Cuts help car dealer's results

Jun 25 2009 by Iain Laing, The Journal

CAR dealership Inchcape has forecast a big improvement in quarterly profits, despite weak demand for new vehicles.

The group, with more than 100 retail centres in the UK selling marques including Audi, BMW and Mercedes-Benz, said after-sales business was strong and it had benefited from continuing cost cuts.

It said second quarter profits were expected to be better than in the first quarter, though well below figures a year ago. Like-for-like sales in constant currency terms were down 23.8% in the five months to May 31.

The company said: “Customer demand for new vehicles is still weak, but our after-sales business, which represents approximately half of our gross profit, remains strong.”

In the UK, Inchcape said it continued to outperform the industry with like-for-like sales down 21% in a market down by 27.9%.

The group, which employs more than 15,000 people and has operations in Singapore, Australia, Hong Kong, Greece, Belgium and Russia, has responded to the slump by cutting 2,000 jobs and freezing wages.

And last month it raised £234m from shareholders to strengthen its balance sheet.

Shares jumped 8% yesterday as investors welcomed the profits improvement and a bigger-than-expected drop in net debt to £100m.

Investec Securities increased its profits forecasts, including a 27% rise to £93m for this year.

Analyst David Jeary said: “These are driven not by emerging green shoots of demand recovery, but through a combination of self-help measures on both operating costs and working capital.”