Inchcape Plc · LSE:INCH
Inchcape — H1 2019 Earnings Presentation
34 slides from Inchcape's earnings presentation, Jul 25, 2019
Slide 1: H1 2019 Results
H1 2019 RESULTS 25 JULY 2019
Slide 2: Stefan Bomhard, Group Chief Executive
STEFAN BOMHARD GROUP CHIEF EXECUTIVE
Slide 3: H1 2019 Highlights
H1 2019 HIGHLIGHTS Temporary supply Improved Retail Portfolio FY19 outlook constraints as expected performance optimisation unchanged H2 supported by Ethiopia Group PBT Encouraging performance Sale of three Australia Retail orders and Australasia (13%) y-o-y1 compared to 2018 sites and seven sites i
Slide 4: H1 Performance as Anticipated
H1 PERFORMANCE AS ANTICIPATED SUPPLY CONSTRAINTS IMPACTED PROFITABILITY Australasia and Ethiopia supply % chg IFRS 16 H1 2019 % chg constraints a drag on H1 (CCR) Asia and Europe Distribution growth Revenue £4,725m +2.4% +2.7% good; Chile market weaker PBT £156.3m (11.8%) (12.8%) EPS benefits from a
Slide 5: Continued Distribution Focus
CONTINUED DISTRIBUTION FOCUS RETAIL OPTIMISATION IN-LINE WITH STRATEGIC FOCUS DISTRIBUTION POSITIONS TRADING PROFIT INCHCAPE Distribution contract wins and WELL FOR: £172M acquisitions 90% of Group APAC and EM c.85% of £125M profit Growth trading profit vs. c.70% in 2014 c.75% of Group profit Retail
Slide 6: Strong Foundations for Growth
STRONG FOUNDATIONS FOR GROWTH CONTINUE TO FOCUS ON THE FUTURE UNIQUE AND SUSTAINABLE IGNITE: GROWTH STRATEGY BUILDING CAPABILITY Distribution model core Underpins ambitions Investment in skills for the future Greater value chain Structures our opportunity involvement drives returns Operational excel
Slide 7: Richard Howes, Chief Financial Officer
RICHARD HOWES CHIEF FINANCIAL OFFICER
Slide 8: Summary Income Statement
SUMMARY INCOME STATEMENT H1 2019 H1 2018 CHANGE CHANGE IFRS 16 IFRS 16 £M £M ACR CCR ACCOUNTING Revenue 4,725 4,614 +2.4% +2.7% Fully retrospective FY18 PBT impact: (2%) Operating profit 179.8 200.6 (10.4%) (11.1%) No cash impact Profit before tax 156.3 177.2 (11.8%) (12.8%) Effective tax rate (%) 2
Slide 9: Distribution
DISTRIBUTION GROWTH OFFSET BY WEAK AUSTRALASIA AND EM Good Asia and Europe performance, H1 2019 H1 2018 CHANGE CHANGE IFRS 16 £M £M ACR CCR offset by Australasia and EM declines Singapore and HK profit growth Revenue 2,486 2,426 +3% +2% supported by other Asian markets Australasia supply and FX impa
Slide 10: Distribution Trading Profit
DISTRIBUTION TRADING PROFIT £2M £193M (£13M) Supply constraints £3M £2M (£6M) JPY £4M £14M headwind underlying £172M (£13M) (£15M) H1 18 Trading Translational Australasia UK & Europe Asia Emerging H1 19 Trading Profit FX Markets * Profit Note: Regional profit growth at CCR; *Emerging Markets include
Slide 11: Retail
RETAIL IMPROVED PERFORMANCE FOLLOWING CHALLENGING 2018 Stabilised performance in UK and H1 2019 H1 2018 CHANGE CHANGE IFRS 16 £M £M ACR CCR Australia relative to 2018, despite continued market weakness Revenue 2,239 2,187 +2% +3% Strong Russia momentum continued, driven by Ignite Trading profit 19 1
Slide 12: Retail Trading Profit
RETAIL TRADING PROFIT £3M £2M £19M £17M (£0M) (£3M) H1 18 Trading Profit Translational FX Australasia UK & Europe Emerging Markets H1 19 Trading Profit Note: Regional profit growth at CCR 12
Slide 13: Income Statement Review
INCOME STATEMENT REVIEW LOWER EFFECTIVE TAX RATE H1 2019 H1 2018 IFRS 16 £M £M 2019 GUIDANCE Trading profit 191.0 209.6 FY19 TAX RATE REDUCTION Central costs (11.2) (9.0) 22-23% Operating profit 179.8 200.6 vs. previous guidance 23-24% Operating margin 3.8% 4.3% Finance charges / JVs (23.5) (23.4) F
Slide 14: Cash Flow
CASH FLOW EXPECTED FY19 FCF CONVERSION OF 60-70% OPERATING H1 19 H1 18 FREE H1 19 H1 18 WORKING CASH FLOW £M £M CASH FLOW £M £M CAPITAL Operating profit 179.8 200.6 Operating cash flow 161.9 233.7 H1 19 Timing impact y-o-y Depreciation / FY 19 Normalisation expected amortisation 63.4 59.2 Net intere
Slide 15: Net Debt
NET DEBT LOWER UNDERLYING DEBT YEAR-ON-YEAR H1 19 H1 18 H1 19 H1 18 £M £M £M £M BUYBACK Free cash flow 25.0 67.5 Opening net funds/debt (445.9) (339.0) Exceptional cash (2.5) (6.3) Net funds flow (50.1) (131.5) £100M announced in May (£19M completed over H1) Acquisitions and disposals (5.6) (137.6)
Slide 16: Capital Allocation
CAPITAL ALLOCATION DISCIPLINE DEMONSTRATED BUYBACK DIVIDEND POLICY £100M buyback underway (since May 2019) Progressive dividend policy − To be completed by end of December 2019 − Target payout 40% − £37M completed to date − H1 dividend policy: 1/3 of prior year (flat y-o-y) − £500m returned through
Slide 17: Ignite Update
IGNITE UPDATE
Slide 18: Ignite Frames Our Focus
IGNITE FRAMES OUR FOCUS CONTINUE TO DEMONSTRATE PROGRESS IGNITE FOCUS MEDIUM-TERM AIM H1 2019 UPDATE Aftersales H1 gross profit growth outperformance Aftersales opportunity To outperform the market Strong performances in Australasia Distribution and Russia Suzuki-awarded global Aftersales awar
Slide 19: Retail Actions - Progress
RETAIL ACTIONS - PROGRESS CONTINUED FOCUS FOLLOWING 2018 CHALLENGES UK RETAIL H2 19 and beyond FY18 ACTIONS H1 19 Further opportunity Improved opening stock position More stable y-o-y performance to rationalise less productive locations Greater centralisation (ordering; promotions) Aftersales growth
Slide 20: Future Trends Update
FUTURE TRENDS UPDATE DIGITAL Melbourne, Australia pilot progression − Data-driven Used car trade-in valuation tool implemented in all physical Melbourne stores − Online version launching soon for Melbourne − Good customer reaction with price transparency and a shorter sales process MOBILITY Private
Slide 21: Looking Ahead
LOOKING AHEAD
Slide 22: 2019 Outlook Reiterated
2019 OUTLOOK REITERATED GROUP PROFIT GUIDANCE IFRS 16 Resilient constant currency growth No change to outlook pre IFRS 16 guidance (excluding JPY headwind) on y-o-y basis c.£35M transactional JPY headwind DISTRIBUTION PROFIT RETAIL ASSET DISPOSALS Resilient underlying growth (ex JPY) − UK and Austra
Slide 23: Investment Proposition
INVESTMENT PROPOSITION GROWTH AND CASH RETURNS Distribution at our core: A highly cash generative and sustainable business model Strong and increasing weighting to higher growth markets Ignite strategy driving organic performance ahead of market growth Continued consolidation a material driver of va
Slide 24: Appendix
APPENDIX
Slide 25: Value Driver Disclosure
VALUE DRIVER DISCLOSURE AFTERSALES A STABILISER GROSS PROFIT MIX GROSS PROFIT YoY YoY (£M) CHANGE CHANGE Ex Acq’n before H1 2019 CCR Annualisation* Vehicles 398 (1%) (3%) Vehicles 62% Aftersales 243 +2% +1% Aftersales 38% Note: *Acqn. refers to Central America acquisition until March 2019, YoY is CC
Slide 26: Regional TIV Summary
REGIONAL TIV SUMMARY REGION 2016 ACTUAL 2017 ACTUAL 2018 ACTUAL 2019 EST Australia 2% 1% (3)% (7%) UK 2% (6)% (7)% (2%) Greece 4% 12% 17% 10% Belgium 8% 1% 1% (5%) Eastern Europe 19% 14% 11% 4% Singapore 41% 5% (18)% (7%) Hong Kong (21)% 6% (7)% *** 0% South America* (1)% 7% 7% (3%) Russia (11)% 12%
Slide 27: IFRS 16 – FY18 Restated
IFRS 16 – FY18 RESTATED FULLY RETROSPECTIVE APPROACH FY 2018, £M1 Pre-IFRS 16 Adjustment IFRS 16 Fully retrospective Revenue 9,277 - 9,277 − Restatement of the prior year Gross profit 1,301 - 1,301 − Year-on-year statements are LFL accounting treatment Operating lease rentals (86) 82 (4) Depreciatio
Slide 28: The Inchcape World Today
THE INCHCAPE WORLD TODAY UNIQUE GLOBAL DISTRIBUTOR AND RETAILER GLOBAL DISTRIBUTOR AND RETAILER 2018 PROFIT BY CHANNEL RETAIL 32 Markets Distribution at the core 7% DISTRIBUTION 93% LONG-TERM PARTNERSHIPS 2018 PROFIT BY REGION Strong brand portfolio Regionally diverse Number of years of partnership
Slide 29: Distribution: Attractive Economics
DISTRIBUTION: ATTRACTIVE ECONOMICS HIGHER GROSS MARGIN, LOWER FIXED COSTS, HIGHER ROCE VS. RETAIL HIGH BARRIERS TO ENTRY DISTRIBUTION MODEL Exclusive distribution contracts: one Distribution Higher margin business driven by gross margin contract per brand awarded in each market Greater variability o
Slide 30: Multi-Layered Growth Proposition
MULTI-LAYERED GROWTH PROPOSITION ATTRACTIVE TOTAL RETURN OPPORTUNITY ANNUAL RETURN CONSIDERATION MARKET Inchcape market growth expectations DRIVERS ORGANIC GROWTH OPERATIONAL Revenue stream optimisation EXCELLENCE Global cost efficiencies and best practices ATTRACTIVE CONTRACT Strong balance
Slide 31: Markets with Growth Opportunity
MARKETS WITH GROWTH OPPORTUNITY GROWTH OF INCHCAPE MARKETS HIGHER THAN GLOBAL AUTO Passenger vehicle and commercial vehicle per ‘000 ppl Inchcape Market Other Markets Distribution 900 c.90% of Recent Inchcape profit 800 United States business wins Italy 700 New Zealand Poland Total Estonia Canada Ja
Slide 32: Ignite Strategy to Drive Growth
IGNITE STRATEGY TO DRIVE GROWTH IGNITE FRAMES INCHCAPE'S STRATEGIC FOCUS GROWTH OPPORTUNITIES OPERATIONAL EXCELLENCE: MAXIMISING PROFIT AGAINST UNDERLYING MARKET TRENDS CONSOLIDATION: THE DRIVERS BEHIND VALUE-ACCRETIVE OPPORTUNITY OUR IGNITE STRATEGY IN FRAGMENTED MARKET INNOVATION: TAKING ADVANTAGE
Slide 33: Distribution: Highly Fragmented
DISTRIBUTION: HIGHLY FRAGMENTED MOSTLY SMALL FAMILY-RUN BUSINESSES FRAGMENTED INDUSTRY STRUCTURE INCHCAPE DEAL MOMENTUM IGNITE STRATEGY LAUNCHED 2016 Large-scale CATEGORY # OF COMPANIES * acquisitions 1993 2007 2016 2017 2018 2019 c.25 companies Subaru Baltics Indumotora BMW Estonia BMW Guam BMW Lit
Slide 34: Disclaimer
DISCLAIMER The information contained in this presentation in relation to Inchcape plc (“Inchcape”) and its subsidiaries (the "Inchcape Group") has been prepared solely for use at this presentation. It should not be used for whole or in part for any other purpose. The presentation is not directed to,