Zigup Plc

Good morning, everyone. Thanks for joining us today. I'm Martin Ward, Chief Executive of Zyga PLC. Joining me today is Philip Vincent, our CFO, and we've also got Claire Owens, our MD of the FMG businesses here. The presentation follows a sort of usual format in terms of its agenda. I'll give a sort of an overview first of all just in terms of the business performance. We're going to go into Philip then for a summary of the financial performance before coming back to do a strategic review with myself and Q&A at the end. Okay, so starting. This is not only a great set of results but a record set of results with continued delivery of the strategy set out in 2020. The maturing claims and services contract wins previously announced led to good levels of growth in the UK and Spain has enjoyed the benefits of a strong economy and normalised vehicle supply. This has supported underlying revenue and EBIT growth. PBT reached a record high, which benefited from higher disposal profits as we rotated the fleet into a strong used market for LCVs. Cash generation was very good, and from an EBITDA of £446 million, we have been able to progress further investments in the fleet assets, increasing replacement capex spend this year, which reduced the age of the fleet, Make further returns to shareholders through the completion of the 30 million share buyback programme, taking the share buyback to 90 million since we commenced the exercise. We continue to support a progressive dividend policy which has returned 56 million this year. And increase the balance sheet value with fleet assets alone accounted for 1.3 billion. And these returns and investments have been achieved whilst maintaining an unchallenging leverage of 1.5 times. And of course, this has improved EPS and supported an increase in dividend returns. Let's turn the page. Looking at the operational highlights, just from an overview perspective, I mean, operationally, it's been very busy, and the business has cemented a leading, differentiated proposition in the market, with the platform of services appealing to a wide number of customers. And it has been an exceptional year for operational progress. We have added to our rental capability with a broad range of new products and value-added services in both the UK, I and Spain. And one good example is Blakedale, which has been a standout performer in the traffic management space. And we have supported growth with investment in their fleet, which is up 35%, and new customers, which are up 18%, and operating profits, which are up over 100%. And we also support their customers with additional services, including the specialist fit-out of key customers' owned vehicles who trust in our expertise and specialism in this area. Similarly, Claims and Services, which was formerly known as Ready, has grown its specialist capabilities and broadened its offering, including a new set of out-of-hours first notification of loss and accident vehicle recovery services for insurers, which is seeing growing demand. Our scale has allowed us to do more for our existing partners, including contract expansion and new outsourcing customers such as Lex and Abacai Insurance, which went live in the year. We also want a new contract to support a long-standing group customer, Royal Mail, with repair capacity and have more opportunities in the pipeline. Investment in automating and digitalising our systems and processes is a long-term programme that brings immediate benefits. For example, we launched a self-service portal for direct insurance rental customers where around 75% of monthly activity is now going through online with no manual intervention. We plan to roll out this initiative more widely this year to other partners. And investment in our integrated repair facilities and independent network, which now numbers over 600, is increasing our repair capacity, which remains a scarce commodity. So when I think about the broader initiatives, like our Customer First programme, which has re-energised the team after what has been a difficult period where supply constraints in the UK and I and parts delays have caused real challenges for those on the front line. And looking at the structural trends towards EV take-up in the LCV market, there is positive momentum in the UK and I, with the fleet up over 140%. In Spain, the pace is a little bit slower, albeit with an increase. We've also responded to a changing EV infrastructure market by developing new partnerships with energy providers. These are increasingly the best route to looking to install home and workplace chargers. So overall, the progress in FY24 was significant and positioned as well for the opportunities ahead. So that's sort of the brief overview for the business. I will be back to talk about the strategic developments, but now I'll hand over to Philip for the financial overview.

Thank you Martin and good morning everyone. It's great to be here this morning talking about another really good set of results. So we'll go straight in. If we turn to page 7, we'll take a look at the headlines to start with. So underlying revenues excluding our vehicle sales were £1.5 billion. That's 13.7% higher than the prior year with growth across all of the businesses. Earnings before interest and tax increased 13% to £213.7 million. And underlying profit before tax grew just under 9% to another record high of £180.7 million. And underlying earnings per share increased 10.4% to £61.4 in line with the increase in PPT and benefiting from the share buyback programme. And return on capital employed increased 40 basis points to 14.5%, benefiting from underlying profitability and disposal profits. So if we just turn on to page 8, we can look at revenue. So our platform continues to attract and benefit our customers, and we've seen revenues grow across each of the businesses. So group rental revenue grew 6.4%, and in the UK and I, average VOH reduced 7.7% year-on-year, due to limited access to new vehicles, but supply has improved significantly through the year, with a good supply of vehicles now available. And product extension and carefully managed pricing enabled rental revenue to grow 4.6%. In Spain, access to vehicles has returned to normal, and average vehicles on hire grew 4.1%, and pricing continued to be carefully managed, resulting in rental revenue growing 8.4%. Claims and services revenue grew 19.4% with the full year impact of the new contract wins as well as growth from existing contracts. And vehicle sales revenue of £312 million was £159.6 million higher than the prior year as new vehicle supply improved in the UK and Ireland and it continued to be strong in Spain. So we now turn to page 9. This chart bridges prior years underlying profit before tax of £165.9 million to £180.7 million this year. So group rental volumes across UK and I in Spain contributed 6.7 million of additional profit before tax. And our procurement activity continues to develop. And alongside careful management of pricing, we've managed cost inflation across the businesses. Alongside extending our product services and a focus on customer profitability, this has resulted in Spain's rental margin of 18.2%, which was higher than expected and will be higher than our medium-term expectations of 15% for longer. Rental margin in UK and Ireland increased 40 basis points to 15.5% in line with our expectations. And disposal profits decreased 3.8 million in the UK and Ireland as older vehicles were sold with lower residual values and PPU and increased 14.1 million in Spain where access to new vehicles has returned to normal. So in total, we sold 36,800 vehicles in the year versus 18,200 last year, and that also includes 7,000 auxilious cars and non-fleet vehicles this year. Residual values have fallen in the UK and I and Spain, partly reflecting older vehicles being sold, but overall they remain high compared to historic levels. And the increase in claims and services volumes from existing and new contracts contribute an additional 8.8 million of profit. And claims and services EBIT at 6% reflects the mixed effect of business, all of which contribute to the profits of the business with high ROKI. And interest costs increased 9.7 million due to a higher average level of debt and the full year of higher interest rates, which is offset by a reduction in corporate costs of just over a million. Now, if we exclude all the disposal profits from both periods, underlying EBIT increased 10%, continuing to demonstrate the underlying growth of the business. So now let's turn to page 10. We can have a look at the cash flow. So it's the same format as last year, showing our priorities for cash. So EBITDA of $446 million was $34.1 million higher than the prior year, driven by the underlying performance of the business. and steady-state cash generation was strong at £101 million, albeit £90 million lower than the prior year, as spend on net replacement vehicles increased to £125 million, as supply has improved in both the UK and Ireland and Spain. The average fleet age in UK and Ireland has now decreased 1.7 months to 34 months and in Spain has reduced a further 2.6 months to 30.1 months. And the investment in new replacement vehicles will generate significant cash over the next three to four years. We've paid dividends of £56.2 million and have chosen to invest a net £345 million in new vehicles, resulting in a net outflow of £20 million. Now the growth capex of just under £2 million reflects the fact that most of our capex spend this year was used to replace older with new, rather than grow the fleet in the UK and I. So our total capex spend on replacement and growth capex was broadly flat year on year. And this in part reflected the lack of new vehicle supply for the early part of the year. As with leverage in the middle of our range, we had plenty of capacity to acquire more and with significant demand for those vehicles. We spent £4 million on acquisitions and £24.9 million on share buyback, completing the remainder of the buyback in the last couple of months of the current financial year. Now, on the basis of ongoing improved vehicle supply in both the UK and Ireland and Spain, we plan to continue replacing the oldest vehicles in our fleet, and this means that I expect our total net capex spend to increase by just over a third in FY25. Now, in part, that's a catch-up from FY24, and that's all well within a prudent leverage range. Now, the plan also reflects the fact that we have a good position in terms of access to new fleet at scale. We are seeing a return of discounts from OEMs to rental fleets, and simply put, we should be able to get more for our money with higher levels of discounts as volumes return. Now, as the age of the fleet reduces, we'll see two benefits. First, maintenance costs will reduce. And secondly, the time vehicles spend in our workshops also reduces. Now, both of these benefit utilisation and enhance cash flow and returns. Now, if I do some modelling on the basis of what we would like to achieve within the business, given our expectations of vehicle supply over the coming 24 months, it would suggest that the average age of the fleet would reduce to around 28 months in both UK and I and Spain. Now this is on the basis that replacements go as planned and RVs trend as we expect them to. And then thinking longer term, I'd then expect our total net capex spend to reduce substantially in the years beyond, with a corresponding momentum to cash generation. Now the speed of this is principally driven by our appetite for fleet growth and how we want to grow the business. We'll of course continue to have the ability to control the capex spend as we see fit, to manage our overall spend and capitalise on opportunities we have for other forms of growth. We would expect cash flow to benefit from this investment in fleet over the next few years through rates, utilisation and lower maintenance. So although falling in FY25 with the additional capex, this would quickly turn into strong cash generation and significantly increase thereafter. And I can see this moving to, say, between mid-£100 million to £200 million steady-state cash flow and then significantly higher than after, accelerating to well above £200 million, everything else being equal. So whilst leverage would track higher with CapEx, it is expected to stay comfortably within our target of one to two times range. And on the basis of a balance sheet, we significantly hire new fleet assets we will have added, which is also beneficial for refinancing. And this cash generation quickly normalises at a significantly higher level. It will provide us with enhanced options as to how we choose to invest for future growth and fund returns to our shareholders. And this will be on the basis of a substantial asset-backed balance sheet, large and growing cash generation and leverage remaining at the bottom end of our rental peers. Now, if we turn over the page... We can look at where we are on our balance sheet. So the business continues to operate with a strong balance sheet. Our net debt has increased 48 million, whilst the value of our fleet's assets on the balance sheet has increased 140 million to 1.3 billion pounds. And we've maintained our leverage at 1.5 times, so unmoved from the prior year. 65% of our debt at the year end was fixed, and we have an average borrowing cost of 3.5%. That's 40 basis points higher than last year, reflecting the full year impact of the higher rates, but still very well protected from the high rate environment. Now the chart at the bottom then bridges our net debt from April last year to April 24. Our net debt closed at $742.2 million with ample headroom in our committed facilities of over $244 million. And we generated steady state cash of $166.2 million excluding our lease payments. And this included a net £345 million invested in CapEx, replacing the fleet and growing in Spain to meet demand. £4 million was spent on acquisitions and returned £81.1 million to shareholders in the form of the dividends and the share buyback. In the top right-hand chart, it shows since FY21, we've now returned $177 million in dividends. We've invested $45.5 million in acquisitions, extending the products and services of our platform. And we've returned a further $85 million to shareholders through the share buyback. So the business continues to generate good cash, which is being invested to generate sustainable returns, as well as funding returns to shareholders, and we expect to see significant cash from the returns on the current investments. Now I'll hand you back over to Martin for the business update.

Thanks, Philip. So overall, you would say that's a pretty good performance in terms of from a financial perspective for the business?