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New Inchcape CEO reveals new strategy as UK profit drops

The new chief executive of Inchcape says he is to lead the company on an “evolutionary journey” in order for it to maximise growth opportunities as the company reported a drop in UK operating profit.

For 2015 year, the multi-national reported an operating profit of £63.4 million, compared to £65.2m in 2014, a decline of 2.8%.

The reduction in trading margin was down to the “increased contribution of vehicle sales, lower used vehicle margins and increased facility and IT amortisation costs”.

Retail trading margin was 2% in 2015, compared to 2.3% the previous year.

Retail sales revenue was up 10% to £2.662 billion, from £2.421bn.

This was due to, Inchcape said, the successful launch of new models including the Jaguar XE and Land Rover Discovery Sport as well as a number of face-lifted models across the broad range of OEM partners including the Audi A4 and Q7, BMW 3 and 7 Series, Mini Clubman, Jaguar XF, Lexus RX, Mercedes-Benz GLC, Toyota Auris and VW Touran.

The impact on Volkswagen sales following the company’s admission of emission testing fixing was “limited”.

Inchcape Financial Services in the UK saw trading profits grow by 9.6% to £11.4m, following a record performance in 2014.

Inchcape’s UK financial highlights

Inchcape Group's 2015 UK performance

 

Outlook

“We expect the robust UK economy, coupled with factors unique to the automotive market, such as PCP financing, to support further industry growth in 2016 although to a more moderate level,” Inchcape said in its annual report.

“Our aftersales operations will continue to benefit from the growth in the one-five year car parc.

“The momentum in the UK market coupled with our focus on superior customer service lead us to expect to deliver a solid performance in the UK in 2016.”

In his report Inchcape chief executive Stefan Bomhard (appointed at the end of January) said: “Our UK business delivered a robust top-line performance, driven by consumer confidence and attractive offers from the OEMs.

“Pressure on used vehicle margins for some of our brands in the UK, however, limited our ability to realise the full potential of this revenue trend into profit.

“Our commercial performance enabled us to make important investments in our continued future success, including our new state-of-the-art Cooper Reading retail centre, the largest BMW centre in the UK.”

Bomhard lays out five strategic objectives for the company in his annual report, as following:

1. Lead in customer experience

We will invest to maintain our position as leader in customer service innovation in automotive distribution and retail, with digital a key priority. Through a programme of global research, we will build on our insights into the customer journey in an omni-channel world and create stand-out customer experiences combining data-driven personalisation with a human touch.

2. Become the OEM’s partner of choice

We will build and strengthen our working relationships with our OEM partners by investing time in understanding their needs, seeking greater opportunities for collaboration and sharing our insight into customer and industry trends with the aim of becoming a consistent strategic business partner at both global and local levels.

3. Deliver full potential from all our revenue streams

We will increase our management focus on our used vehicle and aftersales activities at all levels of the organisation, enhancing their perceived status within the business and deepening further reporting and analysis. We will more actively seek to develop business opportunities, sharpening our emphasis on building our brand and unique selling points in these areas to match our profile in new vehicle sales.

4. Leverage our global scale

We will allocate more resources to innovation, sharing and benefiting even more effectively from the proven ideas generated throughout the global organisation. We will sharpen further our business processes, management skills, creativity and strategic planning across the group, focusing on procurement, talent management and shared services to boost performance and reduce costs. And we will leverage our unique competitive advantage to develop and grow our proposition in new, emerging and developed markets.

5. Invest to accelerate growth

We have increased our business development resources to ensure we have the management capabilities to participate in industry consolidation. Furthermore we will involve the CEOs of our market-specific operations, and leverage their knowledge and insight more directly in delivering our growth agenda.

Bomhard said: “Drawn and refined from the identified opportunities and challenges we face, they are based on real factors that are already impacting our business and will continue to do so for several years.

“These are the trends that are having the greatest effect on our markets worldwide; using them as the foundation of our new strategy ensures that we will constantly meet market needs. That is why they form the core framework of the actions we will take to accelerate our growth and business performance.”

The OEM relationship, Bomhard said, is the “foundation stone for everything we do and achieve”.

“We operate in a marketplace where disruptors are challenging industry incumbents and customers are taking more control by navigating a growing digital landscape.

“We must continue to develop our processes - and meet them consistently - to retain our position as the recognised industry leader in customer service in a connected, ‘omni-channel’ world.

“Next, we have a very strong portfolio of brands; we need to build on our OEM partnerships to ensure that we thoroughly deserve to achieve the status of ‘partner of choice’ across all our relationships, and then to robustly defend that position.

“This is fundamental to our continued future success. At every level of Inchcape, the OEM relationship must be recognised for what it is – the foundation stone for everything we do and achieve.

Our past work in building these relationships has been successful – now, it is my intention that we will focus on delivering even more value to every OEM partner, so that we become established as the first port of call for every shared opportunity and challenge.”

He acknowledged that aftersales is a “key defensive revenue stream”, set to grow faster than the new car retail market.

“There is, therefore, a requirement to rebalance the focus on leveraging all our value drivers to maximise the potential of each of them across the mix.”

In devising our strategy, we have set five objectives to guide our business. These have the full endorsement of the Board and exist as a set of calculated and targeted statements that support and enable positive change on the ground, every day and in every part of the organisation.

Inchcape also announced that Richard Howes, will join as chief financial officer from Coats Group plc on April 11.

Sales for the Inchcape Group were £6.8bn, up 7.8% year-on-year with strong top line growth in Australia, the UK, North Asia and South Asia offsetting softer market conditions in Europe and Russia.

The group delivered a trading profit of £354.7m, up 10.7% on last year on an underlying basis.



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