Inchcape Plc · LSE:INCH

Inchcape — H1 2022 Earnings Presentation

45 slides from Inchcape's earnings presentation, Jul 28, 2022

1. Slide 1: 2022 Interim Results + Derco Acquisition

   2022 INTERIM RESULTS + DERCO ACQUISITION 28th July 2022

2. Slide 2: 2022 Interim Results

   2022 INTERIM RESULTS

3. Slide 3: Duncan Tait, Group CEO

   DUNCAN TAIT GROUP CEO

4. Slide 4: Agenda

   Inchcape 4 Agenda Overview of 1H22 1H22 financial details Derco acquisition

5. Slide 5: First half 2022 highlights

   Inchcape 5 First half 2022 highlights Fantastic execution; strong Accelerate strategy; Continued to shift our growth and operating executing on two exciting portfolio towards distribution margins growth opportunities: 2 distribution acquisitions; further retail disposals Continued high cash-  Distr

6. Slide 6: First half 2022 headline KPIs

   Inchcape 6 First half 2022 headline KPIs Topline Profitability Cash Shareholders Revenue Operating margin Free Cash Flow Adjusted EPS £3.9bn 5.2% (1H21: 3.8%) £224m 35.0p +12% £184m £439m 7.5p Organic growth (YoY%) PBT Net cash Dividend per share Figures are stated before adjusting items, and on the

7. Slide 7: Gijsbert de Zoeten, Group CFO

   GIJSBERT DE ZOETEN GROUP CFO

8. Slide 8: 1H22 results: a great first half

   Inchcape 8 1H22 results: a great first half 2022 2021 20191 H1 H2 H1 H1 Revenue £3.9bn £3.3bn £3.6bn £4.7bn Organic growth (YoY%) +12% +8% +37% Operating margin % 5.2% 4.4% 3.8% 3.8% PBT £184m £129m £121m £156m PBT comparable basis2 £184m £140m £118m £145m Figures are stated on the basis of continui

9. Slide 9: Quarterly revenue trend: continued solid performance

   Inchcape 9 Quarterly revenue trend: continued solid performance Revenue (from continuing operations) 2H21 1Q22 2Q22 1H22 Group £3.3bn £1.8bn £2.1bn £3.9bn Distribution £2.2bn £1.2bn £1.5bn £2.7bn Retail £1.0bn £0.6bn £0.6bn £1.2bn Group 13% 18% 14% 14% 16% 10% 12% 8% Distribution 11% 8% Retail (1)%

10. Slide 10: Distribution revenue: continued strong performance

    Inchcape 10 Distribution revenue: continued strong performance Revenue £2.7bn +14% Asia Australasia £2.5bn £2.4bn £2.4bn  Trading conditions  Topline weighed down £2.3bn 155 +33% unfavourable in Hong by lower vehicle supply 100 Kong and Singapore 106  Somewhat offset by  Rest of Asia: performing

11. Slide 11: Distribution profit: improving trend across all regions

    Inchcape 11 Distribution profit: improving trend across all regions Operating profit (£m) 6.6% 7.0% 5.1% 5.4% 6.3% Asia Australasia £174m £172m  Cost-mitigation measures  Better pricing and £160m supported margins growth of Aftersales 24 42 helped margins 61  Positive contribution from £126m new

12. Slide 12: Retail: strong performance amid supply constraints

    Inchcape 12 Retail: strong performance amid supply constraints Revenue Operating profit (£m)  Performance supported by robust pricing (new and used)  Aftersales delivered £2.3bn good growth £2.2bn  Disposed remaining 0.9% 0.9% 1.4% 1.9% 2.6% Russia business in Q2 £2.1bn £2.0bn £1.2bn £30m £1.0bn

13. Slide 13: Current industry and market dynamics

    Inchcape 13 Current industry and market dynamics Supply Demand Inflation Geo Global light vehicle production (LVP, ‘m) Historical average Production expands to keep Production Production  Order books at  Higher costs  Geographically up with growing global impacted recovery demand for new vehicles

14. Slide 14: Income statement

    Inchcape 14 Income statement H1 £m 2022 2021 (unless otherwise stated) Operating profit 204 137 (before adjusting items) Net interest (20) (16) Net interest increased due to PBT 184 121 higher finance costs (before adjusting items) Adjusting items 3 (88) Tax rate broadly inline with the rate anticip

15. Slide 15: Continued excellent cash generation

    Inchcape 15 Continued excellent cash generation Net cash bridge (£m) 1H22 Free-cash flow = £224m 73 204 12 50 16 61 65 110 59 439 379 0 Net Cash Operating D&A net of Working Interest, tax & Net capex Dividends Net M&A Share FX / Other Net Cash @ Dec-21 profit leases capital other buybacks @ Jun-22 A

16. Slide 16: 2022 outlook

    Inchcape 16 2022 outlook Consumer demand Supply improving – Pandemic Supported by remains robust albeit slowly remains dynamic geo-diversification PBT1 from continuing operations: Based on prevailing exchange rates; 2022 outlook £350m - £370m £10m translation tailwind Before adjusting items

17. Slide 17: Duncan Tait, Derco Acquisition

    DUNCAN TAIT DERCO ACQUISITION

18. Slide 18: Strategic framework

    Inchcape 18 strategic framework Our Growth Drivers Distribution Excellence Vehicle Lifecycle Services Our Enablers Culture and Digital, Data & Efficient Scale Capabilities Analytics Operations Responsible Business

19. Slide 19: Proposed acquisition of Derco: deal summary

    Inchcape 19 Proposed acquisition of Derco: deal summary  Derco: LatAm’s largest independent automotive distributor  A family-founded and family-owned private company  Derco 2021 revenue of £2.0bn; LTM1 revenue: £2.2bn  Acquisition for £1.3bn (enterprise value). c.6x1 EV/EBITDA based on a normali

20. Slide 20: Extending Inchcape's global leadership in automotive distribution

    Inchcape 20 Extending Inchcape’s global leadership in automotive distribution [Accelerate strategy in action Inchcape acquires LatAm’s largest independent  Step-up in scale of distribution business automotive distributor Significantly expands Inchcape’s position in highly attractive and fast growth

21. Slide 21: Duncan Tait, Introduction to Derco

    DUNCAN TAIT INTRODUCTION TO DERCO

22. Slide 22: Derco: at a glance

    Inchcape 22 Derco: at a glance Existing portfolio: key facts Headquarters: ~4,500 4 11 Santiago, Chile colleagues markets OEM brands #1 player in Chile, Peru and Bolivia1 #3 player in Colombia1 150k £2.0bn 329 new vehicles revenue (2021) locations; distributed Chile Peru Colombia Bolivia £236m ~30%

23. Slide 23: Derco: LatAm's largest independent distributor by volume

    Inchcape 23 Derco: LatAm’s largest independent distributor by volume  Family-owned multi-brand automotive distributor: passenger cars and commercial vehicles  Founded by José Luis del Río Rondanelli in 1959  Owned by the Del Río family  Strong and experienced senior management and operational te

24. Slide 24: A strong and growing platform + deep OEM relationships

    Inchcape 24 A strong and growing platform + deep OEM relationships Current Derco aggregate market share1 Years of distribution relationship markets 18% 46 4 17% 17% 40 3 14% 23 1 12% 22 3 16 2 15 3 14 3 14 2 2014 2016 2018 2020 2021 6 2 OEM brands 8 10 10 11 11 6 1 Current markets 4 4 4 4 4 2 1 1: M

25. Slide 25: Gijsbert de Zoeten, Transaction Summary

    GIJSBERT DE ZOETEN TRANSACTION SUMMARY

26. Slide 26: Significant shareholder value creation

    Inchcape 26 Significant shareholder value creation Financial  The transaction is expected to accelerate growth and be margin accretive profile  15+% EPS accretion in year one; 20+% accretive from year two Earnings  >£40m recurring synergies + significant revenue synergies impact  Up to £60m of o

27. Slide 27: Transaction highlights

    Inchcape 27 Transaction highlights Terms  Acquisition of Derco at an enterprise value of £1.3 billion on a debt-free, cash-free basis Valuation  Headline pre IFRS-16 multiple: 5.5x EV/EBITDA 2021 (pre recurring synergies) multiple  c.6x1 at a normalised margin of 7% plus recurring synergies  Tra

28. Slide 28: Impact on Inchcape Group revenue

    Inchcape 28 Impact on Inchcape Group revenue Regional mix Business mix 36% 19% 15% 11% 76% 69% 15% 1.1 12% 51% 40% 31% 24% Inchcape Derco Inchcape Inchcape Derco Inchcape 2021A 1 2021A 2 Enlarged 2021A 1 2021A 2 Enlarged Europe + UK Asia Australasia Americas & Africa Distribution Retail 1: 2021 reve

29. Slide 29: Duncan Tait, Deal Rationale

    DUNCAN TAIT DEAL RATIONALE

30. Slide 30: Combines LatAm's two leading automotive distributors

    Inchcape 30 Combines LatAm’s two leading automotive distributors… Transforms Inchcape’s Americas scale Extending the enlarged business’s leadership in LatAm Market presence and brand partners of distributors in Americas Inchcape 2016 Inchcape 2021 1 # OEM brands 30 Revenue: Revenue: £1.2bn 28 £160m

31. Slide 31: In the highly attractive and fast growing Americas region

    Inchcape 31 …in the highly attractive and fast growing Americas region Inchcape Americas Inchcape markets Developed Markets (incl. Bolivia) worldwide markets1  Attractive (short and) medium-term GDP growth Population2 prospects (total) 218m 911m - GDP/capita2 $10k $23k $50k  Our markets across Ame

32. Slide 32: Complementary market footprint and brand portfolio

    Inchcape 32 Complementary market footprint and brand portfolio Markets Derco Inchcape Typical brand structure Passenger vehicles Luxury brands  Chile Premium brands  Commercial vehicles Niche brands  Peru Mainstream brands  Colombia Entry-level brands   Bolivia Inchcape present in 8 additional

33. Slide 33: Strategic acquisition with attractive recurring synergies

    Inchcape 33 Strategic acquisition with attractive recurring synergies… Proven track record of integration Organisation  Efficiencies of combined organisation  Indumotora in 2016  Back office (leveraging Inchcape’s global and regional platforms)  Rudelman in 2018  Mercedes-Benz in 2019/20  Dite

34. Slide 34: And significant revenue synergy opportunities

    Inchcape 34 …and significant revenue synergy opportunities Enhancing Distribution Excellence VLS opportunity Finance & Insurance Network benefits Digital & data Vehicles in operation2 ~1.4m Products % ~0.25m >5x 101 54 39 Inchcape Inchcape Americas Americas + Derco  Leverage broader  Leverage  Le

35. Slide 35: Two culturally aligned organisations

    Inchcape 35 Two culturally aligned organisations Over 60 years experience in automotive More than 200 years of international trade Heritage  distribution in LatAm experience Reinvention and innovation, expanding Culture of Driving accelerated change in digital beyond distribution to include afterma

36. Slide 36: Duncan Tait, Next Steps & Recap

    DUNCAN TAIT NEXT STEPS & RECAP

37. Slide 37: Expected timetable and next steps

    Inchcape 37 Expected timetable and next steps Circular published September / October 2022 General Meeting (+ shareholder vote) October 2022 Expected completion End 2022 / Q1 2023 (subject to merger control)

38. Slide 38: Inchcape + Derco: a highly strategic and accretive acquisition

    Inchcape 38 Inchcape + Derco: a highly strategic and accretive acquisition Strong topline Margin Distribution Shareholder growth upside consolidation value creation prospects Increases exposure to Derco is margin accretive Significantly increases 20+% EPS accretion from higher growth markets for the

39. Slide 39: Q&A

    Inchcape 39 Q&A

40. Slide 40: Appendix

    Inchcape 40 APPENDIX

41. Slide 41: Considerable opportunities for an ambitious Inchcape

    Inchcape 41 Considerable opportunities for an ambitious Inchcape Distribution Excellence Vehicle Lifecycle Services Annual new car volumes (units) Vehicle lifecycle value profit split2 90m 17m New market opportunities Large markets; e.g. China, typically US, UK, 75% Currently Brazil, insourced under

42. Slide 42: Inchcape: the leading automotive distributor

    Inchcape 42 Inchcape: the leading automotive distributor Our competitive advantages:  The global leading distributor: >40 markets across six continents  Long-term relationships, and several new exciting partnerships, with global OEM brands  A plug-and-play distribution platform: unique digital an

43. Slide 43: Great progress across our Responsible Business pillars

    Inchcape 43 Great progress across our Responsible Business pillars Planet People Places Practices  Partnered with SP  Launched Inclusion &  Partnerships supporting  Whistleblowing hotline Group to develop and Diversity and Women prosthetics charities in rolled out, both for promote EV shared int

44. Slide 44: Capturing more of the lifetime value of a vehicle

    Inchcape 44 Capturing more of the lifetime value of a vehicle Vehicle Lifecycle Value Three opportunities in focus Timeline New vehicle import 1. 2021/ 22 Digital first, multi-brand, Lifetime 1st sale used car platform profits % B2C 25% 2. Digital Parts Platform 2023/ 75% 2nd sale 24 Digital platfor

45. Slide 45: Investment case: well-positioned to deliver significant value

    Inchcape 45 Investment case: well-positioned to deliver significant value Attractive shareholder Consolidation returns opportunities Margin Strong organic expansion Dividend payout: 40% growth We are the leader with c.1% Track record of share share of global distribution buybacks Leverage our global

Inchcape — H1 2022 Earnings Presentation on 6ix