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SCMP Reporter

The sale this week of Inchcape's Middle East marketing businesses for GBP116 million (about HK$1.44 billion) marks an end of an era for one of Britain's oldest companies.

 Once ranked alongside the great colonial hongs such as Jardine Matheson and John Swire and Sons, Inchcape has, in just 13 months, reduced itself from one of the greatest trading companies ever to emerge from the British Empire to a pure motor retailer, tightly focused on Europe and Asia, with large interests in Latin America and Australia.

 Its rapid transformation, from one of Britain's top 100 companies, into a specific niche player has been the subject of much debate.

 'The company that's virtually synonymous with shipping and trading throughout the Seven Seas is trying to lighten its load,' says the latest Hoover's Company Profiles report on Inchcape.

 'To attain more value for the distinct business lines, the company is separating its automobile companies from its retail operations.'  A former executive of the firm puts it more emotively.

 'The world was our oyster . . . But look where we are now.'  Inchcape was established by James Lyle Mackay, who was born in the 19th century and later became the first Earl of Inchcape.

 He built the company into a vast enterprise with interests ranging from tea, sugar and textiles to insurance, banking and shipping.

 Even as recently as two years ago, Inchcape - which is best known in Hong Kong for being the SAR's largest vehicle retailer - was involved in as diverse markets as shipping condoms into the mainland, to bottling Coca-Cola for Russia.

 In 1994, it looked set to take on even more daring markets, launching a bid for the British insurance brokerage Hogg Group, in a bitter battle against heavyweights such as HSBC and Jardine Insurance Brokers.

 Inchcape won by sheer bidding power, but analysts say that in hindsight the near GBP350 million the group paid for Hogg proved to be a dangerous move.

 'We all suspected they paid too much for it, and that is why HSBC and the others pulled out,' said one analyst.

 'As it turned out they did, and it proved to be the end for Mackay,' he added, referring to Charles Mackay, Inchcape's then chief executive.

 By the following year, Mr Mackay had resigned after a review by newly appointed chairman Lord Colin Marshall concluded that the company could not afford to have both a chief executive and a managing director.

 His replacement was Philip Cushing, the then-managing director, who set in train the simplification of the group, and began dismantling its empire.

 Former executives blame Mr Mackay for what they see as Inchcape's demise. The year he left, Inchcape had suffered a 36 per cent drop in profits and had been forced to drop out of the FTSE-100 index, after the shares fell from a high of 632 pence to a low of 200 pence at one point.

 Some say insult was added to injury when Inchcape gave him a GBP1.36 million pay-off.

 'Not only could he not keep the thing together, he hastened its collapse, and then was paid a princely sum for the privilege,' said one former Asian-based executive.

 Mr Cushing immediately set about gradually narrowing the group's focus, concentrating first on only international distribution of its vehicle, marketing, bottling, office automation and shipping operations, before announcing in March last year that it would centre its activities purely on motors.

 Now, with only an Asian office automation joint venture to sell, Mr Cushing is to leave in June, his task of rationalisation completed, although investors question whether it is a job well done.

 After rising to a high of 232.5 pence after the rationalisation plan was announced, Inchcape's share has plummeted by as much as 61 per cent, and is still down 38 per cent from its earlier peak.

 'We are yet to see that they are on the right track,' said one analyst.

 'The share price movement has not been dynamic, but in their defence they have been suffering from a collapse in many of their markets.'  However, Inchcape's incoming chief executive Peter Johnson is convinced that the group is on the right course.

 'Look around the world and find me another motor company that bottles Coca-Cola and also offers shipping services,' he says.

 'You would struggle.'  He said the future lay in building on the vehicle-distribution network, expanding the retail business, and strengthening its financial-services arm.

 Operations in Asia also play a central role in Mr Johnson's plans, pointing out that of the GBP115.9 million of operating profit chalked up last year, GBP40.3 million, or 35 per cent came from the region last year.

 'Asia still, and always will be, of fundamental importance to Inchcape going forward,' he said.

 The next horizon lies on the Internet, where the company has taken a near 5 per cent stake in the US on-line vehicle retailer Auto Buytel,which last year took 100,000 purchase requests.

 In the US, 17.5 per cent of new car sales are made through the Internet, and a quarter of all people who bought a vehicle last year used the Internet as part of their purchasing process.

 Inchcape has obtained a 20-year licence to operate Auto Buytel in Britain, giving customers on-line access to up to 300 dealers.

 In five years, Mr Johnson predicts, the business could start having a material impact on Inchcape's profit-and-loss account.

 This vision of the future is a far cry from anything that could ever have been dreamed up by James Lyle Mackay, but investors are desperate to ensure that it will work.



Inchcape retreats from empire days