The mighty yen dents Inchcape

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The Independent Online
Inchcape's star rating has been badly dented by the rise of the mighty yen over the past two years. With about half group turnover arising from the import and distribution of Japanese cars, it is not hard to see why.

The soaring currency has raised the cost of importing Toyotas and Mazdas at a time when western consumers have been extremely reluctant, anyway, to take on large financial commitments.

The result has been a string of profit warnings from Inchcape since early last year, continuing yesterday with a gloomy forecast of prospects for 1995. Announcing lower profits for last year, Sir David Plastow, chairman, warned that first-half profits were likely to slump below the depressed second six months of 1994, causing a further 22p fall in the shares to 278p, well below half the 630p peak reached in March 1993.

Stripping out exceptional items, pre-tax profits slid 8.6 per cent to £231m in the 12 months to December, slightly better than the company's forecast in January of a 10 per cent fall. Most of the damage was sustained in the motors division.

Of the £21.8m shortfall in profits last year, £13.9m was due to the well- flagged loss of business exporting Toyotas to China, but there was also a £4.7m hit due to translation into sterling.

Excluding the Chinese operation, total car sales fell 15,000 to 292,000, while European margins were slashed from 3.7to 1.4 per cent. That pushed operating profits from car importing and distribution down from £106m to £62.6m.

The recent sharp surge in the yen makes the task of forecasting the immediate outlook doubly difficult this year.

Analysts are looking for anything between £210m and £230m, putting the shares on a prospective price-earnings ratio of around 12.

That is probably about right, with change of ownership clauses in Inchcape's big contracts making a bid unlikely.