Inchcape’s ongoing car distribution focus delivers 50% profit growth

Inchcape chief executive Duncan Tait has highlighted the success of the automotive PLC’s “portfolio shift towards distribution” as it reported a near-50% growth in profits in its 2022 annual financial results.

Group revenue rose 18% to £8.1 billion, as new vehicle supplies started to recover following post-COVID shortages, with the group reporting that “higher margins and operating leverage” had helped it to a 49.8% rise in pre-tax profits to £373m (2021: £249m).

In a results statement issued via the London Stock Exchange this morning (March 23), Inchcape’s CEO said the group’s acquisition of Derco – Latin America’s largest automotive distributor – and the roll-out of its UK used car supermarket division, bravoauto, into nine countries had also played their part.

Outside the UK market, it also forged new OEM relationships with Porsche, Volvo, BYD and ORA.

Tait said: “Since launching our Accelerate strategy in Q4 2021 we have made substantial progress with our two strategic growth priorities: Distribution Excellence and Vehicle Lifecycle Services.

“In 2022 we have further extended our global leadership in automotive distribution through our investments in digital and data analytics, and the transformational acquisition of Derco - which significantly increased our presence in the highly attractive and fast-growing Americas region, and continued our portfolio shift towards Distribution.

“We are also making encouraging progress with our ambition to capture more of a vehicle's lifetime value with the international expansion of bravoauto.”

Retail division

Inchcape pointed out in its 2022 annual results that the launch of direct-to-consumer ‘agency model’ car retail agreements with its OEM partners would impact its future revenues by £200m on an annual basis.

It said the impact on operating profit was expected to be “negligible”, however.

In January Inchcape's car retail division, Inchcape Retail, revealed that its 2021 trading had delivered a rebound from a £76.4 million pre-tax loss in the previous, COVID-impacted, year.

In 2022 its European retail division – which only included dealerships and bravoauto sites in the UK and Poland following a series of strategic disposals – delivered organic revenue growth of 10% (to £2.63bn) and an adjusted operating profit up 34% (to £47.5m), resulting in an operating margin of 2.1%.

It said: “We reported an operating margin of 1.5% in the second-half, with the reduction owing to normalising vehicle profitability and our investment in bravoauto.”

Inchcape now operates 17 bravoauto sites across the UK.

In August Steven Eagell Group acquired Inchcape’s Toyota dealership in Oxford.

That came on the back of a restructure of its operations – including the sale or closure of 20 dealerships in two years – overseen by former chief executive James Brearley, who described the plan in a group profile interview with AM back in 2021.

Commenting on the group's latest disposal, back in August, new Inchcape UK CEO George Ashford said that the move was in line with Toyota’s strategy to reshape their market areas in the UK.

He added: “Whilst we recently completed the purchase of Toyota Warrington from Bentleys Motor Group, reflecting our strong presence in the north, Steven Eagell has a long-standing history in the South making them a good business to take on the well-established and successful Oxford centre.”

Outlook

In a trading outlook statement delivered alongside its 2022 annual financial results, Inchcape said that it remained mindful of the changeable economic environment, but added: “The strength of our business model and diversification benefits of our global operations are expected to support the Group's performance in 2023, with trading to date in line with our expectations.

“We anticipate that new vehicle supply will continue to improve throughout 2023, and support a normalisation of order books. In 2023 we expect to make strategic, operational and financial progress, underpinned by the integration of Derco. We remain confident in the medium-term outlook.”