Operating Review: Group
Our unique global business model and focus on our Top Five Priorities have delivered a robust earnings recovery and strong cash generation
Performance indicators – Results
| Year ended 31.12.2010 £m | Year ended 31.12.2009 £m |
% change | % change in constant currency |
|
|---|---|---|---|---|
| Sales | 5,885.4 | 5,583.7 | 5.4 | 2.6 |
| Trading profit | 248.1 | 194.0 | 27.9 | 21.9 |
| Trading margin % | 4.2 | 3.5 | 0.7ppt | 0.7ppt |
| Like for like sales | 5,819.7 | 5,490.3 | 6.0 | 3.1 |
| Like for like trading profit | 246.7 | 196.1 | 25.8 | 20.1 |
| Like for like sales growth/(decline) % | 6.0 | (8.6) | 14.6ppt | |
| Like for like trading profit growth/(decline) % | 25.8 | (21.5) | 47.3ppt | |
| Profit before tax before exceptional items | 214.0 | 155.1 | 38.0 | 31.0 |
| Working capital | 18.4 | 76.7 | (76.0) | |
| Cash generated from operations | 274.3 | 336.7 | (18.5) | |
| Net cash | 205.8 | 0.8 | 25,625.0 |
The uneven global economic recovery continued in 2010. Demand for new and used cars improved particularly in Hong Kong, Australia, Belgium and Russia (in the second half of the year) whilst a number of our markets, Greece, Singapore, the Baltics and the Balkans declined. Against these market conditions we generated sales of £5.9bn, a growth of 2.6% compared to last year.
We retained our focus on margin improvement and the tight management of pre-exceptional operating costs, which increased only 0.6% compared to last year. This resulted in a 0.7ppt improvement in our trading margin to 4.2% and enabled us to deliver an operating profit before exceptional items of £225.5m, a 22.2% increase on 2009.
Our continued focus on the management of working capital resulted in a further £58.3m reduction to £18.4m, a historically low position. This enabled us to deliver a strong cash generation from operations of £274.3m.
Our net cash expenditure on investing activities was £37.3m lower than last year and our expectations primarily due to the timing of capital expenditure.
When combined with our strong operating cash conversion we ended the year with £205.8m in net cash, up from £0.8m at the end of 2009.
Retail business
In our retail businesses, strong sales growth of 6.4% versus 2009 and our continued focus on our Top Five Priorities resulted in a trading profit of £77.6m, an increase of 31.2%.
In the UK we continued to outperform the market, which grew by 1.8%, gaining market share and delivering sales growth of 1.6%. Rigorous margin and cost management resulted in trading profit growth of 15.4% and a 2.4% trading margin, a 0.3ppt improvement on 2009.
Our Australian retail business delivered strong trading profit of £14.6m, a 10.4% growth on 2009, with a trading margin of 3.9%.
Across Europe the challenging market conditions have resulted in a sales decline of 13.3% versus 2009. A consistent focus on cost reduction has resulted in £0.9m trading profit.
In Russia and Emerging Markets the strong market growth in Russia and a rigorous focus on costs in the Baltics have resulted in sales growth of 25.4% and an increase in trading profit for the segment to £12.7m.
Distribution business
Our distribution businesses have delivered a solid performance despite very challenging trading conditions, with sales of £2.5bn, 2.3% below 2009. Strong margin management, good aftersales performance and further cost reductions resulted in a trading profit of £170.5m, a 18.1% increase on 2009 and a trading margin of 6.9%, 1.2ppts better than 2009.
In Europe, market growth in Belgium and Finland (13% and 23% respectively) was offset by a significant market decline of 40% in Greece, where after a strong first quarter of vehicle sales, the economic conditions significantly deteriorated.
In our vertically integrated retail (VIR) business in North Asia, the Group delivered a strong trading profit increase of 69.3% as a result of significant market and share growth in Hong Kong. This was offset in South Asia by the continued decline of the Singapore market as a result of a 34% decline in the Certificate of Entitlement (COE) quota.
The market in Australia rebounded faster than expected, growing 10%, and we held our market share, resulting in a strong trading profit of £47.9m for Australasia. Included in the result is a one off profit of £7.3m on the disposal of surplus property.
Strong market growth in South America and Africa and the benefits of the restructuring programmes in the Baltics delivered a £19.1m trading profit in the Russia and Emerging Markets segment. Included in the result is a £7.5m impairment cost on a property in Romania (2009: £4.2m).
Regional analysis
The Group reports its regional analysis in line with IFRS 8 ’Operating Segments’ which we adopted in 2009. This standard requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to assess their performance and to allocate resources to the segments. These operating segments are then aggregated into reporting segments to combine those with similar characteristics.
| Distribution | Retail |
|---|---|
| Australasia | Australasia |
| Europe | Europe |
| North Asia | United Kingdom |
| South Asia | Russia and Emerging Markets |
| United Kingdom | |
| Russia and Emerging Markets |
Included within the Russia and Emerging Markets segment are Russia, China, South America, Africa, the Balkans, the Baltics and Poland, on the basis that prior to the global downturn these markets had entered the growth phase of their development cycle and we expect these markets to return to that growth phase in the medium term.
Business analysis
| Year ended 31.12.2010 £m | Year ended 31.12.2009 £m |
% change | % change in constant currency |
|
|---|---|---|---|---|
| Sales | ||||
| Retail | 3,429.5 | 3,156.7 | 8.6 | 6.4 |
| Distribution | 2,455.9 | 2,427.0 | 1.2 | (2.3) |
| Like for like sales | ||||
| Retail | 3,370.9 | 3,083.4 | 9.3 | 7.1 |
| Distribution | 2,448.8 | 2,406.9 | 1.7 | (1.8) |
| Trading profit | ||||
| Retail | 77.6 | 56.4 | 37.6 | 31.2 |
| Distribution | 170.5 | 137.6 | 23.9 | 18.1 |
Regional analysis
| 2010 Operating profit £m | 2010 Exceptional items £m | 2010 Trading profit £m | 2009 Operating profit £m |
2009 Exceptional items £m |
2009 Trading profit £m |
|
|---|---|---|---|---|---|---|
| Australasia | 58.4 | (4.1) | 62.5 | 37.9 | – | 37.9 |
| Europe | 23.1 | (4.7) | 27.8 | 26.8 | (1.8) | 28.6 |
| North Asia | 34.0 | – | 34.0 | 19.9 | – | 19.9 |
| South Asia | 35.2 | (0.9) | 36.1 | 55.9 | – | 55.9 |
| United Kingdom | 47.5 | (8.4) | 55.9 | 43.7 | (3.0) | 46.7 |
| Russia and Emerging Markets | 28.1 | (3.7) | 31.8 | (7.1) | (12.1) | 5.0 |
| Central costs | (22.7) | (0.1) | (20.3) | (1.5) | ||
| Operating profit | 203.6 | (21.9) | 156.8 | (18.4) |
John McConnell
Group Finance Director
Sales
Trading profit
before exceptional items
Working capital
Net cash
Our results are stated at actual rates of exchange. However, to enhance comparability we also present year on year changes in sales and trading profit in constant currency thereby isolating the impact of exchange. Unless otherwise stated changes in sales and trading profit in the operating review are at constant currency.