Zigup PLC · LSE:ZIG
Zigup — Northgate — H1 FY2018 Earnings Presentation
40 slides from Zigup's earnings presentation, Dec 5, 2017
Slide 1: Interim Results
Interim Results 5 December 2017
Slide 2: Agenda
Agenda » Chairman’s Welcome Andrew Page » Introduction Kevin Bradshaw » Financial Review David Tilston » Operational Progress Kevin Bradshaw » Q&A 2
Slide 3: Introduction
Introduction » Excellent progress on implementation of strategy » H1 trading in line with management expectations » On track to deliver stated KPIs » Dividend cover range refined and narrowed
Slide 4: Financial Review
Financial Review David Tilston 4
Slide 5: Group Financial Summary
Group Financial Summary Oct-17 Oct-16 Total Revenue £349.7m £316.7m Underlying PBT £33.8m £40.4m Underlying Basic EPS 20.7p 25.8p Interim Dividend Per Share 6.1p 5.7p 5
Slide 6: Group KPIs
Group KPIs Oct-17 Oct-16 Average Q2 VOH growth 1.9% -2.1% Rental Margin 14.7% 15.2% Disposal Units Sold 17,600 15,100 PPU £600 £1,073 Corporate overhead/sales 1% 1% Group ROCE 8.7% 10.7% 6
Slide 7: Spain: Operational leverage driving rental margin
Spain: Operational leverage driving rental margin Change €m Oct-17 Oct-16 Change » Significant growth in % underlying activity Revenue: hire of vehicles 104.6 96.7 7.9 8.1% Operating profit (excluding 17.1 14.9 2.2 14.7% » Rental margin increase vehicle disposals) demonstrates operational Vehicle di
Slide 8: UK: Self help actions beginning to take effect
UK: Self help actions beginning to take effect £m Oct-17 Oct-16 Change Change % Revenue: hire of vehicles 131.7 138.4 (6.6) (4.8%) » Average VOH (Q2 vs Q2 py) decline (5.9%); however Operating profit (excluding 14.5 17.3 (2.8) (16.2%) Closing VOH (Oct vs Oct py) vehicle disposals) decline (4.5%) Veh
Slide 9: Financial Resources: Remain comfortable despite funding growth in hire fleet
Financial Resources: Remain comfortable despite funding growth in hire fleet Oct-17 Oct-16 £m £m Underlying operational cash generation 107.8 113.6 Net Capex – Purchase of vehicles 175.5 93.7 Net Debt 421.0 355.0 Leverage 1.75x 1.49x ROCE 8.7% 10.7% » Underlying operational cash generation remains s
Slide 10: Operational Progress
Operational Progress Kevin Bradshaw 10
Slide 11: Group closing VOH has increased by 6% year to date
Group closing VOH has increased by 6% year to date, driven by outstanding growth in Spain and improved underlying trajectory in the UK H1 Closing VOH Growth by Country H1 Closing VOH Growth – Underlying vs Seasonal Note: Underlying seasonal split based on management estimates 11
Slide 12: UK closing VOH (underlying) now in growth across regional accounts
In the UK, closing VOH (underlying) is now in growth across regional accounts which comprise c.60% of vehicles on hire UK Closing VOH by Account Type Actions and Impact » Upgraded sales leadership » Removed sales barriers, streamlined process » 190 customers gained vs 153 lost last year » 841 VOH so
Slide 13: Growth in Spanish VOH underpinned by minimum term and flex products
Growth in Spanish VOH underpinned by strong performance in both minimum term and flex products Spain – H1 Closing VOH Growth by Type » Overall growth of 9% (3,500 units) » 40% (1,400 units) from minimum term product » 25% of new minimum term customers subsequently add an equal number of fully flex v
Slide 14: Group average VOH in positive growth for two successive quarters
Group average VOH has now been in positive growth for two successive quarters Group Average VOH Growth » Strong growth in Spain of 11.5% (Q2 vs Q2 PY) » Improving UK trajectory of -5.9% (Q2 vs Q2 PY) 1.9% » Increase in average VOH for minimum term of 3,000 (H1 vs H1 prior year) delivers strong futur
Slide 15: Rental margin gains in Spain offset by expected decline in the UK
Rental margin gains in Spain were offset by an expected decline in the UK and operational challenges in Ireland Rental Margin H1 FY17 to H1 FY18 Drivers Spain » Margins widened with operating leverage UK » Margins declined with negative operating leverage and more competitive pricing » Growth led ma
Slide 16: Spanish and UK rental margin movements
Spanish rental margins have improved in line with minimum term growth and leverage. UK margins have reduced primarily through pricing actions and reduced leverage over fixed costs Spain – Rental Margin Movement UK – Rental Margin Movement Rental Margin Rental Margin 16
Slide 17: Disposal volumes increased; PPU decreased
Disposal volumes have increased supported by strong growth in retail. PPU has decreased due to the depreciation unwind and lower average age of disposal in Spain UK Disposals – H1 Spain Disposals – H1 » Total units sold 10,800 (+20% vs H1 FY17) » Total units sold 6,200(+9% vs H1 FY17) » Retail 4,400
Slide 18: Decline in Group ROCE in line with expectations
The decline in Group ROCE was in line with expectations and has been driven by declines in Spain and the UK Group ROCE H1 FY17 to H1 FY18 ROCE % » Spain a function of phasing as rental business grows combined with reduced disposal profits » UK a function of negative operating leverage as the busines
Slide 19: Spain ROCE reduced due to phasing of fleet growth
Spain ROCE has reduced due to phasing of rental fleet growth and lower disposal profits. The majority of these two negative impacts unwind in steady state Spain - Movement in ROCE % Impact of growth on ROCE % ROCE % » Fleet Age/Mix » 5,300 (1) purchases for growth » NBV for purchase c.140% of averag
Slide 20: Progress on implementation of Van Monster UK strategy
Significant progress has been made on implementation of the Van Monster UK strategy » 5 new sites opened in H1, 5 identified for H2 » 56% increase in retail selling spaces by end of period » 19% growth in volume of retail sales » 8% pts increase in penetration of warranty and financing products » 11
Slide 21: Self help actions in the UK progressing well
Self help actions in the UK are progressing well and in line with expectations » New executive appointments made: Managing Director, Marketing Director, Leadership Leadership Sales Director, Fleet Director » Three senior marketing heads appointed » 80% of customer data cleansed, CRM contacts increas
Slide 22: Operational priorities for H2
Operational priorities for H2 » Continued sales and marketing focus to drive VOH, particularly “12months+” UK » Continued focus on talent acquisition for commercial hub » Increased roll-out of Van Monster site footprint » Increased focus on disposal strategy » Continued push on VOH growth; capitalis
Slide 23: Outlook
Outlook » Spain trading strongly; growth set to continue » Measures to arrest VOH decline in the UK will continue to take effect » Implementation of UK self help agenda will continue at pace » Profit skewed to the second half (H1 cost savings, UK turnaround, flow from Spanish H1 growth) » Caution wi
Slide 24: Q&A
Q&A N@RTHGATE
Slide 25: Appendices
Appendices N@RTHGATE
Slide 26: Appendix 1 – Financial Summary
Appendix 1 – Financial Summary £m Oct-17 Oct-16 UK Spain Ireland Elims Total Total Revenue: hire of vehicles 131.8 92.9 10.3 (0.4) 234.5 229.6 Operating profit (excluding 14.5 15.2 0.5 – 30.2 30.8 vehicle disposals) Vehicle disposals 3.5 6.1 0.9 – 10.5 16.1 Total operating profit 18.0 21.3 1.4 – 40.
Slide 27: Appendix 2 – Operating Cash Flows
Appendix 2 – Operating Cash Flows £m Oct-17 Oct-16 Operating profit (statutory) 36.3 44.2 Depreciation, amortisation and impairment 88.9 78.7 Working capital and other movements (17.4) (9.3) Underlying operational cash generation 107.8 113.6 Net interest paid (4.9) (3.8) Net corporation tax paid (7.
Slide 28: Appendix 3 – Facilities And Borrowing Costs
Appendix 3 – Facilities And Borrowing Costs £m Oct-17 Rate* Syndicated bank facilities 457 Loan notes 88 Other facilities 38 583 Fixed rate borrowings 331 2.2% Floating rate borrowings 92 1.3% Net debt (excluding arrangement fees) 423 2.0% Headroom 160 * As at 30 April 2017 28
Slide 29: Appendix 4 – Covenants
Appendix 4 - Covenants Interest cover Leverage Loan to value 8.0x 44% » EBIT headroom £48m » EBITDA headroom £31m » Net debt headroom £251m » Threshold 3.0x » Threshold 2.0x » Threshold 70% 29
Slide 30: Appendix 5 – UK KPIs
Appendix 5 – UK KPIs Oct-17 Oct-16 Fleet size (closing) 47,200 49,500 Utilisation (average) 87% 88% Average vehicles on hire 39,400 42,000 Closing vehicles on hire 40,600 42,500 Rental Margin 13.8% 15.2% Disposals – units sold 10,800 9,000 PPU (£) 326 738 30
Slide 31: Appendix 6 – Spain KPIs
Appendix 6 – Spain KPIs Oct-17 Oct-16 Fleet size (closing) 46,300 41,100 Utilisation (average) 91% 91% Average vehicles on hire 39,400 35,900 Closing vehicles on hire 41,200 36,200 Rental Margin 16.6% 15.6% Disposals – units sold 6,200 5,700 PPU (€) 1,109 1,815 31
Slide 32: Appendix 7 – Ireland KPIs
Appendix 7 – Ireland KPIs Oct-17 Oct-16 Fleet size (closing) 3,800 3,900 Utilisation (average) 86% 89% Closing vehicles on hire 3,400 3,500 Rental Margin 5.6% 9.3% Disposals – units sold 600 400 PPU (€) €1,812 2,657 32
Slide 33: Appendix 8 – Remaining depreciation rate change impact
Appendix 8 – Remaining depreciation rate change impact Prospective year-on-year operating profit increase (decrease) arising due to the previous changes made to vehicle depreciation rates: £m UK Spain Ireland Group FY17 (4.1) (1.6) 0.0 (5.7) FY18* (2.5) (1.5) (0.2) (4.2) FY19* – (2.1) – (2.1) FY20*
Slide 34: Appendix 9 – Vehicle Capex
Appendix 9 - Vehicle Capex £m Oct-17 Oct-16 Purchases UK 132.4 97.8 Spain 125.3 77.0 Ireland 8.1 8.1 Disposals UK (76.7) (59.0) Spain (35.0) (26.1) Ireland (3.5) (2.0) Net fleet capex 150.6 95.8 Vehicles: Purchases UK 10,000 8,000 Spain 11,100 7,400 Ireland 500 600 21,600 16,000 Disposals UK 10,800
Slide 35: Appendix 10 – Diesel van residuals expected to remain strong in the UK
Appendix 10 - Diesel van residuals are expected to remain strong in the UK given the limited availability of alternatives UK Cars & Vans by fuel type Source: DfT, SMMT, October 2017 35
Slide 36: Appendix 11 – Territories with 8 million LCVs and c.£15bn revenues
Appendix 11 – 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 Source: BVRLA, DfT, MSI, SIMI, OC&C analysis Note (1) Primary transactions only
Slide 37: Appendix 12 – Rental underperformance driven by internal factors
Appendix 12 - The rental business’ underperformance has been entirely driven by internal factors UK – Key Rental Provider Fleet Growth(1), 2013-16 % CAGR Drivers of Under-Performance » Lack of focus on defending flex share » Leadership lacking urgency and commercial focus » Capability gaps in Market
Slide 38: Appendix 13 – Structural growth in term hire and rental
Appendix 13 - And see compelling reasons for continued structural growth in term hire and rental market segments Structural Growth in UK Term Hire / Rental Driver of Structural Growth Share of Business Use LCVs » Cash Flow Advantages – Limited ‘upfront’ cash requirement vs. ownership – No uncertain
Slide 39: Appendix 14 – Four key strategic opportunities
Appendix 14 - Within this market landscape, we have prioritised four key strategic opportunities Source: BVRLA, DfT, MSI, SIMI, OC&C analysis Note (1) 1st Change Transactions Only 39
Slide 40: Appendix 15 – Expected strong growth over the next three years
Appendix 15 - 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 -1.7% Mid to high si