Inchcape to restructure after plunge

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The Independent Online
Profits at Inchcape plunged 85 per cent as the motor distribution and marketing group announced huge restructuring costs and a string of disposals.

Inchcape, which shed 1,520 jobs this year, saw interim profits fall to pounds 18.6m from pounds 125.5m after an exceptional charge of pounds 64.7m. The company said it had taken "aggressive corrective action", which will include moving out of its plush central London head office to West London. Several executives have left Inchcape, and Sir David Plastow is to step down as chairman. A replacement has not yet been found.

Inchcape is the world's biggest Toyota distributor, and Japanese cars account for half of Inchcape's total revenue. These sales have been hit by the strength of the yen and weak consumer demand, particularly in Hong Kong and France. Group operating profits fell 42 per cent to pounds 47.5m.

Although the exceptional charge was far higher than analysts expected, Charles Mackay, group chief executive, said it will generate more than pounds 40m in cash and improve Inchcape's cost base by about pounds 30m in 1996, rising to pounds 40m thereafter.

The company also expects that sales planned for the second half of 1995 will result in an exceptional loss of up to pounds 50m. "We think that it is strong action which is going to improve cash and profits significantly," Mr Mackay said. "The company is confident it has done enough to deal with weak markets but would take further action if it was called for."

Inchcape estimates that 5 per cent move in the yen/dollar rate is worth about pounds 13m a year in gross profits, though the impact is softened by hedging. Mr Mackay said because of a seven to eight month lag-time for currency effects, "weakness in the yen will not show through this year but next year".

Half of Inchcape's business comes from south-east and far-east Asia. The largest single downturn in the region is probably in Hong Kong, said Mr Mackay, where retail demand is off some 25 per cent."Undoubtedly there is a real `feel bad' factor in Hong Kong. But we have no doubt at all about strong demand in '97."

Toyota is planning to launch a series of new models between now and 1997, and that should spur world-wide sales. However, there is still no clear evidence that motor sales are picking up in Europe.

Operating profits in the marking division were down slightly to pounds 26.9m but operating profits at the services division were 18 per cent up to pounds 43.5m. Costing-cutting at the merged Bain Clarkson and Hogg insurance companies helped. Mr Mackay said Inchcape still planned to float the operation some time after 1997. The dividend was held at 6p.

Investment Column, page 20