What does ‘trading profit’ mean at Inchcape?
Inchcape’s results last week didn’t make for pretty reading, at least not in terms of its UK and European retail business. A near £200 million goodwill write-off due to problems in vehicle supply thanks to the switch to WLTP emissions testing and a significant drop in something the firm describes as ‘trading profit’.
Historically, Inchcape has supplied a more detailed breakdown of figures for the UK retail segment of it’s business. This year, that didn’t happen. The closest we can now get to that information is on a ‘UK and Europe’ basis and even then the bottom line of profit before tax is missing. Hence the use of what was supplied; trading profit.
In the results there’s a note that says: “These measures are Alternative Performance Measures.”
So, what does that mean, and how does it compare to more usual balance sheet statements for operating profit or profit before tax?
Now that we’ve had more time to look through the final results statement there are a few extra things worth pointing out. In the notes section at the end of the results it shows that trading profit, of £14.8m, comes before ‘operational exceptional items’ which for the UK and Europe in 2018 were £193.7m. Follow that line down the balance sheet and the operating profit after exceptional items for the UK and Europe in 2018 was a loss of £178.9m. And these figures don’t include “unallocated central costs” or finance costs, which are not given for the UK and Europe retail segment. Although we know that globally the finance situation for Inchcape’s retail business was a cost of £42.3m.
Inchcape does however offer the same figures for 2017 as a comparison. The trading profit was £52.0m with operational exceptional items of just £2.8m, taking the operating profit for that year to £49.2m. The finance costs were also significantly lower in 2017 for the firm’s global retail business at £25m.
These figures make, Inchcape CEO, Stefan Bomhard’s statement all the more interesting: “Margins in our retail channel came under further pressure due to the continued UK market supply and demand imbalance, the incremental impact of the new WLTP regulation, and a slowing Australia market. These factors were partially offset by the delivery of near record profit in Russia Retail, as we benefited strongly from Ignite initiatives undertaken in the market.
“Strategic initiatives, focused on rationalising our cost base, are underway to improve our Retail segment performance in 2019. Given continuation of the market trends that we discussed at the Q3 trading update, we expect a resilient performance in 2019 before the impact of a meaningful transactional currency headwind.”
The one remaining question from this is; does that rationalisation include a disposal of loss-making dealerships?
Watch this space.
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