More Markets, Same Revenue

Full-year results for the year to 31 December 2025 and interim results for the six months to 30 June 2026. Inchcape reports in pounds sterling; all per-share figures are in pence, so no currency conversion has been applied.

Inchcape sits between vehicle manufacturers and markets. A manufacturer will want to sell in, say, Chile, Ethiopia or Bulgaria, but doesn't want to build a national infrastructure and organisation, so instead it appoints a distributor.

That distributor imports the vehicles, holds the inventory, prepares them and supports a dealer network. It runs the brand's marketing, stocks and distributes parts, and manages the warranty administration.

Inchcape very much sits in the small and medium-sized markets that don't justify a full subsidiary from the manufacturer. In some markets it also owns the dealerships itself, and in Poland it is a BMW retailer without holding the distribution contract.

It reports three divisions:

• Asia Pacific — Australia, New Zealand, Singapore, Hong Kong, Macau, Brunei, Guam, Indonesia, the Philippines and Thailand
• Europe and Africa — Belgium, Luxembourg, Bulgaria, North Macedonia, Greece, Romania, the three Baltic states, Finland, Poland, Iceland, Ethiopia, Kenya and Djibouti
• Americas — Chile, Colombia, Peru, Bolivia, Argentina, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Panama, Uruguay and the Caribbean from Barbados

Revenue in 2025 split £3,304m (36%) to the Americas, £3,255m (36%) to Europe and Africa and £2,541m (28%) to Asia Pacific.

The group operates in around 40 markets with more than 60 manufacturer partners and around 230 distribution contracts, employing around 16,000 people. Vehicles are around 85% of revenue and parts around 15%, and aftersales is 30% of gross profit.

The UK retail business, 54 dealerships, was sold to Group 1 Automotive for £346m on 1 August 2024, so the United Kingdom is now only the head office.

The 39 markets listed in the company's half-year appendix: 11 in Asia Pacific, 15 in Europe and Africa and 13 in the Americas, with Saipan served from Guam and Albania, Tanzania and Uganda from neighbouring operations.

Chile is the biggest single market at £1,420m of revenue in 2025, around 16% of the group, followed by Australia at £1,018m.

Markets the company sizes individually

The company's own regional pages give headcount of more than 6,500 in the Americas, more than 4,300 in Europe and Africa and more than 4,000 in Asia Pacific.

The majority of recent contract wins have come from Chinese manufacturers, with more than 35 Chinese contracts signed in the last three years: BYD in the Baltics, Belgium, Ethiopia and Singapore; the Changan group (Changan, Deepal and Avatr) across South and Central America, the Caribbean, Australia and East Africa; Great Wall in Chile, Peru, Colombia and Indonesia; GAC in Finland, Greece and Romania; and XPENG in Finland, Poland, Iceland, Colombia and Brunei.

These are the full-year results for the year to 31 December 2025. Revenue fell 1.8% to £9,100m from £9,263m, flat at constant currency and up 1% organically.

The gross margin slipped to 17.0% from 17.3%, with gross profit of £1,550m against £1,606m.

Adjusted operating profit fell 4% to £563m from £584m, a margin of 6.2% against 6.3%. The Americas and Europe and Africa both grew profit; the Asia Pacific division fell 23%.

Adjusted profit before tax was £443m, down £1m on £444m, with net finance costs reduced to £123m from £150m. Reported profit before tax was £406m against £414m after £37m of adjusting items.

Adjusted basic earnings per share rose 13% to 80.8p from 71.3p, helped by the buyback of 33.5m shares, 9% of the share capital, for £234m. Basic earnings per share from continuing operations were 72.5p against 66.4p.

Free cash flow was £315m against £462m, a conversion of 104% of adjusted profit after tax. Adjusted net debt, excluding leases, rose to £264m from £190m, leverage of 0.4 times.

The dividend is up 13% to 32.3p, 40% of adjusted earnings per share.

The year in numbers

The company expects a year of growth in 2026 at constant currency, with organic volume growth towards the lower end of the 3% to 5% range, adjusted operating margins of around 6%, free cash flow conversion of around 100% and earnings per share growth of more than 10%, skewed to the second half.

In the six months to 30 June 2026 revenue rose 9% to £4,722m, 5% organically, while adjusted operating profit was flat at £248m but the margin fell to 5.3% from 5.7%.

The area that suffered the issue is Asia Pacific, where adjusted operating profit halved to £39m from £79m. Europe and Africa rose 21% to £94m and the Americas rose 28% to £115m, so some good operating increases there.

Adjusted profit before tax fell 6% to £188m and adjusted earnings per share were flat at 35.5p. Reported profit before tax fell 33% to £124m after £64m of adjusting items, mostly restructuring in Asia Pacific. The interim dividend is up 14% to 10.8p and the buyback programme was increased by £75m to £250m.

With the interims the company moved its 2026 volume guidance up to the top end of the 3% to 5% range and kept the margin at around 6% and earnings per share growth at more than 10%.

The half in numbers

Revenue was £9,277m in 2018 and £9,380m in 2019, so the group is no bigger today than it was before COVID. Pre-tax profit was lower then, at £350.6m in 2018 and £326.3m in 2019 before exceptional items, because the gross margin was around 14.0% and 13.6% against 17.0% today.

The gross margin has risen from under 14% before COVID to 17% to 18% since 2023 while revenue has gone nowhere. The 2018 and 2019 bars include the UK retail business; from 2023 the figures are the restated continuing business, and 2023 as originally reported was £11,447m.

Revenue grew 17.9% to £8,133m in 2022 and 15.4% to £9,382m in 2023, then slipped 1.3% to £9,263m in 2024 and a further 1.8% to £9,100m in 2025. The 2023 figure is the restated continuing business after the UK retail sale, so the step up in 2023 is the Derco acquisition in South America.

Gross margins have held reasonably well: 17.7% in 2023, 17.3% in 2024 and 17.0% in 2025. These are obviously quite low margins, although much of the automotive industry operates on them.

Turnover has stagnated, and as a result so has profitability. Despite the revenue slip and the slight margin slip, adjusted pre-tax profit stayed stable at £443m in 2025, down only £1m.

Cost of sales fell to £7,550m from £7,657m, in proportion to the loss of revenue, which wasn't that bad.

Finance costs reduced to £195m from £221m: £110m of interest on bank and other borrowings, £54m of interest on inventory financing, £16m on leases and £15m of fees and other costs. Net of £72m of finance income, net finance costs were £123m against £150m. They do seem a smidge on the high side.

Europe and Africa has grown revenue in each of the last three years; the Americas fell in 2024 and recovered a little in 2025; Asia Pacific fell 15% in 2025.

FY2025 by division

Europe and Africa is the division hitting the most consistency on revenues, growing for each of the last three years. The Americas is basically flat, at £3,746m in 2023, £3,265m in 2024 and £3,304m in 2025, although organic growth was 8% in 2025 with currency taking most of it back. Asia Pacific is down, especially on last year's figures.

H1 2026 by division

In the first half of 2026 the Asia Pacific problem was Australia, where fuel price disruption pushed buyers towards lower-priced vehicles and new energy vehicles, a key brand partner had supply constraints and gross margins were squeezed. The company says Asia has stabilised, and it exited 13 contracts in the division in the half.

The Americas grew volumes 18% on market growth of 21% led by Peru and Colombia, with gross margins held. Europe and Africa grew volumes 13% on market growth of 4%, helped by Southern Europe, contracts won in recent years and Iceland.

The growth plan, Accelerate+, was launched in November 2024. Its core pillars are scale and optimisation.

Scale means growing market share, partly via acquisitions, partly through new distribution contracts and partly through expansion into adjacent vehicle categories such as premium motorcycles and light commercial vehicles. The group has around 3% share of the vehicles sold in its markets and wants to drive that towards 10% over the medium to long term.

Optimisation is about ensuring the business is more efficient, and about leveraging value-added services like parts, finance and insurance products. The medium-term targets set in March 2025 are organic volume growth of 3% to 5% a year, operating margins of around 6%, earnings per share growth of more than 10% a year, £2.5bn of free cash flow between 2025 and 2030, a 40% dividend payout and leverage below one times.

That is all good, and it sounds pretty straightforward from that point of view. What I would generally say is that ensuring your business operates as efficiently as it can isn't, in my opinion, a plan. That's something you should be doing anyway. A growth plan sets out specific targets and the ways in which you're going to grow the brand or the business's profitability, in ways that are maybe slightly different to the everyday.

Since 2022 the company has won more than 50 new distribution contracts, 52% of them in the Americas, 30% in Europe and Africa and 18% in Asia Pacific, so there has been growth in all of the regions, which is positive.

The rate of wins is decreasing, though. There were 15 in 2023, a record 22 in 2024, 10 in 2025 and five in 2026 so far.

Contract wins peaked at 22 in 2024 and have fallen since, while the exits of small, dilutive contracts went from four in 2024 to 15 in the first half of 2026 alone.

Contract wins by year

The company has also been getting rid of contracts in smaller markets which were unviable. In 2024 it ended four, Geely and JAC in Chile, Citroen in Peru and Chevrolet in Bolivia. In 2025 it ended four Komatsu contracts in Ethiopia and three Geely contracts in smaller Americas markets.

In the first half of 2026 it exited 15 contracts, 13 of them in Asia Pacific: the Stellantis brands in Australia and the Philippines, Mazda in Australia, KGM and LDV in New Zealand, ORA in Hong Kong, Jaguar, Land Rover and Tata in Thailand, plus Renault in Chile and XCMG in Colombia. Together they were around 5,000 vehicles, 1.5% of 2025 volumes, and around £140m of annual revenue, and the company expects more exits in the second half. BYD will not renew in Belgium and Luxembourg when the contract expires in the third quarter of 2027, and Changan ended its Philippines contract in August.

I do see this as positive. By doing this, the company is demonstrating at least that it isn't desperately trying to hold on to revenue at any cost.

Acquisitions

Askja is the leading distributor in Iceland with a 16% share of a market of around 12,000 vehicles a year, 260 staff and goodwill of £15m on the deal. It contributed £58m of revenue in the four months it was owned in 2025. Silver Star takes Inchcape's share of the Bulgarian car market from around 13% to over 16% and brings 500 staff. The Peru and Costa Rica businesses are three showrooms in Peru and two in Costa Rica with around 90 staff.

Together the three add around £439m of annual revenue, roughly 4.8% of 2025 revenue, and Askja and Silver Star have cost £209m, a little under half of the revenue they bring in. Against that, the 15 contract exits of the first half took out around £140m, and the non-core Australian retail business sold in 2025 had around £100m of annual revenue.

How the acquisitions were paid for

In 2025 the Askja purchase was paid out of free cash flow. Free cash flow was £315m and the cash cost of the acquisition was £35m, with net acquisition spend of £29m after small disposals. Dividends of £101m and buybacks of £238m were what pushed adjusted net debt up by £74m to £264m. There was no new borrowing in the year.

Adjusted net debt, excluding leases, went from £190m to £264m. Free cash flow of £315m covered the acquisition comfortably; the £339m returned to shareholders was the larger call on cash.

In 2026 the £162m for Silver Star was paid in cash on 1 July, after adjusted net debt had risen to £329m at the end of June, with the £250m buyback programme running alongside. Leverage was 0.5 times at the half year against the company's own ceiling of one times.

The debt itself is a £350m 6.5% bond due June 2028, £140m of private placement notes due 2027 and 2029, and a £900m revolving credit facility extended to November 2030 of which only £20m was drawn at the year end. The acquisitions are being funded from cash flow and the facility rather than new borrowing, and it's the buybacks, not the acquisitions, that have been absorbing the cash.

Adjusting items (£m)

Reconciliation (£m)

The £10m of acquisition and integration costs is the tail of the Derco integration in South America, a multi-year programme now complete with cumulative costs of £70m. The £4m disposal loss is a completion-accounts adjustment in the buyer's favour on the Chilean parts business sold in December 2024 for £30m. The £23m of restructuring is cost reduction started in 2025 plus group-wide back-office transformation, a review of organisational structures, processes and the physical location of certain operations, continuing into the first half of 2026.

The 2024 items were £42m of Derco integration, a £6m gain on the Chilean parts sale, a £19m reversal of a previous impairment of the Suzuki distribution agreement in Central America, a £5m write-off of a Bolivian distribution agreement and an £8m hyperinflation charge from Ethiopia, which stopped being treated as hyperinflationary from 1 January 2025.

There is no amortisation of acquired intangibles in the adjustments, because the distribution agreements and brands are held as indefinite-life assets. Operating adjusting items over five years were £100m in 2021, £11m in 2022, £50m in 2023, £22m in 2024 and £37m in 2025, and the cash paid against them in 2025 was £28m.

In the first half of 2026 adjusting items were £64m, of which £62m was restructuring, mostly in Asia Pacific, against £14m in the first half of 2025.

The net fair value losses on cash flow hedges of £83m sit in the statement of comprehensive income, below profit for the year, not in the income statement. Last year the same line was a gain of £22m.

The hedges are forward foreign exchange contracts. Most of the group's businesses buy vehicles from the manufacturers in their own currency, but Australia buys in Japanese yen and the South and Central American businesses buy in yen and US dollars. The group sells its local currency forward to lock in the cost of vehicles it has committed to buy, and at the year end it had £1,862m of these contracts outstanding, maturing by December 2026, at a weighted average rate of 99 yen to the Australian dollar and 940 Chilean pesos to the US dollar.

Because they hedge future purchases, the contracts are marked to market through the hedging reserve rather than through profit. When the vehicles arrive the accumulated gain or loss on the matching contracts is added to the cost of that inventory, £29m of losses in 2025, and it then reaches the income statement through cost of sales as the cars are sold. Nothing goes straight to profit; the ineffective portion of the hedges was nil.

Cash flow hedge reserve (£m, after tax, owners' share)

The £83m means that during 2025 the spot exchange rates moved in Inchcape's favour relative to the rates it had already locked in, so the vehicles it will take delivery of in 2026 will cost more than they would at spot. It's an opportunity cost rather than a cash loss, and it means the 2026 gross margin reflects the hedged rates. The reserve of £46m after tax essentially unwinds through cost of sales during 2026. The group has no interest rate swaps and doesn't trade or speculate in derivatives.

Note 20, current (£m)

The trade payables are quite high, and I would have some slight reservations. The bulk of the figure is not trade creditors though, which actually fell to £243m from £260m and are paid in 15 to 40 days. It's the £1,762m of vehicle funding, up £180m in the year.

Vehicle funding is stocking finance. The group pays for its new vehicles, and part of its used stock, with facilities from various lenders including the manufacturers' own finance companies, and repays each loan when the vehicle is sold or at maturity, whichever comes first. The facilities are generally uncommitted, run for 180 days or less and in some cases give the lender security over the vehicles. £1,304m of the £1,762m is from non-manufacturer lenders where the manufacturer has already been paid, so it's bank finance in all but name. The interest on it was £54m in 2025, at a weighted average rate of 3.5% against 5.1%, and it sits in finance costs.

The company classifies vehicle funding as a trade payable rather than as debt, so the reported net debt of £607m, and the leverage of 0.4 times, exclude it. The payment terms are 70 to 100 days.

The risk, if times get a bit tough, is that these are uncommitted and short-dated facilities, so lenders could tighten them at the point when stock was slowest to sell. Against that, the vehicles themselves are the security, stocking finance is how the industry funds its vehicles, and the group had £657m of cash at the year end, £261m net of £396m of overdrafts in its cash pooling arrangements, with around £880m of the £900m revolving credit facility undrawn.

Three things carry the case, and all three point the same way.

The top line has stopped. Revenue was £9,380m in 2019 and £9,100m in 2025. Everything that has gone right in six years has gone right in the margin — under 14% gross then, 17.0% now — and the margin has been edging back down for two years in a row.

The divisional swing factor is Asia Pacific. It was 28% of 2025 revenue, its profit fell 23% in FY2025, and in the first half of 2026 it halved to £39m with the margin down from 6.4% to 3.5%. The other two divisions are doing their job; this one has taken the group's first-half profit to flat.

The growth plan is an acquisition plan. Askja and Silver Star cost £209m for around £390m of annual revenue, and more is coming. That is capital out now for earnings later.

I think they are a little bit at the whim of what is happening in global supply chains, and even US foreign policy, which may not really help them given the current inclination towards brands controlling their own supply chains and the complexities of trying to manage international trade. I think that does have a bit of a negative impact on the company, albeit they are not primarily dealing with the United States.

I don't really love their growth plan. Purchasing up acquisitions of distributors and dealerships is not the worst plan ever, but it is a costly one, and I think earnings per share growth will trail the capital expenditure on widening their distribution.

My feelings are that this is a business that has made and is making forward movement, but its earnings are at the mercy of supply chains and politics it doesn't control, and its growth plan will cost money before it earns it.

I'm using the adjusted earnings per share of 80.8p with a growth rate of 3%, which, given their recent figures, might not be too bad and might make sense.

I also think they might be a little affected by the international political stage currently, and some things can go wrong in the meantime, so I'm giving a risk factor of 36%.

My valuation comes in at 801.54p per share, which, against the share price of 685.50p, gives a +16.9% value opportunity. I don't think that's a high enough value opportunity for this company to purchase them, so the action is a hold, with a research grade of A.

Valuation snapshot

• Asia Pacific: 28% of 2025 revenue, profit down 23% in FY2025 and halved to £39m in the first half of 2026 with the margin down from 6.4% to 3.5%. Australia was the problem — fuel price disruption pushing buyers to cheaper and new energy vehicles, a key brand partner with supply constraints, and squeezed gross margins.
• Supply chains and politics: they are a little bit at the whim of global supply chains and even US foreign policy, with the current inclination towards brands controlling their own supply chains and the complexities of international trade. That does have a bit of a negative impact, albeit they are not primarily dealing with the United States.
• The growth plan costs before it pays: buying up distributors and dealerships is not the worst plan, but it is a costly one, and earnings per share growth is likely to trail the capital expenditure on widening their distribution.
• The win rate is falling: 15 contracts won in 2023, a record 22 in 2024, 10 in 2025 and five in 2026 so far, while exits went from four in 2024 to 15 in the first half of 2026 alone. BYD will not renew in Belgium and Luxembourg when the contract expires in the third quarter of 2027, and Changan ended its Philippines contract in August.
• Vehicle funding: £1,762m of it, up £180m in the year, excluded from the £607m of reported net debt. The facilities are uncommitted and short-dated, so lenders could tighten them at exactly the point when stock was slowest to sell.
• Hedged 2026 margins: the £46m after-tax hedge reserve unwinds through cost of sales during 2026, so next year's gross margin reflects locked-in rates that are worse than spot. An opportunity cost rather than a cash loss, but it lands in the margin.
• Thin margins and a flat top line: a 17.0% gross margin and a 6.2% operating margin leave little room, and the gross margin has now slipped two years running (17.7%, 17.3%, 17.0%) on revenue that has gone nowhere since 2019.
• Cash going out of the door: £339m returned to shareholders in 2025 against £315m of free cash flow, which is what pushed adjusted net debt up £74m. It's the buybacks, not the acquisitions, absorbing the cash.

• A wider gap to 801.54p: the valuation stands; the issue is that +16.9% isn't a high enough value opportunity to purchase them. A materially wider discount to 801.54p would change the action without changing a single assumption.
• Asia Pacific actually stabilising: the company says Asia has stabilised and it exited 13 contracts there in the half. Evidence of that in the second-half numbers — margin recovering from 3.5% — would support a higher growth rate than the 3% I've used.
• Earnings per share growth arriving ahead of the spend: my view is that earnings per share growth will trail the capital expenditure on widening distribution. Delivery of the company's more than 10% earnings per share growth target, with the acquisitions converting, would undercut that.
• The win rate turning back up: five contracts in 2026 to date against 22 in 2024. A return towards that rate would say the pipeline, rather than acquisitions, is doing the growing.
• The political and supply chain picture easing: the 36% risk factor reflects the international political stage and things going wrong in the meantime. If that pressure eased, the risk factor comes down.