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Inchcape prepares for economic recovery

Inchcape will be relying on its aftermarket business to help pull it through the recession, which it believes will not recover until the second half of 2010.

The dealer group has taken steps to improve its position this year and has reduced net debt to £28 million, down from £408m at the end of 2008. The business has an operating cash flow generation of £217m and costs were reduced by 13% across the business.

A tough first half of the year translated to a 22.9% drop in reported global sales to £2.8 billion and a drop in pre-exceptional profit before tax of 57.6%.

Ken Lee, Inchcape group communications director, told AM: “We’re really focussing on five key priorities to take the company forwards: growing market share and aftersales, while reducing costs, managing working capital and reducing capital expenditure.

“We restructured the group with most of the tough action happening in Q4 last year.”

The restructuring of the business resulted in a reduction of its workforce by 2,000 down to 15,000 and 24 dealerships were lost. Inchcape is also planning an extra 350 job cuts and will eventually reduce its workforce down to 14,000 employees.

Aftermarket will be the most significant driver for Inchcape going forwards this year, representing 50% of the company’s gross profits.

Lee said: “Aftersales provides a significant opportunity for us and we’ve had to take a very disciplined approach.

“We are trying really hard to capture and track every single customer we have and install strong performance management across the group to drive efficiency.”

Inchcape is not expecting any sign of a recovery until the second half of 2010.

Lee said: “It’s not getting any better and it’s not getting any worse. We’re taking a very cautious approach and it’s not going to make things any easier when the scrappage scheme ends, as well as the end of 15% VAT.”

Lee is very positive about scrappage and believes it has been good for the industry.

He said: “Clearly it’s worked and done what it was intended to do. It’s been particularly good for the volume brands, but it’s just one thing we can use to help our new car sales, we’re not concentrating solely on it. Used car margins have held up well and that’s another area we’re focussing on.”

Inchcape now has 130 sites across the UK and Lee said the group was very happy with that size. The company is not on the look out for acquisitions.

He said: “We want to focus on the dealerships we have and continue to grow market share. We’re number one in the prestige market and we want to keep pursuing aftersales as our main profit centre.”

The group also looked to reduce inventory and Lee is now happy with the level of cashflow Inchcape now has.

André Lacroix, Inchcape chief executive officer, said he was pleased with the first half of this year due to solid performances in Australia, Singapore and the UK.

 Investec, the banking group, said: "The longer-term potential for Inchcape is substantial when the global car market recovers, especially given the reduction in its operating cost base, which gives substantial upside potential from operational gearing effects.

"We have increased our PBT (and net debt) forecasts on
the basis of the better than expected interim performance, while maintaining a cautious view for 2010 with recovery only showing through in our 2011 forecast.

"Our 2009 PBT forecast increases £12m (13%) to £105m, with EPS rising 44% to 1.7p (1.2p); our 2010E PBT forecast
rises £6m (6.1%) to £105m, with EPS increasing 29% to 1.5p (1.1p). Our 2011 PBT rises 4% (£6m) to £150m, with EPS up 2% to 2.1p (2.1p)."

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