Inchcape plc

Hello and welcome to Indicate Q1 results conference call. Please note this call is being recorded and for the duration of the call, your lines will be on listen only. However, you'll have the opportunity to ask questions. This can be done by pressing star 1 on your telephone keypad to register your question. If you require any assistance at any point, please press star 0 and you'll be connected to an operator. I will now hand over to your host,

Thank you, Susan. Good morning, everyone, and thank you for joining us. With me on the call is our Acting CFO, Adrian Lewis, and our Head of Investor Relations, Raghav Gupta. I'll begin by commenting on the group's performance and outlook before handing over to Adrian, who will give more detail. We'll then take your questions. So as detailed in this morning's announcements, the group's Q1 performance has been excellent, with continued strong business momentum reflected in our strategic, operational and financial progress. In the first quarter, we reported revenue of £2.7 billion, with growth of 50% on a reported basis, reflecting the benefit of M&A, including Derko. On an organic basis, revenue grew 13%, with a continuation of the trends experienced at the end of last year and growth across all regions. The M&A contribution was primarily driven by the consolidation of Durco, which has made an encouraging start in its first quarter within the Inchcape Group, while our other recent acquisitions, Marico in Guam, Simpson Motors in the Caribbean, and D-Tech in Chile, all continue to perform well. On Durco, I am a especially pleased with the progress to date in integrating the business into our group, and we remain firmly on track with our strategic and financial plans. We reiterated our confidence in our margin expectations for Derco at our full year results, and we stand by our expectation of delivering operating margin towards the top end of the 5% to 7% range that is typical for a distribution business, before the impact of synergies. Adrian will touch on inventory shortly, but from my perspective, the team has done a great job in aligning inventory management practices in DRCO with those employed across Ingecape. I was in the Americas visiting the operations a few weeks ago, and I'm confident about the working capital opportunity we have quantified for 2023. Finally, in relation to EPS accretion from the deal, we continue to expect at least 15% accretion in 2023 and at least 20% in 2024. This reflects the additional profit contribution and the dilution from the Intricate shares issued to Derco's former owners. Over the past few years, we have continued to shift the group's portfolio towards distribution. And during the first quarter, we have further extended our distribution footprint, I'm delighted with the speed at which our team has expanded our presence in the APAC region. Firstly, with the agreement to acquire CAF, giving us access to the Philippines, adding another exciting and high-growth market to the group. And more recently, the agreement reached with Mercedes-Benz for us to purchase their operations in Indonesia, a business the OEM has been operating since 1970 and has now decided to hand over to Ingecape to manage and drive further growth. The two acquisitions will collectively add over £320 million of annualized revenue, and we anticipate completion during the second half of 2023. We were also pleased to be appointed the distributor of Tata commercial vehicles in Thailand, broadening our footprint in a market where we already distribute JLR. This expansion is a great example of our accelerated strategy and action delivering on the group's growth ambitions. The combination of our broad market footprint, strong OEM relationships, our digital and data capabilities, and our robust financial position continues to make Inchcape the natural consolidator in a highly fragmented industry. During the quarter, we continue to progress with our ambition to capture more of a vehicle's lifetime value via Bravo Auto and our digital parts platform. In these early days, our teams are focused on execution, and we are pleased with the progress so far. Now, moving to Outlook. Following an excellent start to 2023, and based on prevailing market conditions, we expect to make strategic operational and financial progress, underpinned by the integration of DRCO, with full-year results expected to be in line with published market consensus. Adrian, over to you.

Thank you, Duncan, and good morning, everyone. Q1, the group generated revenue of £2.7 billion. On an organic basis, revenue grew 13% with growth across all regions. Duncan referenced the significant M&A contribution driven primarily by DERCO, and currency also provided a small tailwind. Overall, on a reported basis, revenue increased over 50% year over year. Looking at our two segments in distribution, revenue increased 70%. The M&A impact largely reflects the consolidation of Durco, although Simpsons Motors and Dytac, both acquired in Q2 22, also supported growth. On an organic basis, distribution revenue increased 15%, supported by improving new vehicle supply and aftermarket growth. In retail, revenue grew by 8%, with performance also supported by improved supply. The growth rate was stronger on an underlying basis, with the headline impacted by the switch to agency for certain brands at the start of 23. Now let me provide you with some further details. Starting with the Americas, we saw good performance despite several markets lapping challenging comparisons where share gains for several brands that were supply constrained during 22. And elsewhere, the aftermarket continued to grow with the Bravo Auto rollout in the second half of 22 driving growth in used vehicle revenue in Q1. Moving to APAC, performance in both Singapore and Hong Kong was in line with our plan, with an improvement expected in late 2023. The reopening of the border with China has led to increased order books in Hong Kong, and our other markets in Asia continue to see strong trading with a continuation of the trend seen over recent time. In Australasia, we continue to see a strong momentum, underpinned by improving vehicle supply and a long order book. and our Bravo Auto business is gaining traction. In Europe and Africa, in Europe we saw double digit growth in both new and used vehicles supported by better vehicle supply and a particularly strong performance from Romania, Greece and Bulgaria. And whilst it's early days for Bravo Auto, the business is progressing well. In Africa, our performance was underpinned by a robust aftermarket. But before we move to retail, I'll provide you with an update on Derco. Derco's first quarter revenue and profit performance was in line with our expectations. In terms of market performance, the new vehicle volumes in both Chile and Colombia declined versus the prior year, following a strong 22, but Peru and Bolivia saw strong growth. In terms of brands, we saw strong performance for certain brands across both Derco and Corringe Cape, following improved supply. And this was offset by normalising market share elsewhere, following a very strong performance in 21 and 22. The aftermarket business was also performing well. As part of our integration plan, we have prioritised the alignment of our inventory management practices with those employed across Intercape. And we've been working in collaboration with our OEM partners. to revise down previously agreed orders for vehicles and parts. And I am pleased with the progress the team has made so far. At completion, Derco's inventory balance was £200 million higher than we had anticipated. And as we have said at our full year results, we have identified this as a working capital opportunity that we will deliver on through 2023. This will be partially offset by a working capital outflow across to the rest of the group. as that part of business normalises. Overall, as Duncan said, we are pleased with the progress we have made with the integration and performance to date. And moving to Rita, revenue grew 8% year over year on an organic basis with the underlying performance much stronger after the adjusting to the impact of the agency model. That change in business model will have a negligible impact on profits. And as a reminder, the shift to the agency model will not impact our distribution business. Performance has been driven by growth across all revenue streams with higher new and used vehicle volumes and after sales growth. New vehicles underpinned by higher volumes, used vehicles supported by a more established Bravo Auto business. So overall, the group has made an excellent start to 23 with a strong Q1 performance demonstrating continued business momentum. Duncan, back to you.