ETEL, Kwik-Fit decline to comment on sale speculation

On Friday 18 September 2020, it emerged that Kwik-Fit and European Tyre Enterprises Ltd (ETEL) owner Itochu has appointed investment bankers Nomura to act as its strategic investment consultancy with relation to the future of its European tyre business. The move has been widely interpreted as sale preparation. In light of the news, Tyres & Accessories contacted ETEL and Kwik-Fit representatives in order to find out more. Both declined to comment officially. However, supplementary information on Itochu’s third-quarter 2020 and full fiscal year 2020 results give further details of the conglomerate’s explanation as to why the company did not present a 2021 profit forecast for ETEL as it normally would.

Footnote 1 on page 22 of the appendix to Itochu’s full-year 2020 results states that there is no 2021 profit plan for ETEL, “due to the effects of the new coronavirus, ‘FY2021 Plan’ is under close examination”. While this explanation does offer a rationale for Itochu’s decision not to include a 2021 ETEL profit plan, it doesn’t explain why seven of the 11 companies within Itochu’s General Products & Realty portfolio don’t have this provision or why ETEL is the only business that footnote one applies to (the other three have plans that are either “not presented” or “undisclosed”, according to the appendix”).

Indeed, ETEL actually outperformed third-quarter full-year pre-lockdown profitability projections of 5.1 billion yen in 2020 published back in February 2020. The actual full-year 2020 result, published in July 2020 at the time when the UK’s full lockdown came to an end, was 6.2 billion yen in, up roughly 50 per cent from 4.2 billion yen in 2019. Furthermore, page 30 of Itochu’s full-year supplementary information document sees the company describe ETEL’s full-year 2020 performance as “stable”. Both points appear to counter Itochu’s reasoning that no 2021 profit plan was included due to corona-related uncertainty in relation to ETEL more than the other companies in its General Products & Realty portfolio.