Inchcape reports first-half growth after agreeing sale of retail arm

(Sharecast News) - Inchcape reported a resilient first-half financial performance on Tuesday, with revenue growing 8% at constant currency and 4% on a reported basis, to £4.7bn. The FTSE 250 automotive distributor said the growth was driven by a 4% increase in organic revenue and acquisitions.

Its adjusted operating profit rose 7% in constant currency to £299m, with operating margins at 6.3%.

Adjusted profit before tax also increased 7% in constant currency, while statutory profit before tax saw a 10% rise.

However, adjusted basic earnings per share fell 3% to 34.7p due to a higher effective tax rate, though reported basic earnings per share grew 9% to 27.9p.

Inchcape reached a major strategic milestone in the period, transforming into a pureplay automotive distribution business.

The company announced the divestment of its UK retail business to Group 1 Automotive for £346m, expected to be completed in the third quarter.

It also secured four new distribution contracts in the first half.

Operationally, Inchcape maintained a robust performance amid mixed market trends, with the Americas seeing a resilient market share despite lower industry volumes, with key markets stabilising.

The Asia-Pacific region continued its positive momentum, supported by strong organic growth and acquisitions.

Europe experienced continued outperformance, driven by new distribution contracts and the unwinding of order banks.

The company's focus on cost management remained a key strategy across all regions.

Inchcape said its balance sheet remained strong, highlighted by excellent organic cash flow performance.

It reported free cash flow of £226m, up from £189m in the first half of 2023, with a free cash flow conversion rate of 76%.

Adjusted net debt was reduced to £524m, down from £601m at the end of 2023, and leverage decreased to 0.7x.

The return on capital employed stood at 28%, reflecting the benefits of the company's shift to a pureplay automotive distributor.

Inchcape said that in recognition of its strong cash flow and balance sheet, it was increasing its share buyback programme to £150m, set to start on 1 August, and expected to complete by the first quarter of 2025.

The company also announced an interim dividend per share of 11.3p and indicated a healthy pipeline of bolt-on acquisitions.

Looking ahead, Inchcape reiterated its outlook for moderate growth at constant currency for the full year, with higher growth anticipated over the medium to long term.

That growth was expected to be driven by market recoveries, recent distribution contract wins, advancements in technology capabilities, and continued focus on cost management.

"With the disposal of our UK retail business, Inchcape will become a pure play operator, focused on automotive distribution, which is capital light, highly cash generative, higher margin and higher returns than pure retail businesses," said chief executive officer Duncan Tait.

"This represents a significant strategic step in our journey to becoming the leading global distribution partner for our OEM partners.

"We are pleased to announce an increased buyback programme of £150m, with an accelerated timeline starting immediately."

Tait said the increase was a demonstration of the company's "disciplined" capital allocation policy in action, and reflected its strong financial position, following an "excellent" free cash flow performance in the first half.

"Inchcape delivered a resilient performance in the first half of 2024, with a strengthening balance sheet, reflecting our scaled and diversified growth portfolio.

"We delivered strong organic revenue and profit growth, with further high levels of cash generation and returns.

"Our success in winning new distribution contracts continued during the first half, with four contracts awarded in the period."

Duncan Tait said the contracts, along with its investment in acquisitions, would continue to support the business as it grew in existing markets by building market share, expanding into new markets and developing its OEM partner portfolio to drive growth.

"With our global market leadership position and our differentiated digital and data capabilities to support our OEM partners, our distribution platform is well positioned for the future.

"To that end, we reiterate our growth expectations for 2024 and remain confident about the medium to long-term outlook for the group."

At 0838 BST, shares in Inchcape were up 1.49% at 853.5p.

Reporting by Josh White for Sharecast.com.