Full Annual Report - Inchcape

Section
One
Business
review
Franchised retail centres
18
The market
The Australian market declined by 7.4%
compared to 2008, despite government
stimulus packages aimed at the business
consumer that ended in December 2009.
These stimulus packages supported the
light commercial vehicles market in
particular, which was down 1.5%
compared to a decline of 7.9% in the
passenger car segment.
However the market rebounded in the
second half in line with the improving
Australian economy.
In New Zealand, the total market declined
28.0% with commercial vehicles most
affected and the passenger car market
down 25.9%.
Business model and strategy
We are the distributor for Subaru in both
Australia and New Zealand.We have
represented Subaru in Australia since1973.
In addition, we have multi-franchise retail
operations based in Sydney, Melbourne
and Brisbane.These operations hold
franchises for Subaru,Volkswagen, Hyundai,
Mitsubishi and Kia.
To support these operations, we have a
logistics business called AutoNexus, which
is responsible for managing vehicle and
parts inventory, distribution and vehicle
refurbishment on behalf of Subaru Australia,
and our retail business as well as other
independent dealers.
Our strategy for our distribution operations is
to continue to grow market share through
our superior Customer 1st business
processes.
Revenue is principally generated from
vehicle sales, with aftersales a significant
source of both revenue and gross margin.
This strategy is supported by the
development of market specific special
editions and new product specification in
conjunction with Subaru.
Our retail operations are focused on
delivering an outstanding customer
experience for our brand partners and
driving revenue from sales of new cars and
vehicle parts. In addition, we generate
revenue from used cars and through the
sales of finance and insurance products.
Our operating performance
In both of our Australasian distribution
businesses,we have continued to outperform
the market and have grown share. Sales
were down 4.4% in a market which was
down by 7.9% and trading profit was 27.2%
below 2008 at £26.7m,due primarily to a
stronger Japanese Yen (JPY),with a solid
trading margin of 5.6%.
In retail,the business benefited significantly
in 2009 from improved used car margins
as a result of strong demand and lower
inventory levels. In addition, a strong
contribution from aftersales resulted in
a trading profit 15.2% better than 2008
and a record trading margin of 3.9%.
This strong trading profit performance and
our continued focus on working capital
across the segment resulted in cash
generated from operations of £17.8m in
retail and £29.6m in distribution.
Outlook for 2010
The market in Australia was one of the more
resilient in 2009 and we expect that the
positive momentum in the fourth quarter
together with improving economic
conditions and market sentiment will lead to
a small growth overall in the market in 2010.
We expect Subaru to achieve market share
improvements in both Australia and New
Zealand as the benefit of a full year of new
Outback, Liberty, Exiga and Outback diesel
models is realised.
We expect to see fluctuations in currency
rates. However we have already put in place
currency hedging to manage our JPY/AUD
exposure on vehicle and parts purchases
through to the end of the third quarter of
2010 and will implement coverage for the
fourth quarter at the appropriate time.
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