The decline in residual values and heavy investment in its e-commerce business Autobytel, led to a dramatic fall in Inchcape's UK profits in the 2000 fiscal year – but the group remains committed to its web operation despite recent calls from a major shareholder to sell.
Operating profit for Inchcape UK in its preliminary 2000 results fell from £25m in 1999 to 0.7m in 2000.
£10.5m of the £24.3m UK shortfall related to its leasing business, impacted, group chief executive Peter Johnson said, by the “substantial fall in used car residual values”, down approximately 10% during the year.
£6.5m of the shortfall was due to Autobytel. “Our investment in Autobytel UK reached its peak in 2000,” Mr Johnson said.
“To date we have invested £12.3m in Autobytel UK. We believe strongly that e-commerce can play a significant part in the automotive services sector in the long term and remain committed to fully exploiting this new channel to market.
“Levels of expenditure required to develop the Autobytel product and brand will reduce significantly.”
There is also an acknowledgement of the need to reassess the group's franchise operations. “Within the UK market the returns from volume franchises have been far less attractive and there is no evidence today that the consolidation into larger customer marketing areas (CMAs) has brought the predicted improvement in returns.
“We intend to await the outcome on Block Exemption renewal before making any further investments in volume franchises.
“We are uniquely placed through our international strength, broad business infrastructure and strong manufacturer relationships to exploit opportunities as they arise in the UK market,” said Mr Johnson
This caution is likely to prove little comfort for Guinness Peat, a 16% shareholder in Inchcape. Its chairman, Sir Ron Brierley last month called for the group to be broken up and sold off.
Profits from the MCL Group, Inchcape's Mazda and Kia distributor, fell by £1.7m, with Mazda volumes down 14.1%.
The restructuring of Inchcape's Rover dealerships was the main cause of a £0.3m fall in year-on-year profits in Inchcape's UK retail operations to £8.8m. Inchcape's logistics business, Seaking, lost £4m. It is now being integrated into Eurofleet.
On future prospects, Mr Johnson said: “We have seen evidence of improved retail trading conditions in the UK in the first two months of 2001 and expect this to continue. Our UK results will benefit significantly from this, from the non-recurrence of such leasing and residual value provisions and from the reduced costs of Autobytel UK.
“We will also achieve financial synergies in business services through the combination of Eurofleet and Seaking.”
For the group as a whole in 2000 turnover was £3.1 billion (1999: £2.8) and profit before tax after exceptionals £73.4m (£299.3m).