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Profits warning shakes Inchcape

The core of Inchcape's £2bn business was rocked by the company's warning that group profits for 1994 are likely to be down by 10 per cent on the 1993 figure of £252m.

The warning follows a 3 per cent fall at the half-year stage. Importing and distributing motor vehicles, especially the Toyota and Mazda brands, forms the core of Inchcape's business.

Perhaps a fifth of the profits fall is due to the weakness of the US and dollar-related currencies, in which about half of Inchape's sales are invoiced.

The marketing division made a strong recovery, while services maintained its annual growth pattern, a spokesman said yesterday.

But the motor division, which accounted for almost 60 per cent of profits in 1993, has been hammered by the combined impact of a strong yen on demand for Japanese cars in Inchcape's franchise areas throughout Europe. This has been exacerbated by the weakening of the important private car market in the UK and a dramatic fall in demand in Hong Kong.

In the UK the market for private cars has failed to live up to its early promise and demand has been strongest for fleet vehicles and diesels and basic models rather than the high-specification models targeted at the private motorist, where Toyota and Mazda have been seeking to drive their sales.

In spite of heavy promotion spending and cash-back offers by Inchcape both marques have lost market share, while year-on-year sales went from 15 per cent up in the first quarter to 11 per cent down by the fourth quarter.

In Hong Kong car sales were hit by tax changes introduced last August but the demand for new cars has tailed away dramatically as a result of the slump in Hong Kong stock market values and a fall in property values, producing a "feel-bad" factor.

The warning sent the shares into free fall yesterday and brokers revised their 1995 forecasts down in line with 1994. With a four-month pipeline for supplies to reach the UK market it may already be too late to change the mix in time for the August 1995 registration year.

The Hong Kong market cannot hope to recover until stocks and property prices revive, and there is no realistic prospect of a significant easing of the strong yen until at the least the second half of 1995, according to Nomura's Nigel Utley, who nevertheless thinks that the 20 per cent slump in the share price means the shares are oversold.

BZW's Nyren Scott-Malden is not sure they are really cheap, although both analysts still like the company.

Mr Scott-Malden has revised the current year down but both agree there seems little the company itself can do in the short run to escape from the strait-jacket imposed on it by the nature of its business.