Inchcape warns profits are likely to crash

INCHCAPE, one of the world's largest car retailers, warned yesterday that a "rapid and unprecedented" slowdown in its key markets would result in a substantial fall in profits next year.

With car manufacturers on both sides of the Atlantic hoping for help from governments as sales plummet, Inchcape said the global slowdown was hitting it harder than it had anticipated.

The company – which distributes and retails premium brands including Audi and Mercedes-Benz – said sales had slowed because of the world-wide recession and a drying-up of credit to customers. In a further blow, it faces new import duties in Russia next year.

And in Australia the GMAC company, which provides vehicle finance through Inchcape's showrooms, is to stop writing new business in January.

Inchcape said yesterday profits for 2008 would be in line with forecasts, but added that it expected "underlying results for 2009 to be significantly below our previous expectations".

In constant currency terms, sales fell by 4.9 per cent in the first 11 months of 2008. This implies a sharp downturn over the latest two months, as sales in the first 9 months of the year were down by just 1.1 per cent.

Dresdner Kleinwort responded to the news by slashing its 2009 pre-tax profit forecast for Inchcape from 157 million to zero, and predicting the company would make 30m in 2010, down from its previous estimate of 178m.

Inchcape shares, which had already lost 84 per cent of their value since a peak in May, closed down 28.3 per cent at 50.75p.

Chief executive Andre Lacroix said yesterday that government intervention in the market was welcome "in any form", but the company's problems related more to the consumer.

"Demand is very weak in the UK, which provides half of our revenues. But carmakers are reducing production to keep supply in line with demand, which is very welcome."

Lacroix said that while it had anticipated a fall in sales in the UK, it had not predicted the slowdown that has occurred in markets such as Australia and Hong Kong.

Inchcape has scrapped its 2008 dividend and said it expected a cost-cutting programme to result in 1,900 redundancies, 300 more than previously signalled.

The company was currently operating within its banking terms, it said, but added it was in talks with its banks to ensure its covenants were "appropriate for a downturn in trading in 2009". Any renegotiation could lead to increased interest costs, it said.

Lacroix added: "Markets will recover in due course and we believe that Inchcape is best positioned to benefit from its strong market positions and its long standing relationships with the leading manufacturers."