables at the point at which it is invoiced to the
customer.
Finance income is recognised when it is probable that the economic benefits will flow to the Group and the amount
of income can be measured reliably. It is accrued on a time basis by reference to the principal outstanding and at the
effective interest rate applicable.
Dividend income is recognised when the right to receive payment is established.
COST OF SALES
Cost of sales includes the expense relating to the estimated cost of self-insured product warranties offered to customers.
These warranties form part of the package of goods and services provided to the customer when purchasing a vehicle
and are not a separable product.
The Group receives income in the form of various incentives which are determined by our brand partners. The amount we
receive is generally based on achieving specific objectives, such as a specified sales volume, as well as other objectives
including maintaining brand partner standards which may include, but are not limited to, retail centre image and design
requirements, customer satisfaction survey results and training standards. Where incentives are based on a specific sales
volume or number of registrations, the related income is recognised as a reduction in cost of sales when it is reasonably
certain that the income has been earned. This is generally the later of the date the related vehicles are sold or registered
or when it is reasonably certain that the related target will be met. Where incentives are linked to retail centre image and
design requirements, customer satisfaction survey results or training standards, they are recognised as a reduction in cost
of sales when it is reasonably certain that the incentive will be received for the relevant period.
GOVERNMENT GRANTS AND ASSISTANCE
Grants received from governments are recognised when there is reasonable assurance that the conditions associated
with the grants have been complied with and the grants will be received. Grants for the reimbursement of operating
expenditure are deducted from the related category of costs in the income statement. Once a government grant is
recognised, any related deferred income is treated in accordance with IAS 20 ‘Accounting for Government Grants and
Disclosure of Government Assistance’.
SHARE-BASED PAYMENTS
The Group operates various share-based award schemes. The fair value at the date at which the share-based awards are
granted is recognised in the consolidated income statement (together with a corresponding credit in shareholders’ equity)
on a straight-line basis over the vesting period, based on an estimate of the number of shares that will eventually vest.
At the end of each reporting period, the Group revises its estimates of the number of awards that are expected to vest.
The impact of any revision is recognised in the consolidated income statement with a corresponding adjustment to equity.
For equity-settled share-based awards, the services received from employees are measured by reference to the fair value
of the awards granted. With the exception of the Group Save As You Earn scheme, the vesting of all share-based awards
under all schemes is solely reliant upon non-market conditions, therefore no expense is recognised for awards that do not
ultimately vest. Where an employee or the Company cancels an award, the charge for that award is recognised as an
expense immediately, even though the award does not vest.
FINANCE COSTS
Borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset are
capitalised as part of the cost of that asset from the first date on which the expenditure is incurred for the asset and until
such time as the asset is ready for its intended use. A Group capitalisation rate is used to determine the magnitude of
borrowing costs capitalised on each qualifying asset. This rate is the weighted average of Group borrowing costs, excluding
those borrowings made specifically for the purpose of obtaining a qualifying asset.
All other borrowing costs are recognised as an expense in the period in which they are incurred.
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INCOME TAX
The charge for current income tax is based on the results for the period as adjusted for items which are not taxed or are
disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting
period.
The accounting standard covering uncertain tax positions, IFRIC 23 ‘Uncertainty over Income Tax Treatments’, was adopted
by the Group from 1 January 2019. The Group recognises provisions for uncertain tax positions when it is not probable that
a tax authority will accept an uncertain tax treatment used, or proposed to be used, in its income tax filings. Uncertain tax
positions are assessed and measured using management’s estimate of the most likely outcome including an assessment
of whether uncertain tax positions should be considered separately or as a group. The Group recognises interest on late
paid taxes as part of financing costs, and any penalties, if applicable, as part of the income tax expense.
Deferred income tax is accounted for using the liability method in respect of temporary differences arising from differences
between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against which deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary difference is due to goodwill arising on a business
combination, or to an asset or liability, the initial recognition of which does not affect either taxable or accounting income.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, joint ventures
and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that
the temporary difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability
is settled using rates enacted or substantively enacted at the end of the reporting period. Deferred tax is charged or
credited in the consolidated income statement, except when it relates to items credited or charged directly to
shareholders’ equity, in which case the deferred tax is also dealt with in shareholders’ equity.
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention
to settle balances net.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner
in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and
liabilities.
EXCEPTIONAL ITEMS
The Group makes certain adjustments to the statutory profit measures in order to derive certain alternative performance
measures. Certain items which are material are presented as exceptional items within their relevant consolidated income
statement category. The separate reporting of exceptional items helps provide additional useful information regarding the
Group’s business performance and is used by management to facilitate internal performance analysis.
Management applies an exceptional items policy that is regularly discussed and approved by the Audit Committee. The
policy applied in identifying exceptional items is balanced when assessing gains and losses, clearly disclosed and applied
consistently from one year to the next.
Exceptional items are deemed to be those items that, in the judgement of the Group, need to be disclosed separately
by virtue of their nature, size or incidence. In determining the facts and circumstances, management considers key factors
such as:
• where the same category of items recurs each year and in similar amounts (for example, restructuring costs),
consideration is given as to whether such amounts should be included as part of underlying profit:
• where significant items are likely to be finalised over more than one year, the effect of such items is applied uniformly; and
• ensuring the treatment of favourable and unfavourable transactions are treated consistently.
Items that may be considered exceptional in nature include gains or losses on the disposal of businesses, restructuring of
businesses, acquisition costs, asset impairments and the tax effects of these items. Any reversal of an amount previously
recognised as an exceptional item would also be recognised as an exceptional item in a subsequent period.
BUSINESS COMBINATIONS AND GOODWILL
The acquisition of subsidiaries is accounted for using the acquisition method (at the point the Group gains control over a
business as defined by IFRS 3). The cost of the acquisition is measured as the cash paid and the aggregate of the fair values,
at the date of exchange, of other assets transferred, liabilities incurred or assumed, and equity instruments issued by the
Group in exchange for control of the acquiree. The consideration transferred includes the fair value of any asset or liability
resulting from a contingent consideration arrangement at the acquisition date.
Acquisition-related costs are expensed as incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities
that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date. The Group
recognises any non-controlling interests in the acquiree on an acquisition-by-acquisition basis, either at fair value or at
the non-controlling interests’ proportionate share of the recognised amounts of acquiree’s identifiable net assets.
Goodwill represents the excess of the cost of acquisition of a business combination over the Group’s share of the fair value
of identifiable net assets of the business acquired at the date of acquisition. Goodwill is initially recognised at cost and
is held in the functional currency of the acquired entity and revalued at the closing exchange rate at the end of each
reporting period.
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After initial recognition, goodwill is measured at cost less any accumulated impairment losses. At the date of acquisition,
the goodwill is allocated to cash generating units for the purpose of impairment testing and is tested at least annually for
impairment.
Gains and losses on disposal of a business include the carrying amount of goodwill relating to the business sold except for
goodwill arising on business combinations on or before 31 December 1997 which has been deducted from shareholders’
equity and remains indefinitely in shareholders’ equity.
OTHER INTANGIBLE ASSETS
Intangible assets, when acquired separately from a business (including computer software), are carried at cost less
accumulated amortisation and impairment losses. Cost comprises the purchase price from third parties as well as internally
generated development costs where relevant. Amortisation is provided on a straight-line basis to allocate the cost of the
asset over its estimated useful life, which in the case of computer software is three to eight years. Amortisation is recognised
in the consolidated income statement within ‘net operating expenses’. Software customisation and configuration costs
relating to software not controlled by the Group are expensed over the period such services are received.
Intangible assets acquired as part of a business combination are capitalised separately from goodwill if the benefit of the
intangible asset is obtained through contractual or other legal rights and the fair value can be measured reliably on initial
recognition. The principal intangible assets are agreements with manufacturers for the distribution of new vehicles and
parts, which represent the estimated value of distribution rights acquired in business combinations. Such agreements have
varying terms and periods of renewal and have historically been renewed without substantial cost. The Group therefore
expects these agreements to be renewed on a regular basis and accordingly no amortisation is charged on these assets.
The Group assesses these distribution rights for impairment on an annual basis.
Other intangible assets acquired in a business combination may include order books and customer contracts. These
intangible assets are amortised on a straight-line basis over their estimated useful life, which is generally less than a year.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost comprises
the purchase price and directly attributable costs of the asset and includes, where relevant, capitalised borrowing costs.
Depreciation is based on cost less estimated residual value and is included within ‘net operating expenses’ in the
consolidated income statement, with the exception of depreciation on ‘interest in leased vehicles’ which is charged to
‘cost of sales’. It is provided on a straight-line basis over the estimated useful life of the asset, except for freehold land which
is not depreciated. For the following categories, the annual rates used are:
Freehold buildings and long leasehold buildings 2.0%
Short leasehold buildings shorter of lease term or useful life
Plant, machinery and equipment 5.0% – 33.3%
Interest in leased vehicles over the lease term
The residual values and useful lives of all assets are reviewed at least at the end of each reporting period and adjusted
if necessary.
LEASES
The Group assesses whether a contract is, or contains a lease at inception of the contract. A lease conveys the right to
direct the use and obtain substantially all of the economic benefits of an identified asset for a period of time in exchange
for consideration.
THE GROUP AS A LESSEE
Lease liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present
value of the following lease payments:
• fixed payments (including in-substance fixed payments), less any lease incentives receivable;
• variable lease payment that are based on an index or a rate, initially measured using the index or rate as at the
commencement date;
• amounts expected to be payable by the Group under residual value guarantees;
• the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
• payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of
the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined,
which is generally the case for leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the
individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use
asset in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group:
• uses a build-up approach that starts with a risk-free interest rate by market and currency;
• applies a credit risk, based on yields of comparable entities, to the determined risk-free interest rate by market; and
• where applicable, makes adjustments specific to the lease, e.g. term, country, currency and security.
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Lease liabilities are re-measured when there is a change in future lease payments arising from a change in an index or rate,
if there is a change in the estimate of the amount expected to be payable under a residual value guarantee, or if there is a
change in the assessment of whether a purchase, lease-term extension or termination option will be exercised. When lease
liabilities are re-measured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset
or recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the
lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are recognised at the commencement date of the lease. Right-of-use assets comprising mainly land
and buildings are measured at cost less accumulated depreciation and impairment losses. The costs include the amount
of the initial measurement of the lease liability, any lease payments made at or before the commencement date less lease
incentives received, any direct costs and an estimate of dismantling costs. The carrying amount is further adjusted for any
remeasurement of the lease liability. Depreciation is expensed to the income statement on a straight-line basis over the
lease term. The lease term includes the noncancellable period of lease together with any extension or termination options
that are reasonably certain to be exercised.
Payments associated with short-term leases and all leases of low-value assets (under £5,000) are recognised on a straight-
line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets
comprise largely small items of office equipment.
THE GROUP AS A LESSOR
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risk and rewards of
ownership to the lessee. All other leases are classified as operating leases. Where the Group is an intermediate lessor, the
sublease classification is assessed with reference to the head lease right-of-use asset. Amounts due from lessees under
finance leases are recorded as receivables at the amount of the Group’s net investment in the lease. Finance lease income
is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment in the
lease. Rental income from operating leases is recognised on a straight-line basis over the lease term.
IMPAIRMENT OF NON-FINANCIAL ASSETS
Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or circumstances
indicate that the carrying amount may not be recoverable. Any impairment losses are included within ‘net operating
expenses’ in the consolidated income statement.
In addition, goodwill is not subject to amortisation but is tested at least annually for impairment. An impairment loss is
recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount, the latter being the
higher of the asset’s fair value less costs to sell and value in use. Value in use calculations are performed using cash flow
projections, discounted at a pre-tax rate which reflects the asset specific risks and the time value of money.
Non-financial assets, other than goodwill, which have previously been impaired, are reviewed for possible reversal of
the impairment at each reporting date.
INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Cost comprises expenditure incurred in bringing
inventories to their present location and condition. Net realisable value represents the estimated selling price less all
estimated costs of completion and costs to be incurred in marketing, selling and distribution. Used vehicles are carried
at the lower of cost or fair value less costs to sell, generally based on external market data available for used vehicles.
Vehicles held on consignment are included within inventories as the Group is considered to have the risks and rewards
of ownership. The corresponding liability is included within ‘trade and other payables’.
Inventory can be held on deferred payment terms. All costs associated with this deferral are expensed in the period in
which they are incurred.
An inventory provision is recognised in situations where net realisable value is likely to be less than cost (such as
obsolescence, deterioration, fall in selling price). When calculating the provision, management considers the nature and
condition of the inventory, as well as applying assumptions around anticipated saleability, determined on conditions that
exist at the end of the reporting period. With the exception of parts, generally net realisable value adjustments are applied
on an item-by-item basis.
TRADE RECEIVABLES
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business.
These are recognised as current assets if collection is due in one year or less. If collection is due in over a year, they are
presented as non-current assets.
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method, less provision for impairment. A provision for impairment is established based on an expected credit loss
model under IFRS 9. The amount of the provision is the difference between the asset’s carrying amount and the expected
value of the amounts to be received.
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The provision for impairment of receivables is based on lifetime expected credit losses. Lifetime expected credit losses are
calculated by assessing historic credit loss experience, adjusted for factors specific to the receivable and company. The
amount of the loss is recognised in the consolidated income statement within ‘net operating expenses’. When a trade
receivable is not collectible, it is written off against the allowance account for trade receivables. Subsequent recoveries
of amounts previously written off are credited against ‘net operating expenses’ in the consolidated income statement.
TRADE PAYABLES
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business.
These are classified as current liabilities if payment is due in one year or less. If payment is due at a later date, they are
presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method.
Trade payables include the liability for vehicles held on consignment, with the corresponding asset included within
inventories.
BORROWINGS
Borrowings are recognised initially at fair value, net of transaction costs incurred, and are subsequently stated at amortised
cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the
consolidated income statement over the period of the borrowings, using the effective interest method.
PENSIONS AND OTHER POST-RETIREMENT BENEFITS
The Group operates a number of retirement benefit schemes.
The major schemes are defined benefit pension funds with assets held separately from the Group. The cost of providing
benefits under the plans is determined separately for each plan using the projected unit credit actuarial valuation method.
The current service cost and gains and losses on settlements and curtailments are included in ‘cost of sales’ or ‘net
operating expenses’ in the consolidated income statement. Past service costs are similarly recognised in the consolidated
income statement. Administrative scheme expenses associated with the plans are recorded within ‘net operating
expenses’ when incurred, in line with IAS 19 (revised). Net interest income or interest cost relating to the funded defined
benefit pension plans is included within ‘finance income’ or ‘finance costs’, as relevant, in the consolidated income
statement.
Changes in the retirement benefit obligation or asset due to experience and changes in actuarial assumptions are
included in the consolidated statement of comprehensive income, as actuarial gains and losses, in full in the period in
which they arise.
Where scheme assets exceed the defined benefit obligation, a net asset is only recognised to the extent that an economic
benefit is available to the Group, in accordance with the terms of the scheme and, where relevant, statutory requirements.
The Group’s contributions to defined contribution plans are charged to the consolidated income statement in the period to
which the contributions relate.
The Group also has a liability in respect of past employees under post-retirement healthcare schemes which have been
closed to new entrants. These schemes are accounted for on a similar basis to that for defined benefit pension plans in
accordance with the advice of independent qualified actuaries.
PROVISIONS
Provisions are recognised when the Group has a present obligation in respect of a past event, when it is more likely than
not that an outflow of resources will be required to settle the obligation and where the amount can be reliably estimated.
Provisions are discounted when the time value of money is considered to be material, using an appropriate risk-free rate
on government bonds.
PRODUCT WARRANTY PROVISION
A product warranty provision corresponds to warranties provided as part of the sale of a vehicle and provide assurance
to the customer that the product will work as sold. Provision is made for the expected cost of labour and parts based on
historical claims experience and expected future trends.
LEASEHOLD PROPERTY PROVISION
A leasehold property provision is recognised when the Group is committed to certain leasehold premises for which it no
longer has a commercial use. It is made to the extent of the estimated future net cost, excluding the lease liability already
recognised under IFRS 16. A leasehold property provision is also recognised when there is future obligation relating to the
maintenance of leasehold properties. The provision is based on management’s best estimate of the obligation which forms
part of the Group’s unavoidable cost of meeting its obligations under the lease contracts.
LITIGATION PROVISION
A litigation provision is recognised when a litigation case is outstanding at the end of the reporting period and there
is a likelihood that the legal claim will be settled.
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RESTRUCTURING PROVISION
A restructuring provision is recognised when a detailed formal plan for the restructuring has been developed and a valid
expectation has been raised in those affected that it will carry out the restructuring by starting to implement the plan or
announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct
expenditures arising from the restructuring which are those amounts that are both necessarily entailed by the restructuring
and not associated with ongoing activities of the Group.
DISPOSAL GROUP AND ASSETS HELD FOR SALE
Where the Group is committed to a plan to sell and is actively marketing a business and disposal is expected within one
year of the date of classification as held for sale, the assets and liabilities of the associated businesses are separately
disclosed in the consolidated statement of financial position as a disposal group. Assets and liabilities are classified as assets
held for sale if their carrying amount is to be recovered principally through a sale transaction rather than through continuing
use. Both disposal groups and assets and liabilities held for sale are stated at the lower of their carrying amount and fair
value less costs to sell.
SEGMENTAL REPORTING
Segment information is reported in accordance with IFRS 8 ‘Operating segments’, which requires segmental reporting to
be presented on the same basis as the internal management reporting. The Group’s operating segments are countries or
groups of countries and the market channels, Distribution and Retail. These operating segments are then aggregated into
reporting segments to combine those with similar characteristics. The accounting policies of the reportable segments are
the same as the Group’s accounting policies described in this note.
FINANCIAL INSTRUMENTS
The Group classifies its financial assets in the following categories: measured at amortised cost; measured at fair value
through profit and loss; and measured at fair value through other comprehensive income. Classification and subsequent
remeasurement depends on the Group’s business model for managing the financial asset and its cash flow characteristics.
Assets that are held for collection of contractual cash flows, where those cash flows represent solely payments of principal
and interest, are measured at amortised cost.
Measured at amortised cost includes non-derivative financial assets and liabilities with fixed or determinable payments that
are not quoted in an active market. Financial assets are included in current assets, except where the maturity date is more
than 12 months after the end of the reporting period. They are initially recorded at fair value and subsequently recorded at
amortised cost. Financial liabilities are included in current liabilities, except where the maturity date is more than 12 months
after the end of the reporting period.
Measured at fair value through profit and loss includes derivative financial assets and liabilities, which are further explained
below. They are classified according to maturity date, within current and non-current assets and liabilities respectively.
Measured at fair value through other comprehensive income includes certain financial assets at fair value such as bonds
and equity investments. These financial assets are included in current assets and liabilities, except where the maturity date
is more than 12 months after the end of the reporting period. Financial assets at fair value through other comprehensive
income are classified as non-current assets unless management intends to dispose of them within 12 months of the end
of the reporting period and are held at fair value.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the consolidated statement of financial position comprise cash at bank and in hand,
short-term bank deposits and cash and cash equivalents included in disposal groups held for sale.
Short-term bank deposits have a maturity of less than three months from the date at which the investment is acquired.
In the consolidated statement of cash flows, cash and cash equivalents comprise cash and cash equivalents, as defined
above, net of bank overdrafts.
OFFSETTING
Netting in the consolidated statement of financial position only occurs to the extent that there is the legal ability and
intention to settle net. As such, bank overdrafts are presented in current liabilities to the extent that there is no intention
to offset with the cash balance.
DERIVATIVE FINANCIAL INSTRUMENTS
An outline of the objectives, policies and strategies pursued by the Group in relation to its financial instruments is set out
in note 24 to the consolidated financial statements.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative
is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain
derivatives as:
• hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or
• hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash
flow hedge).
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FAIR VALUE HEDGE
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the
consolidated income statement, together with any changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk. The Group only applies fair value hedge accounting for hedging fixed interest risk on
borrowings and future fixed amount currency liabilities (on its cross-currency interest rate swaps). The gain or loss relating to
the effective portion of interest rate swaps hedging fixed rate borrowings and changes in the fair value of those borrowings
is recognised in the consolidated income statement within ‘finance costs’. The gain or loss relating to the ineffective portion
is also recognised in the consolidated income statement within ‘finance costs’.
CASH FLOW HEDGE
For cash flow hedges that meet the conditions for hedge accounting, the portion of the gains or losses on the hedging
instrument that is determined to be an effective hedge is recognised directly in other comprehensive income and the
ineffective portion is recognised within ‘net operating expenses’ in the consolidated income statement. When the hedged
forecast transaction results in the recognition of a non-financial asset or liability then, at the time the asset or liability is
recognised, the associated gains or losses that had previously been recognised in other comprehensive income are
included in the initial measurement of the acquisition cost or other carrying amount of the asset or liability. For all other cash
flow hedges, the gains or losses that are recognised in other comprehensive income are transferred to the consolidated
income statement in the same period in which the hedged forecast transaction affects the consolidated income statement.
FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
Financial assets at fair value through other comprehensive income are primarily equity instruments that the Group has
elected to recognise the changes in fair value of in other comprehensive income. They are recognised initially at fair value
and are re-measured subsequently at fair value with gains and losses arising from changes in fair value recognised directly
in equity and presented in the Group statement of comprehensive income. Cumulative gains and losses on equity
instruments at fair value through other comprehensive income are not recycled to the Group income statement.
SHARE CAPITAL
Ordinary shares are classified as equity. Where the Group purchases the Group’s equity share capital (treasury shares),
the consideration paid is deducted from shareholders’ equity until the shares are cancelled, reissued or disposed of.
Where such shares are subsequently sold or reissued, any consideration received is included in shareholders’ equity.
DIVIDENDS
Final dividends proposed by the Board of Directors and unpaid at the year-end are not recognised in the consolidated
financial statements until they have been approved by the shareholders at the Annual General Meeting. Interim dividends
are recognised when they are paid.
CRITICAL ACCOUNTING JUDGEMENTS AND SOURCES OF ESTIMATION UNCERTAINTY
The preparation of financial statements in accordance with generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based
on management’s best knowledge, actual results may ultimately differ from those estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. The Directors have made a number of estimates and assumptions
regarding the future, and made some significant judgements in applying the Group’s accounting policies. These are
discussed below:
SOURCES OF ESTIMATION UNCERTAINTY
The key assumptions about the future, and other key sources of estimation uncertainties at the reporting period end that
may have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within in the next
period are discussed below:
IMPAIRMENT OF GOODWILL AND INDEFINITE LIFE INTANGIBLE ASSETS
In the year, an impairment charge of £12.9m against goodwill has been recognised in the income statement, offset by
a reversal of £12.9m against indefinite life intangible assets. The most significant judgement that could materially impact
the charge is in relation to the sensitivity of the assumptions applied to the value in use calculations performed over the
Americas – Suzuki CGU groups.
Goodwill and other indefinite life intangible assets are tested at least annually for impairment. When an impairment review
is carried out, the recoverable value is determined based on value in use calculations which require the use of estimates,
including projected future cash flows (see note 11).
The value in use calculations mainly use cash flow projections based on five-year financial forecasts prepared by
management. The key assumptions for these forecasts are those relating to volumes, revenue, gross margins, the level of
working capital required to support trading, discount rates, long-term growth rate and capital expenditure. For CGU groups
in the Americas & Africa reporting segment, cash flows after the five-year period are extrapolated for a further five years
using declining growth rates which reduces the year five growth rate down to the long-term growth rate appropriate for
each CGU or CGU group, to better reflect the medium-term growth expectations for those markets. A terminal value
calculation is used to estimate the cash flows after year 10 using these long-term growth rates. For all other markets,
a terminal value calculation is used to estimate the cash flows after year five.
134 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
The assumptions used in the value in use calculations are based on past experience, recent trading and forecasts of
operational performance in the relevant markets including the impact of Covid-19 and the UK trading arrangements with
the European Union. They also reflect expectations about continuing relationships with key brand partners and the impact
climate change may have on its operations. Whilst at this stage there is significant uncertainty regarding what the long-term
impact of climate change initiatives may be on the markets in which we operate, the forecasts reflect our best estimate.
PENSIONS AND OTHER POST-RETIREMENT BENEFITS – ASSUMPTIONS
Pension and other post-retirement benefit liabilities are determined based on the actuarial assumptions detailed in note 5.
A number of these assumptions require estimates to be made, including the rate of inflation and expected mortality rates.
These assumptions are subject to a review on an annual basis and are determined in conjunction with an external actuary.
The use of different assumptions could have a material effect on the value of the relevant liabilities and could result in a
material change to amounts recognised in the income statement over time. Key assumptions and sensitivities for post-
employment benefit obligations are disclosed in note 5.
PENSIONS – DISCOUNT RATE
The Group’s defined benefit obligations are discounted at a rate set by reference to market yields at the end of the
reporting period on high quality corporate bonds. Significant judgement is required when setting the criteria for bonds to
be included in the population from which the yield curve is derived. The most significant criteria considered for the selection
of bonds include the issue size of the corporate bonds, quality of the bonds and the identification of outliers which are
excluded. Key assumptions and sensitivities for post-employment benefit obligations are disclosed in note 5.
CRITICAL ACCOUNTING JUDGEMENTS
RIGHT-OF-USE ASSETS AND LEASE LIABILITIES – EXTENSION AND TERMINATION OPTIONS
In determining the lease term, management considers all facts and circumstances that create an economic incentive to
exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options)
are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).
The Group has several retail, distribution and office property lease contracts that include extension and termination options.
The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew
or terminate the lease. All relevant factors are considered that create an economic incentive for it to exercise either the
renewal or termination, including: whether there are significant penalties to terminate (or not extend); whether any
leasehold improvements are expected to have a significant remaining value; historical lease durations; the importance of
the underlying asset to the Group’s operations; and the costs and business disruption required to replace the leased asset.
The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this
assessment and that is within the control of the lessee. Refer to note 13 for additional disclosures relating to leases.
EXCEPTIONAL ITEMS
The Directors believe that adjusted profit and earnings per share measures provide additional useful information to
shareholders on the performance of the business. These measures are consistent with how business performance is
measured internally by the Board and Executive Committee. The operating profit before exceptional items and profit before
tax and exceptional items measures are not recognised profit measures under IFRS and may not be directly comparable
with such profit measures used by other companies. The classification of exceptional items requires significant management
judgement after considering the nature and intentions of a transaction.
In the current year, management has exercised judgement in respect of the treatment of accelerated amortisation that
arose on existing software assets following a strategic decision to migrate existing ERP applications to a cloud-based
solution. The decision resulted in a change in the estimated useful life of the existing ERP assets that materially increased
the amortisation charge for the year. The incremental amortisation charge has been treated as an exceptional item in
accordance with the Group’s policy. The Group’s definitions of exceptional items are outlined within the Group accounting
policies and note 2 provides further details on current year exceptional items and their adherence to Group policy.
CLASSIFICATION OF VEHICLE FUNDING ARRANGEMENTS
The Group finances the purchase of vehicles using vehicle funding facilities provided by various lenders including the
captive finance companies associated with brand partners. In assessing whether the liabilities arising under these
arrangements should be classified within trade and other payables rather than as an additional component of the Group’s
net debt within borrowings, the Group considers a number of factors including whether the arrangement is a requirement
of the relationship with the OEM, in relation to specific, separately identifiable vehicles held as inventory and whether
payment terms are the shorter of the agreed terms of the arrangement or until the specific vehicle being funded is sold
to the end customer. Each agreement entered into has its own terms and conditions and determining whether a new or
renewed arrangement should be classified within trade and other payables requires significant management judgement.
See also note 21.
ASSIGNMENT OF AN INDEFINITE USEFUL LIFE TO DISTRIBUTION AGREEMENTS
The Group’s principal intangible assets relate to agreements with manufacturers for the distribution of new vehicles and
parts. These distribution agreements are assigned an indefinite useful life as though these agreements have limited terms,
they have historically been renewed by the Group without substantial cost and the Group’s history shows that OEMs have
not terminated our distribution agreements. Additionally, there are no known changes or events that would impact the
vehicle distribution environments in which the Group has such assets recognised. The Group therefore expects these
agreements to be renewed indefinitely and accordingly no amortisation is charged on these assets.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 135
## NOTES TO THE FINANCIAL STATEMENTS
1 SEGMENTAL ANALYSIS
The Group has five reportable segments which have been identified based on the operating segments of the Group that
are regularly reviewed by the chief operating decision-maker, which has been determined to be the Executive Committee,
in order to assess performance and allocate resources. Operating segments are then aggregated into reporting segments
to combine those with similar economic characteristics.
In 2020, following the disposal of the Group’s business in China and the Retail disposals in Australia in 2019, the management
and reporting of the previous Asia and Australasia regions changed to encompass the combination of these to form an
Asia Pacific (APAC) region. The Retail businesses in the APAC region which were disposed of in 2019 and 2020 were
maintained as a separate reportable segment. In 2020, this segment solely represents the disposed of businesses in Australia.
The Group reports the performance of its reporting segments after the allocation of central costs. These represent costs of
Group functions.
The following summary describes the operations of each of the Group’s reportable segments:
Distribution APAC, Exclusive distribution, sales and marketing activities of New Vehicles and Parts.
UK & Europe,
Sale of New and Used Vehicles together with logistics services where the Group
Americas & Africa
may also be the exclusive distributor, alongside associated Aftersales activities of
service, bodyshop repairs and parts sales
Retail APAC, Sale of New and Used Vehicles, together with associated Aftersales activities of
UK & Europe service, bodyshop repairs and parts sales
Distribution Retail

|  |  |  | UK & | Americas |  |  | Total |  |  | UK & | Total |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | APAC |  | Europe | & Africa |  | Distribution |  | APAC |  | Europe | Retail | Total |
| 2021 |  | £m | £m |  | £m |  | £m |  | £m | £m | £m | £m |

Revenue
Total revenue 2,146.9 1,476.4 1,048.4 4,671.7 – 2,968.4 2,968.4 7,640.1
Results
Operating profit before
exceptionalitems 127.8 41.4 76.8 246.0 – 82.1 82.1 328.1
Operating exceptional items (101.2)
Operating profit after
exceptionalitems 226.9
Share of profit after tax of joint
ventures and associates –
Profit before finance and tax 226.9
Finance income 12.5
Finance costs (44.6)
Profit before tax 194.8
Tax (72.9)
Profit for the year 121.9
The Group’s reported segments are based on the location of the Group’s assets. Revenue earned from sales is disclosed by
origin and is not materially different from revenue by destination. Revenue is further analysed as follows:
2021 £m
UK 1,894.3
Australia 1,003.6
Russia 852.8
Rest of the world 3,889.4
Group 7,640.1
136 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
1 SEGMENTAL ANALYSIS CONTINUED
Distribution Retail

|  |  |  | UK & | Americas |  |  | Total |  |  | UK & | Total |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | APAC |  | Europe | & Africa |  | Distribution |  | APAC |  | Europe | Retail | Total |
| 2021 |  | £m | £m |  | £m |  | £m |  | £m | £m | £m | £m |

Segment assets and liabilities
Segment assets 428.9 256.4 336.1 1,021.4 – 489.9 489.9 1,511.3
Other current assets 629.8
Other non-current assets 1,417.0
Segment liabilities (633.9) (261.1) (318.6) (1,213.6) – (407.6) (407.6) (1,621.2)
Other liabilities (806.4)
Net assets 1,130.5
Segment assets include net inventory, receivables and derivative assets. Segment liabilities include payables, provisions
and derivative liabilities.
Distribution Retail

|  |  |  | UK & | Americas |  |  | Total |  |  | UK & | Total |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | APAC |  | Europe | & Africa |  | Distribution |  | APAC |  | Europe | Retail | Total |
| 2021 |  | £m | £m |  | £m |  | £m |  | £m | £m | £m | £m |

Other segment items
Capital expenditure:
– Property, plant and equipment 10.7 5.1 12.4 28.2 – 21.2 21.2 49.4
– Interest in leased vehicles 1.8 2.0 0.1 3.9 – – – 3.9
– Right-of-use assets 29.1 1.6 7.8 38.5 – 6.2 6.2 44.7
– Intangible assets 4.1 4.6 2.8 11.5 – 4.3 4.3 15.8
Depreciation:
– Property, plant and equipment 7.7 3.7 7.2 18.6 – 11.4 11.4 30.0
– Interest in leased vehicles 2.0 0.2 0.3 2.5 – – – 2.5
– Right-of-use assets 25.3 4.7 9.3 39.3 – 10.6 10.6 49.9
Amortisation of intangible assets 11.5 13.2 3.4 28.1 – 4.9 4.9 33.0
Impairment of goodwill – – 12.9 12.9 – – – 12.9
Reversal of impairment of
distribution agreements – – (12.9) (12.9) – – – (12.9)
Impairment of other
intangibleassets 0.1 – 0.1 0.2 – – – 0.2
Impairment / (reversal of
impairment) of property, plant
andequipment – 0.4 0.3 0.7 – (2.6) (2.6) (1.9)
Impairment of right-of-use assets 0.3 – 0.6 0.9 – 0.2 0.2 1.1
Impairment of assets held for sale – – 1.5 1.5 – – – 1.5
Net provisions charged to the
consolidated income statement 10.7 3.0 8.0 21.7 – 5.7 5.7 27.4
Net provisions include inventory, trade receivables impairment and other liability provisions.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 137
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 SEGMENTAL ANALYSIS CONTINUED
Distribution Retail

|  |  |  |  | UK & | Americas |  |  | Total |  |  | UK & | Total |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | APAC |  | Europe | & Africa |  | Distribution |  | APAC |  | Europe | Retail | Total |
| 2020 (restated) | 1 |  | £m | £m |  | £m |  | £m |  | £m | £m | £m | £m |

Revenue
Total revenue 1,902.6 1,120.2 797.1 3,819.9 9.4 3,008.5 3,017.9 6,837.8
Results
Operating profit before exceptional
items 80.3 25.0 34.2 139.5 0.4 24.2 24.6 164.1
Operating exceptional items (257.1)
Operating loss after exceptional
items (93.0)
Share of profit after tax of joint
ventures and associates –
Loss before finance and tax (93.0)
Finance income 14.4
Finance costs (51.0)
Loss before tax (129.6)
Tax (9.5)
Loss for the year (139.1)
1. See note 35.
The Group’s reported segments are based on the location of the Group’s assets. Revenue earned from sales is disclosed by
origin and is not materially different from revenue by destination. Revenue is further analysed as follows:
2020 £m
UK 1,978.9
Australia 838.7
Russia 835.6
Rest of the world 3,184.6
Group 6,837.8
Distribution Retail

|  |  |  |  | UK & | Americas |  |  | Total |  |  | UK & | Total |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | APAC |  | Europe | & Africa |  | Distribution |  | APAC |  | Europe | Retail | Total |
| 2020 (restated) | 1 |  | £m | £m |  | £m |  | £m |  | £m | £m | £m | £m |

Segment assets and liabilities
Segment assets 402.7 281.6 361.7 1,046.0 – 618.4 618.4 1,664.4
Other current assets 515.3
Other non-current assets 1,432.2
Segment liabilities (602.1) (295.8) (299.3) (1,197.2) – (566.4) (566.4) (1,763.6)
Other liabilities (787.1)
Net assets 1,061.2
1. See note 35.
Segment assets include net inventory, receivables and derivative assets. Segment liabilities include payables, provisions
and derivative liabilities.
138 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
1 SEGMENTAL ANALYSIS CONTINUED
Distribution Retail

|  |  |  |  | UK & | Americas |  |  | Total |  |  | UK & | Total |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | APAC |  | Europe | & Africa |  | Distribution |  | APAC |  | Europe | Retail | Total |
| 2020 (restated) | 1 |  | £m | £m |  | £m |  | £m |  | £m | £m | £m | £m |

Other segment items
Capital expenditure:
– Property, plant and equipment 6.0 2.4 9.2 17.6 – 9.9 9.9 27.5
– Interest in leased vehicles 2.3 0.7 0.1 3.1 – – – 3.1
– Right-of-use assets 10.4 3.4 3.5 17.3 – 5.3 5.3 22.6
– Intangible assets 6.1 2.6 2.0 10.7 – 4.2 4.2 14.9
Depreciation: –
– Property, plant and equipment 9.5 4.0 9.3 22.8 – 13.1 13.1 35.9
– Interest in leased vehicles 3.1 0.1 0.8 4.0 – 0.1 0.1 4.1
– Right-of-use assets 28.5 4.7 10.6 43.8 – 10.4 10.4 54.2
Amortisation of intangible assets 6.3 3.2 2.1 11.6 – 3.0 3.0 14.6
Impairment of goodwill 11.1 – 6.2 17.3 – 80.2 80.2 97. 5
Impairment of distribution
agreements – – 31.2 31.2 – – – 31.2
Impairment of other
intangibleassets 5.7 1.2 1.5 8.4 – 9.4 9.4 17.8
Impairment of property, plant
andequipment 9.7 1.2 1.4 12.3 – 30.4 30.4 42.7
Impairment of right-of-use assets 24.7 – 0.2 24.9 – 8.4 8.4 33.3
Net provisions charged /
(credited)to the consolidated
income statement 15.9 4.7 11.8 32.4 – (3.4) (3.4) 29.0
1. See note 35.
Net provisions include inventory, trade receivables impairment and other liability provisions.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 139
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# 2 EXCEPTIONAL ITEMS

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Goodwill and distribution agreement impairments (see note 1) | - | (128.7)  |
|  Other asset write-offs and impairments (see notes 1, 12 and 13) | 2.9 | (94.3)  |
|  Inventory and other provisions | - | (9.9)  |
|  Disposal of businesses (see note 29) | (67.3) | 1.9  |
|  Restructuring costs | (13.3) | (28.4)  |
|  Acquisition of businesses | (3.4) | (4.1)  |
|  Accelerated amortisation | (20.1) | -  |
|  Other operating exceptional items | - | 8.4  |
|  Total exceptional operating items before tax | (101.2) | (257.1)  |
|  Exceptional tax (see note 8) | (1.3) | 24.2  |
|  Total exceptional items | (102.5) | (232.9)  |

Total exceptional items are analysed as follows:

|  Exceptional cost of sales | - | (3.6)  |
| --- | --- | --- |
|  Exceptional net operating expenses | (101.2) | (245.5)  |
|  Exceptional tax (see note 8) | (1.3) | 24.2  |
|  Total exceptional items | (102.5) | (232.9)  |

During the year, the Group disposed of businesses in the UK, Belgium & Luxembourg and Russia. The loss on disposal in Russia relates to the sale of Toyota and Audi retail operations in St. Petersburg. The reported loss includes a loss of $108.0m relating to the recycling of cumulative exchange differences previously recognised in other comprehensive income, as required under IFRS. The disposal of retail sites in the UK and Belgium & Luxembourg have also been reported as exceptional items as they form part of the Group-wide disposal of retail operations referred to above.

In 2020, due to the impact of Covid-19 on the Group's operations a review of the Group's cost base was initiated to identify savings and plan longer-term changes to the way in which the Group operates. A proposal was approved by the Board for a planned restructuring activity under which the Group incurred restructuring costs of $28.4m during 2020. These costs were principally in relation to redundancy, consultancy and occupancy costs. In 2021, a further $3.3m of restructuring costs have been recognised, mainly in relation to Group-wide transformation projects impacting both Finance and IT, encompassing the potential for sharing back-office services and review of organisational structures and costs. These costs have been reported as exceptional costs in line with the Group's policy to report significant Group-wide restructuring impacting multiple geographies and functions as an exceptional item.

In 2021, the Group started to migrate the Group's existing ERP applications to a cloud-based solution. This was a strategic decision to consolidate and upgrade the systems, improve speed and performance and facilitate centralised support following the transformation of the Information Technology organisational structure. The new solution has been determined to be Software as a Service (see Accounting Policies) and therefore the existing software assets no longer fail to be treated as an asset under IAS 38 once the migration to the new solution has occurred. Consequently, the useful life of the existing assets has been reassessed and the impact has been accounted for prospectively as a change in an estimate. This change resulted in a significant increase in the amortisation recognised for software costs. Accordingly, the incremental amortisation of $20.1m has been disclosed as an exceptional item in accordance with the Group's policy.

During the year exceptional operating costs of $3.4m have been incurred in connection with the acquisition and integration of businesses.

In 2020, due to Covid-19 and the temporary closure of operations across the Group's many markets, impairment assessments were carried out using cash flow forecasts updated for latest available market data and estimates of fair value less costs of disposal. As a result of these reviews, the Group recognised goodwill impairment charges of $80.2m and $3.1m in the UK and Australia respectively. Additionally, further impairment charges were recognised against the Americas - Suzuki CGU of $6.2m and $31.2m against goodwill and distribution agreement assets respectively. Exceptional items also include asset impairments and write-offs of $94.3m following an impairment review of certain site-based assets across the Group, primarily in the UK, Australia and Russia.

In 2020, the Group also

- recognised additional inventory and other provisions of $8.9m, which were determined to be directly attributable to the Covid-19 pandemic and therefore disclosed as an exceptional charge;
- continued to optimise its retail market portfolio and recognised an exceptional operating profit of $19m related to the disposal of retail sites in the UK and Australia;
- incurred exceptional operating costs of $4.9m in connection with the acquisition and integration of businesses. These primarily related to the Daimler businesses acquired in South America; and
- recognised exceptional other operating items of $8.4m including the recycling of a cumulative gain previously recorded in OCI which arose due to the reorganisation of the ownership structure of the Group's operations in the APAC region.

140

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
3 REVENUE AND EXPENSES
a. Revenue
An analysis of the Group’s revenue for the year is as follows:
2021 2020
£m £m
Sale of goods 7,134.3 6,312.1
Provision of services 505.8 525.7
7,640.1 6,837.8
Sale of goods includes the sale of new and used vehicles and the sale of parts where they are sold directly to the customer.
Provision of services includes financial services, as well as labour and parts provided in servicing vehicles.
b. Analysis of net operating expenses
Net operating

| Net operating |  |  |  |  |  |  |  |  | expenses |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | expenses |  |  |  |  |  |  |  |  | before |  |  |  |  |  |  |  |
|  |  | before |  |  |  |  |  |  | exceptional |  |  |  |  | Net operating |  |  |  |
| exceptional |  |  |  | Exceptional |  | Net operating |  |  |  | items |  | Exceptional |  |  | expenses |  |  |
|  |  | items |  |  | items |  | expenses |  |  | 2020 |  |  | items |  |  | 2020 |  |
|  |  | 2021 |  |  | 2021 |  |  | 2021 | (restated) |  | 1 |  | 2020 |  | (restated) |  | 1 |
|  |  |  | £m |  | £m |  |  | £m |  | £m |  |  | £m |  |  | £m |  |

Distribution costs 336.9 – 336.9 375.0 – 375.0
Administrative expenses 473.8 33.9 507.7 348.6 255.8 604.4
Other operating expenses /
(income) 2.1 67.3 69.4 1.7 (10.3) (8.6)
812.8 101.2 914.0 725.3 245.5 970.8
1. See note 35.
c. Profit / (loss) before tax is stated after the following charges / (credits):
2020
2021 (restated) 1
£m £m
Depreciation of tangible fixed assets:
– Property, plant and equipment 30.0 35.9
– Interest in leased vehicles 2.5 4.1
– Right-of-use assets 49.9 54.2
Amortisation of intangible assets 33.0 14.6
Impairment of goodwill 12.9 97.5
(Reversal of impairment) / Impairment of distribution agreements (12.9) 31.2
Impairment of other intangible assets 0.2 17.8
(Reversal of impairment) / Impairment of property, plant and equipment (1.9) 42.7
Impairment of right-of-use assets 1.1 33.3
Impairment of assets held for sale 1.5 –
Impairment of trade receivables 2.6 2.8
(Profit) / loss on sale of property, plant and equipment (4.8) 0.9
1. See note 35.
Profit on the sale of property, plant and equipment in 2021 mainly relates to the sale of surplus assets in the UK and APAC
(2020 – loss on sale of property, plant and equipment of surplus assets in South America and the UK).
The Group has benefited from reduced tax regimes in 2021 in Singapore, the amounts received in the year were £0.7m.
In 2020, broader government Covid-19 support measures were available to the Group. The amounts received were £30.8m,
predominantly from the UK, Australia and Singapore governments. The Group did not benefit from the business rates holiday
for the retail sector in the UK (2020: £2.6m).
The Group has not made use of government-backed tax deferral schemes, resulting in a benefit to net cash generated
from operating activities of £nil (2020: £7.4m).
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 141
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

### 3 REVENUE AND EXPENSES CONTINUED

#### d. Auditor's remuneration

During the year the Group (including its overseas subsidiaries) obtained the following services from the Group's auditor at costs as detailed below:

|   | 2021 $m | 2020 $m  |
| --- | --- | --- |
|  Audit services:  |   |   |
|  Fees payable to the Company's auditor and its associates for the audit of the parent company and the consolidated financial statements | 0.7 | 0.6  |
|  Fees payable to the Company's auditor and its associates for other services:  |   |   |
|  - The audit of the Company's subsidiaries | 2.9 | 3.1  |
|  - Audit related assurance services | 0.1 | 0.3  |
|  - All other services | 0.1 | 0.1  |
|  Total fees payable to the Company's auditor | 3.8 | 4.1  |
|  Audit fees - firms other than the Company's auditor | 0.1 | 0.1  |

#### e. Staff costs

|   | 2021 $m | 2020 $m  |
| --- | --- | --- |
|  Wages and salaries | 468.2 | 443.7  |
|  Social security costs | 42.1 | 41.6  |
|  Other pension costs | 16.6 | 24.3  |
|  Share-based payment charge | 8.4 | 3.3  |
|   | 535.3 | 522.9  |

Other pension costs correspond to the current service charge and past service cost in relation to defined benefit schemes and contributions to the defined contribution schemes (see note 5).

Information on Directors' emoluments and interests which forms part of these audited consolidated financial statements is given in the Directors' Report on Remuneration which can be found on pages 84 to 103 of this document. Information on compensation of key management personnel is set out in note 32b.

#### f. Average monthly number of employees

|   | Distribution |   | Retail |   | Total  |   |
| --- | --- | --- | --- | --- | --- | --- |
|   |  2021 Number | 2020 Number | 2021 Number | 2020 Number | 2021 Number | 2020 Number  |
|  APAC | 3,343 | 3,487 | - | 47 | 3,343 | 3,464  |
|  UK & Europe | 1,480 | 1,656 | 5,623 | 7,101 | 7,103 | 8,797  |
|  Americas & Africa | 3,691 | 3,493 | - | - | 3,691 | 3,493  |
|  Total operational | 8,514 | 8,546 | 5,623 | 7,208 | 14,137 | 15,754  |
|  Central & Digital |  |  |  |  | 290 | 101  |
|   |  |  |  |  | 14,427 | 15,915  |

142

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
4 SHARE-BASED PAYMENTS
The terms and conditions of the Group’s share-based payment plans are detailed in the Directors’ Report on Remuneration.
The charge arising from awards granted under share-based payment plans was £8.4m (2020 – £3.3m), all of which was
equity-settled.
The Other Share Plan’s disclosures below include other share-based incentive plans for senior executives and employees.
The following table sets out the movements in the number of share options and awards during the year:

|  |  | Weighted |  | Executive |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | average | Performance |  | Share | Save As You |  |  | Other |
| 2021 | exercise price* |  | Share Plan | Option Plan |  |  | Earn Plan | Share Plans |  |

Outstanding at 1 January £4.31 5,384,155 – 2,784,768 977,123
Granted £7.31 1,656,719 – 346,367 459,655
Exercised £5.38 (522,594) – (349,320) (145,891)
Lapsed £4.58 (1,551,230) – (712,923) (160,004)
Outstanding at 31 December £4.53 4,967,050 – 2,068,892 1,130,883
Exercisable at 31 December £5.52 76,405 – 38,901 4,221

|  |  | Weighted |  | Executive |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | average | Performance |  | Share | Save As You |  | Other |
| 2020 | exercise price* |  | Share Plan | Option Plan |  | Earn Plan | Share Plans |  |

Outstanding at 1 January £ 5.11 4,886,187 3,226 2,368,907 960,156
Granted £3.77 2,342,210 – 1,757,394 575,199
Exercised £5.39 (357,861) (3,224) (50,589) (167,162)
Lapsed £5.02 (1,486,381) (2) (1,290,944) (391,070)
Outstanding at 31 December £4.31 5,384,155 – 2,784,768 977,123
Exercisable at 31 December £6.66 256,048 – 124,733 34,292
* The weighted average exercise price excludes nil cost awards made under the Performance Share Plan and Other Share Plans.
The weighted average remaining contractual life for the awards outstanding at 31 December 2021 is 2.3 years (2020 –
2.5 years).
The range of exercise prices for options outstanding at the end of the year was £3.77 to £7.31 (2020 – £3.77 to £6.66). See
note 25 for further details.
The fair value of options granted under the Save As You Earn Plan and Other Share Plans is estimated as at the date of
grant using a Black-Scholes option pricing model, taking into account the terms and conditions upon which the options
were granted. The fair value of nil cost awards granted under the Performance Share Plan and Other Share Plans is the
market value of the related shares at the time of grant. The following table lists the main inputs to the model for awards
granted during the years ended 31 December 2021 and 31 December 2020:
Performance Share Plan Save As You Earn Plan Other Share Plans
2021 2020 2021 2020 2021 2020
Weighted average share price
atgrant date £7.93 £5.14 £8.35 £4.46 £8.24 £5.71
Weighted average share price
atdate of exercise £7.78 £4.84 £8.18 £6.66 £8.53 £4.88
Weighted average exercise price* n/a n/a £7.31 £3.77 n/a n/a
Vesting period 3.0 years 3.0 years 3.0 years 3.0 years 2.5 years 2.8 years
Expected volatility n/a n/a 31.4% 31.4% n/a n/a
Expected life of award 3.0 years 3.0 years 3.2 years 3.2 years 2.5 years 2.8 years
Weighted average risk-free rate n/a n/a 1.0% 1.0% n/a n/a
Expected dividend yield n/a n/a 3.8% 3.8% n/a n/a
Weighted average fair value
peroption £7.93 £5.14 £2.15 £0.91 £8.24 £5.71
* The weighted average exercise price excludes nil cost awards made under the Performance Share Plan and Other Share Plans.
No options were granted under the Executive Share Option Plan in 2021 or 2020.
The expected life and volatility of the options are based upon historical data.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS
The Group operates a number of pension and post-retirement benefit schemes for its employees in a number of its
businesses, primarily in the UK.
a. UK schemes: benefits, governance, cash flow obligations and investments
The Inchcape Motors Pension Scheme (‘IMPS’) in the UK is the Group’s main defined benefit pension scheme. It is comprised
of the Group, Motors, Normand and Cash+ sections. The Group, Motors and Normand sections provide benefits linked to
the final salary of members, are closed to new members and largely closed to future benefit accrual.
The Cash+ section is a defined benefit cash balance scheme. Following a consultation process with relevant employees
this section closed to future benefit accrual on 31 December 2020. From 1 January 2021 UK employees were offered
membership of the Inchcape Retirement Savings Plan, a defined contribution workplace personal pension scheme,
which is designed to comply with auto enrolment legislation.
The Group also operates the Inchcape Overseas Pension Scheme which is non-UK registered.
Benefit structure
Final salary schemes provide benefits to members in the form of a guaranteed level of pension payable for life. The level
of benefits provided depends on final salary at retirement (or leaving date, if earlier) and length of service. The Group bears
risks in relation to its final salary schemes, notably relating to investment performance, interest rates, inflation and members’
life expectancies. There is potential for these risks to harm the funding position of the schemes. If the schemes were to be
in deficit then additional contributions may be required from the Group. A number of exercises have been undertaken to
mitigate these key funding risks.
Cash balance schemes like Cash+ allow members to accrue a percentage of their earnings each year, which then grows
to provide a lump sum payment on retirement. Members have accrued benefits under this scheme with effect from
1January 2013 up to 31 December 2020. The Group underwrites the investment and interest rate risk to normal retirement
age (65). Inflation and mortality risks associated with benefits are borne solely by the members.
Defined contribution schemes like the Inchcape Retirement Savings Plan, which commenced on 1 January 2021, see
members’ individual accounts credited with employee and employer contributions which are then invested to provide
a pension pot on retirement. The Group does not underwrite investment, or other risks for this plan.
Governance
Our UK schemes are registered with HM Revenue and Customs (“HMRC”) and comply fully with the regulatory framework
published by the UK Pensions Regulator.
IMPS is established under trust law and has a trustee board that runs the scheme in accordance with the Trust Deed and
Rules and relevant legislation. The trustee board comprises an independent sole trustee company appointed by the Group.
As part of good governance, the Group reviewed the provision of trustee services to IMPS and after a formal tender process
it was decided to move to a Sole Trustee model from June 2021. The Trustee is required to act in the best interest of the
members and have responsibility for the scheme’s governance. The Trustee consults with the Group over decisions relating
to matters such as funding and investments.
The Inchcape Retirement Savings Plan (a workplace personal pension scheme) has an external pension provider with its
own governance committee.
The Group also has some minor unfunded arrangements relating to post-retirement health and medical plans in respect
of past employees.
144 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
# 5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS CONTINUED

# Scheme specific cash obligation/investment detail

Inchcape Motors Pension Scheme

Group, Motors and Normand sections (closed sections)

The Group considers two measures of the pension deficit. The accounting position is shown on the Group balance sheet. The funding position, calculated at the triennial actuarial valuation, is used to agree contributions made to IMPS. The Trustee has finalised the latest actuarial valuations as at 5 April 2019 for the four sections of IMPS. As part of the valuation process the Trustee and Group have agreed future levels of contributions required to be made by the Group to IMPS.

The last completed actuarial valuations for the Group, Motors and Normand sections were carried out at 5 April 2019 on a market-related basis and determined in accordance with the advice of the Scheme Actuary based on the defined accrued benefit method. The actuarial valuation determined that the duration of the liabilities was approximately 17 years and that an aggregate deficit of $18.3m existed. The Group currently contributes $0.6m p.a. towards the administrative costs of running these sections. For the Normand section, the Group also currently pays deficit reduction contributions of $0.2m p.a., rising by 3.0% p.a. up until 5 April 2025 (at which point the funding shortfall is expected to be eliminated).

During 2023, the Trustee, after taking expert advice and consulting with the Group, partially de-risled the investment strategy on the Group and Motors section by selling certain growth assets with the proceeds being used to increase the matching assets. Each section's investment strategy sees it holding a proportion of its assets in matching assets (broadly 84% for the Group section, 60% for the Motors section and 46% for the Normand section) with the remainder in growth assets. The matching assets are invested in a liability-driven investment solution complemented with absolute return bonds. They are expected to hedge inflation and interest rate risk in a capitally efficient manner. The growth assets are invested in assets that are expected to grow at rates significantly faster than each section's liabilities and include equities, diversified growth funds and property.

# Costs+ section (closed section)

The scheme is a defined benefit scheme under which members accrued benefits up until 31 December 2020. The latest actuarial valuation was carried out at 5 April 2019 on a market-related basis and determined in accordance with the advice of the Scheme Actuary based on the projected unit method. The valuation showed a funding deficit of $17.6m, with the Trustee expecting the shortfall to be removed by deficit recovery contributions and returns on the assets held. Under the agreed Schedule of Contributions the Group will contribute approximately $2.8m p.a. in deficit recovery contributions up until 5 April 2025 (at which point the funding shortfall is expected to be eliminated) and $0.2m p.a. towards the administrative costs of running the scheme.

The investment strategy is to be 60% invested in diversified growth funds which are designed to grow at a rate significantly faster than the liabilities, whilst spreading investment risk across a broad spectrum of asset classes. The remaining 40% is split equally between multi-factor equities and emerging market multi-asset funds.

# Inchcape Overseas Pension Scheme (closed section)

This scheme is managed from Guernsey and is subject to regulations similar to the UK. It is therefore reported under the United Kingdom in this note. The latest triennial actuarial valuation for this scheme was carried out at 31 March 2018 and determined in accordance with the advice of the Scheme Actuary based on the projected unit credit method. The actuarial valuation determined that the duration of the liabilities was approximately 12 years and that the scheme was approximately 77% funded on a prudent funding basis. To make good the funding deficit of $6.2m, it has been agreed that deficit contributions of $5.6m p.a. will be paid by means of an annual lump sum for 10 years, ending with the payment due in July 2020. The first payment at this new level was paid on 1 July 2020. Additional contributions in respect of expenses of $0.2m per annum will also be made. The 31 March 2021 triennial actuarial valuation is currently ongoing.

# b. Overseas schemes

There are a number of smaller defined benefit schemes overseas, the most significant being the Inchcape Motors Limited Retirement Scheme in Hong Kong. In general, these schemes offer a lump sum on retirement with no further obligation to the employee and assets are held in trust in separately administered funds. These schemes are typically subject to triennial valuations. The overseas defined contribution schemes are principally linked to local statutory arrangements.

# c. Defined contribution plans

The total expense recognised in the consolidated income statement is $14.5m (2020 - $5.9m). There are no outstanding contributions at 31 December 2021 (2020 - nil).

# d. Defined benefit plans

As the Group's principal defined benefit schemes are in the UK, these have been reported separately from the overseas schemes. For the purposes of reporting, actuarial updates have been obtained for the Group's material schemes and these updates are reflected in the amounts reported in the following tables.

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# **5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS CONTINUED**

The principal weighted average assumptions used by the actuaries were:

|   | United Kingdom |   | Overseas  |   |
| --- | --- | --- | --- | --- |
|   |  2021 % | 2020 % | 2021 % | 2020 %  |
|  Rate of increase in salaries | n/a | 3.0 | 3.5 | 3.5  |
|  Rate of increase in pensions | 3.2 | 2.9 | 1.8 | 1.6  |
|  Discount rate | 1.8 | 1.3 | 1.3 | 0.6  |
|  Rate of inflation: |  |  |  |   |
|  – Retail price index | 3.4 | 3.0 | 1.6 | 1.5  |
|  – Consumer price index | 2.5 | 1.8 | n/a | n/a  |
|  – Medical inflation | 6.0 | 6.0 | n/a | n/a  |

Assumptions regarding future mortality experience are set based on published statistics and experience. For the UK schemes, the average life expectancy of a pensioner retiring at age 65 is 22.6 years (2020 – 22.5 years) for current pensioners and 23.9 years (2020 – 23.9 years) for current non-pensioners. Most of the overseas schemes only offer a lump sum on retirement and therefore mortality assumptions are not applicable.

The asset/(liability) recognised in the consolidated statement of financial position is determined as follows:

|   | United Kingdom |   | Overseas |   | Total  |   |
| --- | --- | --- | --- | --- | --- | --- |
|   |  2021 £m | 2020 £m | 2021 £m | 2020 £m | 2021 £m | 2020 £m  |
|  Present value of funded obligations | (898.0) | (949.7) | (37.1) | (41.3) | (935.1) | (991.0)  |
|  Fair value of plan assets | 980.5 | 971.8 | 38.1 | 41.2 | 1,018.6 | 1,033.0  |
|  Net surplus/(deficit) in funded obligations | 82.5 | 22.1 | 1.0 | (0.1) | 83.5 | 22.0  |
|  Present value of unfunded obligations | (0.5) | (0.5) | (0.8) | (1.9) | (1.3) | (2.4)  |
|  – | 82.0 | 21.6 | 0.2 | (2.0) | 82.2 | 19.6  |

The net pension asset is analysed as follows:

|  Schemes in surplus | 133.1 | 99.9 | 2.2 | 1.1 | 135.3 | 103.0  |
| --- | --- | --- | --- | --- | --- | --- |
|  Schemes in deficit | (51.1) | (78.3) | (2.0) | (3.1) | (53.1) | (81.4)  |
|  – | 82.0 | 21.6 | 0.2 | (2.0) | 82.2 | 19.6  |

The amounts recognised in the consolidated income statement are as follows:

|   | United Kingdom |   | Overseas |   | Total  |   |
| --- | --- | --- | --- | --- | --- | --- |
|   |  2021 £m | 2020 £m | 2021 £m | 2020 £m | 2021 £m | 2020 £m  |
|  Current service cost | – | (17.1) | (3.1) | (0.9) | (3.1) | (18.0)  |
|  Past service cost | – | (0.4) | – | – | – | (0.4)  |
|  Scheme expenses | (1.5) | (1.4) | – | – | (1.5) | (1.4)  |
|  Interest expense on plan liabilities | (12.2) | (16.6) | (0.2) | (0.6) | (12.4) | (17.2)  |
|  Interest income on plan assets | 12.5 | 17.1 | 0.2 | 0.5 | 12.7 | 17.6  |
|  – | (1.2) | (18.4) | (2.1) | (1.0) | (3.3) | (19.4)  |

146 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## 5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS CONTINUED

The amounts recognised in the consolidated statement of comprehensive income are as follows:

|   | United Kingdom |   | Overseas |   | Total  |   |
| --- | --- | --- | --- | --- | --- | --- |
|   |  2021 $m | 2020 $m | 2021 $m | 2020 $m | 2021 $m | 2020 $m  |
|  Actuarial gains/(losses) on liabilities: |  |  |  |  |  |   |
|  - Experience (losses)/gains | (3.7) | (4.1) | 0.7 | 0.5 | (3.0) | (3.6)  |
|  - Changes in demographic assumptions | (6.5) | 27.2 | - | - | (6.5) | 27.2  |
|  - Changes in financial assumptions | 38.6 | (100.1) | 1.7 | (2.0) | 40.3 | (102.1)  |
|  Actuarial gains on assets: |  |  |  |  |  |   |
|  - Experience gains | 26.7 | 88.8 | 0.7 | 4.5 | 27.4 | 93.3  |
|   | 55.1 | 11.8 | 3.1 | 3.0 | 58.2 | 14.8  |

Analysis of the movement in the net asset/(liability):

|   | United Kingdom |   | Overseas |   | Total  |   |
| --- | --- | --- | --- | --- | --- | --- |
|   |  2021 $m | 2020 $m | 2021 $m | 2020 $m | 2021 $m | 2020 $m  |
|  At 1 January | 21.6 | 14.3 | (2.0) | (4.8) | 19.6 | 9.5  |
|  Amount recognised in the consolidated income statement | (1.2) | (18.4) | (2.1) | (1.0) | (3.3) | (19.4)  |
|  Contributions by employer | 6.5 | 13.9 | 1.1 | 1.0 | 7.6 | 14.9  |
|  Actuarial gains recognised in the year | 55.1 | 11.8 | 3.1 | 3.0 | 58.2 | 14.8  |
|  Effect of foreign exchange rates | - | - | 0.1 | (0.2) | 0.1 | (0.2)  |
|  **At 31 December** | **82.0** | **21.6** | **0.2** | **(2.0)** | **82.2** | **19.6**  |

Changes in the present value of the defined benefit obligation are as follows:

|   | United Kingdom |   | Overseas |   | Total  |   |
| --- | --- | --- | --- | --- | --- | --- |
|   |  2021 $m | 2020 $m | 2021 $m | 2020 $m | 2021 $m | 2020 $m  |
|  At 1 January | (950.2) | (873.3) | (43.2) | (47.8) | (993.4) | (921.1)  |
|  Current service cost | - | (17.1) | (2.1) | (0.9) | (2.1) | (18.0)  |
|  Past service cost | - | (0.4) | - | - | - | (0.4)  |
|  Interest expense on plan liabilities | (12.2) | (16.6) | (0.2) | (0.6) | (12.4) | (17.2)  |
|  Actuarial gains/(losses): |  |  |  |  |  |   |
|  - Experience (losses)/gains | (3.7) | (4.1) | 0.7 | 0.5 | (3.0) | (3.6)  |
|  - Changes in demographic assumptions | (6.5) | 27.2 | - | - | (6.5) | 27.2  |
|  - Changes in financial assumptions | 38.6 | (100.1) | 1.7 | (2.0) | 40.3 | (102.1)  |
|  Contributions by employees | - | (0.3) | - | - | - | (0.3)  |
|  Benefits paid | 35.5 | 34.5 | 4.8 | 5.8 | 40.3 | 40.3  |
|  Plan settlements | - | - | 0.3 | 1.1 | 0.3 | 1.1  |
|  Effect of foreign exchange rate changes | - | - | 0.1 | 0.7 | 0.1 | 0.7  |
|  **At 31 December** | **(898.5)** | **(950.2)** | **(37.9)** | **(43.2)** | **(936.4)** | **(993.4)**  |

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NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# **5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS CONTINUED**

Changes in the fair value of the defined benefit asset are as follows:

|   | United Kingdom |   | Overseas |   | Total  |   |
| --- | --- | --- | --- | --- | --- | --- |
|   |  2021 $m | 2020 $m | 2021 $m | 2020 $m | 2021 $m | 2020 $m  |
|  At 1 January | 971.8 | 887.6 | 41.2 | 43.0 | 1,013.0 | 930.6  |
|  Interest income on plan assets | 12.5 | 17.1 | 0.2 | 0.5 | 12.7 | 17.6  |
|  Scheme expenses | (1.5) | (1.4) | - | - | (1.5) | (1.4)  |
|  Actuarial gains: |  |  |  |  |  |   |
|  - Experience gains | 26.7 | 88.8 | 0.7 | 4.5 | 27.4 | 93.3  |
|  Contributions by employer | 6.5 | 13.9 | 1.1 | 1.0 | 7.6 | 14.9  |
|  Contributions by employees | - | 0.3 | - | - | - | 0.3  |
|  Benefits paid | (35.5) | (34.5) | (4.8) | (5.8) | (40.3) | (40.3)  |
|  Plan settlements | - | - | (0.3) | (1.1) | (0.3) | (1.1)  |
|  Effect of foreign exchange rate changes | - | - | - | (0.9) | - | (0.9)  |
|  **At 31 December** | **980.5** | **971.8** | **38.1** | **41.2** | **1,018.6** | **1,013.0**  |

At the end of the reporting period, the percentages of the plan assets by category were as follows:

|   | United Kingdom |   | Overseas |   | Total  |   |
| --- | --- | --- | --- | --- | --- | --- |
|   |  2021 | 2020 | 2021 | 2020 | 2021 | 2020  |
|  Equities (quoted) | 1.9% | 6.1% | 52.5% | 49.8% | 3.8% | 7.9%  |
|  Equities (unquoted) | - | - | - | - | - | -  |
|  Corporate bonds (quoted) | - | - | 39.6% | 40.8% | 1.5% | 1.7%  |
|  Investment funds (quoted) | - | - | - | - | - | -  |
|  Government bonds | - | - | 0.3% | 1.0% | - | -  |
|  Investment funds (unquoted) | 63.1% | 58.1% | - | - | 60.8% | 55.7%  |
|  Other (quoted) | - | - | 6.0% | 2.2% | 0.2% | 0.1%  |
|  Other (unquoted) | 35.0% | 35.8% | 1.6% | 6.2% | 33.7% | 34.6%  |
|   | 100% | 100% | 100% | 100% | 100% | 100%  |

The investments shown as quoted equities and bonds are held through funds where the underlying investments of the fund are quoted; investment funds and other assets include equities, bonds, property, derivatives and liability driven investments. Virtually all the equities and bonds held within the investment funds have prices in active markets. Derivatives, property and liability driven investments can be classified as level 2 instruments.

The schemes had no directly held employer related investment during the reporting period. The schemes' investment managers may potentially hold a small investment in Inchcape plc either through index weightings or stock selection (less than 0.5% of their respective fund values).

148 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## 5 PENSIONS AND OTHER POST-RETIREMENT BENEFITS CONTINUED

The following disclosures relate to the Group's defined benefit plans only.

### e. Risk management

#### Asset volatility

Scheme liabilities are calculated on a discounted basis using a discount rate which is set with reference to corporate bond yields. If scheme assets underperform this yield, then this will create a deficit. The combined schemes hold assets as defensive assets (liability driven investment solutions, absolute return bonds and annuity policies) which mitigate significant changes in yields, and active monitoring plans are in place to identify opportunities to increase the proportion of such assets further when economically possible.

As the schemes mature, the trustee reduces investment risk by increasing the allocation to defensive assets, which are designed to better match scheme liabilities. However, the trustee believes that due to the long-term nature of the scheme liabilities, a level of continuing growth asset investment is an appropriate element of the long-term investment strategy.

#### Inflation risk

The majority of the Group's defined benefit obligations are linked to inflation. Higher inflation will lead to higher liabilities, although in the majority of cases there are caps on the level of inflationary increases to be applied to pension obligations. The Group's investment strategy across the schemes is to mitigate inflation risk through holding inflation-linked assets.

#### Life expectancy

Where relevant, the plans' obligations are to provide a pension for the life of the member, so realised increases in life expectancy will result in an increase in the plans' benefit payments. Future mortality rates cannot be predicted with certainty. All of the schemes conduct scheme-specific mortality investigations annually, to ensure the Group has a clear understanding of any potential increase in liability due to pensioners living far longer than assumed.

### f. Sensitivity analysis

The disclosures above are dependent on the assumptions used. The table below demonstrates the sensitivity of the defined benefit obligation to changes in the assumptions used for the UK schemes. Changes in assumptions have an immaterial effect on the overseas schemes.

#### Impact on the defined benefit obligation

|   | Unflechtingdom  |   |
| --- | --- | --- |
|   |  2021 £m | 2020 £m  |
|  Discount rate -0.25% (2020 - -0.5%) | +38.5 | +87.5  |
|  Discount rate +0.25% (2020 - +0.5%) | -35.9 | -77.1  |
|  RPI inflation -0.25% | -12.0 | -12.1  |
|  RPI inflation +0.25% | +9.8 | +12.6  |
|  CPI inflation -0.25% | -10.5 | -10.4  |
|  CPI inflation +0.25% | +10.3 | +8.0  |
|  Life expectancy + 1 year | +46.9 | +43.0  |

The above analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. The above variances have been used as they are believed to be reasonably possible fluctuations.

### g. Expected future cash flows

The Group paid approximately $6.5m to its UK defined benefit plans in 2021 under the prevailing Schedules of Contributions (following the 5 April 2019 actuarial valuations for the Motors, Group, Cash+ and Normand sections of the Inchcape Motors Pension Scheme and 31 March 2018 valuation for the Inchcape Overseas Pension Scheme). From 1 January 2021 (following the closure of the Cash+ section to future benefit accrual on 31 December 2020) the Group pays ongoing employer pension contributions into the Inchcape Retirement Savings Plan (a defined contribution plan).

The defined benefit obligations are based on the current value of expected benefit payment cash flows to members over the next several decades. The average duration of the liabilities is approximately 17 years for the UK schemes.

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NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# **6 FINANCE INCOME**

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Bank and other interest receivable | 11.5 | 11.6  |
|  Net interest income on post-retirement plan assets and liabilities | 0.3 | 0.4  |
|  Sub-lease finance income | 0.6 | 0.5  |
|  Other finance income | 0.1 | 1.9  |
|  Total finance income | 12.5 | 14.4  |

# **7 FINANCE COSTS**

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Interest payable on bank borrowings | 7.8 | 6.5  |
|  Interest payable on Private Placement | 6.3 | 6.6  |
|  Finance costs on lease liabilities | 10.6 | 13.9  |
|  Stock holding interest (see note 21) | 14.1 | 18.5  |
|  Other finance costs | 5.8 | 5.5  |
|  Total finance costs | 44.6 | 51.0  |

The Group capitalisation rate used for general borrowing costs in accordance with IAS 23 was a weighted average rate for the year of 2.0% (2020 - 2.0%).

# **8 TAX**

|   | 2021 £m | 2020 (restated) £m  |
| --- | --- | --- |
|  Current tax: |  |   |
|  - UK corporation tax | 0.1 | (0.7)  |
|  - Overseas tax | 83.0 | 47.9  |
|   | 83.1 | 47.2  |
|  Adjustments to prior year liabilities: |  |   |
|  - UK | - | (4.8)  |
|  - Overseas | (4.8) | (2.7)  |
|  Current tax | 78.3 | 39.7  |
|  Deferred tax (see note 17) | (5.4) | (30.2)  |
|  Total tax charge | 72.9 | 9.5  |

The total tax charge is analysed as follows:

|  - Tax charge on profit before exceptional items | 71.6 | 33.7  |
| --- | --- | --- |
|  - Tax charge/(credit) on exceptional items | 1.3 | (24.2)  |
|  Total tax charge | 72.9 | 9.5  |

1. See note 18.

Details of the exceptional items for the year can be found in note 2. Not all of the exceptional items will be taxable/allowable for tax purposes. Therefore, the tax charge on exceptional items represents the total of the current and deferred tax on only those elements that are assessed as taxable/allowable.

# **Factors affecting the tax expense for the year**

The effective tax rate for the year after exceptional items is 37.4% (2020 - 7.3% restated). The effective tax rate before the impact of exceptional items is 24.2% (2020 - 26.4% restated). The weighted average tax rate is 25.4% (2020 - 23.8% restated). The weighted average tax rate comprises the average statutory rates across the Group, weighted in proportion to accounting profits and losses.

During the period, there was a net loss generated by the legal entities within the UK tax group. Given current forecasts, no net deferred tax asset is recognised for the losses within the UK and this results in a higher overall tax expense than expected.

In addition, tax audits in several overseas markets were successfully closed and so provisions in respect of these audits have been released to offset the final assessed tax. The net result is a credit to the current tax charge, thus reducing the tax expense for the period.

150 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
# 8 TAX CONTINUED

The table below explains the differences between the expected tax expense of the weighted average tax rate and the Group's total tax expense.

|   | 2021 £m | 2020 (excluded) £m  |
| --- | --- | --- |
|  Profit/(loss) before tax | 194.8 | (129.6)  |
|  Profit/(loss) before tax multiplied by the weighted average tax rate of 25.4% (2020 - 25.8%) | 49.5 | (33.4)  |
|  - Permanent differences | 9.0 | 8.1  |
|  - Non-taxable income | (3.0) | (2.4)  |
|  - Prior year items | (0.8) | (5.1)  |
|  - Derecognition/(recognition) of deferred tax assets | 7.9 | 27.6  |
|  - Tax audits and settlements | (3.3) | (4.8)  |
|  - Taxes on undistributed earnings | 1.6 | 1.6  |
|  - Other items (including tax rate differentials and changes) | (0.6) | (0.6)  |
|  - Goodwill impairment (see note 1) | 3.8 | 20.5  |
|  - Acquisition and disposals of businesses | 8.9 | (1.8)  |
|  - Other asset write-offs and impairment (see notes 11, 12 and 13) | (0.1) | (0.2)  |
|  Total tax charge | 72.9 | 9.5  |

1 See note 38.

# Factors affecting the tax expense of future years

The Group's future tax expense, and effective tax rate, could be affected by several factors including: the resolution of audits and disputes, changes in tax laws or tax rates, the ability to utilise brought forward losses and business acquisitions and disposals. In addition, a change in profit mix between low and high taxed jurisdictions will impact the Group's future tax expense.

The utilisation of brought forward tax losses or the recognition of deferred tax assets associated with such losses may also give rise to tax charges or credits. The recognition of deferred tax assets, particularly in respect of tax losses, is based upon an assessment of whether it is probable that there will be sufficient and suitable taxable profits in the relevant legal entity or tax group against which to utilise the assets in the future. Judgement is required when determining probable future taxable profits. In the event that actual taxable profits are different to those forecast, the Group's future tax expense and effective tax rate could be affected. Information about the Group's tax losses and deferred tax assets can be found in note 17.

The Group has published its approach to tax on www.inchcape.com covering its tax strategy and governance framework.

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161
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# 9 EARNINGS PER SHARE

|   | 2021 £m | 2020 (excludes) £m  |
| --- | --- | --- |
|  Profit/(loss) for the year | 121.9 | (139.1)  |
|  Non-controlling interests | (4.9) | (2.9)  |
|  Basic earnings/(loss) | 117.0 | (142.0)  |
|  Exceptional items | 102.5 | 232.9  |
|  Adjusted earnings | 219.5 | 90.9  |
|  Basic earnings/(loss) per share | 30.0p | (36.0)p  |
|  Diluted earnings/(loss) per share | 29.6p | (36.0)p  |
|  Basic Adjusted earnings per share | 56.2p | 23.1p  |
|  Diluted Adjusted earnings per share | 55.6p | 22.9p  |

|   | 2021 number | 2020 number  |
| --- | --- | --- |
|  Weighted average number of fully paid ordinary shares in issue during the year | 391,136,363 | 394,448,982  |
|  Weighted average number of fully paid ordinary shares in issue during the year: |  |   |
|  - Held by the Inchcape Employee Trust | (553,006) | (535,394)  |
|  Weighted average number of fully paid ordinary shares for the purposes of basic EPS | 390,583,357 | 393,913,588  |
|  Dilutive effect of potential ordinary shares | 4,506,362 | 2,68,104  |
|  Adjusted weighted average number of fully paid ordinary shares in issue during the year for the purposes of diluted EPS | 395,089,719 | 396,529,692  |

1. See note 35.

Basic earnings/(loss) per share is calculated by dividing the Basic earnings/(loss) for the year by the weighted average number of fully paid ordinary shares in issue during the year, less those shares held by the Inchcape Employee Trust and repurchased as part of the share buyback programme.

Diluted earnings/(loss) per share is calculated on the same basis as Basic earnings/(loss) per share with a further adjustment to the weighted average number of fully paid ordinary shares to reflect the effect of all dilutive potential ordinary shares. Dilutive potential ordinary shares comprise share options and other share-based awards.

Basic Adjusted earnings (which excludes exceptional items) is adapted to assist the reader in providing an additional performance measure of the Group. Basic Adjusted earnings per share is calculated by dividing the Adjusted earnings for the year by the weighted average number of fully paid ordinary shares in issue during the year, less those shares held by the Inchcape Employee Trust and repurchased as part of the share buyback programme.

Diluted Adjusted earnings per share is calculated on the same basis as the Basic Adjusted earnings per share with a further adjustment to the weighted average number of fully paid ordinary shares to reflect the effect of all dilutive potential ordinary shares. Dilutive potential ordinary shares comprise share options and other share-based awards.

Information presented for diluted and diluted adjusted earnings per ordinary share uses the weighted average number of shares as adjusted for potentially dilutive ordinary shares as the denominator, unless it has the effect of increasing the profit or decreasing the loss attributable to each share.

# 10 DIVIDENDS

The following dividends were paid by the Group:

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Interim dividend for the six months ended 30 June 2021 of 6.4p per share (30 June 2020 of nil per share) | 25.1 | -  |
|  Final dividend for the year ended 31 December 2020 of 6.9p per share (31 December 2019 of nil per share) | 27.1 | -  |
|   | 52.2 | -  |

A final proposed dividend for the year ended 31 December 2021 of 16.1p per share is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability as at 31 December 2021.

The Group has sufficient distributable reserves to pay dividends to its ultimate shareholders. Distributable reserves are calculated on an individual legal entity basis and the ultimate parent company, Inchcape plc, currently has adequate levels of realised profits within its retained earnings to support dividend payments. At 31 December 2021, Inchcape plc's company-only distributable reserves were £308.4m. On an annual basis, the distributable reserve levels of the Group's subsidiary undertakings are reviewed and dividends paid up to Inchcape plc where it is appropriate to do so.

152

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
# 11 INTANGIBLE ASSETS

|   | Goodwill $m | Distribution agreements $m | Computer software $m | Total $m  |
| --- | --- | --- | --- | --- |
|  Cost  |   |   |   |   |
|  At 1 January 2020 | 594.1 | 261.1 | 232.0 | 1,087.2  |
|  Adjustment for IRBC ("SaaS") | - | - | (28.5) | (28.5)  |
|  At 1 January 2020 (restated)^{1} | 594.1 | 261.1 | 203.5 | 1,058.7  |
|  Businesses acquired | 1.2 | 14.2 | (0.1) | 15.3  |
|  Additions | - | - | 14.9 | 14.9  |
|  Disposals | - | - | (2.0) | (2.0)  |
|  Reclassifications | - | - | 1.9 | 1.9  |
|  Reclassified to assets held for sale | - | - | (0.4) | (0.4)  |
|  Effect of foreign exchange rate changes | (17.8) | 2.1 | (0.9) | (16.6)  |
|  At 1 January 2021 | 577.5 | 277.4 | 216.9 | 1,071.8  |
|  Businesses acquired (see note 29) | 17.7 | 3.8 | - | 21.5  |
|  Business sold | (30.6) | - | (4.1) | (34.7)  |
|  Additions | - | - | 15.8 | 15.8  |
|  Disposals | - | - | (2.5) | (2.5)  |
|  Reclassifications | - | - | (2.9) | (2.9)  |
|  Retirements | - | - | (2.2) | (2.2)  |
|  Effect of foreign exchange rate changes | (12.5) | (24.2) | (4.4) | (41.1)  |
|  At 31 December 2021 | 552.1 | 257.0 | 216.6 | 1,025.7  |

Accumulated amortisation and impairment

|  At 1 January 2020 | (378.4) | - | (130.9) | (509.3)  |
| --- | --- | --- | --- | --- |
|  Adjustment for IRBC ("SaaS") | - | - | 5.0 | 5.0  |
|  At 1 January 2020 (restated)^{1} | (378.4) | - | (125.9) | (504.3)  |
|  Amortisation charge for the year | - | - | (14.6) | (14.6)  |
|  Impairment charge for the year | (97.5) | (31.2) | (17.8) | (146.5)  |
|  Disposals | - | - | 1.4 | 1.4  |
|  Reclassifications | - | - | (1.8) | (1.8)  |
|  Reclassified to assets held for sale | - | - | 0.3 | 0.3  |
|  Effect of foreign exchange rate changes | 17.4 | 0.4 | 1.7 | 19.5  |
|  At 1 January 2021 | (458.5) | (30.8) | (156.7) | (646.0)  |
|  Amortisation charge for the year (note 2) | - | - | (33.0) | (33.0)  |
|  Impairment (charge)/reversal for the year | (12.9) | 12.9 | (0.2) | (0.2)  |
|  Business sold | 30.6 | - | 4.1 | 34.7  |
|  Disposals | - | - | 2.4 | 2.4  |
|  Reclassifications | - | - | 0.4 | 0.4  |
|  Retirements | - | - | 2.2 | 2.2  |
|  Effect of foreign exchange rate changes | 5.0 | (0.1) | 3.0 | 7.9  |
|  At 31 December 2021 | (435.8) | (18.0) | (177.8) | (631.6)  |
|  Net book value at 31 December 2021 | 116.3 | 239.0 | 38.8 | 394.1  |
|  Net book value at 31 December 2020 | 89.0 | 246.6 | 60.2 | 425.8  |

1. See note 28.

Asset impairments total $0.2m (2020 - $146.5m which arose due to the impact of Covid-19 and subsequent temporary closure of operations across the Group's many markets are included within exceptional items in note 2). Further details on the impairment of computer software are disclosed in note 12.

At 31 December 2021, assets under construction total $17.5m (2020 - $26.9m).

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INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

153
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
11 INTANGIBLE ASSETS CONTINUED
Goodwill and distribution agreements
Goodwill acquired in a business combination has been allocated to the cash generating units (CGUs) or group of CGUs
(hereafter collectively referred to as ‘CGU groups’) that are expected to benefit from the synergies associated with that
business combination.
Indefinite-life intangible assets, principally distribution agreements acquired in a business combination, are also allocated
to the CGUs or CGU groups that are expected to benefit from the cash flows associated with the relevant agreements.
These CGUs or CGU groups represent the lowest level within the Group at which the associated goodwill or indefinite-life
intangible asset is monitored for management purposes. The carrying amount of goodwill and indefinite-life intangible
assets has been allocated to CGU groups within the following reporting segments:

|  |  |  | Distribution |  |  |  |  | Distribution |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Goodwill |  | agreements |  | Total | Goodwill |  | agreements |  | Total |
|  |  | 2021 |  | 2021 | 2021 |  | 2020 |  | 2020 | 2020 |
| Reporting segment CGU group |  | £m |  | £m | £m |  | £m |  | £m | £m |

UK & Europe Distribution Baltics – BMW 5.8 27.2 33.0 6.2 28.9 35.1
Americas – Daimler 5.8 29.7 35.5 4.4 27.7 32.1
Americas & Africa Americas – Hino/Subaru 39.8 116.3 156.1 47.2 137.8 185.0
Distribution Americas – Suzuki 24.8 65.8 90.6 37. 6 52.2 89.8
Kenya 1.1 – 1.1 1.1 – 1.1
Singapore 22.3 – 22.3 22.5 – 22.5
APAC Distribution
Guam 16.7 – 16.7 – – –
116.3 239.0 355.3 119.0 246.6 365.6
In accordance with the Group’s accounting policy, goodwill and other indefinite-life intangible assets are tested at least
annually for impairment and whenever events or circumstances indicate that the carrying amount may not be
recoverable. Impairment tests were performed for all CGU groups during the year ended 31 December 2021.
The recoverable amounts of all CGU groups were determined based on the higher of the fair value less costs to sell and
value in use calculations. The recoverable amount is determined firstly through value in use calculations. Where this is
insufficient to cover the carrying value of the relevant asset being tested, fair value less costs to sell is also determined.
If the carrying amount of a CGU or CGU group exceeds its recoverable amount, an impairment loss is recognised and
allocated between the assets of the unit to reduce the carrying amount. This allocation is initially applied to any site-based
assets within a CGU based on the results of impairment testing performed over individual site CGUs and then to any
indefinite-life intangible assets. If a further impairment charge still remains, then to the carrying amount of any goodwill
allocated to the CGU or CGU group.
The value in use calculations mainly use cash flow projections based on five-year financial projections prepared by
management. The key assumptions for these projections are those relating to volumes, revenue, gross margins, overheads,
the level of working capital required to support trading and capital expenditure.
Forecast revenue is based on past experience and expectations for near-term growth in the relevant markets. Key
assumptions used to determine revenue are expectations of market size, represented by Total Industry Volume (“TIV”), Units
in Operation (“UIO”) and market share. Operating profits are forecast based on historical experience of gross and operating
margins, adjusted for the impact of changes to product mix and cost-saving initiatives that had been implemented at
the reporting date. Cash flows are forecast based on operating profit adjusted for the level of working capital required
to support trading and capital expenditure.
The assumptions used in the value in use calculations are based on past experience, recent trading and forecasts of
operational performance in the relevant markets including the impact of Covid-19 and the UK trading arrangements
with the European Union and expectations about continuing relationships with key brand partners. The calculations
also incorporate the expected impact of climate change. As set out on in the Task Force on Climate-Related Financial
Disclosures section (“TCFD”), commencing on page 40, several climate-related risks have been identified and assessed
as to their relevance and potential impact on the Group. Transition risks, as outlined by the TCFD, are considered to be
of greater risk in the medium to long-term, particularly in those markets where the Group acts as a distributor and the
potential future actions of an OEM partner are not aligned with that of the market.
An estimate of the impact of the transition to electric vehicles across our CGUs has been factored into the testing
performed. Using key data inputs available such as electric vehicle penetration forecasts and market maturity for such
vehicles in the markets in which we operate. These possible impacts are reflected in the impairment models through
adjustments to both market share and aftersales margin. Considering climate change is not expected to have a significant
impact on short-term forecasts, these adjustments have been applied to the outer years in the impairment models. Whilst at
this stage there is significant uncertainty regarding what the long-term impact of climate change initiatives may be on the
markets in which we operate, the forecasts reflect our best estimate.
154 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## 11 INTANGIBLE ASSETS CONTINUED

For CGU groups in the Americas & Africa reporting segment, cash flows after the five-year period are extrapolated for a further five years using declining growth rates which reduces the year five growth rate down to the long-term growth rate appropriate for each CGU or CGU group, to better reflect the medium-term growth expectations for those markets. A terminal value calculation is used to estimate the cash flows after year 10 using these long-term growth rates. For all other markets, a terminal value calculation is used to estimate the cash flows after year five.

Cash flows are discounted back to present value using a discount rate specific to each CGU. The discount rates used are calculated using the capital asset pricing model to derive a cost of equity which is then weighted with an estimated cost of debt and lease liabilities based on an optimal market gearing structure. The Group uses several inputs to calculate a range for each discount rate from which an absolute measure is determined for use in the value in use calculations. Key inputs include benchmark risk free rates, inflation differentials, equity risk premium, country risk premium and a risk adjustment (beta) calculated by reference to comparable companies with similar retail and distribution operations. Each CGU's weighted average cost of capitals then adjusted to reflect the impact of tax in order to calculate an equivalent pre-tax discount rate.

### Key assumptions used

Pre-tax discount rates and long-term discount rates used in the value in use calculations for each of the Group's CGUs are shown below:

#### Goodwill

|  2021 | UK Retail | Baltics | Americas - Daimler | Americas - Hino/Subaru | Americas - Suzuki | Kenya | Singapore | Australia Retail | Peugeot Citroën Australia  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  Pre-tax discount rate (%) | - | 6.9 | 12.9 | 10.6 | 11.7 | 14.7 | 6.8 | - | -  |
|  Long-term growth rate (%) | - | 2.1 | 2.3 | 2.9 | 2.5 | 5.1 | 1.5 | - | -  |

|  2020 | UK Retail | Baltics | Americas - Daimler | Americas - Subaru/Hino | Americas - Suzuki | Kenya | Singapore | Australia Retail | Peugeot Citroën Australia  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  Pre-tax discount rate (%) | 7.8 | 6.4 | 12.8 | 9.8 | 12.2 | 13.5 | 7.2 | 10.3 | 10.3  |
|  Long-term growth rate (%) | 2.0 | 2.1 | 2.7 | 2.7 | 2.6 | 5.0 | 1.5 | 2.0 | 2.0  |

Indefinite-life intangible assets:

|  2021 | Baltics - BMW | Americas - Daimler | Americas - Hino | Americas - Subaru | Americas - Suzuki  |
| --- | --- | --- | --- | --- | --- |
|  Pre-tax discount rate (%) | 6.9 | 12.9 | 11.9 | 11.0 | 11.7  |
|  Long-term growth rate (%) | 2.1 | 2.3 | 3.1 | 3.1 | 2.5  |

|  2020 | Baltics - BMW | Americas - Daimler | Americas - Hino | Americas - Subaru | Americas - Suzuki  |
| --- | --- | --- | --- | --- | --- |
|  Pre-tax discount rate (%) | 6.3 | 12.8 | 12.1 | 9.7 | 12.2  |
|  Long-term growth rate (%) | 2.1 | 2.7 | 2.9 | 2.7 | 2.6  |

### Impairment

#### Americas - Suzuki

In 2020, the region was heavily affected by the impact of Covid-19, the resulting financial forecasts triggering an impairment charge of £6.2m against goodwill and £31.2m against the Suzuki distribution agreement.

In 2021, trading momentum has been above management expectations with revenue tracking above 2000 levels and profitability exceeding original projections as the region recovered from the pandemic. Based on the impairment assessment carried out, forecast assumptions continue to expect the business to grow and improve its profitability over the next five years. The forecasts applied in the model considered the historical performance achieved by the business, the expected short-term impact of the semi-conductor chip shortage affecting the global automotive industry and the potential impact of climate change on the market.

The impairment models for the Americas - Suzuki CGU have two contrasting outcomes. The assessment performed over the Suzuki distribution agreement indicates an amount of headroom of $12.9m and therefore a partial reversal of the charge taken in 2020 is required. Conversely, the goodwill model indicates a further impairment of goodwill is required of $12.9m. This re-classification of impairment charges/reversals on the balance sheet is due to the forecast performance of the Suzuki brand in the market relative to the other brands represented which form only a small component of the CGU.

The recoverable value of the CGU was determined based on value-in-use calculations, consistent with the approach used as at 31 December 2020. Cash flows were discounted back to present value using a pre-tax discount rate of 1.7% (2020 - 12.2%) and resulted in the impairment of the goodwill balance of $12.9m and a partial reversal of the impairment of the distribution agreement recognised in 2020 of $12.9m.

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

155

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GOVERNANCE

FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# 11 INTANGIBLE ASSETS CONTINUED

As at 31 December 2021, the recoverable amount of the CGU was $117.6m. The cash flows used within the impairment models are based on assumptions which are sources of estimation uncertainty and small movements in these assumptions could lead to a further impairment. Management have performed sensitivity analysis on the key assumptions in the indefinite-life intangible asset impairment model using reasonably possible changes in these key assumptions.

|   | Increase/(decrease) in assumption | Impairment charge £m | Impairment credit £m  |
| --- | --- | --- | --- |
|  Revenue CAGR (%) | (1.0%)/1.0% | (17.5) | 20.3  |
|  Pre-tax discount rate (%) | 1.0%/(1.0%) | (14.3) | 18.6  |
|  Average gross margin (%) | (0.5%)/0.5% | (9.1) | 9.1  |
|  Long-term growth rate (%) | (0.5%)/0.5% | (5.3) | 7.1  |

# Other CGUs

The Group's value in use calculations are sensitive to a change in the key assumptions used. However, a reasonably possible change in a key assumption will not cause a material impairment of goodwill or indefinite-life intangible assets in any of the CGU groups.

# Prior year impairments

# UK Retail

In 2020, the UK Retail business was materially impacted by the Covid-19 pandemic with sites closed at the end of March and only reopening again in June. The Group continued to reshape its Retail footprint through further disposals against a backdrop of an uncertain outlook and forecasts for the business were updated for the goodwill impairment assessment carried out in the period to 30 June 2020. The cash flows used for impairment testing were based on the latest short-term forecasts for the business, covering a two-year period, and took into account historical performance and knowledge of the current market, including the expected volume and gross margin impact from Covid-19. Cash flows beyond the forecast initial period were extrapolated using externally sourced volume projections. Margin assumptions were largely aligned to the prior year impairment exercise and our expectation of future performance, again supported by historical performance and current market data available.

Cash flows were discounted back to present value using a pre-tax risk discount rate of 7.8%. The results of the impairment review carried out indicated that the estimated recoverable value was now less than the carrying value of the assets attributable to the UK Retail CGU group and an impairment charge of $80.2m was recognised, fully impairing the remaining goodwill attributable to the UK Retail CGU group.

# Australia Retail and Peugeot Citroën Australia

In 2020, the impact of Covid-19 on the Australian economy was severe and the country entered its first recession in 29 years in the period. The Retail business, having undertaken significant restructuring through the disposal of selective Retail operations that completed in February 2020, had expected to see an improvement in performance in 2020. The Peugeot Citroën Distribution business was initially expected to deliver an improvement in performance in 2020 in light of recent changes to operations within the country. However, the impact of Covid-19 materially affected both businesses, with a decline in performance expected over the forecast period, due to a reduction in new car sales leading to a decline in the car parc which, in turn, impacts higher margin aftersales.

The recoverable value of the two CGUs was determined based on value-in-use calculations. Cash flows were discounted back to present value using a pre-tax discount rate of 10.3% and resulted in the full impairment of the goodwill balance of £81m attributable to these two CGUs.

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INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
# **12 PROPERTY, PLANT AND EQUIPMENT**

|   | Land and buildings £m | Plant, machinery and equipment £m | Subtotal £m | Interest in leased vehicles £m | Total £m  |
| --- | --- | --- | --- | --- | --- |
|  **Cost** |  |  |  |  |   |
|  At 1 January 2020 | 763.2 | 265.1 | 1,028.3 | 39.4 | 1,067.7  |
|  Businesses acquired | 0.3 | (0.2) | 0.1 | (0.1) | -  |
|  Businesses sold | (29.8) | (5.3) | (35.1) | - | (35.1)  |
|  Additions | 13.9 | 13.6 | 27.5 | 3.1 | 30.6  |
|  Disposals | (5.5) | (18.8) | (24.3) | - | (24.3)  |
|  Reclassifications | (0.4) | (1.4) | (1.8) | (0.1) | (1.9)  |
|  Transferred to/from inventory | - | 4.4 | 4.4 | (22.7) | (18.3)  |
|  Retirement of fully depreciated assets | - | (1.0) | (1.0) | - | (1.0)  |
|  Reclassified to assets held for sale | (0.6) | (4.2) | (4.8) | - | (4.8)  |
|  Effect of foreign exchange rate changes | (19.7) | (4.7) | (24.4) | (0.2) | (24.6)  |
|  **At 1 January 2021** | **721.4** | **247.5** | **968.9** | **19.4** | **988.3**  |
|  Businesses acquired (see note 29) | - | 0.5 | 0.5 | 5.4 | 5.9  |
|  Businesses sold (see note 29) | (15.8) | (3.2) | (19.0) | - | (19.0)  |
|  Additions | 24.9 | 24.5 | 49.4 | 3.9 | 53.3  |
|  Disposals | (30.3) | (8.6) | (38.9) | - | (38.9)  |
|  Reclassifications | - | 2.9 | 2.9 | - | 2.9  |
|  Transferred to/from inventory | - | (0.4) | (0.4) | (6.6) | (7.0)  |
|  Retirement of fully depreciated assets | (6.0) | (1.2) | (7.2) | - | (7.2)  |
|  Reclassified to/from assets held for sale | (1.4) | (0.4) | (1.8) | - | (1.8)  |
|  Effect of foreign exchange rate changes | (17.7) | (7.5) | (25.2) | 0.2 | (25.0)  |
|  **At 31 December 2021** | **675.1** | **254.1** | **929.2** | **22.3** | **951.5**  |

# **Accumulated depreciation and impairment**

|  At 1 January 2020 | (174.4) | (187.1) | (366.5) | (3.1) | (372.6)  |
| --- | --- | --- | --- | --- | --- |
|  Businesses sold | 0.6 | 1.8 | 2.4 | - | 2.4  |
|  Depreciation charge for the year | (20.1) | (15.8) | (35.9) | (4.1) | (40.0)  |
|  Impairment charge for the year | (33.1) | (9.6) | (42.7) | - | (42.7)  |
|  Disposals | 2.4 | 14.3 | 16.7 | - | 16.7  |
|  Reclassifications | - | 1.7 | 1.7 | 0.1 | 1.8  |
|  Transferred to/from inventory | - | (2.4) | (2.4) | 7.9 | 5.5  |
|  Retirement of fully depreciated assets | - | 1.0 | 1.0 | - | 1.0  |
|  Reclassified to assets held for sale | - | 3.5 | 3.5 | - | 3.5  |
|  Effect of foreign exchange rate changes | 3.1 | 2.8 | 5.9 | - | 5.9  |
|  **At 1 January 2021** | **(221.5)** | **(189.8)** | **(411.3)** | **(7.2)** | **(418.5)**  |
|  Businesses sold (see note 29) | 4.7 | 1.7 | 6.4 | - | 6.4  |
|  Depreciation charge for the year | (12.4) | (17.6) | (30.0) | (2.5) | (32.5)  |
|  Impairment reversal for the year | 1.9 | - | 1.9 | - | 1.9  |
|  Disposals | 11.5 | 8.1 | 19.6 | - | 19.6  |
|  Reclassifications | - | (0.4) | (0.4) | - | (0.4)  |
|  Transferred to/from inventory | - | 0.2 | 0.2 | 2.5 | 2.7  |
|  Retirement of fully depreciated assets | 6.0 | 1.2 | 7.2 | - | 7.2  |
|  Reclassified to/from assets held for sale | (0.1) | - | (0.1) | - | (0.1)  |
|  Effect of foreign exchange rate changes | 5.6 | 4.8 | 10.4 | (0.2) | 10.2  |
|  **At 31 December 2021** | **(204.3)** | **(191.8)** | **(396.1)** | **(7.4)** | **(403.5)**  |
|  **Net book value at 31 December 2021** | **470.8** | **62.3** | **533.1** | **14.9** | **548.0**  |
|  Net book value at 31 December 2020 | 499.9 | 57.7 | 557.6 | 12.2 | 569.8  |

Included within the asset net impairment reversal of \$2.9m is an impairment reversal of \$2.9m and an impairment charge of \$3.0m. The impairment reversal primarily arose in the UK where, based on the recovery of site-based assets after the impact of Covid-19, the calculated recoverable amount exceeded the impaired carrying value for several sites. (2020: \$42.7m charge which arose due to the impact of Covid-19 and subsequent temporary closure of operations across the Group's many markets). The impairment reversal has been reported as an exceptional item (see note 2).

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 157

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# **12 PROPERTY, PLANT AND EQUIPMENT CONTINUED**

Certain subsidiaries have an obligation to repurchase, at a guaranteed residual value, vehicles which have been legally sold for leasing contracts. These assets are included in 'interest in leased vehicles' in the table above.

The book value of land and buildings is analysed between:

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Freehold | 335.7 | 376.0  |
|  Leasehold with over 50 years unexpired | 41.6 | 18.9  |
|  Short leasehold | 103.5 | 105.0  |
|   | **470.8** | **499.9**  |

Land and buildings include properties with a net book value of $4.3m (2020 - $5.1m) that are let to third parties on a short-term basis.

Borrowing costs of $nil were capitalised during the year (2020 - nil).

# **Impairment of computer software, property, plant and equipment and right-of-use assets**

Computer software, property, plant and equipment and right-of-use assets are reviewed for impairment if events or circumstances indicate that the carrying value may not be recoverable. When an impairment review is carried out, the recoverable value is determined based on the higher of value in use calculations, which require estimates to be made of future cash flows, or fair value less costs of disposal.

In light of the ongoing uncertainty due to the Covid-19 pandemic, the risk of impairment remains elevated for the Group. As a result, based on the impairment reviews carried out across the Group, impairment triggers were identified in a limited number of markets and tests for impairment were carried out, where appropriate. As part of the assessment, the Group also assessed whether there was any indication that previously recognised impairment losses for an asset no longer exists or may have decreased which would result in an impairment reversal being recognised.

The approach to test computer software, property, plant and equipment and right-of-use assets for impairment was consistent with the approach used to test goodwill and other indefinite-life intangible assets. The value in use calculations use cash flow projections based on five-year financial forecasts prepared by management. The key assumptions for these forecasts are those relating to volumes, revenue, gross margins, overheads, the level of working capital required to support trading and capital expenditure. Where the value in use calculations did not support the carrying value of an asset, an estimate for fair value less costs of disposal was determined by obtaining property valuations for the relevant locations.

The results of the testing indicated that net impairment reversals totalling $0.6m were required against site and other assets, principally in relation to Retail businesses in the UK (2020 - UK, Australia and Russia).

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Computer software | 0.2 | 17.8  |
|  Property, plant and equipment | (1.9) | 42.7  |
|  Right-of-use assets | 1.1 | 33.0  |
|  **At 31 December** | **(0.6)** | **93.5**  |

158 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
### 13. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

The Group leases various retail dealerships, distribution and office properties, primarily in the UK, Australia, Hong Kong, South America and Russia. Rental contracts are typically made for fixed periods of 2 to 25 years but may have extension options as described in the accounting policies note. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.

#### a. Amounts recognised on the balance sheet

|   | Land and buildings £m | Other £m | Total £m  |
| --- | --- | --- | --- |
|  **Cost** |  |  |   |
|  At 1 January 2020 | 566.0 | 5.5 | 571.5  |
|  Businesses acquired | 1.1 | - | 1.1  |
|  Additions | 21.8 | 0.8 | 22.6  |
|  Lease payments at or before commencement date | 0.3 | - | 0.3  |
|  Derecognition | (20.1) | (2.0) | (22.1)  |
|  Transferred to assets held for sale | (4.1) | - | (4.1)  |
|  Remeasurement | 15.2 | - | 15.2  |
|  Effect of foreign exchange rate changes | 2.1 | - | 2.1  |
|  At 1 January 2021 | **582.3** | **4.3** | **586.6**  |
|  Businesses acquired (see note 29) | **1.9** | - | **1.9**  |
|  Business sold | **(9.7)** | - | **(9.7)**  |
|  Additions | **41.4** | **0.9** | **42.3**  |
|  Lease payments at or before commencement date | **2.4** | - | **2.4**  |
|  Derecognition | **(31.9)** | **(2.5)** | **(34.4)**  |
|  Remeasurement | **27.7** | - | **27.7**  |
|  Effect of foreign exchange rate changes | **(17.9)** | **(0.3)** | **(18.2)**  |
|  **At 31 December 2021** | **596.2** | **2.4** | **598.6**  |

#### Accumulated depreciation and impairment

|  At 1 January 2020 | (254.6) | (3.6) | (258.2)  |
| --- | --- | --- | --- |
|  Depreciation charge for the year | (53.1) | (1.1) | (54.2)  |
|  Derecognition | 15.3 | 2.0 | 17.3  |
|  Impairment charge for the year | (33.3) | - | (33.3)  |
|  Transferred to assets held for sale | 2.1 | - | 2.1  |
|  Effect of foreign exchange rate changes | (2.9) | (0.1) | (3.0)  |
|  At 1 January 2021 | **(326.5)** | **(2.8)** | **(329.3)**  |
|  Business sold | **0.1** | - | **0.1**  |
|  Depreciation charge for the year | **(48.5)** | **(1.4)** | **(49.9)**  |
|  Derecognition | **30.3** | **2.5** | **32.8**  |
|  Impairment charge for the year | **(1.1)** | - | **(1.1)**  |
|  Effect of foreign exchange rate changes | **10.0** | **0.2** | **10.2**  |
|  **At 31 December 2021** | **(335.7)** | **(1.5)** | **(337.2)**  |
|  **Net book value at 31 December 2021** | **260.5** | **0.9** | **261.4**  |
|  Net book value at 31 December 2020 | 255.8 | 1.5 | 257.3  |

Asset impairments total £11m (2020 - £33.3m, of which £33.0m arose due to the impact of Covid-19 and subsequent temporary closure of operations across the Group's many markets and are included within exceptional items in note 2). Further details on the impairment of right-of-use assets are disclosed in note 12.

Remeasurements of £27.7m were made to leases during the year, primarily in Northern Europe and APAC, due to either a change in the lease term or a change in an index or rate applicable to the underlying lease (2020 - £65.2m, primarily in the UK).

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 159
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13 RIGHT-OF-USE ASSETS AND LEASE LIABILITIES CONTINUED
2021 2020
£m £m
Lease liabilities
Current 56.5 58.5
Non-current 267.6 274.3
At 31 December 324.1 332.8
b. Amounts recognised in the consolidated income statement
2021 2020
£m £m
Depreciation of right-of-use assets 49.9 54.2
Impairment of right-of-use assets 1.1 33.3
Finance costs on lease liabilities (included in finance costs) 10.6 13.9
Operating lease rentals – short-term leases 3.7 3.3
Operating lease rentals – variable lease payments 0.8 2.2
Rent concessions recognised (0.3) (1.1)
Sub-lease finance income (included in finance income) (0.6) (0.5)
Sub-lease income from right-of-use assets (1.0) (0.7)
c. Amounts recognised in the consolidated statement of cash flows
2021 2020
£m £m
Lease interest paid 10.5 14.2
Payment of capital element of lease liabilities 59.3 57.4
160 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
# 14 INVESTMENTS IN JOINT VENTURES AND ASSOCIATES

Details of the interests held by the Group in joint ventures and associates can be found in note 14 to the Inchcape plc Company financial statements on pages 106 to 205.

Amounts recognised in the statement of financial position in respect of joint ventures and associates are as follows:

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  At 1 January | 2.4 | 4.3  |
|  Additions | 2.6 | -  |
|  Disposals | - | (2.0)  |
|  Effect of foreign exchange rate changes | (0.1) | 0.1  |
|  At 31 December | 4.9 | 2.4  |

Net assets of joint ventures and associates

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Current assets | 23.0 | 5.3  |
|  Total assets | 23.0 | 5.3  |
|  Current liabilities | (13.2) | (0.4)  |
|  Total liabilities | (13.2) | (0.4)  |
|  Net assets | 9.8 | 4.9  |

Results of joint ventures and associates

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Revenue | 0.1 | -  |
|  Expenses | (0.3) | -  |
|  Loss before tax | (0.2) | -  |
|  Tax | 0.1 | (0.1)  |
|  Loss after tax of joint ventures and associates | (0.1) | (0.1)  |

Summarised financial information of joint ventures and associates

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Opening net assets at 1 January | 4.9 | 8.7  |
|  Loss for the year | (0.1) | (0.1)  |
|  Additions | 5.3 | -  |
|  Disposals | - | (4.0)  |
|  Other comprehensive (loss)/income for the year | (0.3) | 0.3  |
|  Closing net assets at 31 December | 9.8 | 4.9  |
|  Carrying value of interest in joint ventures and associates | 4.9 | 2.4  |

During the year, the Group invested $2.6m in Inchcape Financial Services Australia Pty Ltd, a captive finance company. As at 31 December 2021, no guarantees were provided in respect of joint ventures and associates' borrowings (2020 - £mil).

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

161
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# 15 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  At 1 January | 3.8 | 71  |
|  Gain/(losses) recognised in other comprehensive income | 1.6 | (2.7)  |
|  Effect of foreign exchange rate changes | (0.4) | (0.6)  |
|  At 31 December | 5.0 | 3.8  |

Analysed as:

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Current | 0.2 | 0.2  |
|  Non-current | 4.8 | 3.6  |
|   | 5.0 | 3.8  |

Assets held are analysed as follows:

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Equity securities | 4.8 | 3.6  |
|  Other | 0.2 | 0.2  |
|   | 5.0 | 3.8  |

'Equity securities' includes a 15% equity interest in Hino Motors Manufacturing Company SAS.

'Other' includes debentures that are not subject to interest rates and do not have fixed maturity dates. They are valued by reference to traded market values.

# 16 TRADE AND OTHER RECEIVABLES

|   | Current |   | Non-current  |   |
| --- | --- | --- | --- | --- |
|   |  2021 £m | 2020 £m | 2021 £m | 2020 £m  |
|  Trade receivables | 194.7 | 208.0 | 11.5 | 10.8  |
|  Less: allowance for expected credit losses | (11.6) | (10.4) | - | -  |
|  Net trade receivables | 183.1 | 197.6 | 11.5 | 10.8  |
|  Prepayments | 55.6 | 54.4 | 8.0 | 8.0  |
|  Accrued income | 29.6 | 41.1 | 0.9 | 1.2  |
|  Other taxation and social security | 8.4 | 10.2 | - | -  |
|  Other receivables | 47.4 | 66.3 | 25.0 | 29.2  |
|   | 324.1 | 369.6 | 45.4 | 49.2  |

Other receivables includes buyback and indemnity assets, interest, sublease and other receivables.

Trade receivables representing amounts due from customers, including finance houses, OEMs, third-party dealers and insurance companies are split by geographical location as follows:

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  UK & Europe | 89.8 | 105.8  |
|  APAC | 62.3 | 48.9  |
|  Americas & Africa | 54.1 | 64.1  |
|   | 206.2 | 28.8  |
|  Less: allowance for expected credit losses | (11.6) | (10.4)  |
|   | 194.6 | 208.4  |

162

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
16 TRADE AND OTHER RECEIVABLES CONTINUED
At 31 December, the analysis of trade receivables is as follows:
Total Current 0 – 30 days 30 – 90 days > 90 days
2021 £m £m £m £m £m
Gross trade receivables 206.2 102.0 48.0 19.8 36.4
Expected credit loss allowance (11.6) (0.2) (0.3) (0.5) (10.6)
Net carrying amount 194.6 101.8 47.7 19.3 25.8

|  | Total | Current |  | 0 – 30 days |  | 30 – 90 days |  | > 90 days |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 2020 | £m |  | £m |  | £m |  | £m |  | £m |
| Gross trade receivables 218.8 118.4 |  |  |  |  | 43.6 20.8 36.0 |  |  |  |  |
| Expected credit loss allowance (10.4) (0.1) |  |  |  |  | (0.4) (0.8) (9.1) |  |  |  |  |
| Net carrying amount 208.4 118.3 |  |  |  |  | 43.2 20.0 26.9 |  |  |  |  |

Movements in the allowance for expected credit losses were as follows:
2021 2020
£m £m
At 1 January (10.4) (8.7)
Charge for the year (2.6) (2.8)
Amounts written off 0.4 0.6
Business sold 0.1 –
Unused amounts reversed 0.2 0.4
Effect of foreign exchange rate changes 0.7 0.1
At 31 December (11.6) (10.4)
The expected credit loss for accrued income is immaterial (2020: immaterial).
Trade receivables are non-interest bearing and are generally on credit terms of 30 to 60 days. Trade receivables are only
written off where there is no reasonable expectation of recovery.
The concentration of credit risk with respect to trade receivables is very limited due to the Group’s broad customer base
across a number of geographic regions and the default loss percentage incurred by the Group has customarily been low
even if there have been significant changes in economic conditions experienced in markets in which the Group operates.
Trade receivables include amounts due from a number of finance houses in respect of vehicles sold to customers on
finance arranged through the Group. An independent credit rating agency is used to assess the credit standing of each
finance house. Limits for the maximum outstanding with each finance house are set accordingly.
As a consequence, the risk associated with trade receivable balances past due but not impaired is not expected to be
significant and as such does not contribute to a significant allowance for expected credit losses of receivables being
recognised.
The allowance for expected credit losses for trade receivables and accrued income is based on an expected credit loss
model that calculates the expected loss applicable to the receivable balance over its lifetime. For the Group, the simplified
approach under IFRS 9 is applied to all trade receivables and accrued income. Under this approach, the provision required
against receivables is calculated by considering the cash shortfall that would be incurred in various default scenarios for
prescribed future periods. Default rates are calculated initially by Inchcape’s markets considering historical loss experience
and applied to trade receivables within a provision matrix. The matrix approach allows application of different default rates
to different groups of customers with similar characteristics. These groups will be determined by a number of factors
including: the nature of the customer, the payment method selected and where relevant, the sector in which they operate.
The characteristics used to determine the groupings of receivables are the factors that have the greatest impact on the
likelihood of default. The rate of default increases once the balance is 30 days past due and subsequently in 30-day
increments.
Management considers the carrying amount of trade and other receivables to approximate to their fair value. Long-term
receivables have been discounted where the time value of money is considered to be material.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 163
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
17 DEFERRED TAX
Pension

|  | and other |  |  |  |  |  |  |  |  |  | Provisions |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | post- |  |  |  | Share- |  |  | Accelerated |  | and other |  |  |  |  |  |  |  |
|  | retirement |  | Cash flow |  |  | based |  | Tax |  | tax |  | timing |  | Distribution |  |  |  |  |
|  | benefits |  | hedges |  | payments |  |  | losses | depreciation |  | differences |  |  | agreements |  | IFRS 16 |  | Total |
| Net deferred tax (liability)/asset |  | £m |  | £m |  |  | £m | £m |  | £m |  |  | £m |  | £m |  | £m | £m |

At 1 January 2020 (4.2) 3.5 2.3 18.3 (5.0) 8.9 (73.0) 10.8 (38.4)
Adjustment for IFRIC (“SaaS”) – – – – – 2.6 – – 2.6
!
At 1 January 2020 (restated) (4.2) 3.5 2.3 18.3 (5.0) 11.5 (73.0) 10.8 (35.8)
Credited/(charged) to
the consolidated income
statement 0.1 – (1.5) (2.8) 11.7 5.8 11. 0 5.9 30.2
(Charged)/credited to
equity and other
comprehensive income (2.8) (1.7) 0.4 0.8 – 0.3 – – (3.0)
Businesses acquired/disposed – – – – (0.3) (0.2) – – (0.5)
Effect of foreign exchange
rate changes – 0.1 – (0.7) 0.9 0.6 (1.0) 0.6 0.5
At 31 December 2020 (6.9) 1.9 1.2 15.6 7.3 18.0 (63.0) 17.3 (8.6)
Credited/(charged) to
the consolidated income
statement (3.5) – 2.0 (9.0) 11.9 9.8 (5.0) (0.8) 5.4
(Charged)/credited to equity
and other comprehensive
income (13.1) (0.5) 1.6 12.7 – – – – 0.7
Businesses acquired/disposed – – – (0.4) 0.1 (0.2) – – (0.5)
Effect of foreign exchange
rate changes (0.1) (0.2) – (0.6) (0.5) (2.1) 6.5 (0.7) 2.3
At 31 December 2021 (23.6) 1.2 4.8 18.3 18.8 25.5 (61.5) 15.8 (0.7)
1. See note 35.
164 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## 17 DEFERRED TAX CONTINUED

Analysed as:

|   | 2021 $m | 2020 (excluded) $m  |
| --- | --- | --- |
|  Deferred tax assets | 67.4 | 70.5  |
|  Deferred tax liabilities | (88.1) | (79.1)  |
|   | (0.7) | (8.6)  |

1 See note 28.

Measured at relevant local statutory rates, the Group has an unrecognised deferred tax asset of $39m (2020 - $35m) relating to tax relief on trading losses. The unrecognised asset represents $60m (2020 - $67m) of losses which exist within legal entities where forecast taxable profits are not probable in the foreseeable future.

The Group has unrecognised deferred tax assets of $44m (2020 - $30m) relating to capital losses. The asset represents $77m (2020 - $54m) of losses at the standard rate of 25.0% (2020 - 19.0%). The key territory holding the losses is the UK.

No deferred tax is recognised on unremitted earnings of overseas subsidiaries on the basis that the Group can control the timing of dividends. In addition, the majority of overseas reserves can now be repatriated to the UK with no tax cost. There are a small number of territories that do not qualify for this treatment. The principally relates to Ethiopia where dividend tax of $1.6m (2020 - $1.6m) is accrued based on current year after tax earnings.

The net deferred tax asset on provisions and other timing differences is principally made up of a deferred tax liability on non-qualifying property $12.5m (2020 - $9.9m) offset by deferred tax assets on trade related accounting provisions in the Group's operating companies and computer software $38.0m (2020 restated - $27.9m).

The deferred tax liability on distribution agreements of $61.5m (2020 - $63.0m) has been recorded as a result of the business acquisitions since 2016.

The deferred tax asset on tax trading losses of $18.3m (2020 - $16.6m) relates to territories and entities where future taxable profits are considered probable.

## 18 INVENTORIES

|   | 2021 $m | 2020 $m  |
| --- | --- | --- |
|  Raw materials and work in progress | 46.9 | 45.7  |
|  Finished goods and merchandise | 1,087.8 | 1,070.5  |
|   | 1,134.7 | 1,216.2  |

Vehicles held on consignment which are in substance assets of the Group amount to $55.5m (2020 - $109.2m). These have been included in 'finished goods and merchandise' with the corresponding liability included within 'trade and other payables'. Payment becomes due when title passes to the Group, which is generally the earlier of a period of up to six months from delivery or the date of sale.

An amount of $48.4m (2020 - $54.4m) has been provided against the gross cost of inventory at the year end. The cost of inventories recognised as an expense in the year is $6,278.1m (2020 - $5,656.1m). The write-down of inventory to net realisable value recognised as an expense during the year was $0.9m (2020 - expense of $21.2m). All of these items have been included within 'cost of sales' in the consolidated income statement.

## 19 CASH AND CASH EQUIVALENTS

|   | 2021 $m | 2020 $m  |
| --- | --- | --- |
|  Cash at bank | 501.8 | 378.5  |
|  Short-term deposits | 94.6 | 102.7  |
|   | 596.4 | 418.2  |

Cash and cash equivalents are generally subject to floating interest rates determined by reference to short-term benchmark rates applicable in the relevant currency or market (primarily SONIA or the local equivalent). At 31 December 2021, the weighted average floating rate was 0.56% (2020 - 0.28%).

$71.8m (2020 - $81.2m) of cash and cash equivalents is held in Ethiopia where prior approval is required to transfer funds abroad, and currency may not be available locally to effect such transfers.

At 31 December 2021, short-term deposits have a weighted average period to maturity of 10 days (2020 - 15 days).

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 165

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
20 ASSETS AND LIABILITIES HELD FOR SALE AND DISPOSAL GROUP
2021 2020
£m £m
Assets held for sale 4.8 7.5
Assets directly associated with the disposal group – 23.7
Assets classified as held for sale and disposal group 4.8 31.2
Liabilities directly associated with the disposal group – (7.7)
The assets and liabilities in the disposal group comprise the following:
2021 2020
£m £m
Goodwill – –
Property, plant and equipment – 5.4
Right-of-use assets – 2.2
Cash and cash equivalents – 1.2
Trade and other receivables – 0.9
Inventories – 13.7
Other assets – 0.3
Assets directly associated with the disposal group – 23.7
Trade and other payables – (5.1)
Lease liabilities – (1.3)
Other liabilities – (1.3)
Liabilities directly associated with the disposal group – (7.7)
Assets held for sale relate to surplus properties which are actively marketed with a view to sale.
Assets held for sale are stated net of an impairment charge of £1.5m which has been reported as a non-exceptional charge
in the income statement following the subsequent write-down of the asset to fair value less costs to sell.
21 TRADE AND OTHER PAYABLES
Current Non-current
2021 2020 2021 2020
£m £m £m £m
Trade payables 166.6 147.8 – –
Payments received on account 93.6 82.5 1.8 2.4
Vehicle funding agreements 851.0 1,013.8 – 1.9
Other taxation and social security payable 40.3 32.0 – –
Accruals 280.3 211.0 2.3 1.9
Deferred income 78.5 78.3 51.6 54.8
Other payables 38.0 44.9 7.5 8.3
1,548.3 1,610.3 63.2 69.3
Other payables includes buyback liabilities, deferred consideration, interest and other payables.
The Group finances the purchase of new vehicles for sale and a portion of used vehicle inventories using vehicle funding
facilities provided by various lenders including the captive finance companies associated with brand partners. Such
arrangements generally are uncommitted facilities, have a maturity of 180 days or less and the Group is normally required
to repay amounts outstanding on the earlier of the sale of the vehicles that have been funded under the facilities or the
stated maturity date. Related cash flows are reported within cash flows from operating activities within the consolidated
statement of cash flows.
Vehicle funding facilities are subject to SONIA-based (or similar) interest rates. The interest incurred under these
arrangements is included within finance costs and classified as stock holding interest (see note 7). At 31 December 2021,
amounts outstanding under vehicle funding facilities and on which interest was payable were subject to a weighted
average interest rate of 1.3% (2020 – 1.3%).
Management considers the carrying amount of trade and other payables to approximate to their fair value. Long-term
payables have been discounted where the time value of money is considered to be material.
166 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
# **21 TRADE AND OTHER PAYABLES CONTINUED**

Included within deferred income are the following balances:

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Extended warranties | 44.0 | 44.8  |
|  Service packages | 49.8 | 55.5  |
|  Other services | 36.3 | 32.8  |
|   | 130.1 | 133.1  |

Revenue recognised in 2021 that was included in deferred revenue at the beginning of the year was $47.8m (2020 - $65.4m).

# **Extended warranties**

Certain Group companies provide extended warranties to customers over and above those provided by the manufacturer and act as the principal in the supply of the warranty service. The periods covered are up to six years and/or specific mileage limits. A proportion of revenue is allocated to the extended warranty obligation and deferred to the balance sheet. The revenue is subsequently recognised over time along with the costs incurred in fulfilling any warranty obligations.

# **Service packages**

Certain Group companies provide service packages to customers as part of the total vehicle package. Where the Group acts as principal, the value of the additional services is separately identified, deducted from revenue and recognised as deferred income on the balance sheet. It is subsequently recognised as revenue when the service is provided or the package expires.

# **Other services**

Certain Group companies provide other services as part of the total vehicle package (e.g. roadside assistance, fuel coupons etc). Where the Group acts as principal, the value of the additional services is separately identified, deducted from revenue and recognised as deferred income on the balance sheet. It is subsequently recognised as revenue over the period to which the service relates.

# **22 PROVISIONS**

|   | Product warranty £m | Leasehold £m | Litigation £m | Other £m | Total £m  |
| --- | --- | --- | --- | --- | --- |
|  At 1 January 2021 | 18.4 | 9.7 | 2.4 | 16.1 | 46.6  |
|  Businesses acquired | 0.1 | - | - | 0.2 | 0.3  |
|  Business sold | (0.1) | - | (0.3) | - | (0.4)  |
|  Charged to the consolidated income statement | 12.5 | - | 1.8 | 12.9 | 27.2  |
|  Released to the consolidated income statement | (0.8) | (1.0) | (0.3) | (1.6) | (3.7)  |
|  Effect of unwinding of discount factor | - | - | - | 0.1 | 0.1  |
|  Utilised during the year | (1.2) | (0.3) | (0.1) | (7.5) | (9.2)  |
|  Effect of foreign exchange rate changes | (1.2) | - | (0.1) | (1.3) | (2.6)  |
|  **At 31 December 2021** | **27.6** | **8.4** | **3.4** | **18.9** | **58.3**  |

Analysed as:

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Current | 34.9 | 25.8  |
|  Non-current | 23.4 | 19.8  |
|   | 58.3 | 46.6  |

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 167
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
22 PROVISIONS CONTINUED
Product warranty
Certain Group companies provide assurance warranties as part of the sale of a vehicle. These are not separable products.
The warranty periods covered are up to five years and/or specific mileage limits. Provision is made for the expected cost
of labour and parts based on historical claims experience and expected future trends. These assumptions are reviewed
regularly.
Leasehold
The Group is committed to certain leasehold premises for which it no longer has a commercial use. These are principally
located in the UK, Australia and Hong Kong. Provision has been made to the extent of the estimated future net cost,
excluding the lease liability recognised under IFRS 16. This includes taking into account existing subtenant arrangements.
The category also includes the future obligation relating to dilapidations of certain premises. The expected utilisation period
of these provisions is generally over the next 10 years.
Litigation
This includes a number of litigation provisions in respect of claims that have been brought against various Group
companies. The claims are generally expected to be concluded within the next three years.
Other
This category principally includes provisions relating to uncertain non-income taxes (VAT primarily) recognised on
acquisition of a business, residual values on leased vehicles and provisions relating to restructuring activities of £4.7m (2020
– £3.2m). Acquisition related provisions total £3.5m (2020 – £4.2m), of which there is an offsetting indemnity asset recognised
in trade and other receivables. Restructuring provisions relate to the estimated costs associated with transformation
projects, including the establishment of back-office services. These provisions are expected to be utilised within three years.
23 BORROWINGS
Floating rate Fixed rate

|  | Weighted |  | Weighted |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | average |  | average |  |  |  |  | On which |  |  |
|  | effective |  | effective |  | Total interest |  |  | no interest |  | 2021 |
|  | interest rate |  | interest rate |  |  | bearing |  | is paid |  | Total |
| 2021 £m |  | % £m |  | % |  |  | £m |  | £m | £m |

Current
Bank overdrafts 7.6 – – – 7.6 – 7.6
Non-current
Private Placement – – 210.0 3.0 210.0 – 210.0
Total borrowings 7.6 – 210.0 3.0 217.6 – 217.6
Bank overdrafts include £7.6m (2020 – £6.1m) held in cash pooling arrangements which have not been offset in the
consolidated statement of financial position (see note 24b).
Floating rate Fixed rate

|  | Weighted |  | Weighted |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | average |  | average |  |  |  |  | On which |  |  |  |
|  | effective |  | effective |  | Total interest |  |  | no interest |  |  | 2020 |
|  | interest rate |  | interest rate |  |  | bearing |  |  | is paid |  | Total |
| 2020 £m |  | % £m |  | % |  |  | £m |  |  | £m | £m |

Current
Bank overdrafts 6.1 – – – 6.1 – 6.1
Non-current
Private Placement – – 210.0 3.0 210.0 – 210.0
Total borrowings 6.1 – 210.0 3.0 216.1 – 216.1
Interest payments on floating rate financial liabilities are determined by reference to short-term benchmark rates applicable
in the relevant currency or market (primarily SONIA or the local equivalent).
At 31 December 2021, the committed funding facilities of the Group comprised a syndicated revolving credit facility of
£700m (2020 – £700m) and sterling Private Placement loan notes totalling £210m (2020 – £210m). At 31 December 2021,
£nil of the £700m was drawn down (2020 – £nil of £700m).
In February 2019, the Group entered into a syndicated revolving credit facility of £700m with an initial expiry date of
February 2024 and options, at lender discretion, to extend until 2026. Lenders approved the 1st extension option in
February 2020 resulting in the £700m commitment extending to 2025. Lenders with total commitments of £620m approved
the 2nd extension option in February 2021, resulting in £620m of commitments being further extended to 2026.
The £210m sterling Private Placement loan notes are held at amortised cost. They have a fair value of £222.0m (2020 –
£234.7m) calculated from discounted cash flow techniques obtained using discount rates from observable market data,
which is a level 2 valuation technique. The fair values of the Group’s other borrowings are not considered to be materially
different from their book value.
168 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
23 BORROWINGS CONTINUED
£nil of the Group’s bank loans are secured by term deposits placed under a standby letter of credit and related facility
arrangements (2020 – £nil). The Group’s bank overdrafts are secured by related offsetting cash balances held under
pooling arrangements. The Group’s remaining borrowings are unsecured.
In December 2016, the Group concluded a Private Placement transaction raising £210m to refinance existing US dollar
Private Placement borrowings which matured in May 2017. The amounts drawn under these facilities are as follows:
Maturity date May 2024 May 2027 May 2027 May 2029
Amount drawn £70m £30m £70m £40m
Fixed rate coupon 2.85% 3.02% 3.12% 3.10%
The table below sets out the maturity profile of the Group’s existing borrowings that are exposed to interest rate risk.

|  | Less than |  |  | Between 1 |  | Between 2 |  | Between 3 |  | Between 4 |  | Greater than |  |  | Total interest |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  | 1 year |  | and 2 years |  | and 3 years |  | and 4 years |  | and 5 years |  |  | 5 years |  |  | bearing |  |
| 2021 |  |  | £m |  | £m |  | £m |  | £m |  | £m |  |  | £m |  |  | £m |

Fixed rate
Private Placement – – 70.0 – – 140.0 210.0
Floating rate
Bank overdrafts 7.6 – – – – – 7.6

|  | Less than |  | Between 1 |  | Between 2 |  | Between 3 |  | Between 4 |  | Greater than |  |  | Total interest |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | 1 year |  | and 2 years |  | and 3 years |  | and 4 years |  | and 5 years |  |  | 5 years |  |  | bearing |  |
| 2020 |  | £m |  | £m |  | £m |  | £m |  | £m |  |  | £m |  |  | £m |

Fixed rate
Private Placement – – – 70.0 – 140.0 210.0
Floating rate
Bank overdrafts 6.1 – – – – – 6.1
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 169
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 FINANCIAL INSTRUMENTS
The Group’s financial liabilities, other than derivatives, comprise overdrafts, loan notes, trade and other payables and lease
liabilities. The main purpose of these instruments is to raise finance for the Group’s operations. The Group also has various
financial assets such as trade and other receivables, cash and short-term deposits which arise from its trading operations.
The Group’s primary derivative transactions include forward and swap currency contracts. The purpose is to manage the
currency and interest rate risks arising from the Group’s trading operations and its sources of finance. Group policy is that
there is no trading or speculation in derivatives.
The main risks arising from the Group’s financial instruments are interest rate risk, currency risk, credit risk and liquidity risk.
a. Classification of financial instruments
Measured

|  |  |  |  | at fair value |  |  |  | Measured |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Measured at |  |  | through other |  |  | at fair value |  |  |  |  |
|  | amortised |  | comprehensive |  |  |  | through profit |  |  |  |  |
|  |  | cost |  |  | income |  |  |  | or loss |  | Total |
| 2021 |  | £m |  |  |  | £m |  |  |  | £m | £m |

Financial assets
Financial assets at fair value through other
comprehensiveincome – 5.0 – 5.0
Trade and other receivables 273.7 – – 273.7
Derivative financial instruments – 7.4 20.2 27.6
Cash and cash equivalents 596.4 – – 596.4
Total financial assets 870.1 12.4 20.2 902.7
Financial liabilities
Trade and other payables (1,346.8) – – (1,346.8)
Derivative financial instruments – (10.5) (21.4) (31.9)
Lease liabilities (324.1) – – (324.1)
Borrowings (217.6) – – (217.6)
Total financial liabilities (1,888.5) (10.5) (21.4) (1,920.4)
(1,018.4) 1.9 (1.2) (1,017.7)
Measured

|  |  |  |  | at fair value |  |  |  | Measured |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Measured at |  |  | through other |  |  | at fair value |  |  |  |
|  | amortised |  | comprehensive |  |  |  | through profit |  |  |  |
|  |  | cost |  |  | income |  |  |  | or loss | Total |
| 2020 |  | £m |  |  |  | £m |  |  | £m | £m |

Financial assets
Financial assets at fair value through other
comprehensiveincome – 3.8 – 3.8
Trade and other receivables 336.4 – – 336.4
Derivative financial instruments – 0.2 13.1 13.3
Cash and cash equivalents 481.2 – – 481.2
Total financial assets 817. 6 4.0 13.1 834.7
Financial liabilities
Trade and other payables (1,395.5) – – (1,395.5)
Derivative financial instruments – (7.5) (34.9) (42.4)
Lease liabilities (332.8) – – (332.8)
Borrowings (216.1) – – (216.1)
Total financial liabilities (1,944.4) (7.5) (34.9) (1,986.8)
(1,126.8) (3.5) (21.8) (1,152.1)
170 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
# **24 FINANCIAL INSTRUMENTS CONTINUED**

# **b. Offsetting financial assets and financial liabilities**

The following financial assets are subject to offsetting, enforceable netting arrangements and similar agreements:

|   | Gross amounts of financial assets £m | Gross amounts of financial liabilities set off in the statement of financial position £m | Net amounts of financial assets presented in the statement of financial position £m | Related amounts not set off in the statement of financial position |   | Net amount £m  |
| --- | --- | --- | --- | --- | --- | --- |
|   |   |   |   |  Financial instruments £m | Cash collateral received £m  |   |
|  **As at 31 December 2021**  |   |   |   |   |   |   |
|  Derivative financial assets | **27.6** | - | **27.6** | **(16.5)** | - | **11.1**  |
|  Cash and cash equivalents | **596.4** | - | **596.4** | **(7.6)** | - | **588.8**  |
|  Total | **624.0** | - | **624.0** | **(24.1)** | - | **599.9**  |
|  **As at 31 December 2020**  |   |   |   |   |   |   |
|  Derivative financial assets | 13.3 | - | 13.3 | (13.1) | - | 0.2  |
|  Cash and cash equivalents | 481.2 | - | 481.2 | (6.1) | - | 475.1  |
|  Total | 494.5 | - | 494.5 | (19.2) | - | 475.3  |

|   | Gross amounts of financial liabilities £m | Gross amounts of financial assets set off in the statement of financial position £m | Net amounts of financial liabilities presented in the statement of financial position £m | Related amounts not set off in the statement of financial position |   | Net amount £m  |
| --- | --- | --- | --- | --- | --- | --- |
|   |   |   |   |  Financial instruments £m | Cash collateral paid £m  |   |
|  **As at 31 December 2021**  |   |   |   |   |   |   |
|  Derivative financial liabilities | **(31.9)** | - | **(31.9)** | **16.5** | - | **(15.4)**  |
|  Bank overdrafts | **(7.6)** | - | **(7.6)** | **7.6** | - | -  |
|  Total | **(39.5)** | - | **(39.5)** | **24.1** | - | **(15.4)**  |
|  **As at 31 December 2020**  |   |   |   |   |   |   |
|  Derivative financial liabilities | (42.4) | - | (42.4) | 13.1 | - | (29.3)  |
|  Bank overdrafts | (6.1) | - | (6.1) | 6.1 | - | -  |
|  Total | (48.5) | - | (48.5) | 19.2 | - | (29.3)  |

For the financial assets and liabilities subject to enforceable netting arrangements or similar agreements above, each agreement between the Group and the counterparty allows for net settlement of the relevant financial assets and liabilities. If the parties subject to the agreement do not elect to settle on a net basis, financial assets and liabilities will be settled on a gross basis. However, each party to the netting agreement will have the option to settle all such amounts on a net basis in the event of a default of the other party.

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 171
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# **24 FINANCIAL INSTRUMENTS CONTINUED**

# **c. Market risk and sensitivity analysis**

Financial instruments affected by market risk include borrowings, deposits and derivative financial instruments. The Group is not exposed to commodity price risk. The following analysis, required by IFRS 7, is intended to illustrate the sensitivity to changes in market variables, being primarily UK interest rates and the Japanese yen exchange rate with both the Australian dollar and Chilean peso.

The following assumptions were made in calculating the sensitivity analysis:

- changes in the carrying value of derivative financial instruments designated as cash flow hedges from movements in interest rates are assumed to be recorded fully in equity;
- changes in the carrying value of derivative financial instruments designated as fair value hedges from movements in interest rates have an immaterial effect on the consolidated income statement and equity due to compensating adjustments in the carrying value of debt;
- changes in the carrying value of financial instruments not in hedging relationships only affect the consolidated income statement; and
- all other changes in the carrying value of derivative financial instruments designated as hedges are fully effective with no impact on the consolidated income statement.

# **d. Interest rate risk and sensitivity analysis**

The Group's interest rate policy has the objective of minimising net interest expense and protecting the Group from material adverse movements in interest rates.

Instruments approved for the purpose of hedging interest rate risk include interest rate swaps, forward rate agreements and options. The Group's exposure to the risk of changes in market interest rates arises primarily from bank borrowings, supplier-related finance and the returns available on surplus cash.

# **Interest rate risk table**

The following table demonstrates the sensitivity of the Group's profit before tax to a reasonably possible change in interest rates on bank borrowings, supplier related finance and cash balances as at 31 December 2021 with all other variables held constant.

|   | Increase in bank points | Effect on profit before tax £m  |
| --- | --- | --- |
|  **2021** |  |   |
|  Sterling | 75 | (5.7)  |
|  Euro | 50 | 0.6  |
|  Russian rouble | 500 | (1.1)  |
|  Australian dollar | 100 | 2.8  |
|  US dollar | 75 | 0.8  |
|  **2020** |  |   |
|  Sterling | 75 | (7.4)  |
|  Euro | 50 | 0.1  |
|  Russian rouble | 500 | 0.8  |
|  Australian dollar | 100 | 3.0  |
|  US dollar | 75 | 0.3  |

172 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
24 FINANCIAL INSTRUMENTS CONTINUED
e. Foreign currency risk
The Group publishes its consolidated financial statements in sterling and faces currency risk on the translation of its earnings
and net assets, a significant proportion of which are in currencies other than sterling.
Transaction exposure hedging
The Group has transactional currency exposures, where sales or purchases by an operating unit are in currencies other than
in that unit’s reporting currency. For a significant proportion of the Group these exposures are removed as trading is
denominated in the relevant local currency. In particular, local billing arrangements are in place for many of our businesses
with our brand partners. The principal exception is for our business in Australia which purchases vehicles in Japanese yen
and our South and Central American businesses which purchase vehicles in Japanese yen and US dollars.
In this instance, the Group seeks to hedge forecast transactional foreign exchange rate risk using forward foreign currency
exchange contracts. The effective portion of the gain or loss on the hedge is initially recognised in the consolidated
statement of comprehensive income to the extent it is effective. When the hedged forecast transaction results in the
recognition of a non-financial asset or liability then, at the time the asset or liability is recognised, the associated gains or
losses that had previously been recognised in other comprehensive income are included in the initial measurement of the
acquisition cost or other carrying amount of the asset or liability.
For all other cash flow hedges, the gains or losses that are recognised in other comprehensive income are transferred to
the consolidated income statement in the same period in which the hedged forecast transaction affects the consolidated
income statement. Under IFRS 9 hedges are documented and tested for the hedge effectiveness on an ongoing basis.
Foreign currency risk table
The following table shows the Group sensitivity to a reasonably possible change in foreign exchange rates on its Japanese
yen financial instruments. In this table, financial instruments are only considered sensitive to foreign exchange rates when
they are not in the functional currency of the entity that holds them.
Increase/
(decrease) in Effect on
exchange equity
rate £m
2021
Yen +10% (0.0)
Yen -10% 0.0
2020
Yen +10% (0.1)
Yen -10% 0.1
f. Credit risk
The amount due from counterparties arising from cash deposits and the use of financial instruments creates credit risk.
The Group monitors its credit exposure to its counterparties via their credit ratings (where applicable) and through its policy
of limiting its exposure to any one party to ensure that they are within Board approved limits and that there are no
significant concentrations of credit risk.
Group policy is to deposit cash and use financial instruments with counterparties with a long-term credit rating of A or
better, where available. The notional amounts of financial instruments used in interest rate and foreign exchange
management do not represent the credit risk arising through the use of these instruments. The immediate credit risk of these
instruments is generally estimated by the fair value of contracts with a positive value. Credit limits are reviewed regularly.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 173
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# **24 FINANCIAL INSTRUMENTS CONTINUED**

The table below analyses the Group's derivative assets, cash at bank and short-term deposits by credit exposure:

|  Credit rating of counterparty | 2021 |   |   | 2020  |   |   |
| --- | --- | --- | --- | --- | --- | --- |
|   |  Derivative assets £m | Cash at bank £m | Short-term deposits £m | Derivative assets £m | Cash at bank £m | Short-term deposits £m  |
|  AA- | - | - | - | - | 0.6 | -  |
|  AA- | 1.1 | 327.6 | - | 1.6 | 251.7 | -  |
|  A+ | 1.4 | 66.6 | 0.4 | 0.4 | 18.9 | -  |
|  A | 9.3 | 14.9 | 30.0 | 8.0 | 9.2 | 20.0  |
|  A- | 7.9 | 28.3 | - | 2.0 | 20.7 | -  |
|  BBB+ | 5.5 | 7.5 | - | - | 4.1 | -  |
|  BBB | 0.3 | 3.8 | 4.2 | - | 23.9 | 6.9  |
|  BBB- | - | 4.1 | 0.1 | 0.7 | 1.4 | -  |
|  BB+ | 0.7 | - | - | - | - | -  |
|  B | - | 9.5 | - | - | 6.6 | -  |
|  B- | - | 5.8 | 0.4 | - | 5.5 | -  |
|  CCC+ | - | 1.2 | - | - | 1.2 | -  |
|  No rating* | 1.4 | 32.5 | 59.5 | 0.6 | 24.7 | 75.8  |
|   | **27.6** | **501.8** | **94.6** | **13.3** | **378.5** | **102.7**  |

\* Counterparties in certain markets in which the Group operates do not have a credit rating.

For those counterparties which do not have a credit rating, where possible the Group works with partner banks with a local presence to provide additional assurance. Additionally, the Group proactively repatriates cash through cash-pooling arrangements, loans between Group companies and dividends as well as regularly monitoring the spread of counterparties in country, notably in Ethiopia.

No credit limits were exceeded during the reporting period and management does not expect any losses from non-performance by these counterparties.

The maximum exposure to credit risk for cash at bank, receivables and other financial assets is represented by their carrying amount.

Total cash at bank of £501.8m (2020 - £378.5m) includes cash in the Group's regional pooling arrangements which are offset against borrowings for interest purposes. Netting of cash and overdraft balances in the consolidated statement of financial position only occurs to the extent that there is the legal ability and intention to settle net. As such, overdrafts are presented in current liabilities to the extent that there is no intention to offset with the cash balance.

Trade receivables include amounts due from a number of finance houses in respect of vehicles sold to customers on finance arranged through the Group. An independent credit rating agency is used to assess the credit standing of each finance house. Limits for the maximum outstanding with each finance house are set accordingly.

174 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
24 FINANCIAL INSTRUMENTS CONTINUED
g. Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash and marketable securities, the availability of funding
through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the
dynamic nature of the underlying businesses, Group Treasury aims to maintain flexibility in funding by keeping committed
credit lines available.
The table below summarises the maturity profile of the Group’s financial assets and liabilities at 31 December 2021 based
on contractual expected undiscounted cash flows:

|  |  |  | Between |  | Between |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Less than |  | 3 to 12 |  |  | 1 to 5 | Greater than |  |  |  |
|  | 3 months |  | months |  |  | years |  | 5 years |  | Total |
| 2021 |  | £m |  | £m |  | £m |  |  | £m | £m |

Financial assets
Cash and cash equivalents 593.1 3.3 – – 596.4
Trade and other receivables 200.2 45.5 26.3 6.0 278.0
Financial assets at fair value through other
comprehensive income – 0.2 – 4.8 5.0
Derivative financial instruments 1,097.4 1,135.0 126.5 – 2,358.9
1,890.7 1,184.0 152.8 10.8 3,238.3
Financial liabilities
Interest bearing loans and borrowings (7.6) (6.3) (90.1) (144.1) (248.1)
Lease liabilities (17.0) (48.0) (170.2) (149.8) (385.0)
Trade and other payables (1,085.0) (249.8) (11.7) (0.3) (1,346.8)
Derivative financial instruments (1,099.7) (1,145.4) (124.4) – (2,369.5)
(2,209.3) (1,449.5) (396.4) (294.2) (4,349.4)
Net outflows (318.6) (265.5) (243.6) (283.4) (1,111.1)

|  |  |  | Between |  | Between |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Less than |  |  | 3 to 12 |  | 1 to 5 | Greater than |  |  |  |
|  | 3 months |  |  | months |  | years |  | 5 years |  | Total |
| 2020 |  | £m |  | £m |  | £m |  |  | £m | £m |

Financial assets
Cash and cash equivalents 473.7 7.5 – – 481.2
Trade and other receivables 227.8 70.1 31.9 6.6 336.4
Financial assets at fair value through other
comprehensive income 0.2 – – 3.6 3.8
Derivative financial instruments¹ 1,052.3 716.6 2.1 – 1,771.0
1,754.0 794.2 34.0 10.2 2,592.4
Financial liabilities
Interest bearing loans and borrowings (6.1) (6.3) (92.1) (148.5) (253.0)
Lease liabilities (17.7 ) (49.8) (174.4) (171.5) (413.4)
Trade and other payables (1,140.9) (241.3) (12.9) (0.4) (1,395.5)
Derivative financial instruments¹ (1,063.8) (734.5) (2.1) – (1,800.4)
(2,228.5) (1,031.9) (281.5) (320.4) (3,862.3)
Net outflows (474.5) (237.7 ) (247.5) (310.2) (1,269.9)
1. Derivative financial instruments line items have been restated to disclose the gross undiscounted cash flows.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 175
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# 24 FINANCIAL INSTRUMENTS CONTINUED

# h. Fair value measurement

In accordance with IFRS 13, disclosure is required for financial instruments that are measured in the consolidated statement of financial position at fair value. This requires disclosure of fair value measurements by level for the following fair value measurement hierarchy:

- quoted prices in active markets (level 1);
- Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly (level 2); or
- Inputs for the asset or liability that are not based on observable market data (level 3).

The following table presents the Group's assets and liabilities that are measured at fair value:

|   | 2021 |   |   |   | 2020  |   |   |   |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|   |  Level 1 $m | Level 2 $m | Level 3 $m | Total $m | Level 1 $m | Level 2 $m | Level 3 $m | Total $m  |
|  **Assets**  |   |   |   |   |   |   |   |   |
|  Derivatives used for hedging | - | 27.6 | - | 27.6 | - | 13.3 | - | 13.3  |
|  Financial assets at fair value through other comprehensive income | 0.5 | - | 4.5 | 5.0 | 0.5 | - | 3.3 | 3.8  |
|   | 0.5 | 27.6 | 4.5 | 32.6 | 0.5 | 13.3 | 3.3 | 17.1  |
|  **Liabilities**  |   |   |   |   |   |   |   |   |
|  Derivatives used for hedging | - | (31.9) | - | (31.9) | - | (42.4) | - | (42.4)  |

Level 1 represents the fair value of financial instruments that are traded in active markets and is based on quoted markets price at the end of the reporting period.

The fair value of financial instruments that are not traded in an active market (level 2) is determined by using valuation techniques which include the present value of estimated future cash flows. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates.

Level 3 primarily represents the Group's equity interest in Hino Motors Manufacturing Company SAS (see note 15). Fair value is based on discounted free cash flows, using the projection of annual income and expenses mainly based on historical financial figures.

Derivative financial instruments are carried at their fair values. The fair value of forward foreign exchange contracts and foreign exchange swaps represents the difference between the value of the outstanding contracts at their contracted rates and a valuation calculated using the spot rates of exchange prevailing at 31 December 2021.

The Group's derivative financial instruments comprise the following:

|   | Assets |   | Liabilities  |   |
| --- | --- | --- | --- | --- |
|   |  2021 $m | 2020 $m | 2021 $m | 2020 $m  |
|  Forward foreign exchange contracts | 27.6 | 13.3 | (31.9) | (42.4)  |

The ineffective portion recognised in the consolidated income statement that arises from fair value hedges amounts to $nil (2020 - $nil). The ineffective portion recognised in the consolidated income statement that arises from cash flow hedges amounts to $nil (2020 - $nil).

# Derivative financial instruments

The Group principally uses forward foreign exchange contracts to hedge purchases in a non-functional currency against movements in exchange rates. The cash flows relating to these contracts are generally expected to occur within 12 months (2020 - 12 months) of the end of the reporting period.

Net fair value gains and losses recognised in the hedging reserve in shareholders' equity (see note 26) on forward foreign exchange contracts as at 31 December 2021 are expected to be released to the consolidated income statement within 12 months of the end of the reporting period (2020 - 12 months).

176

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
# **24 FINANCIAL INSTRUMENTS CONTINUED**

The below table illustrates the effects of hedge accounting on the consolidated statement of financial position and consolidated income statement through detailing separately by risk category and each type of hedge the details of the associated hedging instrument and hedged item.

|  2021 | Current | Current | Non-current  |
| --- | --- | --- | --- |
|  **Hedging risk strategy** | **Cash flow hedges** | **Fair value hedges** | **Cash flow hedges**  |
|  Notional/currency legs | 1,427.7 | 804.8 | 126.5  |
|  Carrying amount net assets/(liabilities) | 2.3 | (9.6) | 3.0  |
|  Maturity date | to Dec 2022 | to Jun 2022 | to Jan 2026  |
|  Hedge ratio | 1:1 | 1:1 | 1:1  |
|  Description of hedged item | Highly probable FX exposures | FX exposures on balance sheet positions | Highly probable FX exposures  |
|  Change in fair value of outstanding hedging instruments since 1 January | 30.1 | (8.2) | 3.0  |
|  Change in fair value of hedging item used to determine hedge effectiveness | (30.1) | 8.2 | (3.0)  |
|  Weighted average hedge rate of outstanding deals | (AUD/JPY) 81.99 | n/a | (GBP/USD) 1.39  |
|  Amounts recognised within net finance costs on profit and loss | - | (8.2) | -  |
|  Balance on cash flow hedge reserve (net of tax) at 31 December | (3.2) | - | (3.0)  |

|  2020 | Current | Current | Non-current  |
| --- | --- | --- | --- |
|  **Hedging risk strategy** | **Cash flow hedges** | **Fair Value hedges** | **-**  |
|  Notional/currency legs | 1,056.0 | 714.9 | -  |
|  Carrying amount net liabilities | (27.7) | (1.4) | -  |
|  Maturity date | to Dec 2021 | to Dec 2021 | -  |
|  Hedge ratio | 1:1 | 1:1 | -  |
|  Description of hedged item | Highly probable FX exposures | FX exposures on balance sheet positions | -  |
|  Change in fair value of outstanding hedging instruments since 1 January | (18.8) | 0.8 | -  |
|  Change in fair value of hedging item used to determine hedge effectiveness | 18.8 | (0.8) | -  |
|  Weighted average hedge rate of outstanding deals | (AUD/JPY) 76.69 | n/a | -  |
|  Amounts recognised within net finance costs on profit and loss | - | 0.8 | -  |
|  Balance on cash flow hedge reserve (net of tax) at 31 December | (20.1) | - | -  |

1. Outstanding deals predominantly relate to our business in Australia which purchases vehicles in Japanese yen.

# **i. Capital management**

The Group's capital structure consists of equity and debt. Equity represents funds raised from shareholders and debt represents funds raised from banks and other financial institutions. The primary objective of the Group's management of debt and equity is to ensure that it maintains a strong credit rating and healthy capital ratios in order to finance the Group's activities, both now and in the future, and to maximise shareholder value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. Due to the impact of Covid-19, some limited exceptions to policy are in place, to reflect the significant amount of cash the Group currently holds, to increase the counterparty risk limits set for certain counterparties.

To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Directors consider the Group's capital structure and dividend policy at least twice a year prior to the announcement of results, taking into account the Group's ability to continue as a going concern and the requirements of its business plan.

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 177
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# 24 FINANCIAL INSTRUMENTS CONTINUED

The Group uses return on capital employed ("ROCE") as a measure of its ability to drive better returns on the capital invested in the Group's operations. See alternative performance measures on page 186.

|   | 2021 | 2020  |
| --- | --- | --- |
|  Return on capital employed | 29.8% | 12.4%  |

The committed bank facilities and Private Placement borrowings are subject to the same interest cover covenant based on an adjusted EBITA measure to interest on consolidated borrowings. The Group is required to maintain a ratio of not less than three to one and was compliant with this covenant throughout the year.

The Group monitors Group leverage by reference to three tests: Adjusted EBITA interest cover, the ratio of net debt to EBITDA and the ratio of net debt to market capitalisation. The leverage tests are measured excluding the impact of IFRS 16.

|   | 2021 | 2020  |
| --- | --- | --- |
|  Adjusted EBITA interest cover (times)* | 114.4 | 97.2  |
|  Net debt to EBITDA (times)** | n/a | n/a  |
|  Net debt/market capitalisation (percentage)*** | n/a | n/a  |

* Calculated as Adjusted EBITA interest on consolidated borrowings

** Calculated as net debt/overseas before exceptional items, interest, tax, depreciation and amortisation

*** Calculated as net debt/market capitalisation as at 31 December

# 25 SHARE CAPITAL

a. Allotted, called up and fully paid up

|   | 2021 Number | 2020 Number | 2021 £m | 2020 £m  |
| --- | --- | --- | --- | --- |
|  Issued and fully paid ordinary shares (nominal value of 10.0p each)  |   |   |   |   |
|  At 1 January | 393,274,393 | 399,032,736 | 39.4 | 40.0  |
|  Cancelled under share buyback | (9,422,455) | (5,858,343) | (0.9) | (0.6)  |
|  At 31 December | 383,851,938 | 393,274,393 | 38.5 | 39.4  |

# b. Share buyback programme

During 2021, the Company repurchased 9,422,455 (2020 - 5,858,343) of its own shares through purchases on the London Stock Exchange, at a cost of £80.5m (2020 - £29.8m). The shares repurchased during the year were cancelled, with none held within treasury shares at the end of the reporting period. An amount of £0.9m (2020 - £0.6m), equivalent to the nominal value of the cancelled shares, has been transferred to the capital redemption reserve. Costs of £mt (2020 - £0.6m) associated with the transfer to the Company of the repurchased shares and their subsequent cancellation have been charged to the profit and loss reserve.

# c. Substantial shareholdings

Details of substantial interests in the Company's issued ordinary share capital received by the Company at 24 February 2022 under the provisions of the Companies Act 2006 have been disclosed in the significant shareholdings section of the Corporate Governance Report.

# d. Share options

At 31 December 2021, options to acquire ordinary shares of 10.0p each in the Company up to the following numbers under the schemes below were outstanding as follows:

|  Number of ordinary shares of 10.0p each | Exercisable until | Option price ($)  |
| --- | --- | --- |
|  The Inchcape SAYE Share Option Scheme - approved  |   |   |
|  38,901 | 1 May 2022 | 5.54  |
|  395,057 | 1 May 2023 | 4.59  |
|  1,299,662 | 1 May 2024 | 3.77  |
|  335,272 | 1 May 2025 | 7.31  |

Included within the retained earnings reserve are 349349 (2020 - 167,312) ordinary shares in the Company held by the Inchcape Employee Trust, a general discretionary trust whose beneficiaries include current and former employees of the Group and their dependants. The book value of these shares at 31 December 2021 was £2.6m (2020 - £1.0m). The market value of these shares at both 31 December 2021 and 24 February 2022 was £3.2m and £2.5m respectively (31 December 2020 - £1.1m, 24 February 2021 - £1.2m).

178

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
26 OTHER RESERVES

| Fair value |  | Translation |  |  |  |  | Total other |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| through OCI |  |  | reserve |  | Hedging |  | reserves |  |
| reserve |  | (restated) |  | 1 | reserve |  | (restated) | 1 |
|  | £m |  |  | £m |  | £m |  | £m |

At 1 January 2020 – (174.2) (16.2) (190.4)
Cash flow hedges:
– Fair value movements – – (4.8) (4.8)
– Reclassified and reported in inventories – – 1.5 1.5
Other fair value movements (2.7) – – (2.7)
Tax on above items 0.3 – (0.6) (0.3)
Other currency translation differences – (51.5) – (51.5)
At 1 January 2021 (2.4) (225.7) (20.1) (248.2)
Cash flow hedges:
– Fair value movements – – 18.0 18.0
– Reclassified and reported in inventories – – (0.9) (0.9)
Other fair value movements 1.6 – – 1.6
Tax on above items – – (2.8) (2.8)
Transfers 0.7 (0.3) (0.4) –
Other currency translation differences – 5.2 – 5.2
At 31 December 2021 (0.1) (220.8) (6.2) (227.1)
1. See note 35.
The effect of foreign exchange rate changes includes a loss of £108.2m (2020 – gain of £8.4m) on the sale and liquidation
of overseas subsidiaries that has been reclassified to the consolidated income statement in accordance with IAS 21 "The
effects of changes in foreign exchange rates".
Fair value through OCI reserve
For investments in equity instruments that are measured at fair value through other comprehensive income, changes in
fair value are recognised through OCI. Fair value movements are never recycled to the income statement, even if the
underlying asset is sold, impaired or otherwise derecognised.
Translation reserve
The translation reserve is used to record foreign exchange rate changes relating to the translation of the results of foreign
subsidiaries arising after 1 January 2004. It is also used to record foreign exchange differences arising on long-term foreign
currency borrowings used to finance or hedge foreign currency investments.
Hedging reserve
For cash flow hedges that meet the conditions for hedge accounting, the portion of the gains or losses on the hedging
instrument that are determined to be an effective hedge are recognised directly in shareholders’ equity. When the hedged
firm commitment results in the recognition of a non-financial asset or liability then, at the time the asset or liability is
recognised, the associated gains or losses that had previously been recognised in shareholders’ equity are included in
the initial measurement of the acquisition cost or other carrying amount of the asset or liability.
27 RETAINED EARNINGS
2021 2020
£m £m
At 1 January 962.8 1,141.4
Adjustment for IFRIC (“SaaS”) – (20.9)
At 1 January (restated) 1 962.8 1,120.5
Total comprehensive income/(loss) attributable to owners of the parent for the year:
– Profit/(loss) for the year 117.0 (142.0)
– Actuarial gains on defined pension benefits (see note 5) 58.2 14.8
– Tax charged to reserves (0.4) (2.8)
Total comprehensive income/(loss) for the year 174.8 (130.0)
Share-based payments, net of tax 10.0 3.7
Share buyback programme (80.5) (31.4)
Purchase of own shares by Inchcape Employee Trust (6.2) –
Dividends paid (see note 10) (52.2) –
At 31 December 1,008.7 962.8
1. See note 35.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 179
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# **28 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS**

# **a. Reconciliation of cash generated from operations**

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  **Cash flows from operating activities** |  |   |
|  Operating profit/(loss) | **226.9** | (93.0)  |
|  Exceptional items (see note 2) | **101.2** | 257.1  |
|  Amortisation of intangible assets (including non-exceptional impairment charges) | **13.1** | 14.2  |
|  Depreciation of property, plant and equipment (including non-exceptional impairment charges) | **30.9** | 35.3  |
|  Depreciation of right-of-use assets (including non-exceptional impairment charges) | **51.0** | 54.0  |
|  Profit on disposal of property, plant and equipment | **(4.8)** | -  |
|  Impairment of held for sale assets | **1.5** | -  |
|  Gain on disposal of right-of-use assets | **(0.9)** | (1.6)  |
|  Share-based payments charge | **8.4** | 3.3  |
|  Decrease in inventories | **36.3** | 351.0  |
|  Decrease in trade and other receivables | **29.7** | 124.4  |
|  Decrease in trade and other payables | **(22.3)** | (413.0)  |
|  Increase in provisions | **10.5** | 5.1  |
|  Pension contributions (more)/less than the pension charge for the year | **(5.5)** | 3.3  |
|  Decrease in interest in leased vehicles | **3.9** | 15.9  |
|  Payments in respect of operating exceptional items | **(12.0)** | (24.3)  |
|  Other non-cash items | **1.3** | 1.5  |
|  **Cash generated from operations** | **469.2** | 333.2  |

1 Includes additional payments of 63.7m (2020 - 63.7m).

# **b. Net debt reconciliation**

|   | Liabilities from financing activities |   |   | Assets  |   |
| --- | --- | --- | --- | --- | --- |
|   |  Borrowings £m | Leases £m | Sub-total £m | Cash/bank overdrafts £m | Total net debt £m  |
|  **Net debt at 1 January 2020** | (276.3) | (352.8) | (629.1) | 379.2 | (249.9)  |
|  Cash flows | 66.1 | 57.4 | 123.5 | 55.3 | 178.8  |
|  Acquisitions | - | (1.1) | (1.1) | (31.5) | (32.6)  |
|  Disposals | - | - | - | 73.5 | 73.5  |
|  New lease liabilities | - | (35.7) | (35.7) | - | (35.7)  |
|  Transferred to liabilities held for sale | - | 1.0 | 1.0 | - | 1.0  |
|  Foreign exchange adjustments | 0.2 | (1.6) | (1.4) | (0.2) | (1.6)  |
|  **Net debt at 1 January 2021** | **(210.0)** | **(332.8)** | **(542.8)** | **476.3** | **(66.5)**  |
|  Cash flows | 12.7 | 59.3 | 72.0 | 121.5 | 193.5  |
|  Acquisitions | (12.7) | (1.9) | (14.6) | (20.2) | (34.8)  |
|  Disposals | - | 10.1 | 10.1 | 76.2 | 86.3  |
|  New lease liabilities | - | (68.3) | (68.3) | - | (68.3)  |
|  Transferred to liabilities held for sale | - | (1.3) | (1.3) | - | (1.3)  |
|  Foreign exchange adjustments | - | 10.8 | 10.8 | (65.0) | (54.2)  |
|  **Net funds at 31 December 2021** | **(210.0)** | **(324.1)** | **(534.1)** | **588.8** | **54.7**  |

180 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## 28 NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS CONTINUED

Net funds/(debt) is analysed as follows:

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Cash and cash equivalents as per the statement of financial position | 596.4 | 481.2  |
|  Cash and cash equivalents included in disposal groups held for sale | - | 1.2  |
|  Borrowings - disclosed as current liabilities | (7.6) | (6.1)  |
|  **Cash and cash equivalents as per the statement of cash flows** | **588.8** | **476.3**  |
|  **Debt financing** |  |   |
|  Borrowings - disclosed as non-current liabilities | (210.0) | (210.0)  |
|  Lease liabilities | (324.1) | (332.8)  |
|  **Debt financing** | **(534.1)** | **(542.8)**  |
|  **Net funds/(debt)** | **54.7** | **(66.5)**  |
|  Add back: lease liabilities | 324.1 | 332.8  |
|  **Net cash** | **378.8** | **266.3**  |

## 29 ACQUISITIONS AND DISPOSALS

### a. Acquisitions

On 1 March 2021, the Group acquired the Mercedes-Benz passenger and commercial vehicles distribution operations in Guatemala, and the distribution and retail of Freightliner Trucks in Guatemala and El Salvador, from Grupo Q, for a total cash consideration of $5.5m. A distribution agreement with a fair value of $2.8m has been recognised at the date of acquisition. The business was acquired to strengthen and further expand the Group's partnership with Daimler-Mercedes-Benz in Central and South America, Goodwill of $1.0m arose on the acquisition. None of the goodwill is expected to be deductible for tax purposes.

On 1 December 2021, the Group acquired the full share capital of Morico Equipment Holdings Inc., a distributor of new and used heavy equipment vehicles, including Freightliner, Mercedes-Benz and Hyundai, in Guam and Micronesia for a total cash consideration of $26.8m, including the settlement of $12.7m of debt acquired. The business was acquired to expand the Group's footprint into commercial vehicles in the region. Provisional goodwill of $16.5m arose on the acquisition. The goodwill is expected to be deductible for tax purposes.

### Revenue and profit contribution

|   | Total £m  |
| --- | --- |
|  Income statement items |   |
|  Revenue recognised since the acquisition date in the consolidated income statement | 13.5  |
|  Profit after tax since the acquisition date in the consolidated income statement | 0.3  |

### Other acquisitions

During the period, the Group acquired inventory assets from Star Motors SA de CV, a company registered in El Salvador, as well as the Daimler Trucks North America distribution rights in Ecuador and the distribution rights to Daimler vans in Colombia. The total cost of these acquisitions was $2.3m.

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  **Cash outflow to acquire businesses, net of cash and overdrafts acquired** |  |   |
|  Cash consideration | 21.9 | 31.5  |
|  Less: Cash acquired | (1.7) | -  |
|  **Net cash outflow** | **20.2** | **31.5**  |

In December 2021, the Group announced an agreement to acquire Interamericana Trading Corporation and Simpson Motors, a business based in the Caribbean. The deal will expand Inchcape's global footprint with entry into the Caribbean, and will also strengthen the Group's geographic reach with Suzuki, Mercedes-Benz and Subaru. The transaction remains subject to customary conditions, including receipt of local regulatory approvals, with completion anticipated in HI 2022.

### Measurement period adjustments

During the year, no adjustments have been made to the fair value of assets and liabilities acquired in business combinations in 2020 (2020 - $0.7m).

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

181

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# 29 ACQUISITIONS AND DISPOSALS CONTINUED

# b. Disposals

During the year the Group continued to reduce its retail operations and disposed of its Toyota and Audi retail business in St Petersburg, Russia, generating disposal proceeds of $109.6m. In Belgium, the Group disposed of these retail sites, generating disposal proceeds of $19m and two sites in the UK, generating disposal proceeds of $10.1m. The Group also disposed of its Retail business in Luxembourg in January 2021 for $4.5m.

|   | Russia Retail £m | UK Retail £m | Belgium & Luxembourg £m | Total £m  |
| --- | --- | --- | --- | --- |
|  Disposal proceeds, net of disposal costs | 107.5 | 9.4 | 6.4 | 123.3  |
|  Net assets disposed of | (71.3) | (8.1) | (3.3) | (82.7)  |
|  Gain on disposal before reclassification of foreign currency translation reserve | 36.2 | 1.3 | 3.1 | 40.6  |
|  Recycling of foreign currency translation reserve | (108.0) | - | 0.1 | (107.9)  |
|  (Loss)/gain on disposal | (71.8) | 1.3 | 3.2 | (67.3)  |

|   | Russia Retail £m | UK Retail £m | Belgium & Luxembourg £m | Total £m  |
| --- | --- | --- | --- | --- |
|  Consideration received, net of disposal costs paid | 107.5 | 9.4 | 6.4 | 123.3  |
|  Cash & cash equivalents disposed of | (46.0) | - | (1.1) | (47.1)  |
|  Net cash inflow on disposal of business | 61.5 | 9.4 | 5.3 | 76.2  |

None of these disposals are material enough to be shown as discontinued operations on the face of the consolidated income statement as they do not represent a major line of business or geographical area of operations.

# c. 2020 acquisitions and disposals

On 24 March 2020, the Group acquired the Mercedes-Benz passenger car and private vans Distribution operations in Colombia from Daimler Colombia S.A., for a total cash consideration of $27.1m. A distribution agreement with a fair value of $34.2m has been recognised at the date of acquisition. The business was acquired to strengthen the Group's partnership with Daimler-Mercedes-Benz in South America and follows on from the acquisition on 2 December 2019 of Autolider, the distributor of certain Daimler brands such as Mercedes-Benz passenger and commercial vehicles, freightliner and Fuso in Uruguay and Mercedes-Benz passenger and commercial vehicles in Ecuador.

On 31 July 2020, the Group was awarded the Daimler Distribution contract in El Salvador and entered into an asset purchase agreement to acquire assets from the exiting distributor, with a cash purchase price at completion of $0.8m. During the year, the Group also entered into distribution contracts with BMW to distribute the MINI and Motorrad brands in Peru and the MINI brand in Chile. The total cost of these acquisitions was $3.6m. Total goodwill arising on the transactions was $0.5m.

During 2020, the Group continued to optimise its UK Retail portfolio and disposed of 13 sites, generating disposal proceeds of $59.5m. In Australia, two further sites in our Retail business were disposed of in February 2020, generating disposal proceeds of $6.1m. The Group also received deferred consideration of $7.9m and incurred $0.4m of costs relating to the disposal of Retail operations in China in 2019.

# 30 GUARANTEES AND CONTINGENCIES

|   | 2021 £m | 2020 £m (Restated)  |
| --- | --- | --- |
|  Guarantees | 25.8 | 29.3  |
|  Letters of credit | 20.0 | 19.0  |
|  Contingent liabilities | 6.4 | 9.2  |
|   | 52.2 | 57.5  |

1. The comparative has been restated to remove guarantees incorrectly disclosed of $3.6m.

Letters of credit act as a guarantee, from one of the Group's banking relationships to another bank, for payments made by the Group to a specified third party.

The Group also has, in the ordinary course of business, commitments under foreign exchange instruments relating to the hedging of transactional exposures (see note 24).

182

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
# 30 GUARANTEES AND CONTINGENCIES CONTINUED

# Franked Investment Income Group Litigation Order

Inchcape is a participant in an action in the United Kingdom against HMBC in the Franked Investment Income Group Litigation Order ("FI-GLO"). As at 31 December 2021 there were 18 corporate groups in the FI-GLO. The action concerns the treatment for UK corporation tax purposes of profits earned overseas and distributed to the UK.

HMBC was previously granted leave to appeal a number of items at the Supreme Court. These appeals were dealt with in two hearings and the judgments were handed down on 20 November 2020 and 23 July 2021. As previously reported, the Supreme Court has returned the test case to the High Court to establish when the claimant could have reasonably discovered the mistake about the UK tax treatment of such profits. No date has yet been set for the High Court hearing.

Therefore, resolution of the test case in the FI-GLO remains incomplete. As at 31 December 2021, no further receipts have been recognised in relation to the balance of Inchcape's claim in the FI-GLO due to the uncertainty of the eventual outcome, given that the test case has not yet completed nor has Inchcape's specific claim been heard by the Courts.

# Other matter

We note that a class-action has been brought against our subsidiary, Subaru (Aust) Pty Limited, in connection with the global Takata airbag inflator recall. Subaru (Aust) Pty Limited has, with a number of other named defendants, agreed to settle the matter, but this is still subject to court endorsement expected in early 2022. While the proposed settlement sum is confidential, the Group's liability under the proposed settlement is not material.

# 31 COMMITMENTS

# a. Capital commitments

Contracts placed for future capital expenditure at the balance sheet date but not yet incurred are as follows:

|   | 2021 $m | 2020 $m  |
| --- | --- | --- |
|  Property, plant and equipment | 18.0 | 12.7  |

# b. Lease commitments

# Operating lease commitments – Group as lessee

Future minimum lease payments for short-term leases under non-cancellable operating leases are as follows:

|   | 2021 $m | 2020 $m  |
| --- | --- | --- |
|  Within one year | 3.2 | 2.8  |

# Operating leases – Group as lessor

The Group has entered into non-cancellable operating leases on a number of its vehicles and certain properties. These leases have varying terms, escalation clauses and renewal rights and are not individually significant to the Group.

Future minimum lease payments receivable under non-cancellable operating leases are as follows:

|   | 2021 $m | 2020 $m  |
| --- | --- | --- |
|  Within one year | 1.5 | 1.9  |
|  Between one and five years | 2.1 | 2.3  |
|  After five years | 0.7 | –  |
|   | 4.3 | 4.2  |

# Sub-lease receivables – Group as lessor

The Group has entered into sub-leases for a number of properties and other assets. As the lease term represents a major proportion of the underlying asset's useful life, the associated right-of-use asset has been derecognised and replaced with a sub-lease receivable. Future minimum lease payments receivable under sub-leases, together with the present value of the net minimum lease payments receivable (included within trade and other receivables), are as follows:

|   | 2021 $m | 2020 $m  |
| --- | --- | --- |
|  Minimum lease payments receivable: |  |   |
|  – Within one year | 2.3 | 1.9  |
|  – Between one and five years | 7.6 | 7.1  |
|  – After five years | 10.2 | 11.5  |
|  Total minimum lease payments receivable | 20.1 | 20.5  |
|  Less: Unearned finance income | (4.3) | (4.8)  |
|  Present value of sub-lease receivables | 15.8 | 15.7  |

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

183

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# **31 COMMITMENTS CONTINUED**

# **c. Residual value commitments**

The Group has entered into agreements with leasing companies and other third parties to repurchase vehicles for a specified value at a predetermined date as follows:

|   | 2021 £m | 2020 £m (Restated)  |
| --- | --- | --- |
|  Vehicles subject to residual value commitments | 79.7 | 77.8  |

1. The comparative has been restated to include additional commitments previously undisclosed of $48.6m.

Residual value commitments comprise the total repurchase liability on all vehicles where the Group has a residual value commitment. These commitments are largely expected to be settled over the next three years.

Where the repurchase commitment is in respect of a vehicle sold by the Group, the repurchase commitment is included within trade and other payables. Included within the above are £16m (2020 - £0.4m) of residual value commitments that are included within 'trade and other payables'.

# **32 RELATED PARTY DISCLOSURES**

# **a. Trading transactions**

Intra-group transactions have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below:

|   | Transactions |   | Amounts outstanding  |   |
| --- | --- | --- | --- | --- |
|   |  2021 £m | 2020 £m | 2021 £m | 2020 £m  |
|  Other income paid to related parties | 1.2 | 1.2 | - | -  |

All of the transactions arise in the ordinary course of business and are on an arm's length basis. The amounts outstanding are unsecured and will be settled in cash. There have been no guarantees provided or received for any related party receivables. The Group has not raised any provision for doubtful debts relating to amounts owed by related parties (2020 - £nil).

# **b. Compensation of key management personnel**

The remuneration of the Board of Directors and the Executive Committee was as follows:

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Wages and salaries | 9.3 | 4.9  |
|  Post-retirement benefits | 0.4 | 0.3  |
|  Compensation for loss of office | 0.4 | 0.9  |
|  Share-based payments | 2.9 | 0.5  |
|   | 13.0 | 6.6  |

The remuneration of the Directors and other key management is determined by the Remuneration Committee having regard to the performance of individuals and market trends. Further details of emoluments paid to the Directors are included in the Directors' Report on Remuneration.

# **33 FOREIGN CURRENCY TRANSLATION**

The main exchange rates used for translation purposes are as follows:

|   | Average rates |   | Year-end rates  |   |
| --- | --- | --- | --- | --- |
|   |  2021 | 2020 | 2021 | 2020  |
|  Australian dollar | 1.84 | 1.87 | 1.86 | 1.78  |
|  Chilean peso | 1,043.46 | 1,024.2 | 1,152.93 | 973.00  |
|  Ethiopian bin | 60.21 | 45.18 | 66.81 | 52.91  |
|  Euro | 1.16 | 1.13 | 1.19 | 1.12  |
|  Hong Kong dollar | 10.69 | 10.01 | 10.55 | 10.59  |
|  Russian rouble | 101.55 | 94.1 | 101.43 | 101.21  |
|  Singapore dollar | 1.85 | 1.78 | 1.82 | 1.81  |
|  US dollar | 1.38 | 1.29 | 1.35 | 1.37  |

184 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
34 EVENTS AFTER THE REPORTING PERIOD
On 15 February 2022, the Group’s contract with a broker to purchase its own shares completed. A further 2,189,677 shares
were repurchased, at a cost of £19.5m, and subsequently cancelled during this period. An amount of £0.2m, equivalent
to the nominal value of the cancelled shares, has been transferred to the capital redemption reserve.
35 RESTATEMENT FOLLOWING CHANGE IN ACCOUNTING POLICY RELATING TO THE RECOGNITION OF CONFIGURATION
AND CUSTOMISATION COSTS IN RESPECT OF SOFTWARE AS A SERVICE
The principal restatements as a result of the change in accounting policy are set out in the following tables. The tables
show the adjustments recognised for each individual line item as at 31 December 2020. Line items that were not affected
by the changes have not been included. As a result, the sub-totals and totals disclosed cannot be recalculated from
the numbers provided.
The impacts on the consolidated income statement are:
Year to

|  | Year to |  |  | 31 Dec 2020 |  |
| --- | --- | --- | --- | --- | --- |
| 31 Dec 2020 |  |  | IFRIC | (restated) |  |
|  |  | £m | £m |  | £m |

Net operating expenses (969.4) (1.4) (970.8)
Operating loss (91.6) (1.4) (93.0)
Loss before tax (128.2) (1.4) (129.6)
Tax (9.0) (0.5) (9.5)
Loss for the year (137.2) (1.9) (139.1)
The impacts on the consolidated statement of financial position are:

|  |  |  | As at 1 Jan |  |  |  |  | As at 31 Dec |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| As at 1 Jan |  |  |  | 2020 | As at 31 Dec |  |  |  | 2020 |
|  | 2020 | IFRIC | (restated) |  |  | 2020 | IFRIC | (restated) |  |
|  | £m | £m |  | £m |  | £m | £m |  | £m |

Non-current assets
Intangible assets 577.9 (23.5) 554.4 450.2 (24.4) 425.8
Deferred tax 58.3 2.6 60.9 68.6 1.9 70.5
Net assets 1,298.6 (20.9) 1,277.7 1,083.7 (22.5) 1,061.2
Equity
Other reserves (190.4) – (190.4) (248.5) 0.3 (248.2)
Retained earnings 1,141.4 (20.9) 1,120.5 985.6 (22.8) 962.8
Total equity 1,298.6 (20.9) 1,277.7 1,083.7 (22.5) 1,061.2
The impacts on the consolidated statement of cash flows are:
Year to

|  | Year to |  |  | 31 Dec 2020 |  |
| --- | --- | --- | --- | --- | --- |
| 31 Dec 2020 |  |  | IFRIC | (restated) |  |
|  |  | £m | £m |  | £m |

Cash generated from operating activities
Cash generated from operations 338.8 (5.6) 333.2
Net cash generated from operating activities 254.8 (5.6) 249.2
Cash generated from investing activities
Purchase of intangible assets (20.1) 5.6 (14.5)
Net cash generated from investing activities 2.4 5.6 8.0
Cash and cash equivalents at the end of the year 476.3 – 476.3
See note 1 for details of the change in accounting policies arising from the adoption of the IFRS Interpretations Committee’s
agenda decision on cloud computing arrangements.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 185
## ALTERNATIVE PERFORMANCE MEASURES
ALTERNATIVE PERFORMANCE MEASURES (APMS)
The Group assesses its performance using a variety of alternative performance measures which are not defined under
International Financial Reporting Standards. These provide insight into how the Board and Executive Committee monitor
the Group’s strategic and financial performance, and provide useful information on the trends, performance and position
of the Group.
The Group’s income statement and segmental analysis identify separately adjusted measures and exceptional items.
These adjusted measures reflect adjustments to IFRS measures. The Directors consider these adjusted measures to be an
informative additional measure of the ongoing trading performance of the Group. Adjusted results are stated before
exceptional items.
Exceptional items can include gains or losses on the disposal of businesses, restructuring of businesses, acquisition costs,
asset impairments and the tax effects of these items. Exceptional items excluded from adjusted results can evolve from
one financial period to the next depending on the nature of exceptional items or one off type activities.
Constant currency
Some comparative performance measures are translated at constant exchange rates, called ‘constant currency’
measures. This restates the prior period results at a common exchange rate to the current period and therefore excludes
the impact of changes in exchange rates used for translation.
Performance measure Definition Why we measure it
Gross profit before Gross profit before exceptional items. A key metric of the direct profit
exceptional items Refer to the consolidated income statement. contribution from the Group’s revenue
streams (e.g. Vehicles and Aftersales).
Operating profit before Operating profit before exceptional items. A key metric of the Group’s business
exceptional items Refer to the consolidated income statement. performance.
Operating margin Operating profit (before exceptional items) divided A key metric of operational efficiency,
by revenue. ensuring that we are leveraging global
scale to translate sales growth into profit.
Profit before tax and Represents the profit made after operating and interest A key driver of delivering sustainable and
exceptional items expense excluding the impact of exceptional items growing earnings to shareholders.
and before tax is charged. Refer to consolidated
income statement.

| Exceptional items Items that are charged or credited in the consolidated |  | The separate reporting of exceptional |
| --- | --- | --- |
|  | income statement which are material and non- | items helps provide additional useful |
|  | recurring in nature. Refer to note2. | information regarding the Group’s |

business performance and is consistent
with the way that financial performance
is measured by the Board and
the Executive Committee.
Net capital Cash outflows from the purchase of property, plant A measure of the net amount invested in
expenditure and equipment and intangible assets less the operational facilities in the period.
proceeds from the disposal of property, plant and
equipment and intangible assets.
Free cash flow Net cash flows from operating activities, before A key driver of the Group’s ability to
exceptional cash flows, less normalised net capital ‘Invest to Accelerate Growth’ and to
expenditure and dividends paid to non-controlling make distributions to shareholders.
interests.
Return on capital Operating profit (before exceptional items) divided ROCE is a measure of the Group’s ability
employed (ROCE) by the average of opening and closing capital to drive better returns for investors on the
employed, where capital employed is defined capital we invest.
as net assets add net debt/less net funds.
Net funds/(debt) Cash and cash equivalents less borrowings and lease A measure of the Group’s net
liabilities adjusted for the fair value of derivatives that indebtedness that provides an indicator
hedge interest rate or currency risk on borrowings. of the overall balance sheet strength.
Refer to note 28.
Net cash Cash and cash equivalents less borrowings adjusted A measure of the Group’s net
for the fair value of derivatives that hedge interest indebtedness that provides an indicator
rate or currency risk on borrowings and before the of the overall balance sheet strength and
incremental impact of IFRS 16 lease liabilities. Refer is widely used by external parties.
to note 28.
Constant currency Presentation of reported results compared to prior A measure of business performance
%change period translated using constant rates of exchange. which excludes the impact of changes in
exchange rates used for translation.
Organic growth Organic growth is defined as sales growth in operations A measure of underlying business
that have been open for at least a year at constant performance which excludes the impact
foreign exchange rate. of acquisition and disposals in the period.
186 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
APMS: Reconciliation of income statement measures
2020
2021 (restated) !
£m £m
Gross Profit 1,140.9 877.8
Add back: Exceptional items charged to gross profit – 11.6
Gross Profit before exceptional items 1,140.9 889.4
Less: Segment operating expenses (812.8) (725.3)
Operating Profit (before exceptional Items) 328.1 164.1
Less: Exceptional items (101.2) (257.1)
Operating Profit/(Loss) 226.9 (93.0)
Less: Net Finance Costs (32.1) (36.6)
Profit Before Tax 194.8 (129.6)
Add back: Exceptional Items 101.2 257.1
Profit Before Tax & Exceptional Items 296.0 127.5
APMS: Reconciliation of cash flow measures

|  |  |  | 2020 |  |  | 2020 |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 2021 | 2021 | (restated) |  | ! | (restated) |  | ! |
| £m | £m |  | £m |  |  | £m |  |

Net cash generated from operating activities 377.0 249.2
Add back: Payments in respect of exceptional items 12.0 24.3
Net cash generated from operating activities, before
exceptionalitems 389.0 273.5
Purchase of property, plant and equipment (48.5) (27. 4)
Purchase of intangible assets (16.1) (14.5)
Proceeds from disposal of property, plant and equipment 24.6 6.7
Net capital expenditure (40.0) (35.2)
Net payment in relation to leases (57.0) (56.7)
Dividends paid to non-controlling interests (3.0) (4.3)
Free cash flow 289.0 177.3
APMS: Reconciliation of balance sheet measures
2020
2021 (restated) !
£m £m
Operating profit/(loss) 226.9 (93.0)
Exceptional items 101.2 257.1
Operating profit (before exceptional items) 328.1 164.1
Net assets 1,130.5 1,061.2
Less (net funds)/add net debt (54.7) 66.5
Capital employed 1,075.8 1,127.7
Effect of averaging 26.0 200.0
Average capital employed 1,101.8 1,327.7
Return on capital employed 29.8% 12.4%
2021 2020
£m £m
Net funds/(net debt) 54.7 (66.5)
Add back: lease liabilities 324.1 332.8
Net cash 378.8 266.3
1. See note 35.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 187
## FIVE YEAR RECORD

The information presented in the table below is prepared in accordance with IFRS, as in issue and effective at that year end date.

|   | 2021 £m | 2020 £m | 2019 £m | 2018 £m | 2017 £m  |
| --- | --- | --- | --- | --- | --- |
|  **Consolidated income statement** |  |  |  |  |   |
|  **Revenue** | **7,640.1** | 6,837.8 | 9,379.7 | 9,277.0 | 8,953.3  |
|  Operating profit before exceptional items | **328.1** | 164.1 | 373.1 | 398.6 | 406.6  |
|  Operating exceptional items | **(101.2)** | (257.0) | 75.5 | (223.7) | (12.6)  |
|  Operating profit/(loss) | **226.9** | (93.0) | 448.6 | 174.9 | 394.0  |
|  Share of profit after tax of joint ventures and associates | - | - | 0.3 | 0.1 | -  |
|  Profit/(loss) before finance and tax | **226.9** | (93.0) | 448.9 | 175.0 | 394.0  |
|  Net finance costs before exceptional items | **(32.1)** | (36.6) | (47.1) | (48.1) | (25.0)  |
|  Exceptional finance costs | - | - | - | (13.9) | -  |
|  Profit/(loss) before tax | **194.8** | (129.6) | 401.8 | 113.0 | 369.0  |
|  Tax before exceptional tax | **(71.6)** | (33.7) | (75.6) | (79.1) | (96.1)  |
|  Exceptional tax | **(1.3)** | 24.2 | 2.5 | 5.5 | 2.7  |
|  Profit/(loss) after tax | **121.9** | (109.1) | 328.7 | 39.4 | 275.6  |
|  Non-controlling interests | **(4.9)** | (2.9) | (5.8) | (7.0) | (7.9)  |
|  **Profit/(loss) for the year** | **117.0** | (142.0) | 322.9 | 32.4 | 267.7  |
|  **Basic:** |  |  |  |  |   |
|  - Profit/(loss) before tax | **194.8** | (129.6) | 401.8 | 113.0 | 369.0  |
|  - Earnings/(loss) per share (pence) | **30.0p** | (36.0)p | 79.0p | 7.8p | 64.6p  |
|  Adjusted (before exceptional items): |  |  |  |  |   |
|  - Profit before tax | **296.0** | 127.5 | 326.3 | 350.6 | 381.6  |
|  - Earnings per share (pence) | **56.2p** | 23.1p | 59.9p | 63.8p | 66.7p  |
|  Dividends per share - interim paid and final proposed (pence) | **22.5p** | 6.9p | 26.8p | 26.8p | 26.8p  |
|  **Consolidated statement of financial position** |  |  |  |  |   |
|  Non-current assets | **1,464.3** | 1,479.6 | 1,773.2 | 2,056.0 | 1,641.0  |
|  Other assets less (liabilities) excluding net (debt) / funds | **(388.5)** | (351.9) | (224.7) | (248.4) | (273.3)  |
|  Capital employed | **1,075.8** | 1,127.7 | 1,548.5 | 1,807.6 | 1,367.7  |
|  Net funds/(debt) | **54.7** | (66.5) | (249.9) | (445.9) | 80.2  |
|  **Net assets** | **1,130.5** | 1,061.2 | 1,298.6 | 1,361.7 | 1,447.9  |
|  Equity attributable to owners of the parent | **1,108.9** | 1,047.9 | 1,278.3 | 1,338.4 | 1,427.3  |
|  Non-controlling interests | **21.6** | 19.3 | 20.3 | 23.3 | 20.6  |
|  **Total equity** | **1,130.5** | 1,061.2 | 1,298.6 | 1,361.7 | 1,447.9  |

188 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2021

|   | Notes | 2021 £m | 2020 £m  |
| --- | --- | --- | --- |
|  **Non-current assets** |  |  |   |
|  Intangible assets | 3 | 2.6 | 8.1  |
|  Property, plant and equipment | 4 | 0.6 | 1.5  |
|  Investment in subsidiaries | 5 | 1,565.3 | 1,565.7  |
|  Deferred tax assets | 10 | 8.5 | -  |
|  Trade and other receivables - amounts falling due after more than one year | 6 | 210.4 | 210.5  |
|   |  | **1,787.4** | **1,785.8**  |
|  **Current assets** |  |  |   |
|  Current tax assets |  | 5.3 | 2.6  |
|  Trade and other receivables - amounts due within one year | 6 | 6.1 | 6.5  |
|  Cash and cash equivalents | 7 | 0.9 | 1.1  |
|   |  | **12.3** | **10.2**  |
|  **Total assets** |  | **1,799.7** | **1,796.0**  |
|  **Current liabilities** |  |  |   |
|  Trade and other payables - amounts falling due within one year | 8 | (53.7) | (22.1)  |
|   |  | **(53.7)** | **(22.1)**  |
|  **Non-current liabilities** |  |  |   |
|  Trade and other payables - amounts falling due after more than one year | 9 | (1,110.3) | (974.0)  |
|   |  | **(1,110.3)** | **(974.0)**  |
|  **Total liabilities** |  | **(1,164.0)** | **(996.1)**  |
|  **Net assets** |  | **635.7** | **799.9**  |
|  **Equity** |  |  |   |
|  Share capital | 12 | 38.5 | 39.4  |
|  Share premium |  | 146.7 | 146.7  |
|  Capital redemption reserve |  | 142.1 | 142.2  |
|  Retained earnings |  | 308.4 | 472.6  |
|  **Total shareholders' funds** |  | **635.7** | **799.9**  |

The Company reported a loss for the financial year ended 31 December 2021 of £33.7m (2020 - a profit of £105.0m). The financial statements on pages 189 to 205 were approved by the Board of Directors on 25 February 2022 and were signed on its behalf by:

**DUNCAN TAIT**
GROUP CHEF EXECUTIVE

**GIJSBERT DE ZOETEN**
CHEF FINANCIAL OFFICER

Registered Number: 609782
Inchcape plc

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 189

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS
## COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2021

|   | Notes | Share capital £m | Share premium £m | Capital redemption reserve £m | Retained earnings £m | Total £m  |
| --- | --- | --- | --- | --- | --- | --- |
|  At 1 January 2020 |  | 40.0 | 146.7 | 140.6 | 395.7 | 723.0  |
|  Profit for the year |  | - | - | - | 105.0 | 105.0  |
|  Total comprehensive income for the year |  | - | - | - | 105.0 | 105.0  |
|  Dividends | 13 | - | - | - | - | -  |
|  Share buyback programme | 12 | (0.6) | - | 0.6 | (31.4) | (31.4)  |
|  Share-based payments, net of tax |  | - | - | - | 3.3 | 3.3  |
|  At 1 January 2021 |  | **39.4** | **146.7** | **141.2** | **472.6** | **799.9**  |
|  Loss for the year |  | - | - | - | (33.7) | (33.7)  |
|  Total comprehensive loss for the year |  | - | - | - | (33.7) | (33.7)  |
|  Dividends | 13 | - | - | - | (52.2) | (52.2)  |
|  Share buyback programme | 12 | (0.9) | - | 0.9 | (80.5) | (80.5)  |
|  Net purchase of own shares by the Inchcape Employee Trust |  | - | - | - | (6.2) | (6.2)  |
|  Share-based payments, net of tax |  | - | - | - | 8.4 | 8.4  |
|  **At 31 December 2021** |  | **38.5** | **146.7** | **142.1** | **308.4** | **635.7**  |

Share-based payments include a net tax charge of £nil (2020 - £nil).

190 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
# ACCOUNTING POLICIES

## GENERAL INFORMATION

These financial statements are prepared for Inchcape plc (the Company) for the year ended 31 December 2021. The Company is the ultimate parent entity of the Inchcape Group (the Group) and acts as the holding company of the Group.

## BASIS OF PREPARATION

These financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101).

The financial statements are prepared under the historical cost convention in accordance with the Companies Act 2006. As permitted by Section 408 of the Companies Act 2006, no separate profit and loss account or statement of comprehensive income is presented for the Company.

The Company does not have any critical accounting judgements. The valuation of the Company's investments is a key source of estimation uncertainty. The Company's net assets were lower than its market capitalisation on 31 December 2021 and the estimates of the recoverable amounts of the individual investments were in excess of their carrying values. As a result, no impairment has been reflected. Other sources of estimation uncertainty most applicable to the Company do not give rise to a significant risk of material adjustment to the carrying value of the Company's assets and liabilities.

The Directors of Inchcape plc manage the Group's risks at a group level rather than an individual business unit or company level. Further information on these risks and uncertainties, in the context of the Group as a whole, are included within the Group disclosures on pages 48 to 56.

The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements. In accordance with FRS 101:

- Paragraphs 45(b) and 46 to 52 of IFRS 2, 'Share-based payment' (details of the number and weighted average exercise price of share options, and how the fair value of goods and services received was determined)
- IFRS 7, 'Financial Instruments, Disclosures'
- Paragraphs 91 to 97 of IFRS 13, 'Fair value measurement' (disclosure of valuation techniques and inputs used for fair value measurement of assets and liabilities)
- Paragraph 38 of IAS 1, 'Presentation of financial statements' comparative information requirements in respect of:
  - paragraph 73(e) of IAS 15, 'Property, plant and equipment';
  - paragraph 18(e) of IAS 35, 'Intangible assets' (reconciliations between the carrying amount at the beginning and end of the period)

- The following paragraphs of IAS 1, 'Presentation of financial statements':

- 10(d) (statement of cash flows),

- 10(f) (statement of financial position as at the beginning of the preceding period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements),

- 16 (statement of compliance with all IFRS),

- 38A (requirement for minimum of two primary statements, including cash flow statements),

- 38B-D (additional comparative information),

- 40A-D (requirements for a third statement of financial position),

- 111 (cash flow statement information), and

- 134-135 (capital management disclosures)

- IAS 7, 'Statement of cash flows'

- Paragraph 20 and 31 of IAS 8, 'Accounting policies, changes in accounting estimates and errors' (requirement for the disclosure of information when an entity has not applied a new IFRS that has been issued but is not yet effective)

- Paragraph 17 of IAS 24, 'Related party disclosures' (key management compensation)

- The requirements in IAS 24, 'Related party disclosures' to disclose related party transactions entered into between two or more members of a group.

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

191
ACCOUNTING POLICIES CONTINUED
GOING CONCERN
Having assessed the principal risks and the other matters discussed in connection with the viability statement, the Directors
have considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements,
as described in the Directors’ Report of the consolidated Group Financial Statements.
FOREIGN CURRENCIES
Transactions in foreign currencies are translated into the functional currency at the rates of exchange prevailing at the
dates of the individual transactions. Monetary assets and liabilities in foreign currencies are translated into sterling at closing
rates of exchange and differences are taken to the income statement.
FINANCE COSTS
Finance costs consist of interest payable on the Private Placement borrowing. Costs are recognised as an expense,
calculated using the effective interest rate method, in the period in which they are incurred.
INVESTMENTS
Investments in subsidiaries are stated at cost, less provisions for impairment.
IMPAIRMENT
The Company’s accounting policies in respect of impairment of property, plant and equipment, intangible assets and
financial assets are consistent with those of the Group. The carrying values of investments in subsidiary undertakings are
reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists,
then the asset’s recoverable amount is estimated.
The Company’s impairment policies in relation to financial assets are consistent with those of the Group, with additional
consideration given to amounts owed by Group undertakings. Any provision for impairment of receivables is based on
lifetime expected credit losses. Lifetime expected credit losses are calculated by assessing historical credit loss experience,
adjusted for factors specific to the receivable and company.
OTHER INTANGIBLE ASSETS
Intangible assets, when acquired separately from a business (including computer software), are carried at cost less
accumulated amortisation and impairment losses. Costs comprise purchase price from third parties as well as internally
generated development costs where relevant. Amortisation is provided on a straight-line basis to allocate the cost of
the asset over its estimated useful life, which in the case of computer software is between five and eight years. Software
customisation and configuration costs relating to software not controlled by the Group are expensed over the period
such services are received.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated depreciation and impairment losses. Cost comprises
the purchase price and directly attributable costs of the asset and includes, where relevant, capitalised borrowing costs.
Depreciation is provided on a straight-line basis to allocate the cost of the asset over its estimated useful life, which in the
case of computer hardware is five years.
DEFERRED TAX
Deferred income tax is accounted for using the liability method in respect of temporary differences arising from differences
between the tax bases of assets and liabilities and their carrying amounts in the financial statements.
Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against which deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary difference is due to goodwill arising on a business
combination, or to an asset or liability, the initial recognition of which does not affect either taxable or accounting income.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where
the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability
is settled using rates enacted or substantively enacted at the end of the reporting period. Deferred tax is charged or
credited in the income statement, except when it relates to items credited or charged directly to shareholders’ equity,
in which case the deferred tax is also dealt with in shareholders’ equity.
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention
to settle balances net.
192 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
SHARE CAPITAL
Ordinary shares are classified as equity.
Where the Company purchases its own equity share capital (treasury shares), the consideration paid is deducted from
shareholders’ funds until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold
or reissued, any consideration received is included in shareholders’ funds.
DIVIDENDS
Final dividends proposed by the Board of Directors and unpaid at the year-end are not recognised in the financial
statements until they have been approved by the shareholders at the Annual General Meeting. Interim dividends are
recognised when they are paid.
SHARE-BASED PAYMENTS
The Company operates various share-based award schemes. The fair value at the date at which the share-based awards
are granted is recognised in the income statement (together with a corresponding credit in shareholders’ equity) on a
straight-line basis over the vesting period, based on an estimate of the number of shares that will eventually vest. At the end
of each reporting period, the Company revises its estimates of the number of awards that are expected to vest. The impact
of any revision is recognised in the income statement with a corresponding adjustment to equity.
For equity-settled share-based awards, the services received from employees are measured by reference to the fair value
of the awards granted. With the exception of the Save As You Earn scheme, the vesting of all share-based awards under all
schemes is solely reliant upon non-market conditions, therefore no expense is recognised for awards that do not ultimately
vest. Where an employee cancels a Save As You Earn award, the charge for that award is recognised as an expense
immediately, even though the award does not vest.
The issue of shares by the Company to employees of its subsidiaries represents additional capital contributions. When
these costs are recharged to the subsidiary undertaking, the investment balance is reduced accordingly.
FINANCIAL INSTRUMENTS
The Company’s policies on the recognition, measurement and presentation of financial instruments under IFRS 7 are
the same as those set out in the Group’s accounting policies on pages 125 to 135.
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 193
## NOTES TO THE FINANCIAL STATEMENTS

### 1 AUDITOR'S REMUNERATION

The Company incurred $0.1m (2020 - $0.1m) in relation to UK statutory audit fees for the year ended 31 December 2021.

### 2 DIRECTORS' REMUNERATION

|   | 2021 $m | 2020 $m  |
| --- | --- | --- |
|  Wages and salaries | 3.3 | 1.4  |
|  Social security costs | 0.5 | 0.2  |
|  Pension costs | 0.1 | 0.2  |
|   | **3.9** | **1.8**  |

Further information on Executive Directors' emoluments and interests is given in the Directors' Report on Remuneration which can be found on pages 84 to 103.

### 3 INTANGIBLE ASSETS

|   | Computer software $m  |
| --- | --- |
|  **Cost** |   |
|  At 1 January 2021 | 29.9  |
|  Disposals | (4.0)  |
|  **At 31 December 2021** | **25.9**  |

#### Accumulated amortisation and impairment

|  At 1 January 2021 | (21.8)  |
| --- | --- |
|  Amortisation charge for the year | (2.9)  |
|  Disposals | 1.4  |
|  **At 31 December 2021** | **(23.3)**  |
|  **Net book value at 31 December 2021** | **2.6**  |
|  Net book value at 31 December 2020 | 8.1  |

At 31 December 2021, assets under construction total $nil (2020 - $4.9m).

During the year, the Company sold $2.6m of intangible assets, at book value, to Inchcape Digital Limited, another Group company.

### 4 PROPERTY, PLANT AND EQUIPMENT

|   | Plant, machinery and equipment $m  |
| --- | --- |
|  **Cost** |   |
|  At 1 January 2021 and at 31 December 2021 | 1.8  |

#### Accumulated depreciation and impairment

|  At 1 January 2021 | (0.3)  |
| --- | --- |
|  Depreciation charge for the year | (0.9)  |
|  **At 31 December 2021** | **(1.2)**  |
|  **Net book value at 31 December 2021** | **0.6**  |
|  Net book value at 31 December 2020 | 1.5  |

194 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
# 5 INVESTMENT IN SUBSIDIARIES

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Cost |  |   |
|  At 1 January | 1,696.0 | 1,711.0  |
|  Additions | - | 17.4  |
|  Disposals | - | (32.4)  |
|  At 31 December | 1,696.0 | 1,696.0  |
|  Provisions |  |   |
|  At 1 January | (130.3) | (134.1)  |
|  Disposals | - | 3.8  |
|  Impairment | (0.4) | -  |
|  At 31 December | (130.7) | (120.3)  |
|  Net book value | 1,565.3 | 1,565.7  |

The Directors believe that the carrying value of the individual investments is supported by their underlying net assets.

An impairment charge of $0.4m was recognised in the year against the Company's investment in Inchcape Finance (Ireland) Limited, a subsidiary that was dissolved on 10 January 2022.

# 6 TRADE AND OTHER RECEIVABLES

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Amounts due within one year |  |   |
|  Amounts owed by Group undertakings | 5.8 | 6.2  |
|  Other debtors | 0.3 | 0.3  |
|   | 6.1 | 6.5  |
|  Amounts due after more than one year |  |   |
|  Amounts owed by Group undertakings | 210.0 | 210.0  |
|  Other debtors | 0.4 | 0.5  |
|   | 210.4 | 210.5  |

Amounts owed by Group undertakings that are due within one year consist of current account balances that are interest free and repayable on demand, as well as intercompany loans that bear interest at rates linked to source currency base rates.

Amounts owed by Group undertakings that are due after more than one year bear interest at rates linked to source currency base rates.

# 7 CASH AND CASH EQUIVALENTS

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Cash and cash equivalents | 0.9 | 1.1  |

# 8 TRADE AND OTHER PAYABLES - AMOUNTS FALLING DUE WITHIN ONE YEAR

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Amounts owed to Group undertakings | 47.7 | 17.5  |
|  Other creditors | 6.0 | 4.6  |
|   | 53.7 | 22.1  |

Amounts owed to Group undertakings are interest free and repayable on demand.

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021

195
NOTES TO THE FINANCIAL STATEMENTS CONTINUED

# **9 TRADE AND OTHER PAYABLES - AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR**

|   | 2021 £m | 2020 £m  |
| --- | --- | --- |
|  Amounts owed to Group undertakings | 900.3 | 764.0  |
|  Private Placement | 210.0 | 210.0  |
|   | **1,110.3** | **974.0**  |

Amounts owed to Group undertakings are repayable between one and five years and bear interest at rates linked to source currency base rates.

In December 2016, the Group concluded a Private Placement transaction raising £218m to refinance existing US dollar Private Placement borrowings which matured in May 2017. The amounts drawn under these facilities are as follows:

|  Maturity date | May 2024 | May 2027 | May 2027 | May 2029  |
| --- | --- | --- | --- | --- |
|  Amount drawn | £70m | £30m | £70m | £40m  |
|  Fixed rate coupon | 2.85% | 3.02% | 3.12% | 3.10%  |

# **10 DEFERRED TAX**

|  Net deferred tax asset/(liabilities) | Tax losses £m | Accelerated tax depreciation £m | Other timing differences £m | Total £m  |
| --- | --- | --- | --- | --- |
|  At 1 January 2020 | 3.8 | (0.2) | 2.0 | 5.6  |
|  Credited/(Charged) to the income statement | (3.8) | 0.2 | (2.0) | (5.6)  |
|  At 31 December 2020 | - | - | - | -  |
|  Credited to the income statement | 8.5 | - | - | 8.5  |
|  **At 31 December 2021** | **8.5** | **-** | **-** | **8.5**  |

Deferred tax assets recognised are supported by those future taxable profits of the UK tax group, headed by the Company, which are associated with the reversal of taxable temporary differences.

# **11 GUARANTEES**

The Company is party to composite cross guarantees between banks and its subsidiaries. The Company's exposure under these guarantees at 31 December 2021 was £0.9m (2020 - £1.1m), equal to the carrying value of its cash and cash equivalents at the end of the period (see note 7).

In addition, the Company has given performance guarantees in the normal course of business in respect of the obligations of Group undertakings amounting to £393m (2020 - £293.1m).

# **12 SHARE CAPITAL**

# **a. Allotted, called up and fully paid up**

|   | 2021 Number | 2020 Number | 2021 £m | 2020 £m  |
| --- | --- | --- | --- | --- |
|  **Issued and fully paid ordinary shares (nominal value of 10.0p each)** |  |  |  |   |
|  At 1 January | 393,274,393 | 399,032,736 | 39.4 | 40.0  |
|  Cancelled under share buyback | (9,422,455) | (5,858,343) | (0.9) | (0.6)  |
|  **At 31 December** | **383,851,938** | **393,274,393** | **38.5** | **39.4**  |

# **b. Share buyback programme**

During 2021, the Company repurchased 9,422,455 (2020 - 5,858,343) of its own shares through purchases on the London Stock Exchange, at a cost of £80.5m (2020 - £29.8m). The shares repurchased during the year were cancelled, with none held within treasury shares at the end of the reporting period. An amount of £0.9m (2020 - £0.6m), equivalent to the nominal value of the cancelled shares, has been transferred to the capital redemption reserve. Costs of £nil (2020 - £1.6m) associated with the transfer to the Company of the repurchased shares and their subsequent cancellation have been charged to the profit and loss reserve.

196 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
## 12 SHARE CAPITAL CONTINUED

### c. Substantial shareholdings

Details of substantial interests in the Company's issued ordinary share capital received by the Company at 24 February 2022 under the provisions of the Companies Act 2006 have been disclosed in the significant shareholdings section of the Corporate Governance Report.

### d. Share options

At 31 December 2021, options to acquire ordinary shares of 10.0p each in the Company up to the following numbers under the schemes below were outstanding as follows:

|  Number of ordinary shares of 10.0p each | Exercise price unit | Option price ($)  |
| --- | --- | --- |
|  **The Inchcape SAYE Share Option Scheme – approved**  |   |   |
|  38,901 | 1 May 2022 | 5.54  |
|  395,057 | 1 May 2023 | 4.59  |
|  1,299,662 | 1 May 2024 | 3.77  |
|  335,272 | 1 May 2025 | 7.31  |

Included within the retained earnings reserve are 349349 (2020 – 167.3t2) ordinary shares in the Company held by the Inchcape Employee Trust, a general discretionary trust whose beneficiaries include current and former employees of the Group and their dependants. The book value of these shares at 31 December 2021 was $2.6m (2020 – $1.0m). The market value of these shares at both 31 December 2021 and 24 February 2022 was $3.2m and $2.5m respectively (31 December 2020 – $1.1m, 24 February 2021 – $1.2m).

### e. Share-based remuneration

Inchcape plc has two employees, the Group Chief Executive and the Chief Financial Officer.

The terms and conditions of the Company's share-based payment plans are detailed in the Directors' Report on Remuneration.

The charge arising from share-based transactions during the year was $1.2m (2020 – credit of $0.3m), all of which is equity-settled.

The weighted average exercise price of shares exercised during the period was $0.10 (2020 – $0.10).

The weighted average remaining contractual life for the share options outstanding at 31 December 2021 is 2.3 years (2020 – 3.3 years) and the exercise price for options outstanding at the end of the year was $3.77 (2020 – $3.77).

## 13 DIVIDENDS

The following dividends were paid by the Company:

|   | 2021 $m | 2020 $m  |
| --- | --- | --- |
|  Interim dividend for the six months ended 30 June 2021 of 6.4p per share (30 June 2020 of nil per share) | 25.1 | –  |
|  Final dividend for the year ended 31 December 2020 of 6.9p per share (31 December 2019 of nil per share) | 27.1 | –  |
|   | **52.2** |   |

A final proposed dividend for the year ended 31 December 2021 of 16.3p per share is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability as at 31 December 2021.

STRATEGIC REPORT

GOVERNANCE

FINANCIAL STATEMENTS

INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 197
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
14 RELATED UNDERTAKINGS
In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, associates and joint ventures
as at 31December 2021 is shown below:
Subsidiaries
Percentage
Name and registered address owned
Argentina
Torre Catalinas Plaza, Av. Eduardo Madero 900 Piso 17, Buenos Aires
Distribuidora Automotriz Argentina SA 100%
Inchcape Argentina SA 100%
Australia
Level 2, 4 Burbank Place, Baulkham Hills, NSW 2153
AutoNexus Pty Ltd 100%
Bespoke Automotive Australia Pty Ltd 100%
Inchcape Australia Ltd (i) 100%
Trivett Automotive Retail Pty Ltd 100%
Inchcape European Automotive Pty Ltd (ii) 100%
SMLB Pty Ltd 100%
Subaru (Aust) Pty Ltd 90%
TCH Unit Trust 100%
Trivett Automotive Group Pty Ltd 100%
Trivett Bespoke Automotive Pty Ltd 100%
Trivett Classic Garage Pty Ltd 100%
Trivett Classic Group Finance Pty Ltd 100%
Trivett Classic Holdings Pty Ltd (iii) 100%
Trivett Classic Pty Ltd (iv) 100%
Trivett Motorcycles Pty Ltd 100%
Trivett P/L 100%
Trivett Tyres Pty Ltd 100%
Inchcape Finance Australia Pty Limited 100%
Inchcape Corporate Services Australia Pty Limited 100%
Belgium
Leuvensesteenweg 369, 1932 Sint-Stevens-Woluwe
Autoproducts NV 100%
Car Security NV 100%
Toyota Belgium NV/SA 100%
Boulevard Industriel 198, 1070 Anderlecht
Garage Francorchamps SA 100%
Inchcape Retail Belgium 100%
Brunei
KM3.6, Jalan Gadong, Bandar Seri Begawan
Champion Motors (Brunei) Sdn Bhd 70%
NBT (Brunei) Sdn Bhd 70%
NBT Services Sdn Bhd 70%
Bulgaria
163 Tsarigradsko Shosse Str, Sofia
Inchcape Brokerage Bulgaria EOOD 100%
TM Auto EOOD 100%
Toyota Balkans EOOD 100%
198 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
14 RELATED UNDERTAKINGS CONTINUED
Percentage
Name and registered address owned
Chile
Av. La Dehesa 265, Ciudad Santiago comuna Lo Barnechea Región Metropolitana
Mobility Services Chile SpA 100%
Universal Motors SpA 100%
Williamson Balfour Motors SpA 100%
Williamson Balfour SA 100%
Ruta 5 Norte #19100 Ciudad Santiago comuna Lampa Región Metropolitana
Hino Chile SA 100%
Inchcape Camiones y Buses Chile SA 100%
Avda. las Condes 11774, Vitacura, Santiago
Inchcape Latam Internacional SA 100%
Inchcape Automotriz Chile SA 100%
Indigo Chile Holdings SpA 100%
Av. vitacura #5410, Vitacura, Santiago
Inchcape Commercial Chile SA 100%
Colombia
Calle 99 N° 69c – 41 Bogotá
Inchcape Inversiones Colombia S.A.S 100%
Inchcape Digital Delivery Centre Colombia S.A.S 100%
Matrase SAS 100%
Praco Didacol SAS 100%
Inmobiliaria Inchcape Colombia S.A.S 100%
Vuelta Grande a 150 metros de la Glorieta de Siberia via Cota-Chia CLIS BG34
Distribuidora Hino de Colombia SAS 100%
Cook Islands
First Floor, BCI House, Avarua, Rarotonga
IB Enterprises Ltd 100%
Costa Rica
La Uruca, de la Pozuelo 200 metros oeste, frente al Hospital Mexico
Arienda Express SA 100%
Inchcape Protection Express 100%
Vehiculos de Trabajo SA 100%
Vistas de Guanacaste Orquideas SA 100%
Djibouti
Route de Venise – Djibouti Free Zone – PO Box 2645
Red Sea Automotive FZCO 100%
Inchcape Djibouti Automotive Sarl 100%
Ecuador
Av. 10 de Agosto N36-226 y Naciones Unidas, Quito, 170507
Autolider Ecuador S.A.S 100%
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 199
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
14 RELATED UNDERTAKINGS CONTINUED
Percentage
Name and registered address owned
El Salvador
Boulevard Luis Poma y Calle Llama del Bosque Pte. #1, Urb. Madreselva, Antiguo Cuscatlán, La Libertad
Inchcape El Salvador, S.A. de C.V. 100%
Estonia
Läike tee 38, Peetri küla, Rae vald, Harjumaa 75312
Inchcape Motors Estonia OÜ 100%
Ethiopia
Bole Sub City, Kebele 03, H.Nr. 2441, Addis Ababa
The Motor & Engineering Company Of Ethiopia (Moenco) S.C. 94%
Finland
Ansatie 6 a C, 01740 Vantaa, Kotipaikka, Helsinki
Inchcape Motors Finland Oy 100%
Inchcape JLR Finland Oy 70%
Greece
48 Ethnikis Antistaseos Street, Halandri 15231
British Providence SA 100%
Eurolease Fleet Services SA 100%
Toyota Hellas SA 100%
Polis Inchcape Athens SA 100%
Guam
443 South Marine Corps Drive, Tamuning, Guam 96913 100%
Atkins Kroll Inc
197 Ypao Road, Tamuning , Guam 96913
Morrico Holdings, Inc 100%
Morrico Equipment LLC 100%
Guatemala
20 Calle 10-91, Zona 10, Guatemala, Guatemala
Inchcape Guatemala SA 100%
Honduras
Penthouse Edificio Torre Mayab, Colonia Loas del Mayab, Avenida Republica de Costa Rica, Tegucigalpa
Inchcape Honduras S.A. 100%
Hong Kong
11/F, Tower B, Manulife Financial Centre, 223-231 Wai Yip Street, Kwun Tong, Kowloon, HK 100%
British Motors Ltd 100%
Crown Motors Ltd 100%
Future Motors Ltd 100%
Inchcape Finance (HK) Ltd 100%
Inchcape Hong Kong Ltd 100%
Inchcape Mobility Limited 100%
Inchcape Motor Services Ltd 100%
Mega EV Ltd 100%
Nova Motors Ltd 100%
200 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
14 RELATED UNDERTAKINGS CONTINUED
Percentage
Name and registered address owned
Indonesia
Indomobil Tower, 19th Floor, JI. Mt Haryono no 11, Bidara Cina, Jakarta, Timur
PT JLM Auto Indonesia 60%
Ivory Coast
01 BP 3893, Abidjan O1
Distribution Services Cote d’Ivoire SA 100%
Toyota Services Afrique SA 100%
Kenya
LR 1870/X/126, Ground Floor, Oracle Towers, Waiyaki Way, P.O. Box 2231-00606, Nairobi
Inchcape Kenya Ltd 100%
Latvia
4a Skanstes Street, Riga, LV-1013
Baltic Motors Imports SIA 100%
Inchcape Motors Latvia SIA 100%
Inchcape JLR Baltics SIA 70%
Lithuania
Laisves av. 137, Vilnius, LT-06118
UAB Autovista 67%
UAB Inchcape Motors 67%
Ozo str. 10A, Vilnius, LT-08200
UAB Krasta Auto 100%
Macau
Avenida do Coronel Mesquita, No 48-48D, Edf. Industrial Man Kei R/C, Macau
Nova Motors (Macao) Ltd 100%
Yat Fung Motors Ltd 100%
Netherlands
Gustav Mahlerlaan 1212, 1081 LA Amsterdam, the Netherlands
Inchcape International Group BV (i) 100%
New Zealand
Bell Gully, Level 22, Vero Centre, 48 Shortland Street, Auckland, 1010, New Zealand
Inchcape Motors NZ Ltd 100%
North Macedonia
21 8th September Boulevard, 1000 Skopje
Toyota Auto Center DOOEL 100%
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 201
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
14 RELATED UNDERTAKINGS CONTINUED
Percentage
Name and registered address owned
Panama
Vía General Nicanor A. de Obarrio (Street 50), Plaza Bancomer
lIaother SA 100%
Ilachile SA 100%
Ciudad de Panamá, Vía Cincuentenario Andrés Mojica, Ave. 6ta B., Lote X 5B,
Corregimientode San Francisco, Distrito de Panamá, Provincia de Panamá
Arrendadora Automotriz SA 100%
Motors Japoneses SA 100%
Sun Motors SA 100%
Peru
Av. El Polo Nro. 1117, Santiago de Surco, Lima
Inchcape Motors Peru SA 100%
Av. Republica de Panama Nro. 3330, San Isidro, Lima
IMP Distribuidora SA 100%
Av. Morro Solar 812, Santiago de Surco, Lima
Autocar del Peru SA 100%
Distribuidora Automotriz del Peru SA 100%
Inchcape Latam Peru SA 100%
Rentas e Inmobiliaria Sur Andina SA 100%
Poland
Al. Prymasa Tysiąclecia 64, 01-424 Warszawa
Inchcape Motors Polska Sp z.o.o 100%
Al. Karkonoska 61, 53-015 Wroclaw
Interim Cars Sp z.o.o 100%
Ul. Lopuzanska 38 B, 02-232 Warszawa
Inchcape JLR Poland Sp. Z.o.o
70%
Philippines
28F Robinsons Cyberscape Gamma, Topaz and Ruby Roads, Ortigas Center, San Antonio,
Pasig Cit, Second District, NCR, 1605
Inchcape Digital Delivery Center Philippines Inc. 100%
Romania
Pipera Boulevard No 1, Voluntari, Ilfov, 077190
Inchcape Motors Srl 100%
Toyota Romania Srl 100%
202 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
14 RELATED UNDERTAKINGS CONTINUED
Percentage
Name and registered address owned
Russia
Building 1, 18 2-ya Magistralnaya street, Moscow 123290
LLC Inchcape Management Services Rus 100%
LLC Inchcape Holding 100%
108811, Moscow, settlement Moskovskiy, block No34, property 2, bld. 1
LLC Inchcape T 100%
10 Seslavinskaya Street, Moscow 121309
LLC Autoproject 100%
36 Yaroslavskoe Shosse, Moscow 129337
LLC Borishof 1 100%
195273, Saint-Petersburg, Rustaveli str., 31, Lit.A, apt.3
LLC Concord 100%
Building 22, 18 2-ya Magistralnaya Street, Moscow 123290
LLC Musa Motors JLR 100%
Saipan
San Jose Village, 1 Chalan Monsignor Guerrero, Saipan, 96950, Northern Mariana Islands
Atkins Kroll (Saipan) Inc 100%
Singapore
2 Pandan Crescent, Inchcape Centre, Singapore 128462
Borneo Motors (Singapore) Pte Ltd 100%
Century Motors (Singapore) Pte Ltd 100%
Champion Motors (1975) Pte Ltd 100%
Inchcape Automotive Services Pte Ltd 100%
Inchcape Motors Private Ltd 100%
Spain
C. De Don Ramon de la Cruz, 38, 28001 Madrid
Inchcape Inversiones España SLu 100%
Thailand
No. 4332 Rama IV Road, Prakhanong Sub-District, Klongtoey District, Bangkok
Inchcape (Thailand) Company Ltd 100%
Inchcape Services (Thailand) Co Ltd 100%
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 203
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
14 RELATED UNDERTAKINGS CONTINUED
Percentage
Name and registered address owned
United Kingdom
Inchcape Retail, First Floor, Unit 3140 Park Square, Solihull Parkway, Birmingham B37 7YN
Armstrong Massey (York) Ltd 100%
Armstrong Massey Holdings Ltd 100%
Autobytel Ltd 100%
Chapelgate Motors Ltd 100%
Ferrari Concessionaires Ltd (v) 100%
Gerard Mann Ltd 100%
Inchcape East (Acre) Ltd 100%
Inchcape Estates Ltd 100%
Inchcape Motors International Ltd 100%
Inchcape North West Ltd 100%
Inchcape Retail Ltd 100%
Inchcape Trade Parts Ltd 100%
Inchcape Transition Ltd 100%
Inchcape UK Corporate Management Ltd 100%
James Edwards (Chester) Ltd 100%
Inchcape KMG Ltd 100%
Mann Egerton & Co Ltd 100%
Mill Garages Ltd 100%
Nexus Corporation Ltd 100%
Normand Ltd 100%
Northfield Garage (Tetbury) Ltd 100%
Notneeded No. 144 Ltd 100%
Packaging Industries Ltd 100%
Smith Knight Faye Ltd 100%
The Cooper Group Ltd 100%
Tozer International Holdings Ltd 100%
Tozer Kemsley Millbourn Automotive Ltd 100%
22a St James’s Square, London, SW1Y 5LP
Inchcape Digital Ltd 100%
Inchcape (Belgium) Ltd (vi) 100%
Inchcape Corporate Services Ltd 100%
Inchcape Finance plc 100%
Inchcape Hellas Funding (unlimited) 100%
Inchcape Investments (no 1) Ltd 100%
Inchcape International Holdings Ltd 100%
Inchcape JLR Europe Ltd 70%
Inchcape Management (Services) Ltd 100%
Inchcape Overseas Ltd 100%
Inchcape Russia (UK) Ltd (vi) 100%
Inchcape (Singapore) Ltd 100%
St Mary Axe Securities Ltd 100%
PO Box 33 Dorey Court Admiral Park St Peter Port GUERNSEY GY1 4AT
St James’s Insurance Ltd 100%
4th Floor 115 George Street, Edinburgh EH2 4JN
Inchcape Investments & Asset Management Ltd 100%
204 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS
14 RELATED UNDERTAKINGS CONTINUED
Percentage
Name and registered address owned
Uruguay
Rambla Baltasar Brum 3028, Montevideo
Autolider Uruguay S.A. 100%
United States of America
The Corporation Company, 30600 Telegraph Road Bingham Farms, MI 48025
Baltic Motors Corporation 100%
Joint ventures
Percentage
Name and registered address owned
Australia
Level 6, 15 Talavera Road, Macquarie Park, NSW, 2113
Inchcape Financial Services Australia Pty Limited 50%
Greece
48 Ethnikis Antistaseos Street, Halandri 15231
Tefin SA 50%
Unless stated below, all holdings have one type of ordinary share capital:
(i) Ordinary A and Ordinary B shares
(ii) Ordinary shares, B Class shares, J Class shares and L Class shares
(iii) Ordinary shares and E Class shares
(iv) Ordinary shares, A Class shares, C Class shares, D Class shares and E Class shares
(v) Ordinary shares, Ordinary A shares and 8% non-cumulative redeemable preference shares
(vi) Ordinary shares and redeemable cumulative preference shares
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021 205
## SHAREHOLDER INFORMATION

| REGISTERED OFFICE | INCHCAPE ISA |
| --- | --- |
| Inchcape plc | Inchcape has established a Corporate Individual |
| 22a St James’s Square | Savings Account (ISA). This is managed by Equiniti Financial |
| London SW1Y 5LP | Services Limited, Aspect House, Spencer Road, Lancing, |
| Tel: +44 (0) 20 7546 0022 | West Sussex BN99 6DA |
| Fax: +44 (0) 20 7546 0010 | Tel: 0870 300 0430 |

Registered number: 609782
International callers:
Registered in England and Wales
Tel: +44 121 441 7560
More information is available at www.shareview.com
ADVISORS
Independent Auditor
FINANCIAL CALENDAR
Deloitte LLP
Annual General Meeting
Chartered Accountants and
19 May 2022
Statutory Auditor
Announcement of 2022 Interim Results
SHARE REGISTRARS 28 July 2022
Computershare Investor Services PLC
Registrar’s Department, The Pavilions
Bridgwater Road
Bristol BS99 7NH
Tel: +44 (0) 370 707 1076
SOLICITORS
Herbert Smith Freehills
CORPORATE BROKERS
Jefferies Hoare Govett
JP Morgan Cazenove
206 INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
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Design and production
### INCHCAPE PLC
INCHCAPE ANNUAL REPORT AND ACCOUNTS 2021
### 22A ST JAMES’S SQUARE
### LONDON SW1Y 5LP
### T +44 (0) 20 7546 0022
### WWW.INCHCAPE.COM
### REGISTERED NUMBER 609782