Inchcape struggles as recession hits car sales

AUTOMOTIVE retailer Inchcape has announced an 18.7% fall in annual pre-tax profits as sales of cars plummeted in the recession.

The company, which sells premium brands such as Jaguar Land Rover, Audi, BMW, Mercedes and Porsche, saw profit before tax and exceptional items of £155.1m last year, which compares with £190.7m in 2008.

Adjusted earnings per share fell 46% to 2.7p, which was adjusted for the bonus element of a rights issue, while on a statutory basis profit before tax was £136.7m, 26% above 2008. Cash generated from operations during the year was £336.7m, which is the highest level generated by the group since 2000 and represents a 215% conversion of operating profit.

On the operational side, the group said it had improved its competitive position with good progress on its customer service strategy and its market share. It said it also benefited from its broad geographic spread – the group operates in 26 markets around the world.

It also improved margins on used cars, while its after-sales performance, which includes parts, servicing, finance and insurance, was resilient and accounted for 50% of the group’s gross margins.

With the onset of recession and the need to insulate itself from declining sales, the group implemented a serious cost cutting programme. This has lead to savings of around £70m the group said in its results statement today.

The strengthened financial position has also seen the group wipe out its debts and looking ahead, it said that while the markets would not recover overnight, it was hopeful of a steady improvement.

Ken Hanna, group chairman, said: “We remain cautious for 2010 and do not expect a global recovery to start until well into the second half of this year given consumer confidence is still weak and unemployment continues to rise in many of our key markets.

“Nevertheless, we believe that the group has the financial strength and flexibility both to continue to trade effectively and to further improve its competitive position.”

The group said it was also revising its sales strategy as it looked to pick up business in the improved markets by focussing on higher margin premium brands.

André Lacroix, chief executive, said the group had delivered a resilient performance in the face of recession and had strengthened its position despite weak demand by focusing on delivering high levels of customer service, growing market share, growing aftersales, reducing costs, managing working capital and selective capital expenditure investment.

The second half of 2009 saw strong growth in the UK, partly boosted by the start of the government’s scrappage scheme. However, it said it still saw a weakness in the domestic market

Internationally it said markets in Australia and Hong Kong had begun to recover, while it anticipated declines in Greece, Singapore, Eastern Europe and Russia.