Inchcape plc

Good morning, everyone. I hope you've all seen two announcements from Inchcape this morning. Our 2022 interim results and the announcement of our proposed acquisition of Durco. I am super excited about this deal. It'll provide a step change to our distribution footprint, adding in excess of two billion pounds of revenue in the highly attractive and fast growth America's region. Durco distributes a fantastic group of brands to a number of markets. markets where we already operate, and they have a great management team and culture similar to ours. We'll come back to provide more detail about Derco and the transaction shortly. Before we do, let me thank you for joining us for our 2022 interim results. As usual, I'm joined by our CFO, Heisbert de Zooten, and our Head of Investor Relations, Raghav Gupta. We'll begin with a short presentation, followed by your questions. Today's presentation will be available on the Group website and a recording of this call will also be uploaded later today. We've set out the agenda on slide 4. I'll begin by running through the first half highlights and headline financials before handing over to Hysburt who will cover the financial performance and outlook in more detail. We'll then provide you with more detail about the proposed acquisition of Derco. After that, we'll open the lines for your questions. So let's get going. On this slide, we have summarised the highlights of a great first half of the year. Fantastic execution from our teams across our diversified geographic footprint has driven strong revenue growth and margins and continued high cash generation. We're making excellent progress against the two strategic growth opportunities that we set out in our Accelerate strategy. First, distribution excellence. We have continued to extend our global leadership in the highly cash-generative automotive distribution segment, which is our core area of focus. This continued shift of our portfolio towards distribution has been bolstered by two compelling acquisitions and through the swift exit of our operations in Russia. We are leading the way in digital and data capabilities, enhancing our capabilities and analytics, while rolling out DXP in more markets. As of today, we are at 31 markets with 12 OEMs. Secondly, Vehicle Lifecycle Services, or VLS, where we have identified a huge opportunity for the group in the profit achieved beyond the first phase of a vehicle's life. In Q4 last year, we launched Bravo Auto, a digital-first used car platform, and we are pleased with the progress we have made in the half. And finally, we have made excellent progress against our responsible business ESG strategy, which sits at the heart of everything we do. At the halfway point of 2022, we have achieved great momentum. I'd like to thank each and every one of our colleagues who have fully embraced our Accelerate strategy, and through their expertise, dedication and teamwork, they are helping us drive our business to new heights, reflected in our strong results. Slide 6 shows our headline KPIs for the first half of 2022. Inchcape delivered a great first half performance across all key metrics. Revenue was £3.9 billion, which on an organic basis represents an increase of 12%. Our operating margin came in at 5.2% compared to 3.8% last year. This increase in revenue and operating margins drove the group's PBT of £184 million up from £121 million in the prior year. Free cash flow generation was £224 million, improving our net cash position to £439 million post M&A and cash returns. The group's adjusted EPS was 35 pence, with a proposed interim dividend of 7.5 pence, up from 6.4 pence last year. Let me now hand over to Heisblatt, who will run through the financial performance in more detail.

Thank you, Duncan, and good morning, everyone. Let's start with the headline income statement figures on slide eight. We generated revenue of £3.9 billion in the first half, which is 12% above the prior year on an organic basis. In addition to the broader strengths of our existing business, performance was supported by the addition of new distribution businesses. Our operating margin was 5.2%, which is 140 basis points ahead of the prior year. PBT of £184 million reflects the strong improvement in revenue and operating profits, driven by a combination of robust consumer demands and price-mixed tailwinds against the backdrop of new vehicle supply shortages. A strong set of results demonstrating the scalability and leverage of our business model as we continue to expand our distribution portfolio. This slide shows the absolute revenue and organic trend for the group and for the distribution and retail businesses. The year-on-year growth rates are impacted by the varying degrees of pandemic-related disruption in the comparative periods. We have therefore provided the absolute revenue figures, which show the continued solid improvement. The distribution segment delivered sequential improvement, both from the second half of the year and also in the second quarter. In retail, which today is largely a UK business, the first quarter of 2021 was severely disrupted by pandemic restrictions, which explains the variation in growth rates. Absolute revenue grew versus the second half and was stable in the second quarter. This slide shows the regional revenue trend for distribution, where we are seeing strong demand in most of our markets. In the chart we have shown how performance across the regions compares to the same period in 2019, with all regions above bar Asia, which was expected. The distribution segment saw revenue rise of 16% year-on-year in constant currency and 14% organically, with a particularly strong performance in both the Americas and in Europe. Starting with Asia, revenue declined 11% in light of unfavorable trading conditions in Hong Kong and Singapore. Performance across the rest of Asia was good. In Australasia, while our top line performance was weighed down by lower vehicle supply, this was somewhat offset by improved pricing. In Europe, revenue increased 34%, supported by continued market share gains and certain new model launches. Americas and Africa revenue grew 47%, with a meaningful contribution from newly added distribution businesses. Organically, it grew 33% driven by robust consumer demand. The comparative period was impacted by some pandemic related disruptions. Turning now to distribution operating profit and margins on slide 11. The strong top line growth growth operating profit of 172 million pounds and an operating margin of 6.3%. In Asia, operating profit was stable versus the second half. Cost mitigation measures helped support margins and our newly acquired commercial vehicle business in Guam and Micronesia contributed positively. Profitability in Australia was supported by better pricing and growth of our after-sales business, which was more robust. We also implemented strict cost control in light of lower vehicle supply. In Europe, the increase in operating profit followed a strong growth of revenue with market mix supporting margins. Americas and Africa was driven by a combination of organic and inorganic growth and an imbalance of supply and demand, which supported margins. On slide 12, we show retail revenue and operating profit from the first half of 2019 to the first half of 2022. Following its significant disposal programme, including our remaining Russia business in Q2 this year, the retail segment now only includes the results of the UK and Poland. Revenue amounted to £1.2 billion and operating profit of £30 million resulted in an operating margin of 2.6%. Demand for vehicles, both new and used, remained strong, which against the backdrop of constrained supply has continued to support vehicle margins. Aftersales was solid, delivering good growth throughout the period. Turning now to slide 13. We thought it would be helpful to share our thinking around current industry and market dynamics. In terms of supply, prior to the pandemic, production expanded in line with global demand. In 2020, vehicle production started to be impacted by chip shortages, pandemic-related restrictions, and a broader disruption to supply chains. This has created a gap of circa 26 million vehicles through to the end of 2022. And while the situation is improving, we are still below pre-pandemic levels and the shortfall in production since 2020 is not forecast to be filled before 2025. Against this backdrop of constrained supply, demand has remained very strong. And while there are some signs of weakening consumer confidence globally, we are still operating with record order books in many of our markets and have not seen any change to our cancellation rates to date. In terms of inflation, we're seeing high levels of inflation in vehicle cost, in shipping cost, and we continue to pass this on in pricing. While future levels of inflation are uncertain, we closely monitor and react to the different environments in our markets. In terms of geo, we are very diversified, operating across more than 40 markets with different market dynamics. For UK retail, we expect margins will normalize towards 1.5% as the supply-demand balance changes. Asia, as you know, is at the low point and expected to gradually improve, which will help margins. Finally and importantly, while market growth rates will vary year to year, our exposure to higher growth markets with low motorization rates will support our growth over the medium and longer term. Fundamentally, we remain confident in the medium-term outlook set out at our Capital Markets Day. Turning now to slide 14, with a more detailed review of the income statement. In aggregate, we delivered operating profit of 204 million pounds. Our net interest expense of 20 million pounds is above the prior year, owing to higher financing costs. Adjusting items were relatively minimal in the period, with the gain on pensions largely offset by amortization costs and acquisition-related expenditure. The underlying tax rate for the year was 26%, broadly aligned with the rate anticipated in the median term based on the current market mix. Our earnings per share before adjusting items was 35 pence. Now moving on to slide 15 and cash. Cash generation continued to be strong, reflected of the high cash generative nature of our business model. As per the previous slide, the group generated operating profit of 204 million pounds. During the period, we benefited from a net working capital inflow of 73 million pounds arising primarily as a result of lower net inventories. This follows an unusually low level of inventory financing at year end. Net capex of 16 million pounds was broadly in line with the prior year. Total free cash flow amounted to £224 million, driven primarily by an improvement in profitability and a change in working capital. Net acquisitions and disposals amounted to an outflow of £110 million, largely related to our acquisitions in the Americas region. And we've made a dividend payment of £61 million. During the period, we bought back 59 million pounds worth of shares as part of last year's and this year's share buyback programme, and we've decided not to continue the remainder of our buyback programme in light of the proposed acquisition of Derco. The group closed the reporting period with a net cash position of 439 million pounds, excluding lease liabilities, which compares to a 379 million pounds position at the end of December 2021. This brings me to the 2022 outlook on slide 16. As we look ahead to the full year, consumer demand remains robust while supply continues to improve, albeit slowly. And while there remains some uncertainty from the pandemic, our diverse geographic footprint helps support our overall performance. Based on performance to date and our expectation for the second half, with an improved outlook for vehicle supply and robust demand, we continue to expect to deliver 2022 PBT between 350 and 370 million pounds at prevailing exchange rates.

And with that, let me hand back to Duncan. Thank you, Huisbert. Which brings us to the final section of today's presentation. our proposed acquisition of Derco. At our Capital Markets Day in November last year, we provided you with the details of our ambitious growth plan and launched our strategy Accelerate. As a reminder, our strategy is focused on capturing two enormous growth opportunities in distribution excellence and vehicle lifecycle services. Our ambition is supported by three key enablers, culture and capabilities, digital, data and analytics, and efficient scale operations. And all this sits on a bedrock of responsible business. The proposed acquisition of Derco is entirely consistent with our ambitions and will enable us to capture a greater share of both global distribution and vehicle lifecycle value. Let's move to slide 19. Let me first say how delighted I am to be able to announce Inchcape's proposed acquisition of Derco. We have long admired Derco and approached them several months ago to explore how together we could better support our OEMs in Latin America and accelerate profitable growth. The deal will broaden our OEM footprint, adding some fantastic brands, and extends our market footprint. I'll come back to this shortly. Derco is LATAM's largest independent distributor. It is a family-founded and family-owned private business and a business we have long admired. In 2021, group revenue was £2 billion. Over the last 12 months to the end of June, revenue has been £2.2 billion. We've agreed to purchase it for an enterprise value of £1.3 billion, which implies a multiple of circa six times based upon normalised margins and post-recurring synergies. The deal is a mixture of cash and equity, with the Del Rio family taking a 9.3% stake in Inchcape. We expect the transaction will deliver significant EPS accretion, with more than 15% in year one, and recurring synergies of at least £40 million will drive EPS accretion above 20%. The deal is subject to Inchcape's shareholder approval and merger control. This acquisition extends Inchcape's global leadership in automotive distribution. and on this slide we have shown how the combination aligns with our accelerate strategy. The acquisition of Derco, Latin America's largest automotive distributor, provides a step change in the scale of our distribution business. In line with our focus on distribution, Similarly, this transaction will give us a significantly expanded position in the attractive and fast-growing markets of the Americas. It reinforces our presence in Chile, Peru and Colombia, and adds scale presence in Bolivia. Both companies have complementary market footprints and OEM brand portfolios. During the extensive discussions we've had over many months, I've been struck by how culturally aligned Derco and Inchcape are, and I am very pleased that the Del Rio family will take a significant shareholding in the business and will nominate a family member to join the Inchcape board following completion. We expect the deal will enhance growth prospects of Inchcape and deliver meaningful recurring synergies. Fundamentally, it will enable us to accelerate both of our growth pillars, distribution excellence and vehicle lifecycle services. Let me tell you more about Derco on slide 22. Like our operations in the Americas, Derco is headquartered in Santiago, Chile, and is the largest independent distributor of passenger cars by volume in Latin America. The business employs around 4,500 colleagues, spanning across four markets of Chile, Peru, Colombia and Bolivia, and has distribution relationships with 11 OEMs. Durco is the number one by volume in Chile, Peru and Bolivia, and number three in Colombia. In 2021, Durco distributed 150,000 new vehicles, generating revenue of £2 billion and operating profit of £236 million. They have more than 300 locations, 30% of which they operate directly. Durco is a family-owned, multi-brand automotive distributor founded by the Del Rio family in Chile in 1959. And today they continue to own the business. Durco is led by an experienced management team with deep knowledge of their markets and a strong customer experience ethos. Throughout our discussions, I have been struck by the close cultural and strategic alignment with Inchcape. Derco, like Inchcape, is trusted by its OEM partners and has demonstrated an excellent track record of profitable top-line growth and delivery for its OEMs. Over more than 60 years, it has grown to become the largest independent distributor by volume across all of Latin America. Here we show Derco's track record of delivery since 2014. On the left you can see the evolution of Derco's aggregate market share across its four markets, which has grown from 12% in 2014 to 18% in 2021. This has been supported mainly by volume growth for its existing brands and also by the addition of new brands over that time period. On the right, you can see the very long-term nature of their OEM relationships, like Inchcape, with Suzuki approaching its sixth decade and Mazda now in its fifth decade. It also shows the wide range of brands that they distribute, which is complementary with our own brand footprint in the markets we have in common. Derco's strong and growing platform and deep OEM relationships positions it very well for the future. Now let me hand over to Heisbert, who will provide the details of the transaction.