Zigup Plc

All right. Good morning, everyone, and welcome to ZGAP's interim results. I'm Martin Ward, CEO, and joining me today on the presentation is Philip Vincent, our CFO. Just in terms of agenda, if we look at the presentation, I'm going to give a very brief overview of the results for the period. I'm going to hand over then to Philip to do a deep dive into the financial review before coming back to me for a business update and then closing off with questions and answers. So if we just go to slide four, I just want to set the scene for the half year results. So it's been a good interim period as we continue to invest in the delivery of our mobility strategy and profit performance for the group is in line with market expectations. Vehicle supply normalised, so there's no current issues, and the direction of travel for the rental fleet since the year end is tracking upwards. So we expect to see growth in the VOH through to the full year. Disposal profits continue to trend downwards as expected, albeit these are still elevated in Spain, but we expect them to reduce over time. And our current investments in the fleet, as seen in the increase in assets on the balance sheet, will generate steady-state cash flows of over £200 million in FY27, supporting both future growth and a sustainable dividend policy. Normalization of the supply chains in the claims and services area is driving down repair cycle times and higher lengths, but we saw revenue growth from additional mix of work, mainly repair volumes. Some really good work being undertaken around customers, which is driving performance, and we are pleased to see our Trustpilot scores continue to be rated as excellent and supports great customer outcomes. So based on the momentum we have to date, we are confident on the full year market expectations. If I look at slide five, Stand out for me is cash has been strong, enabling us to make investment in growing the fleet, now with a book value of £1.4 billion. And this investment in fleet assets continues to add balance sheet value whilst maintaining leverage well within our target range of one to two times and through a disciplined capital allocation policy. The forward visibility we have on cash is also supporting a growing and sustainable dividend in line with our policy. And if we look at rental, as I said, the direction of travel in the rental fleet is up, both in renewing customer contracts and securing new orders. Spain continues to power ahead, adding over 4,000 to the average VOH on a comp basis. And we have seen further traction from cross-selling across the business verticals, which is a continually developing position. And I'll go into that in the second half. And installation agreements have been entered into with British Gas and Scottish Power for EV charging installation, both for domestic and commercial customers. And overall, we are looking at a strong pipeline going forward. In claims and services, we continue to grow repair volumes across our market sectors, which is an enabler to build out more crossover services. More digital connections are being made to support self-service and enhance our efficiencies. And we've seen good uptake of cash protocols by insurers, which reduces costs and adds to our cash collection efficiencies. And if we look at customer delivery as of March this year, the UK and I business is represented through one management team. You remember me saying that at the full year, which simplifies our customer engagement across the brands and delivers more market opportunity with strong positioning. Our trust pilot and survey feedback from our laser focus on customers makes us a standout provider of services, and as I say, rated as excellent. And when you visit our branches across all of our territories, you can actually feel a palpable energy and purpose as a direct result of bringing customer feedback to the top of the KPI sheet, with every branch team having visibility over how they are performing. And our ongoing investment, investing in new sites that are designed for efficient workflow and equipped with the latest tooling, as well as rolling out ADAS, Advanced Driver Assistance Systems, and repair and maintenance tech throughout our own sites to demonstrate a best-in-class operating model. This in turn is driving efficiencies and will improve margins over time. and ensuring we have next generation technicians through our expanding apprenticeship scheme, which now numbers over 400, providing talent succession. We'll come back to have a further update on the business, but overall we are pleased that with near normalisation of residual values and supply chains, we are seeing some good outcomes which underpin our performance. On that note, I'm going to hand you over to Philip to cover the financial results in more detail.

Thank you, Martin.

Good morning, everyone. So I'm going to start off by looking at the headlines. So if we turn to page eight, first of all. So the first thing to know is our overall group results are in line with what we expected for the half year. Now importantly, underlying revenues excluding vehicle sales were £775 million. That's 5.6% higher than the prior year with growth across the business. Earnings before interest and tax decreased £15.9 million or 13.8% to £99.1 million. That £8.9 million of this decrease is due to the expected normalisation of our disposal profits. And the balance is due to claims and services profits, which I will talk to in a moment. And the rental business has continued to perform very well. We have continued replacing our oldest vehicles and have been investing to grow the fleet to 132,500 vehicles. And we've done this whilst keeping our leverage flat 1.6 times year on year. And it's this investment that's going to generate significant cash in the future periods. Now if we turn to slide 9, let's have a look at the revenue. So we have seen the continued benefit of our integrated platform with revenue growth across the business. UK and I, average VOH was 4.6% lower as it is cycling through a tougher H1 comparator given our VOH evolution, which I will explain on the next page in a minute. Supply has been good, and CapEx has been invested in replacing older vehicles as well as growing the fleet. And product extension and carefully managed pricing enabled rental revenue to grow 1.7% in the UK and I. In Spain, continues to operate very well with strong demand and with good access to vehicles, enabling average vehicles on hire to grow 7.4%, which combined with pricing resulted in rental revenue growing 8.6%. Claims and services revenue grew 6.1%, with good growth in direct repair revenue partially offset by a reduction in credit hire revenue. And vehicle sales revenue of £128.7 million was, as expected, £48.8 million lower than the prior year, with fewer vehicles sold at lower residual values. So if we turn to page 10, I'll just explain the VOH trends in a little bit more detail. So these graphs are showing the VOH progression for the current half year as well as last year. So if you look on the left hand side first of all at the UK and I graph, you can see that H1 this year is comparing to a tough comparative last year. And you may recall at the year end, I explained that VOH in UK and Ireland had fallen during the year as vehicle supply was improving, but not at a rate required to replace our disposed fleet. So we started this year, 3,000 below May last year. And as a result, average VOH declined 4.6% in H1. Now, I'm pleased to say that both supply and pricing available from OEMs has moved in our favour since April, and by November, VOH has surpassed the prior year, and we expect VOH in H2 to continue to increase, which is positive for the outlook. Now, the picture for Spain is different. The better access to vehicles last year meant that VOH grew through the year, and this growth has continued into the current year, with average VOH growing 7.4% year-on-year with continued strong demand. Now if we turn to page 11, we'll look at our group profits. So this chart bridges the prior year's underlying PBT of £99.1 to £82 million this half year. And as expected, this year sees us working through the previously flagged normalisation impacts on vehicle and parts supply chains. And the headline figures in these results reflect this. Disposal profits, which you can see in the middle of the chart, are 8.9 million lower, as expected, with a reduction of 4.3 in UK and I and 4.6 in Spain. Residual values are normalising in UK and I, with a 14% reduction in H1, but with values flattening now in recent weeks. And total volume sold decreased 7.4% year-on-year, with average LCV decreasing. PPUs reducing from 3,500 last year to 1,600, reflecting the lower residual values, but also the fact we're selling older fleet and a different mix with a lower PPU. And in Spain, residual values saw an 11% reduction in H1, and average PPUs at 1,900 slightly lower than the prior year's 2,300. Now, average VOH fell 4.6% in UK and I and increased 7.4% in Spain, as I said, with overall volumes increasing profits 2.7 million. Rental margins remain strong in both the UK and I and Spain, with slight reductions all in line with our expectations. UK and I margin of 15.7% is ahead of our 15% medium-term guidance, and Spain is even higher at 19.3%. Both businesses continue to deliver operational efficiency alongside improving procurement and sensible annual pricing increases. Spain's translated results have also faced a currency headwind in H1, which has reduced their profits by £1 million sterling. The increase in claims and services volumes in FMG and FMGRS was somewhat offset by lower credit hire volumes, delivering an additional £1 million of profit. Now claims and services EBIT margin of 4% is 230 basis points lower than the prior year. So in May the business was the victim of a cyber incident. The incident resulted in a loss of around one week of referrals in May for Exilis and systems are offline in new law for much of May and June while we carried a full burden of overhead cost but no corresponding revenue. Now, this one-off incident in the first half reduced claims and services profits by 4.2 million and reduced the margin by around 70 basis points. And in addition to that, we have treated 2.8 million of third-party advisor and IT costs in relation to this incident as exceptional and outside of underlying PBT. Now the remaining £5.5 million reduction in margin is mixed with more income from FMG and FMGRS and less from Exilis due to as expected improved supply chains which have benefited our rental business by reducing the amount of time vehicles have to spend in our rental workshops and at the same time reducing the time to repair vehicles in our body shops and so reducing the length of our credit hires. And second, the quieter summer, with fewer incidents being managed with insurers, reporting a 10% reduction in insurance incidents over the summer. And interest costs increased 1.2 million due to a higher average level of debt. Now, if we turn to slide 12, we'll look at cash flow. I'll start off by saying that our capex and cash flow is playing out as we expected and in line with what I explained at the year end. So EBITDA of £228.6 million was £8.6 million higher than the prior year, driven by the underlying performance of the business, and spend on net replacement capex increased £75.4 million to £178.9 million as both the UK and I and Spain continue to replace their oldest vehicles. We had 38.5 million inflow from working capital, reflecting the normal ebbs and flows of payments and receipts and the fact that around 70% of our claims and services insurers are now within protocol. A reminder that protocol agreements with insurers lay out agreed settlement terms, mechanisms and timing of payments, improving the efficiency and speed with which we collect our cash. And in the prior period, there was a working capital outflow as the business was investing in working capital for new contract wins. And we paid dividends of £39.3 million and chose to invest a further £53.5 million in new vehicles to grow the fleet in response to the customer demand that we saw. Our total net capex spend on H1 was £232 million. That's £128 million higher than the prior year, which is reflecting the good vehicle supply that we now see in both Spain and the UK and I. with the fleet now reaching 132,500 vehicles and no increase in leverage year-on-year at 1.6 times. 5.3 million was spent on completing the share buyback programme. I just want to cover a few points on capex. So I explained at the year end in July, we will continue to replace the oldest vehicles in our fleet. And I said that I expect our total net capex to increase just over a third this year, but that could change depending on access to vehicles and demand. now vehicle supply is good in both the uk and i and spain along with very strong demand for our services we therefore will spend more capex this year to both replace the older fleet and grow with existing and new customers and total net capex will increase more than that 30 percent but we will remain within our prudent leverage range of one to two times And I also explained that modelling on the basis of what we would like to achieve within the business and 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 Spain and the UK. And that was on the basis that replacement goers planned and RVs, residual values trend as expected. Now the slide shows a reduction in average fleet year on year and also since the year end the average fleet in the UK and Ireland has decreased two months to 32 and in Spain has reduced one month to around 29. And this investment in new replacement vehicles will generate significant cash over the next few years and we can decide whether to invest that cash for more growth or to reduce our debt as we go forward. Remember that in the long term, we expect our net capex to reduce substantially, with a corresponding momentum to cash generation principally driven by our appetite for fleet growth and where else we choose to invest. We carefully control that rate of spend on capex, managing our debt position and taking opportunities for growth. and both our cash flow and our operational KPIs benefit from this investment in new fleet through better hire rates, utilisation and lower maintenance. Now, whilst the additional capex initially reduces overall net cash flow generation, this will quickly turn around to strong, steady cash flow. And I said in July that this could move from, say, mid-$100 million to $200 million steady state cash flow from FY27, and then significantly higher thereafter, accelerating to well above $200 million. everything else being equal, and that view is unchanged. So we're executing our CapEx plan and our overall capital allocation in line with that which we laid out earlier this year, taking the opportunity to invest slightly more given good supply, strong demand and plenty of facility headroom. So now if we turn to page 13, let's have a look at the balance sheet. So our balance sheet continues to strengthen with over 132,000 vehicles now, a net book value of £1.4 billion. That's up £200 million compared to the prior half year, and net debt only up £27.5 million, and leverage flat year-on-year at 1.6 times. So our strong balance sheet has enabled us to raise a further 190 million euros of loan notes across seven and ten year tenors at an average rate of 4.4%, which provides additional headroom to invest in our business. But it's also reduced our overall cost of borrowing with a cost falling year on year 30 basis points to 3.2%. And the chart at the bottom of the slide bridges our net debt as of April to October 24, and our net debt closed at 782.5 million, with 347 million of headroom. So we generated just under 50 million of steady state cash, excluding lease payments. And that included a net 178.9 million investing to replace our oldest vehicles. And we invested a further 53.5 million, mainly growing the fleet in Spain. And then we returned £44.6 million to shareholders in the form of dividends and share buyback. And then at the top right, I've got our chart we've included for the last few presentations, which shows our return since FY21, which is now £214.5 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 £90.2 million to shareholders through the share buyback. So the business continues to generate good cash. It's being invested. as planned, in replacing and growing the fleet to generate sustainable returns. And as I said, our expectation of generating significant cash from these investments is unchanged. So thank you, and I now hand you back to Martin for the business update.