Inchcape plc is an international automotive services group – with core markets in the UK, Greece, Belgium, Australia, Hong Kong and Singapore. The Group’s activities include exclusive Import, Distribution and Retail, UK Retail, Financial Services, Business Services and automotive E-commerce. The Group’s turnover was over £4 billion in 2004, with a reported operating profit of £163.1m. For the first half year 2005, operating profit was £104.1m – an increase of more than 20% on the same period last year. The company has a number of eminent manufacturer partners, including Toyota/Lexus, Subaru, BMW, the Premier Automotive Group of Ford, Mazda, Mercedes Benz and Volkswagen.

What is Inchcape’s main activity and geographical coverage?

Inchcape provides high quality representation for our manufacturer partners. In essence, the United Kingdom is primarily a retail business – although we do have some vehicle refurbishment and fleet management activities as well. The rest of the Group is importation, distribution and, increasingly vertically integrated retail operations. We also provide a range of financial services in connection with our automotive business – for example stock funding for dealers and finance for customers wishing to purchase vehicles.

Our businesses in Belgium, Greece, Singapore and Hong Kong primarily represent Toyota/Lexus. For Australia, we have a key relationship with Subaru. In the United Kingdom, we have strong relationships with BMW, Mercedes-Benz and the Premier Automotive Group of Ford (PAG) – particularly Land Rover and Jaguar.

Of our £163.1m operating profit in 2004, 14% came from our UK operations, meaning more than four-fifths of Inchcape’s earnings are from overseas. A third came from Singapore/Brunei combined and one-fifth came from our operations in Greece and Belgium. Hong Kong provided 17% of our profit and Australia and New Zealand together contributed 16%. So, as you can see, Inchcape is a worldwide success.

What is your role in Inchcape plc?

My title may be Group Treasury Director, but as a senior executive of the Group, my role is wide ranging. I am based in London and have four people reporting to me directly. Two are effectively front office Treasury Managers, one is back/middle office and there is also a Treasury Controller who is responsible for our finance company’s accounting. Indeed, we have a finance company called ‘Inchcape Finance’, which is basically the Group’s in-house bank. Inchcape runs its treasury operations through this finance company. I also have a number of indirect reports in the business units and these are people who have Treasury responsibilities – such as local cash management tasks and carrying out foreign exchange transactions.

My contribution to the business focuses on a number of different areas, for example – core treasury, pensions, joint ventures and M&A (mergers and acquisitions).

Core Treasury

First of all, there is what you would regard as core treasury activities – I am responsible for the Group’s funding, cash management, foreign exchange (FX) and interest rate management. Cash and FX management are of prime importance to Inchcape. We pool cash on a regional basis across our core markets. Prior to permanent repatriation, surplus cash will be swapped into Sterling and remitted to the UK through Inchcape’s in-house bank – Inchcape Finance. Inchcape currently has a cash surplus, so managing the counterparty risk arising from our cash deposits is important. We also have significant transactional foreign exchange exposures, particularly emanating from our Australian business which are hedged through the central treasury.

Refinancing

My last major project in this area was the amendment and restatement of the Group’s committed banking facilities this July. I wanted to take advantage of the current propitious bank lending market. Indeed, when I joined the company in 1999, the company had, a year before, started its restructuring programme. In fact, it had a number of businesses outside the automotive industry, which it wanted to exit. These were in areas such as shipping, bottling, marketing and office automation. During the Group restructuring in 1998, a revolving credit facility was put in place with a banking group which really reflected the composition of the old Inchcape conglomerate. I therefore inherited this banking group when I joined the company a year later. A few years afterwards, it became my responsibility to update this banking structure, to reflect Inchcape’s current operations and future business strategy.

In 2002, when the restructuring to a motors-only business was complete (and when I had completed my due diligence as to the nature of the new Inchcape and what ancillary business we had), I put in place a new banking group. In essence, I brought into the facility banks whose footprints more closely fitted the footprint of the new Inchcape – in terms of their strategic intent and the ancillary business they could meaningfully expect from us. For example, we brought in Greek banks for the first time, to reflect our significant Greek business. We have a strategic objective to expand in the Balkans, which is also the same strategic objective of our Greek partner banks.

In 2005, we amended and restated the facility I set-up in 2002. The 2002 facility was for £250m and provided by 13 banks. We have now increased the facility to £275m, reducing the number of banks to nine. This means we are now more focused, using banks who reflect our strategic development, so they can benefit more directly from our ancillary business. This coupled with the favourable market conditions, has enabled us to achieve significantly improved pricing.

We have also recognised other changes in the market place. There is an option on the new facility, which allows it to be extended for up to two years. So, it is quasi seven year money, rather than a straight five year deal. Also, we have amended our covenant definitions based on the changes arising from IFRS. So, from an economic and compliance perspective, the new financing is a much improved transaction.

The facility was self-arranged. By arranging the facility ourselves, we did not have to pay any arrangement fees. Inchcape is an investment grade credit. This, combined with the number of our high quality banks which had expressed an interest in continuing with the Inchcape relationship, gave comfort that amendment and restatement could be achieved on a selfarranged basis.

Pensions

In addition, I am the Chairman of the Group’s Pension Scheme Steering Committee, which deals with the Group’s pensions issues. The Group operates a number of defined benefit pension schemes. Most recently, I have been negotiating with Trustee representatives in order to agree a statement of funding principals. In other words, negotiations to reach agreement as to the contributions from the sponsoring group companies going forward. An objectives and policy paper for pensions scheme issues has also been put in place. This outlines the structure and processes by which we conduct our general approach towards the pension schemes. It helps ensure a structured approach to the negotiations.

Pensions are very topical at the moment due to the accounting and pension legislation changes. Firstly, pension obligations are now seen as a debt obligation on the company and are reported as such in the financial statements – so, deficits are no longer off balance sheet. Secondly, we have also seen the introduction of the Pension Regulator and Pension Protection Fund. This has affected the balance on funding decisions between trustees and sponsoring companies. There are also now other obligations, such as the requirement to ensure that certain corporate activities are cleared in advance with the regulator. We have seen cases in the market where corporate activity has had to change or stop because of the requirement to reach an agreement with trustees over pension fund arrangements going forward. All this means there is much more corporate focus on pensions issues than a few years ago.

Joint Ventures

I am a Director and company representative for two of the Group’s two principal financial services joint venture companies which are in Hong Kong and Greece. You see, Inchcape provides financial services to dealer networks, as well as retail finance for individuals wanting to buy a car from Inchcape. These financial services companies are typically in joint ventures with banking partners. In Greece, our banking partner is EFG Eurobank Ergasias S.A., which is the leading Greek private bank. In Hong Kong, our partner is Bank of America.

I’ve also had recent involvement with a joint venture on the trading side of the Group. Up until last year, I was the Inchcape Board representative for a trading company joint venture between Inchcape and a leading Japanese company. My responsibilities included putting forward Inchcape’s perspective, particularly in terms of strategy and business planning. Ultimately, I also had to negotiate Inchcape’s exit from the business, which was concluded successfully in the middle of last year.

Mergers and Acquisitions

This dovetails into another area that I am involved in – Mergers and Acquisitions (M&A). For example, as well as selling the joint venture last year, a year or two earlier, we sold our interest in a finance company in Brunei to HSBC. This was an important transaction in de-leveraging the Group balance sheet, as this business took customer deposits which had been classified as debt on the Group balance sheet.

You say you help manage Inchcape’s M&A activities, what is your company’s M&A strategy?

Inchcape wants to expand in the UK with our chosen manufacturing partners by developing contiguous territories. This means expansion in, or adjacent to, markets where we already have a scale business. In fact, the development of contiguous territories is a focus of the whole Group, not just the UK business. Last year, we bought a Mercedes- Benz market area in the East Midlands, which was adjacent to our existing area in the Coventry, Stratford-upon-Avon and Oxford area, to create the largest contiguous territory in the UK for this prestigious brand. This year we purchased a further Mercedes-Benz market area based around Liverpool. As a result, Inchcape is now the largest independent retailer in the UK for Mercedes-Benz, accounting for approximately 8% of sales volume.

The same theme of development across contiguous territories is evident overseas as well. This can be seen in terms of our expansion out of the countries where we are currently operating, to adjacent ones. For example, from Finland, we have expanded into Estonia and Latvia. In Latvia, we have created a vertically integrated Import and Retail business for Mazda and Jaguar. For our Greek operations, there are opportunities in the Balkans – in places like Bulgaria, Romania and the former Yugoslav Republic of Macedonia. Other opportunities in Eastern Europe are being explored too. For example, one possibility is entering the Russian market, most likely as a scale retailer in Moscow.

As you would expect, we are also examining the opportunities in China given our existing big businesses in Hong Kong. We will however ensure that we are comfortable with the choice of geographic location and the marques we represent before making any move.

What is your main focus for the next few months?

Inchcape is entering an exciting time in its development. A key measure of success for our new ventures will be the efficiency of the funding, cash and risk management structures I put in place. I am looking forward to playing my part within the management team as we drive the business to the next level.