Zigup (LSE:ZIG) — Full Year Results Presentation

0:00 Good afternoon, and welcome to the Reddy Northgate PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions and encouragement can be submitted at any time via the Q and A tab situated in the right hand corner of your screen. To click Q and A, scroll to the bottom, type your question and press send. Company may not be in a position to answer every question received during the meeting itself. However, review all questions submitted and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Ross Horley, Head of Investor Relations. Good afternoon.

0:28 Thank you very much, Paul, and good afternoon. As you said, my name is Ross Hawley. I'm head of Investor Relations here at Ready Northgate. I'm very pleased to be sitting here in our office in Darlington with Martin Ward, our chief executive. And you also have on another screen Philip Vincent, our chief financial officer, also on the line. So the format we've got for our first investor meet is planned as a mix of a short presentation, an introduction to the group, which covers also some of our recent results by Martin and Philip, and then we'll then open it up for questions. We've had a number of pre submitted questions

1:00 and topics which we'll cover, but also in this format, you'd like to ask questions, we'll then try and address those when we can. So over to you, Martin, for some comments, and I think we've got some slides just coming up on screen. Thank you, Ross. Thank you, and good afternoon, everybody. First of all, I thought I'd start with what do we do so that everyone's got the same understanding. So we're here to keep customers mobile. So you can see this on our website, but here's a sort of a breakdown of some of the services. First of all, we've got rental provision. So the size of our fleet across The UK, Spain, and Ireland is a 130,000 vehicles. It's a mixture of cars, vans. It's a broad broad range of vehicles, and customers can rent these vehicles on flexible terms either over short periods or longer periods like three to four years.

1:53 We provide fleet support. So think of all this are very large fleets, corporate fleets out in the market. We're there to keep the the customers, the users of those vehicles mobile. So we provide services like cameras, telematics, data management, service in downtime, and all the things that you think that could happen with a vehicle. The Ready Business, which we'll come on to talk into detail, we provide claims support and accident management. So if you think about your insurance policies in The UK, it's a mandatory thing. When you have an accident, whether it's your fault or not, you might go to your insurance company. We sit behind those insurance companies who refer their policyholders to us, and we provide services to get their policyholders back up and mobile. Those services are typically a replacement car, either on a like for like basis, a courtesy car from one of our body shops, or maybe a direct hire, which the insurer pays for if it's covered under the policy.

2:53 We also sort out the body shop side of things on the repair. We have our own network of body shops in The UK and Spain where we undertake the full accident repairs ourselves. And then we also have end of life vehicle disposal. We have our brands in in The UK called Van Monster, and in Spain, La Cochinale, which we dispose of our vehicles, both car and van. That's a simple snapshot. If I turn to the next slide, what we describe is is that we have a platform. So we provide our services in this platform in in very simple terms. If a vehicle is on the road and something happens, there's an accident or an incident, tires, glass, service maintenance repair, breakdown, whatever it is, we can provide that service on our platform.

3:47 Whether we own that service ourselves or whether we work in partnership or with an independent network to do it, we can triage all the services in a single single stop service. Some of the brands that you'll see in the market, we've put them on here just to these might be things that you might come across. Northgate is a very well known brand, been in existence over forty years in The UK and Spain for the van rental. Charge d v, a business that we acquired, just two years ago that installs charging points both for commercial and domestic customers. Oxelis is our brand that delivers the accident management services, mainly working with very large insurance companies, dealership, and automotive groups. And then FMG and FMGRS is our brands for providing fleet management and the accident services.

4:38 More recently, we acquired fridge Fridge Express and Blakedale, which are specialty companies, Blakedale, traffic management specialists, workforce protection units, and Fridge Express temperature controlled, vehicles. We've got 600 vehicles that we acquired in May this year. So as I said, across the platform, whether it's a product or a service, that is our proposition, keeping people mobile and providing these services.

5:06 Okay. So that's roughly what we do. If we just then turn to this page, to have a look at the overview of our results. So the businesses came together. Ready Northgate came together in a merger in 2020. And three weeks later, we had COVID and all the lockdowns. So this is our sort of first full year set of results, I can think, that are not tainted by that. And what we can see is is that we have delivered substantial top line growth, which has fed through to a near 10 increase in our PBT to a 100,000,000 this year. One of the key indicators for an asset backed business is ROCE. It's not the only measure, but year on year, that has been improving. And, again, we've had another increase there to over 14%.

5:52 And then if we look at sort of how that all plays out in terms of returns to our shareholders, board's very confident on the on the business. We've seen very strong trading in this set of results and strong trading as we started the new year, and we increased our dividend to 24% for the full year. And then looking at our debt headroom, you know, it's very topic like at the minute with interest rates and everything else. We have a strong balance sheet and substantial debt headroom of 290,000,000 of which we can sort of deploy to support growth in the business.

6:28 Okay. And then just looking at our achievements for for this year, what are the growth drivers for that revenue? Well, firstly, we have talked about a challenging environment for acquiring vehicles. And notwithstanding that, we grew our fleet by over 4,000 vehicles this year, as I said, to over a 130,000. We've mainly seen that growth in Spain, where there's been normalized supply, and in the ready business where traffic volumes have got back to near normal levels, we'll cover that later, in The UK. We've also had new contracts that we announced following the merger. We had 300,000,000 of revenue synergy contracts that were transacted. We said that was TESCO, that was Saga, that was Admiral, where we would be undertaking those services for a number of years. So we've got a portion of those contracts, which are now all live coming through these numbers. It's around 40% that has come through so far, but they're all live up and running and running to to our predicted rate.

7:33 And, also, this year, it hasn't started yet, but in autumn, we have signed a contract with one of The UK's largest leasing companies. It's a very large fleet in The UK, and we're providing a range of services across our platform to that customer. And we talked, said about margin. We broadly maintained our margin. Some bits are up, some bits are down, but inflation has been, you know, a challenge for most businesses in The UK. And we've managed that very, very carefully. We've made sure that any self help that we can do through efficiencies in our own operating businesses, as well as careful pricing actions with customers where we needed to move that on. We have been successful, as I said, at maintaining our margins. And we have in introduced additional services as well. So where we had the cross sells for our accident management services into Northgate, which in a 50% uplift, And the business I mentioned earlier, ChargeDB, that installs charging points. Since our acquisition, we've done 12,000 installations and just under 7,000 in the last twelve months.

8:39 And then if we look at our strategic progress and how we're delivering on those goals, you know, we had a framework of focus drive broaden. And if we broaden, we said, you know, acquisitions would play an important part in developing our capabilities. Lake Lakedale was a business that we bought just over twelve months ago. And since we bought that business, we've been able to grow the fleet by 30% and grow the customer base by 28%.

9:06 And then Fridge Express, as I said, in May this year, with 600 vehicles adding into our our capabilities. And when we look at sustainability, it is important. It's an integral part of our strategic goals. We have now targeted our scope one and two measures. We've got short term and long term targets, and that's, you know, that's something that we're looking forward to to deliver.

9:30 And in terms of our sort of services, what have we added that is that is new? Well, the example we can give here is that in Spain, we have something called open workshops. So we've been able to service non ready Northgate customers that can bring their vehicles into our workshops where we've got capacity and provide a service maintenance and repair product to them. We've also seen new relationships form in Spain. So we're able to introduce from The UK a new insurer relationship to Spain where they would undertake repairs for that insurer that operates in Spain. Plus, they won a direct contract in Spain from an insurer to undertake repair work as well. And, also, our EV products have been progressing.

10:16 We've partnered with Iberdrola in Spain to come up with a charging point solution, green energy supply, and an EV vehicle, all in a monthly mobile monthly cost. And also in The UK and Spain, we are consulting with our customers by running open days on EV product so they can get up close and familiar with what products are available and in a non pressurized environment, work out how an EV fleet would work for them. We've carried out over 1,800 vehicle experiences, and we can map what the customers do with their fleet and how they use their vehicles with exactly how a transition plan for EV would work. So we're pleased with the progress that we've seen to date.

11:08 Okay. I'm gonna hand you over to Philip, who's gonna cover some of the financial results in detail. Thank you, Martin, and good afternoon, everyone. Now I'm gonna start by sharing our headline KPIs for the year that's just ended, and and then I'm gonna talk a little bit about how we're funded, our debt position, and how we return cash to our shareholders. So let me start with those headlines. So as Martin said, we had an excellent set of results for the year just ended with good performance across the businesses. So our underlying revenues, and we define that as revenues that exclude the sales of our vehicles at the end of life, that was £1,300,000,000. That was 22% higher than the prior year with growth across the business. And our Ready business grew revenues by 196,000,000, and 40% of this growth came from new contract wins since the merger.

12:01 Now our headline PBT, one of our core KPIs, was a 165,900,000, and that increased 9.7 year on year. And our underlying earnings per share increased 9.5% to 55.6p. And our steady state cash generation was strong at a 191,500,000. And this reflects the cash that we generate before we invest in growth for the business. Our net leverage, which excludes IFRS 16, was 1.5 times, and that's right in the middle of our operating range of one to two times. And our return on capital employed increased 20 basis points to 4.1 14.1%, And that's benefiting from the underlying profitability within the business and also some disposal profits when we sell vehicles at the end of life.

12:53 And if I turn to this slide, the business is very well financed with a strong balance sheet to fund growth. At the year end, we had 290,000,000 of headroom on our committed facilities. And in the year, we extended our core bank facility by twelve months to 2026. At the year end, 62% of our debt was fixed, and the majority of that is at 1.3%. So we are well insulated from the current rate environment. Our average borrowing cost at the year end was 3.1%. In the chart at the bottom, this bridges our net debt as of April last year to April 23 this year. And we generated steady state cash of 256,000,000, excluding the lease payments.

13:42 And this is the cash we've generated after having maintained a constant fleet size and before we invest for growth.

13:50 Now after paying tax, interest, and the lease payments, we had approximately 113,000,000 of cash. And we returned a 105,200,000 back to shareholders in the form of dividends and share buyback. And we then invested a 122,600,000 to grow the fleets in Spain and Reddy, where we've had very strong demand. And we spent 10,000,000 on acquisitions in the year. So to make these investments, we've increased our borrowing by a 112,000,000. Now on the top right hand of this slide, you can see a chart that shows since the merger, we have now returned a 121,000,000 in dividends to shareholders. We've invested 41,500,000 acquisitions. That's extending the products and services of our mobility solutions platform, and we've returned a further 60,000,000 to shareholders through the share buyback.

14:44 We've now completed six acquisitions since the merger. During the year, we acquired Blake Down. And just after the year end, we completed the acquisition of Fridge Express, which extends the range of products and services that we offer and broadens the sectors in which we operate. And finally, our funding enables us to continue to invest in our fleet and execute on acquisitions as they arise in line with our disciplined approach to capital allocation. So now I'm gonna hand you back over to Martin. Thank you, Philip. And then I just wanna cover the current environment so we know what we're sort of looking into. So from a market perspective, what we are seeing is is that we've had strong demand and are still seeing strong demand in our geographies.

15:33 We've seen growing interest in the value added services that we offer. So we've had more take up on telematics as an example, and our camera services on that we inboard into into vehicles.

15:46 We've also seen that the traffic activity, particularly in The UK following this sort lockdown, is a new norm. And we look at the Department of Transport for those statistics, and it's indicating between 9095% of traffic volumes back on the road. Our view is it's not gonna get back to a 100%, certainly not in the short to medium term. Hybrid working, people working from home and then traveling to offices, it'll keep that subdued a bit. So that's what we're what we're working on. That's what we're forecasting. Repair capacity has been scarce. You know, getting trained technicians, you know, to get parts, being able to undertake, you know, rapid sort of key to key time to get vehicles repaired has been problematic. And although the sort of the current trend is that is improving, it is still higher than it was previously.

16:40 If we then look at sort of fleet supply, we've talked about this extensively. So in The UK, if you split it between cars and LCV or vans as they as you might know it, you know, we've got better visibility on the sort of forward position as we as we currently sit here today. Cars are not a problem. We can supply cars to meet a demand, but there's not an issue in The UK. Fans, as I said, has been more problematic. So getting visibility is getting better. Short term supply is still patchy. So that's a bit of a headwind in terms of that sort of sourcing vehicles. In Spain, it is different. Normality sort of returned maybe six, seven months ago. So we've been able to get the supply both of cars and vans in Spain, and that has fed that demand that we've got has been fed. So we've grown the fleet. You'll see in our details. We've grown the fleet in Spain, and that demand has continued.

17:38 We do see pockets of supply, by the way, that come up from time to time. So, you know, we might get spot orders on on a batch of vans, two, three hundred vans that sort of pop up, which makes a little bit sort of trying to plan for these things. That's why it makes it a little bit difficult. We are the biggest buyer of vans in The UK and Spain. So when these deals become available, we are a first port of call for many manufacturers. And, you know, undersupply has supported residual values. You know, our view of life was that residual values have peaked, and you would expect them to soften both on car and van. You'll see that more in car because there's more supply of car. But on van, they are still residual values are still high compared to historical data, although they are softening.

18:28 The undersupply that occurred in The UK from new registrations, you can see that through the Society of Motor Manufacturers and Traders. So over 200,000 vans that were sort of that was the delta of undersupply. Our view back eighteen months ago is that it would take about four to five years for that undersupply to sort of catch up, and that prediction seems about right. And then on customers, you know, we've got a detailed section in the presentation pack that breaks down a customer profile. But we, you know, we have a a broad range of customers from government, local authorities, blue chip, SME, large corporate fleets. So it's quite a diverse customer base, which is a strength for the business, and that's they're similar with The UK and Spain. There's more smaller customers in Spain, although the big part of our sector in Spain is the large blue chip companies.

19:22 We don't have any single sector exposure because of that sort of broad nature of the base. And, you know, what we've been able to do is is just manage the sectors that we want to supply into. So where there's high margin sectors, we've been able to rotate our fleet, when there's any returns into those sectors. There's no slack in the fleet. Utilization's running around sort of 92%. That means any vehicles that come back, go back out on rent very, very quickly, such as the demand. Okay. And then just sort of finally on on outlook. You know, I've said that we've seen a very robust demand at the start of the new financial year, so we've got two months of trading. It has been very, very good. We've seen no letter.

20:09 Lots of investors, lots of shareholders ask us, you know, are you seeing any signs? Because, I mean, the Northgate business used to be a bellwether. We haven't seen anything. I sort of want to say that there's signs of weakness and that maybe a recession is coming. Banks tell us it's gonna happen. Maybe it will, but we're not seeing it. We're not seeing it in either in any of our businesses. So we've got a healthy pipeline as well in terms of what new prospects we've got, and they are quite substantial as well. If you think about sort of where we deploy our capital and where we've seen the growth in these numbers, It's mainly come out to the ready business, the insurance business,

20:48 because typically, these are large multiyear service contracts, and that's where we're focusing our capital on sort of growing that business. We continue to make very good strategic progress. You You know, I've seen that in the sort of achievements. We haven't sat still. We've done six acquisitions since the merger since 2020, and we're delivering probably more than we said when we brought the businesses together. So the momentum is with us, and I think all of that leads to very sort of strong confidence in terms of what we're seeing and how we're performing. Okay. So that's me finished on on that. That's fantastic. Thank you very much indeed, Martin and Philip, indeed, for your presentation. Ladies and gentlemen, do you please continue to submit your questions using the q and a tab situated on the top right hand corner of your screen? Just while the team take a few moments to review those questions submitted already, I'd like to remind you that recording the presentation, along with a copy of the slides published Q and A, can be accessed via your investor dashboard.

21:45 Ross, as you can see, if I can hand back to you, we have had a number of questions that have come through both

21:49 pre submitted and throughout today's presentation. If I may just ask you to read out the question where appropriate to do so, give your response, and I'll pick up from the team at the end. Fantastic. Thank you. So and thank you for those questions already submitted. I think really just kicking off in terms of the competitive landscape and how you sort of describe the differentiation of Ready Northgate. John, just give a color around how you see that. Yeah. So so, look, I mean, the way that services were procured in the markets that we serve for rental, repair, replacement, and so forth,

22:21 they've always been done in verticals. So if you're, for example, a large insurance company, you would go out to the market and and you procure best in class for repair, best in class for mobility, and so on. When we brought the businesses together, we brought a platform together where we said we can put all these services on a platform. We can integrate them. We can give a single source service to the customer because these things don't happen in isolation. They tend to go hand in hand. So whilst we so what we've seen is we've moved away from competing for single source type business, single vertical type business where we are very differentiated, very unique in having this platform that can offer all of those services that I've talked about in one go.

23:07 That is the differentiator. That is unrivaled in terms of what we're doing with that presently, and it does create a lot of leverage. If you think about that platform, and if you're a customer going through that journey, there's less handoffs, less less touch points, It's more joined up. For the for our partners, there's less leakage, so you get more conversion on the services that you're providing, which is obviously providing a benefit, and you've got less frictional costs. Because by doing everything on that one platform, you're reducing frictional costs, and you're creating a competitive margin. You're creating something that you can share back in value, however that gets shared back. So when we're out in the market, there are examples where we're just having bilateral discussions with customers or prospects that are coming to us and saying, we recognize what you have.

23:56 We like what we have. We'd like to test it. We'd like to prod it and poke it and make sure that all the things that you say are there. But then having that bilateral discussion rather than sort of playing the game of procuring across all the services. It's not gonna be the same for everybody, but that's that's what we're seeing, and that's creating an advantage for us. And that's fueling some of this top line growth and bottom line growth that we're reporting. Thank you. And, obviously, in in your in the presentation, we talked about that recent contract win. Do you sort of see that as sort of a typical or a guide as to the kind of pipeline which we have? Are those customers seeing that overall integrated service as being a core attraction? It is. It's I mean, it's a it's a it's across all businesses that we're seeing that. I mean, the larger you are, the larger feature you are, if you're a large insurer or dealership and you've got a lot of volume, the platform makes more sense for you because of all the transactions that that you would undertake.

24:53 And we're seeing, yes, there are some very large prospects that we've got under discussion presently. And I think for for the very large ones, you know, for them, it's about, okay. Am I prepared to put all my eggs in one basket and work with a single provider? And we're a footy two fifty, a very transparent, strong balance sheet. You can control things through SLAs. You can do all of that. So my answer back to to to to to the market is, yes. You can. You know, you can manage that. And we've got some large fleets as well. Typically, we like to see a fleet over 2,000 vehicles because that sort of feeds the sort of transaction. But all these services that we provide, you know, work on that basis, and that's the prospect pipeline is made up of a variety of those type of customers. Thank you. And thank you, David. So you wanted us to follow-up on this. And, I mean, in terms of these contracts, are these typically ones which are tenders out to the whole market or the ones which you have sort of one to one conversations with? I was I would say more often than not, you have to go to tender or the customer will go to tender. The one I just described, you know, is a bilateral arrangement, which would which is great. It was a grown up discussion about no one else can provide these services in the same way. But tip typically, the very large procurers might say, okay. Well, we want to go to tender because we want to test commercially. We want to test operationally. We want to test across all these pieces.

26:14 And then they have a decision to make. You know? Do they then go into the verticals and silo all the services that they want, or do they put it on one platform? And we're not a sort of take it all. We don't have to take it all. We we live in a world where if a customer says or a prospect says, you know what? I'll take three or four of the services that you've got, but maybe I'll leave these with incumbents or I wanna test it. That's fine. I mean, we want to see more services because that creates the real competitive sort of position for us and the real sort of service points for the customers. So I've got a couple of questions on acquisitions. But before we go then, just about that organic growth, am I right in thinking that actually people will then take more services over time? So once we've got a relationship with somebody and they see the benefit with one, they're likely to add more or grow the proposition. Yeah. No. Actually, that's a good point, actually. Yes. I mean, you know, from our existing customers, you know, from when we came together, we didn't have all of those services with them. They had them out in their verticals.

27:12 And what we have seen is we've seen that sort of rotation as those contracts have become available. They've been rotating into our platform because they say it makes sense to join up this service. I'll give an example just to bring it to life. You know, if you have an accident at the side of the road, you know, your typical recovery policy doesn't cover you for recovering an accident damaged vehicle. So we would deploy our sort of network to go and make the recovery of that vehicle. But instead of taking that vehicle, that damaged vehicle to what I call a dark site for for a salvage yard or a place where it will just be stored, you can take it directly to one of our body shops where we're preauthorized then through delegated authorities, through our engineers, to be able to make the repair on the vehicle and provide the replacement vehicle in conjunction with whatever the policy holder is entitled to. So you can see why that's a natural flow, and it fits with why you would want to put more on to the service. So that's gonna be a building position organically.

28:08 And moving on for a question in in terms of the acquisitions. We've announced six since the merger. Are there any sort of highlights or ones you'd you'd like to do and then stop to think about are there any gaps or are there other verticals we're we're interested in? But maybe first, what you've done today. No. Absolutely. Look. I think, you know, Blake Taylor gave that example. That's a that's a good example of a very good business, very well run. We bought it from a family who who looked up that business, had a good customer base, and a good unique product as well, which extended our capabilities. You know, within twelve months, the management team have done a fantastic job in the business there, growing the customer base, growing the fleet, good pollination between the the Northgate businesses, the ready businesses. And I'm really, really encouraged because I think that's how acquisition should work. You can bring value to the table. So that will go on strength to strength. Bridge Express relatively new, but a good prospect pipeline with blue chip companies in pharmaceutical and food, and we've got the capabilities in the balance sheet to to further strengthen that.

29:07 Not all acquisitions will go day one earnings enhancing like those those those acquisitions. Sometimes we do buy things where we need to invest. Charge TV was a good example of that. You know? The momentum to get charging points in for electric vehicles needs to grow, needs to do more in The UK and in Spain. By having a business with our capability, tying it in with the package of services then that we offer was key to our strategic progress. And as I said, we've we've installed 12,000 charging points since we've owned the business, but we've had to invest in that business. We've had to put, you know, more money in to get the right national network of installers, invest to get the operational structure match fit for the size of the business that we intend that to be. So for me, that you know, we've invested in business.

29:53 It doesn't as I said, it doesn't mean that everything's only announced in day one, but that's a a sort of a good business to have in a growing trend and having that capability very worthwhile. Yeah. And FMGRS, obviously, was bought out of administration, has been sometimes sort of described as a bit of the glue, which has connected some of the services together. How how do you see that business at the moment? Absolutely. I think, you know, FMGRS or Nationwide, it was called when it was a listed business before it went to private equity. Yes. Got into difficulty during COVID and went into administration, and we were able to bring 2,300 people across into the business, over 70 body shops at the time. And, you know, when we when we acquired that business, we've invested heavily in that business in terms of tooling in the body shops, the sites themselves where we can improve it or rotate into to some newer premises, investing in the team, skills. We have our own accredited training academy where we can train our technicians on the latest techniques as well as training people and our technicians through how to work on EV vehicles.

30:54 So, yes, I I do describe it as a glue because if you think again, all those things that happen, you know, repairing vehicles is an important part of that whole process of keeping people mobile. And owning that capacity, I've been able to control that capacity and therefore control the flow is is is is a really good asset to have. Now, you know, bear in mind as well, the volume of work that we have far exceeds what we can digest with our own body body shop network. So we do have an independent body shop network as well where we put place that work in there and we give them a combination of work from our portfolio. So but that has been a fantastic acquisition for us in terms of having that capability. K. And I was just saying so Colin was saying, are there other verticals which are out internationally?

31:40 Is it UK focused or other opportunities elsewhere that we might look at? I think I think that, you know, there's opportunities across our geographies that we work on and beyond. So, you know, when we look at Spain, for example, they've had a fantastic year this year in terms of their growth. You know, Spain's got the capability to go further. They have the open workshops, which is growing in revenues. As I said, you can you're a non ready Northgate customer. You can book your vehicle and schedule that. We've got a b to c proposition in Spain, which is all digital. So if, again, if there's any capacity in the fleet for people who need sort of rental over three, six months, we can provide that as well. And also, you know, Spain, Mainland Europe, I don't need to do a geography lesson, but there there are opportunities to develop beyond the boundaries there.

32:26 And if our return on capital is good, we can see those opportunities further progressing. You know? And in The UK, we see a lot of things across our desk. I mean, smaller operators might have found it difficult to operate in rental markets, for example, where getting hold of of fleet is gonna be problematic for them. So we have seen things across our desk. We're very selective about what we want to do. It's not just scale for scale sake. We like we like new capability that adds in because we can cross sell. And there might be other things that we do. We're not gonna be all things to all people. I don't think no. Windscreen's a good example. You know, water glass do a very good job with windscreen. You know, it's a small part of what we do. We can partner where we want to partner, and that sort of works well.

33:12 So I'm just moving up to to Philip to just carry on this this part of the conversation. I can see there's some interest in margins as well. But just in terms of how you think about making those investment decisions, whether it's m and a or otherwise, maybe you just wanna talk through that and some of the capital allocation priorities, which which we have. Yeah. I mean, Ross, we we operate a a capital allocation model, which we apply rigidly actually when we're looking at investment opportunities. So the the first step we go through is we wanna invest organically in the business. So that means we wanna maintain the business and where it is before we're trying to grow it. So replacing vehicles, need to replace them, maintaining our branches and our sites. Secondly, we want to make sure we are paying a growing and sustainable dividend to our shareholders under a dividend policy where we aim to pay at around two times cover.

34:03 And then we look to say, okay. Where can we invest? And we'll we can invest in growth in terms of CapEx, so in terms of our vehicles to grow our fleet to meet demand and growing our products and services in our customer space. We can also do mergers and acquisitions of which we've done the six since the the merger back in 2020. And then once we've gone through all of that, we'll then say, okay. There are other ways we could provide cash back to shareholders if we have more cash to do so. An example of that would have been the share buyback. But whenever we're looking at investment opportunities, we're making sure that each of them is generating an adequate return, and we define an adequate return as a return that's above our weighted average cost of capital. So we're creating value for the long term for our shareholders. And and in terms of thinking about the debt, we've got a question, Gavin, just in terms of sort of that headroom. And is it there because we might get a, I think, a nice, a lumpy offer of vans?

34:57 You know, one of our attractions, I think, is we've got that financial firepower for it. How do you think about debt and and the use of that for for vehicle acquisition? Yeah. So, obviously, we follow that allocation model. But, yeah, I mean, we've got 290,000,000 of headroom on our committed So we have other facilities as well through things like contract hire, which aren't committed. But committed is $2.90. How do I think about that? Well, we don't wanna be going back and refinancing in the market every single year. The last refinancing we did was back about eighteen months ago when we raised about 330,000,000 of private placement borrowings. It's actually in euros, but 330,000,000 equivalent in sterling. And that goes and that that was for ten years, between six, eight, and ten years.

35:42 So the first one about those doesn't roll over until November 27. So we don't have a waterfall moment. We we we've laid it out over several years, and we're paying an average rate of 1.3% on that. So we're looking at, you know, when's the best time to refinance, making sure we're not up against it with the banks with a with a short time when we have to refinance. We have plenty of time to do so. And then separately, we have an RCF facility of 475,000,000 sterling, and we just extended that by another year. So that that will roll over again in November 26. So, you know, we're we're constantly looking when's the right time to refinance. I'm not trying to do it all in one go. K. Tim asked a question that just in terms about circumstance economic circumstances and deleveraging the fleet. I think it's something which we talk about quite a lot in terms of that COVID experience and actually throwing off cash.

36:33 Philip and, also, I don't know if you want to. Yeah. I mean, I'm happy to step in there, Martin can add if he wishes to. Yeah. I mean, so so the yeah. The question is, is there an interest rate level or a set of economic circumstances where we may deleverage the fleet, I think, is the question. I think that from an interest rate point of view, we're we're quite well insulated from that because we got 62% of that debt fixed at 1.3. So interest rates are not an immediate concern for us. They will impact us, but not not materially. And the the way we look at it is when we're pricing a vehicle, not only we're making sure we're covering our operating costs and the cost of the vehicle itself, we clearly need to take into account the financing of the vehicle as well and and our borrowing costs. So if the market could take higher interest rates and we could price them through, then that wouldn't be a problem for us. If at any point the market said actually we can't take any more price, we were outside our insulated environment, say five, six, or eight years time, interest rates were a lot higher, then we'd have to look at how do we allocate our capital, and then we look through our capital allocation model.

37:35 I think the only time that we've seen where we've actually, you know, had to well, not defleet, but stop growing the vehicles was in COVID where we just didn't know what was gonna happen. So what we actually did was we just stopped buying vehicles. So we didn't deflate. We just stopped buying vehicles because we didn't know what was gonna happen in the coming months. But what we actually saw that actually across the fleet, we only ever had 6% of our vehicles returned to us. Quite a low number, much lower than perhaps we may have expected having never been through COVID before. But what we actually saw was we actually generated a huge amount of cash in that period. Because if we're not buying vehicles, we're just generating cash and we're not reinvesting it. So we threw off sort of 80,000,000 of cash in six months just from the rental side of the business. Thank you.

38:20 I'm gonna move back into thinking about the the businesses, and there was a pre submitted question just in terms about UK margin on that. And another question here about the high demand for for vehicles at the moment. Do you want to just talk about the margins in the business? Yeah. Okay, Ross. So so so look. Mean, we we gave sort of we said that medium term guidance around margins across Spain and UK was around 15%. So that was a number that we thought was sustainable. What we're seeing is, certainly in Spain, the margins are significantly above that. And, you know, you might argue that there are some tailwinds if there's scarcity of supply. But what we're seeing is is that, you know, the demand for for for fleet is definitely there.

39:07 Customers and businesses need that fleet, so they will pay what they need to pay to get that. The triggers that would take margin down would be excess competition. And the way I look at it is this, you know, rental is a feature of excess manufacturing. Manufacturers produce more vehicles than they can sell, goes into the rental channels, rental companies then sort of do what they do. And it was easy pre COVID. Certainly, it was easy for anybody with a checkbook to go off and buy some vehicles, vans, cars, whatever else, and set up a rental business. The barriers were low. I'm not talking about all the services that we offer, but just pure rental. I can't see that returning because I think the scarcity of vehicles, even when they return, I don't think it's gonna come back in the same way that we saw previously.

39:55 So I think the big players should be able to get the fleets that they need. I think they should be able sustain that position. So the triggers, take margin down, as I said, is competition. And whilst I think there's still a lot of competition in the market, you know, for for for for rental, it's across all the services that we have. So everything that feeds into our margin is coming from that rental platform that's supporting that. So my view is is that whilst we're not targeting to lower margins, I can't see the sort of natural triggers that's gonna pull it back. So whilst we're operating above this, certainly in Spain, close to it in The UK, you know, stick by the 15%. But as I said, you'd have to have those triggers that really sort of drove something down. Thank you. And and, Philip, do want to just talk about the historic margin and kind of the margin progression? That was one of the questions in the in the Northgate business. Yeah. I mean, certainly, the Northgate business, you you were to roll back pre my time or just maybe just before I joined, you know, Northgate margins in The UK were around sort of 78%.

40:56 Spain was a little higher, but none of the levels we're seeing today. And so a lot of things have happened since the since we merged the two businesses. It's it doesn't operate in the same way as we used to. We're much more efficient in the way we operate, not only because we've taken costs out, but we've changed the way we look at the business. So fundamentally now, you know, a fleet director is responsible for a vehicle through its entire life cycle. It's responsible for buying the vehicle at the beginning of a life, getting the best price, buying the right mix of vehicles for the demand which we see. It's they're responsible for servicing and maintaining that in an optimal way. Martin mentioned we're operating at 92% utilization, which we do think is optimal. We go much above that. You start to have to turn down customer requests for vehicles because you can't meet them. And then we also decide at which point is it depleted and then sold through our disposal platforms both in Spain and The UK.

41:48 I think historically, those different elements of operations were split up under different people, and therefore, there wasn't this aligned thinking of how are you maximizing the use of that vehicle through its life, minimizing your cost, maximizing the return on capital employed. By bringing them under sort of one leadership, you've really got a much better control of that asset. We've extracted a lot more value out of the assets we've been buying, and you can see that in the increased margin. So we're now at or above our sustainable margins, which Martin Martin mentioned, we believe is around 15%. And Martin, looking at coming about do do customers still want shiny and new, or is the is the market dictating something different? I think and, again, the market's changed.

42:33 I think what COVID's taught everybody is actually you don't need a new vehicle every two years, and actually getting vehicles back off customers, you know, is is has been difficult because they want to hold on to them. You know, what we say is that there's a standard there's a rental standard by which we would rent vehicles to, and that's sort of an industry standard. So providing you meet that and customers want them, absolutely fine. You know, if they drop below that standard, I mean, you know, we would defleet. So we defleet the vehicle, we would sell the vehicle. So that's the way that you sort of rotate in the in the in in that instance. So now customers are I think the the it's definitely changed in terms of being able to have a vehicle for a longer period of time. And I think, again, that's with us for the maybe the short to medium term. It feels like that. That's the sort of feedback we get from our commercial teams. K. I can see some questions in terms of strategy, and and I think, you know, it's very clear that groups made considerable progress since since the merger.

43:28 And how do you sort of see the strategy developing from from here? Well, I think in in terms of strategy, I mean, you know, we want to utilize our platform that we've built. Then we want to take market share, and we want to sort of grow our earnings. I mean, that is the ambition. You know, we're gonna do that by, you know, taking more services from our existing partners and growing that winning new contracts in our strong pipeline, so feeding growth, broadening our reach in terms of sort of the branches and the service centers and the things that we can do, and also, you know, strengthening our market position through m and a. So I think all of those aspects, you know, we talk to growth. Our strategy is to use that platform and leverage it for growth. We've got a unique position, and we want to build on that.

44:14 You know, our our positioning is very broad in terms of what we can do, keeping customers mobile and providing services on that platform. And if you think about all the things that happened and the things that we touched on, you know, there is more still that we can do in that space, and we're seeing that. We've seen it in the results. We've seen it in our growth, And we're in a very big addressable market. So there's a lot more still to go for both in The UK, both Spain, and in new geographies. So I think there's a lot ahead for us. And just going on that not quite blue sky, but a question about how we're thinking about deploying technologies, whether that's cross selling. We'll come on to EV in a little bit more in a moment. But just if you kind of throw it out that three to five years, what's your vision in terms of how technology, digitization, etcetera, might actually help drive the business? Yes. No. It's a good good question, actually. Because, I mean, we're starting from a relatively low point in the merger.

45:06 But we've got a vision. We've got a vision in terms of what we wanna do with technology. So, you know, we have we have a lot of people in our contact centers. Know, the technology has moved on with AI and virtual assistance and robotics. So we're using quite a bit of robotics already in terms of the business, in terms of what we do. But across the brands and across the platform, we talk about an integrated mobility service. And if we digitize that rather than making it manual, because we we what we can present and how we can present it to the customers and deliver it is absolutely all joined up. In the background, our systems are not connected. So when currently, we've got the project underway, which is connecting all of our systems and getting all the data consenting and all the contracts that you can share the data across the platform. And therefore, when you access the platform, no matter what part of the service you're accessing, you can see we can see what services have been purchased, what can be deployed, and then we can deploy those services and make it very easy for the customer digitally.

46:05 That means then that all the platform we got, we've got leverage on that platform. We got efficiency leverage to be gained on that platform in terms of we can get our trained people. We can get them sort of redeployed to do other things as we're growing. And then, you know, if I if I took a contact center operator, for example, you know, if if if it's a one on one now, it could be a one on three with with the live chat, with the virtual assistant, with the robotics in terms of getting through the processes, in terms of what we wanna do. And more customers are quite happy to self serve as well, whether that's through portals, web services to their phones. They're happy to deploy the services themselves. So we're gonna lean into that, and we've got a plan to do that. And I think in the next three to five years, it would be a much stronger proposition digitally as well. Okay. And I think the next three to five years is also quite an important time frame when we think about electric vehicles and EVs and new technologies.

47:00 Do you want to give sort of share some thoughts about what you see up ahead, or do do you view this as being a a risk to the business or actually one where there's quite a lot more opportunity for us? It's a lot of opportunity. We got a 130,000 fleet, and the way that we view it is we don't speculate on on EV or or hydrogen or anything like that. We match the car park. We match the demand. So on the car fleet, it's much easier because people have made that decision when they have a car and if they want a replacement car and they've got an EV or a hybrid, we give them a replacement EV or hybrids. We match the car park and the demand for the customers. So on cars, relatively straightforward, and we would continue that as the car park grows with EV and hybrid. Our fleet will continue to grow with EV and hybrid. And as I said, we've got our own training academy, so we're training our technicians to be able to work on these vehicles as well.

47:46 On vans, it's it's it's you know, I think there's a sort of a a gap here in terms of timetable with sort of that twenty thirty provision and then just beyond. You know, the van product has not been developed with something that has the range and the load capacity necessary to replace the workhorses that you that you have on combustion engine. The take up is a lot smaller, lower, because customers can't transition if you haven't got a product fit for purpose. Now we've got 16 models in The The UK at EV and hybrid models in The UK and 12 in Spain or the other way around. I think it's other way around. Thanks for correcting it. The other way around. But as I said, they're not workhorse products that can do what customers want. So, look, we've been running open days, customer experiences so they can come to our open days. People can get up and close, touch the product, feel it, ask the silly questions without sales of a sales team, and sort of understand how this is gonna work for them. So where we can support the transition, we can do that through the customer experiences.

48:52 And there's been over 1,800 driver experiences where we're doing that with customers. So great opportunity for us to move into that space and support the customers, and as I say, come up with a plan to how they transition. And just, Philip, back back to you. On related topic, but about our own ESG targets, I can see on that. Do want to just talk a little bit about what we put in place for that? Because that's fairly new this year. Yeah. We've been doing a lot on ESG this year within the company. First of we recruited Ned ahead of ESG to lead the program for us. We've also set up ESG committees. So we've got various ESG committees looking at our estate, our real estate, how we improve the and reduce the emissions coming from the estate. We've got one that's looking at mobility and our fleet. How do we measuring the emissions from our fleet and how do we reduce that, looking at new technologies and the way we use vehicles.

49:47 And then another group that's looking at people and the social side of our business. How do we maximize the experience for employees working in our business and also understand how we work within our communities that we operate much better as well? And then we've also been working on issuing our own targets as well. We said we wanted to be net zero by 2050, but we've now been setting some more midterm targets on scope one and scope two emissions. We've done a lot of work on collecting data, the scope one and two, but also in a starting to assess the level of scope three emissions as well. And we know that actually our scope one and two emissions probably account for less than 1% of our total emissions. So most of our emissions will come from the life cycle of a vehicle in in scope three. On scope one and two, what we said is by FY '27, so in five years' time, using FY twenty two as the base year, we're gonna reduce our scope one and two emissions by 10% in absolute terms.

50:42 And at the same time, we're also going to be making sure all of our electricity that we procure is green electricity by FY twenty seven as well. Fantastic. So I think I've actually having looked at all pre submitted and the questions, hopefully, we have addressed all the questions which people have. So I think I should probably, at this time, hand back to the investor meet team just to see whether they want to encourage any more questions. And if not, then we'll give it a moment. And then maybe, Martin, you want to just perhaps wrap up with some final thoughts. Okay? Yeah. Thank you very much indeed, Ross. I think you and the team have covered off every question that we've had through. So perhaps, Martin, if I could just hand back to you just for some closing comments, and I'll pick up from at the end. Okay, Paul. Thank you. Yeah. So look. From from me, I would say, you know, the ambition of the management team is to grow sustainable returns.

51:30 You know, Ready Northgate is a strong asset backed business with a broad broad customer base. You know, the earnings quality is good with many of the services that I've talked about contracted over multiple years. You know, we generate strong levels of cash, which we can decide how we want to invest in line with a very well defined capital allocation structure that Philip took you through. You know, we have a very strong balance sheet got over 1,000,000,000 of assets. The majority of these being relatively liquid in the form of vehicles. And at the heart of what we do, you know, is mobility. And what we saw during COVID is that people need that mobility for businesses to continue, for people to move around. So I think we play a very strong integral part of what sort of society needs through our platform.

52:19 And I think all of that sort of combines to make a very, very strong proposition. Fantastic. Well, thank you, everybody, and back to the investor team. That's great. Ross, Martin, Philip, thank you very much indeed for updating investors today. Can I please ask investors not to close the session? It should be automatically redirected to provide your feedback in order the team can better understand your views and expectations. This may take a few moments to complete, and they will be greatly valued by the company. On behalf of the management team of Reading, Northgate PLC, we'd like to thank you for attending today's presentation. That concludes today's session. Thank you, and good afternoon to you all. Thank you. Thank you.