Zigup PLC · LSE:ZIG
Zigup — Northgate — Investor Day (October 2017)
67 slides from Zigup's investor day presentation, Oct 4, 2017
Slide 1: Capital Markets Day
Capital Markets Day 4 October 2017
Slide 2: Agenda
Agenda » Introductions & Strategy Overview 9:30 – 10:00 Kevin Bradshaw » UK Update 10:00 – 11:30 Frank Hayes » Coffee Break 11:30 – 11:45 » Spain Update 11:45 – 12:30 Fernando Cogollos » Capital Management Framework 12:30 – 12:45 Kevin Bradshaw » Target KPIs, Summary & Q&A 12:45 – 13:00 Kevin Bradsh
Slide 3: Objectives
Objectives » Introduce the Northgate team » Provide further detail on our strategy for growth » Update on our implementation progress so far » Set out KPIs and medium term objectives for the group » Provide a good forum for Q&A 3
Slide 4: Introductions
Introductions • Kevin Bradshaw • David Tilston • CEO • Interim CFO • Frank Hayes • Fernando Cogollos • Peter Millen • UK MD • Spain MD • Ireland MD • Neil McCrossan • UK Sales Director 4
Slide 5: Strategy Overview
Strategy Overview Kevin Bradshaw
Slide 6: The Northgate Journey
The Northgate Journey Yesterday: Lack of Today: Clear Direction, Future: Deliver on Strategy, Poor Execution Mobilising for Success Outstanding Opportunity » No compelling strategy » Attractive market; 8m LCVs and » The leading provider of B2B £15bn associated revenues fleet solutions to corporates
Slide 7: We operate in territories with 8 million LCVs and c.£15bn of annual revenues
We operate in territories with 8 million LCVs and c.£15bn of annual revenues with structural growth in our core markets Estimated Market Revenues(2), 2016 LCV – Volume Growth UK, ES, IE, 2013-16 £bn % CAGR £10.3bn £4.0bn £0.6bn Term Hire Term Hire 8.1% Rental Bought from Used(1) Rental 5.8% (of whic
Slide 8: Compelling reasons for continued structural growth in term hire and rental
And see compelling reasons for continued structural growth in term hire and rental market segments Structural Growth in UK Term Hire / Rental Share of Business Use LCVs Drivers of Structural Growth » Cash Flow Advantages 13.6% – Limited ‘upfront’ cash requirement vs. ownership 10.3% 4.2% Rental – No
Slide 9: Four key strategic opportunities
Within this market landscape, we have prioritised four key strategic opportunities 1 2 3 4 Consolidate the Flex – Defend Term Hire – Conversion of Fragmented UK LCV & Grow Share Gain Share ‘Owned’ to Term Hire Trading Market1 » £1bn market revenue » £2bn market revenue » £12bn market » £5bn market »
Slide 10: Six key profit drivers
In pursuit of these opportunities we are focusing on six key profit drivers Profit Driver Definition Logic Levers Increase in quarterly average VOH VOH (less volatile than closing Key driver of sales Market growth, Northgate share VOH) Marginal ROCE on Essential metric to ensure Contribution after v
Slide 11: UK Update
| ~~ — UK Update Frank Hayes
Slide 12: Frank Hayes, Managing Director, Northgate UK
Frank Hayes, Managing Director, Northgate UK » Background & experience » Relevance of experience to Northgate opportunity » Introduction to Neil McCrossan 12
Slide 13: Overview of our plan of attack in the UK
Overview of our plan of attack in the UK Actions We Early Results & Background & Opportunity Are Taking Measures of Success » Losing market share last 3 years » Upgrading the Executive Team » Flattening VOH curve despite competitive advantages » Driving cultural change Self-help » Term Hire momentum
Slide 14: The rental business' underperformance has been driven by internal factors
The rental business’ underperformance has been entirely driven by internal factors UK – Key Rental Provider Fleet Growth(1), 2013-16 % CAGR 18% 18% Drivers of Under-Performance » Lack of focus on defending flex share » Leadership lacking urgency and commercial focus 6% » Capability gaps in Marketing
Slide 15: The UK Flex & Term Hire market is worth c.£2.2bn p.a.
The UK Flex & Term Hire market is worth c.£2.2bn p.a. and is now fully accessible to Northgate Rental & CH&L Volume & Value by Fleet Size, 2016 Estimated Northgate Market Share by Customer Segment, 2016 000s, £m, % Total % Volume Value Flex Term Hire 177 390 786 1,434 63 248 100+ vehicles 30% 0.1% >
Slide 16: Van Monster addresses a market of c.600k used van transactions
Van Monster addresses a market of c.600k used van transactions and c.£5bn revenue per annum UK LCV Transactions Per Annum by Ownership UK LCV Market Value, 2016 Cycle, 2016 £bn, % Total 000s Transactions 1,265 10.3 100% 0.8 100% Rental (8%) 31% 1.4 Bought New CH&L (389) (14%) 3.0 Bought Used – 17% N
Slide 17: Northgate UK has access to opportunities many times the size of core market
Northgate UK has access to opportunities that are many times the size of our core market today Size of Segment LCV UK Market Value, 2016 Multiple of £bn, % Total Opportunity Vehicles Revenue Rental Vehicles 10.3 0.8 Rental Gain Share in (8%) 1.4 CH&L Flex 0.2m £0.8bn 1x (14%) Gain Share of 3.0 (29%)
Slide 18: Customer segment priorities for 12 Months + products
We have a clear list of customer segment priorities for our 12 Months + products Term Hire Hire Prioritisation CH&L » c.140k vans2, 3-4 years cycle High Small / Mid » Good overlap with NVH customers 3 (<100 vans) and channels New Short Financed » c.430k vans, 3-5 years cycle Term New Buyers Economic
Slide 19: Van Monster positioned to serve both van buyer segments
Van Monster is well positioned to serve both van buyer customer segments and is delivering high levels of customer satisfaction Customer Segments Description Northgate’s Winning Proposition » Model well positioned for local buyers + » Initial research via aggregators searchers » Seek the best value
Slide 20: Van Monster possible strategic paths
Van Monster can address ‘close to home’ growth by rolling out and optimising the current model whilst still keeping other end-games open Possible Strategic Paths Mainly National Local 3rd Party Used Dealer Network Clear short term path to optimise Northgate fleet Roll-out Incl 3rd Party disposals “E
Slide 21: Overview of our plan of attack in the UK
Overview of our plan of attack in the UK Actions We Early Results & Background & Opportunity Are Taking Measures of Success » Losing market share last 3 years » Upgrading the Executive Team » Flattening VOH curve despite competitive advantages » Driving cultural change Self-help » Term Hire momentum
Slide 22: Immediate 'self-help' actions
We are undertaking a number of immediate ‘self-help’ actions Executive » Strong additions to Exec team in Sales, Marketing and Finance 1 Team » Increased leadership visibility and internal comms Cultural » Recognition of turnaround reality and need to change behaviours 2 Change » Eliminating bureauc
Slide 23: Good progress on marketing and lead generation
There has been good progress on marketing and lead generation Evolution of Northgate CRM Leads Database, FY17 – Dec 17 (Forecast) Key Actions Thousands of Businesses, % of Businesses » Data cleanse well advanced on 70 inherited database 2 69% 58 » Telemarketing lead generation trials 2 58% (+21k con
Slide 24: Quick fix improvements to the website
And some quick fix improvements to the website Enquiry form shortened Contact us widget on every page Additional SEO links to drive Google page 1 rankings Increased prominence for new 12 months product Better vehicle selection functionality 24
Slide 25: Broader overhaul of website customer experience
… as part of a much broader overhaul of the website customer experience Simplified site navigation and single contact number Improved site search functionality Guided customer journey Improved vehicle and product page experience Focus on data capture and improved call to action 25
Slide 26: Building sales capability and addressing sales barriers
We are building sales capability and addressing self-imposed sales barriers Removing Sales Barriers Building Capability » Leadership upgrades and » Simplified price book benchmarked streamlining against competition » Realignment of teams against » Increased pricing authority » Reduced deal / quote b
Slide 27: Sales and marketing plan for each customer segment
With a clear sales and marketing plan for each customer segment Marketing Plan Sales Plan Small PPC Tele-Sales 0-20 Diagnostic Mass SEO Tele- Media Approach Marketing Regional Medium Web Sales 20-100 Improve- Team ments Consult. Direct Strategic Large Selling Marketing Accounts >100 Team 27
Slide 28: Evaluating alternative asset management systems
We are progressing well on evaluating alternative asset management systems » Outdated version of Microsoft AX Workshop Current Background » Significant constraints / inefficiencies • Different job card by billing type • Manual entry parts & labour » Poor data capture and reporting • Handwritten card
Slide 29: Improved and differentiated 12 Months + product
We have improved and differentiated the 12 Months + product, leveraging our key strengths … Against whom? Why are we Differentiated? Improvements to Date Long Term OEM CH&L Rental (financed) No upfront deposit vs. £1k+ for Reduction from 3 Low deposit Compet. leasing products months 1 Pricing Co
Slide 30: Full relaunch in September
With a full relaunch in September to ensure effective execution and traction in stark contrast to prior launches September Launch Prior Launch Marketing » Improved marketing collateral on full fleet solutions suite Support » Clear, high profile presence on Northgate website » Sales team engagement t
Slide 31: TCO competitive with all ownership models except bulk cash
At revised rates where TCO is competitive with all ownership models except for bulk cash buyers who make up less than c.6% of the market TCO Peugeot Partner by Ownership Type Indexed (100) to Northgate Term Hire 2 Year Ownership 3 Year Ownership Up Front Cost £k Term Hire 100 100 - Norflex 109 124 -
Slide 32: Attractive achievable ROCE for 12 Months + business
And delivering attractive achievable ROCE for 12 Months + business Example Vehicle Lifetime Economics – Typical UK Vehicle Indexed, Purchase Price = 100 Fixed Term Illustrative Economics for £100 Van P&L Cash Purchase -100 Net Disposal Proceeds 45 Profit / (Loss) on Trade In 2 Total Holding Cost -52
Slide 33: Levers to drive net disposal profits
We are working multiple levers to drive net disposal profits Profit Drivers Levers # Sites » Success criteria, new sites, pipeline Local Marketing » Digital, radio advertising, site signage # Units Range » Range optimisation by site, site layouts Units / Site Sold Price » Dynamism to drive absolute
Slide 34: Network changes to improve rental service and margins
Network changes in process will improve rental service and margins and accelerate the Van Monster expansion Network Changes in Process » 7 rental sites to switch to Van Monster » 4 rental sites to close » All Category D sites with no workshop » Targeted against discontinued B2C Key » Significant ben
Slide 35: Overview of our plan of attack in the UK
Overview of our plan of attack in the UK Actions We Early Results & Background & Opportunity Are Taking Measures of Success » Losing market share last 3 years » Upgrading the Executive Team » Flattening VOH curve despite competitive advantages » Driving cultural change Self-help » Term Hire momentum
Slide 36: YTD Rental performance substantially better than prior years
YTD Rental performance this financial year is substantially better than prior years UK Net VOH, Aug YTD Movement # VOH Key Drivers -200 » Increased salesforce focus & aggression in defending share -700 » Strengthening new business acquisition » Building momentum in 12 Months + » Telesales execution
Slide 37: Case Study 1: Angel Spring
There is clear evidence that these changes are delivering some early successes Case Study 1: Angel Spring (water coolers) » Fleet of 165 on contract hire with NVH Context flex top-up » CH provider pitched for flex business » Full, flexible product range Northgate Point of » Workshop coverage + quick
Slide 38: Case Study 2: Wandle Housing Association
We have realised some significant early wins displacing existing contract hire providers Case Study 2: Wandle Housing Association » Fleet of 47 vehicles on direct Context manufacturer contract hire deal » No prior relationship with NVH Northgate » Greater product flexibility Point of » Ability to ch
Slide 39: Case Study 3: Gordon Building Services
We are seeing some early wins converting from ownership Case Study 3: Gordon Building Services » Fleet of 23 owned vehicles Context » Ageing, unsuitable fleet » Fleet needs analysis and solutions Northgate » We Buy You Rent product to facilitate Point of switch Difference » High level of service on
Slide 40: Expected UK VOH growth and margins to FY20
We expect Q4 VOH to reach mid to high single digit % growth by 2020 and at higher rental margins. Disposal volumes are expected to increase significantly with net PPU remaining stable after the depreciation unwind this year FY17 FY18 FY19 FY20 Average VOH Growth -7.5% Broadly Flat Mid to high single
Slide 41: Summary – UK Strategy
Summary – UK Strategy: » A clear strategy for each part of the business » Significant increases in addressable market » Clear plans to deliver this strategy » Lots of actions already under way » Some early signs of progress on results » Clear line of sight on future EPS improvements 41
Slide 42: Coffee Break
Coffee Break N@RTHGATE
Slide 43: Spain Update
Spain Update Fernando Cogollos 43
Slide 44: Overview of our plan of attack in Spanish Market
Overview of our plan of attack in Spanish Market Actions We Early Results & Our Background & Opportunity Are Taking Measures of Success » Market leader in Flex; 48% market » Flex » Significant fleet growth vs. FY17 share » Drive innovation to increase » Developed ability to attract fixed- » Strong o
Slide 45: Strong growth with flex product since 2013
Northgate has achieved strong growth with its flex product since 2013, following a turnaround and refocusing post the 2008 financial crisis 2011: FUALSA and 1970s: Flex 2000s: RECORD merged product is born out Construction of project demands bubble drove within construction exponential growth
Slide 46: Flex business has outgrown the market
The Flex business has outgrown the market in recent years following a turnaround strategy after the financial crisis Spain Rental Fleet Growth1, Northgate vs. Market, 2013-16 Drivers of Northgate Growth % CAGR » B2C marketing approach based on TV advertising, 7% redefined website and telemarketing »
Slide 47: Spanish Flex & Term Hire market worth c.£1bn p.a.
The Spanish Flex & Term Hire market is worth c.£1bn p.a. and is now fully accessible to Northgate Rental & CH&L Volume & Value by Fleet Size, 2016 Estimated Northgate Market Share by Customer Segment, 2016 000s, £m, % Total % Volume Value Flex1 (Overall) Term Hire (by Segment) 46 119 275 693 20 16%
Slide 48: Term Hire product launched c.12 months ago
The business launched a Term Hire product c.12 months ago opening up significant additional value to the business Move Away » Significant uplift in value » Access to over 120k additional from captured per vehicle versus used Access to vehicles Ownership to purchase – c.€2.1k per vehicle(1) Significa
Slide 49: New combined offer defends against leasing competitors
The new combined offer, as well as expanding the addressable market, also allows us to defend against our traditional leasing competitors Leased Product Northgate Product Typically 36+ Month Duration <24 Month Duration Leaseplan expanded their offering in light of Northgate’s profit pool Northgate F
Slide 50: Northgate Spain has access to opportunities many times the core market
Northgate Spain has access to opportunities that are many times the size of our core market today Spanish LCV Vehicle Parc & Transaction Value, 2016 £bn, % Total Size of Segment 4.0 Multiple of 0.3 Opportunity Vehicles Revenue Rental Vehicles (7%) Rental 0.7 (17%) Gain Share in CH&L Flex 48k £0.3bn
Slide 51: Overview of our plan of attack in Spanish Market
Overview of our plan of attack in Spanish Market Actions We Early Results & Our Background & Opportunity Are Taking Measures of Success » Market leader in Flex; 48% market » Flex » Significant fleet growth vs. FY17 share » Drive innovation to increase » Developed ability to attract fixed- » Strong o
Slide 52: Clear action plan towards go-to-market
We have a clear action plan towards go-to-market to target share gain and ownership conversion Sales Approach Target Customer » Selective approach to identified targets » Cross-sell strategy by account including “bundled” propositions to » Target medium to large accounts tie up to Flex with contract
Slide 53: Suite of Term Hire product options
The addition of various Term Hire products provide an attractive suite of options for our customers leveraging market leading SLAs and network advantages Typical Hire Duration 0 – 12 Months 12 – 36 Months 36+ Months Benefits of Bundling 1 Flexible » From 1 month onwards » Increased revenue per unit
Slide 54: Overview of our plan of attack in Spanish Market
Overview of our plan of attack in Spanish Market Actions We Early Results & Our Background & Opportunity Are Taking Measures of Success » Market leader in Flex; 48% market » Flex » Significant fleet growth vs. FY17 share » Drive innovation to increase » Developed ability to attract fixed- » Strong o
Slide 55: Increases in Northgate's market share
Performance has improved year on year for both the Flex and Term Hire product, which has resulted in increases in Northgate’s market share Northgate Spain Flex & Term Hire Fleet, FY14-171 Estimated Northgate Flex Market Share2, FY14-17 k VOH, Closing % 36 41% 48% 33 5 29 3 26 FY14 FY17 Estimated Nor
Slide 56: Attractive ROCE for combined flex and term hire product
And delivering attractive achievable ROCE for a combined flex and term hire product Example Vehicle Lifetime Economics – Typical Spain Vehicle1 Indexed, Purchase Price = 100 Bundled Fixed and Flexi Illustrative Economics for €100 Van P&L Cash Purchase -100 Net Disposal Proceeds 59 Total Holding Cost
Slide 57: Case Study 1: Customer won from competition
Resulting in strong customer adoption of the Term Hire product Case Study 1: Customer Won From Competition Context » Delivery of food for supermarkets and e- commerce, based in Madrid Northgate » Proximity and commercial attention Point of » Customer Service Difference » Network of branches close to
Slide 58: Case Study 2: Customer won from ownership
Resulting in strong customer adoption of the Term Hire product Case Study 2: Customer Won From Ownership » Production and exportation of dry fruit, Context Cáceres » 25 vans in property » Quality customer service Northgate » Unwillingness to invest in new vehicles Point of Difference » The need to r
Slide 59: Spain expected to deliver strong double digit growth
We expect Spain to deliver strong double digit growth over the next three years with modest improvements in margin. We expect disposal volumes to increase significantly and net profit per unit to be stable after the depreciation unwind this year FY17 FY18 FY19 FY20 Average VOH Growth Continued doubl
Slide 60: Summary – Spain Strategy
Summary – Spain Strategy » Exploit Flex product capabilities derived from 48% share and economic environment » Boost successful Fixed –Term product and bundle with Flex to tie existing customers against competition » Share gain from CH&L supported by most complete service proposal. Target selectivel
Slide 61: Capital Management Framework
Capital Management Framework Kevin Bradshaw
Slide 62: Capital Management Framework
Capital Management Framework Our objective is to build shareholder value by generating returns significantly above our cost of capital Allocation Priority Description • To support our organic growth ambitions 1 Reinvest for growth • Marginal ROCE substantially higher than Group WACC for all new and
Slide 63: Target KPIs, Summary and Q&A
Target KPIs, Summary and Q&A Kevin Bradshaw
Slide 64: Group growth expectations over the next three years
We expect the group to deliver strong growth over the next three years. Rental profits will be driven by growth in average VOH at good marginal ROCE and growing rental margins. Disposal profits will be driven by volume growth. FY17 FY18 FY19 FY20 Average VOH Growth Mid to high single digit % growth
Slide 65: Group Remuneration – Long Term Incentive Plan
Our remuneration policy demands EPS growth of c.13%pa and TSR growth of c.25%pa for awards to fully vest Group Remuneration – Long Term Incentive Plan » In Q1 2017, legacy, country based LTIP schemes were replaced with the group EPSP scheme » Membership comprises the top 40 managers across the Group
Slide 66: Northgate ideally positioned to take advantage of market opportunities
In summary, we believe Northgate is ideally positioned to take advantage of these market opportunities 1 2 3 4 Consolidate the Flex – Defend Term Hire – Conversion of Fragmented UK LCV & Growth Share Gain Share ‘Owned’ to Term Hire Trading Market Recap of » £1bn market revenue » £2bn market revenue
Slide 67: Questions
Questions N@RTHGATE