Inchcape’s growing profitability from global vehicle distribution were offset by a challenging retail sector during 2018 – with revenues up 3.6% but underlying profit before tax down 6.5%.

The global operation, which operates the AM100’s fifth-placed retail group, reported an overall revenues rise to £9.28bn with underlying PBT of £356.8 million in its annual results to December 31, 2018.

Its revenues for the UK and Europe - which are not separated out in the annual results - showed a 3.7% decline in annual revenues, to £3.06bn (2017: £3.17bn) as the trading profit margin in the region declined by 1.1ppt to 0.5%.

Distribution continues to be a key driver of growth for the business globally, with its new US business and operations in Asia driving a 2.2% rise in distribution operating profit year-on-year, excluding the accretion of the new Central American businesses this was up 3%.

However, Mike Allen, market analyst at Zeus Capital, said: “The strength in the distribution business was offset by weakness in retail where market driven factors in key markets such as the UK and Australia have caused significant margin pressure and a 59.2% decline in retail trading profit.”

Stephan Bomhard, group chief executive at Inchcape, made clear the shifting reliance on strong distribution results in comments which accompanied today’s annual results.

He said: “In 2018 we continued to demonstrate the merits of our distribution business model and the strong cash generation profile of our business.

“Distribution contributed 93% of Group trading profit, compared to 85% in the prior year, after growing 7% year-on-year in constant currency over the year and 3% excluding our Central America acquisition.

“Distribution profit was driven by a strong performance across Asia, despite market decline in Singapore.”

He added: “Margins in our retail channel came under further pressure due to the continued UK market supply and demand imbalance, the incremental impact of the new Worldwide Harmonised Light Vehicle Testing Procedure (WLTP) regulation, and a slowing Australia market.”

Bomhard said that the retail sector’s challenges had been partially offset by the delivery of near record profit in Russia Retail, as strategic initiatives, focused on rationalising our cost base, got underway to improve the business’s performance in 2019.

“Given continuation of the market trends that we discussed at the Q3 trading update, we expect a resilient performance in 2019 before the impact of a meaningful transactional currency headwind,” he added.

Inchcape reported that certain aspects of its retail business had performed well during 2018.

Aftersales gross profit grew 7% in constant currency with particularly encouraging performances in key regions such as South America.

Used cars also performed very well over the year, with Inchcape’s global F&I strategy delivering an incremental £15m of profit over the year and our cumulative procurement savings ended the year at £32m.

Meanwhile, the business revealed that it plans to expand its distribution operations with Suzuki, in the US as well as commencing two new distribution contracts with BMW.

It will now operate in Lithuania, becoming BMW's distributor across the Baltics having been awarded BMW in Estonia in 2017, and Kenya following on from its market entry in 2018 with Jaguar Land Rover (JLR).

Bomhard said: “We have progressed many strategic objectives during the year and have actions in place to improve our Retail operations in 2019.”