Zigup Plc

Good morning everyone and welcome to the Zyga PLC Results for 2025. If I can go straight to slide one just to cover the agenda. Today we are going to present in our familiar order but with some slightly less familiar faces. I will give some overview thoughts on the year past and the year ahead before handing over to Richard Clay for the financial review. Richard is our UK&I Finance Director who has stepped in as Interim CFO before our new Group CFO, Rachel Coulson, arrives in August. I then asked our divisional leaders, Jorge Alcon and Harvey Stead, to walk through their respective areas before I round up and give some thoughts on our outlook. We'll then have the usual Q&A session. I know a couple of analysts who cover our stock are online this morning, and we will manage their questions accordingly. So if I just turn to slide three, or slide four on the deck, sorry. I call this a year of operational heavy lifting. I wanted to start this presentation with an operational slide because I think that is what really stands out this year. It has been a year of heavy lifting, starting with embedding the new organisational structure, where we brought the UK&I rental and claim services business into a single operating structure, created a group-wide ex-co team, which happened alongside launching the refreshed strategic narrative and introducing our new ZigUp brand. These organisational and corporate changes have brought about a sharp focus on delivering the platform of services across our markets. We have also taken how we engage with customers to a new level, using technology to make it easier and simpler for them to access our products and services across our integrated platform. This has been a standout success with industry-leading customer feedback creating real advantage between us and our competitors. This has been demonstrated by the traction we have gained with existing and new customers. High customer retention, strong pipeline of new business, contract extensions and a number of new insurance partner wins. These have been the results of doing what we do best. Delivering a differentiated set of mobility solutions which work and provide real value add to our customers as evidenced by the feedback we receive. We are a trusted and expert partner to a very broad range of customer sectors across Spain, the UK and Ireland, and we are continuing to see our strategy deliver results. It has also been a year where we have stepped up our investment into people, facilities and technology. We have grown the number of our body shop technicians, which improves our capacity. We've launched new customer self-service portals, which drives efficiency and are easy to use, and opened up new facilities which continue to build our scale and service points with more sites under consideration. And we've also seen excellent returns in the investments we are making within the business. For example, ADAS, Advanced Driver Assistance Systems, which are becoming more mainstream. And now the repairs are now undertaken in-house, which improves the speed of repairs and our margin, and plastic welding, which allows more repairs over replacing, which not only helps with the reduction of waste but improves our margins. We've also seen a new CRN system and e-auction platform for vehicle disposers in Spain as investment examples where we can see short payback times and clear routes to support profitable growth. Just looking at the next slide and on the financial performance. So I want to start with some context to the financial results. First of all, because when some people without the history look back at the headlines, they say you've gone backwards in some areas, albeit we are reporting results above market expectations. So when we look back to the merger of Northgate and Ready in 2020, within weeks, we went into the pandemic period. Whilst things were clearly tough for everyone, they also brought about some tailwinds in some areas and some headwinds. The strongest tailwinds being that residual values went up considerably in the market, especially for LCVs. We saw the benefit of holding our fleet asset for longer because there were no new vehicles to purchase at the time. which generated substantial cash proceeds, and we saw high residual values, which supported very strong disposal profits. And then in the last couple of years, we also saw new vehicle price increases increase substantially, which consumed higher levels of capex. And in our claims and services business, post the lockdown periods, global supply chains were constrained, which led to repairs taking longer, and with that, higher rental lengths, which were elevated. So in that context, past results have benefited from those tailwinds and they've scaled down on a gradual basis. Those pandemic tailwinds have gone and this year's results closely reflect how the business has performed as a merged business. And the coming year will be one where we expect to have less impact from headwinds, including the 4.2 million P&L impact from the cyber incident that we experienced at the start of the year. And in addition, we have taken action to mitigate the cost of the NI increase and national living wage increases, which were around 10 million, which mainly came into effect in March and April this year. So when I stand back and look at the delivery from that context, I am pleased that the business has delivered another strong set of results above market expectations, and there is quality in our repeatable earnings profile, backed by a broad customer base and longevity of contracts. In the statement this morning, I talked about the benefits of the diverse business model and how our differentiated mobility platform strategy is delivering. And also that disposal profits are normalising so they don't cloud results. And Richard will give some views on where we see residual values going forward. The business model is working well. We grew EBITDA over 18 million and our net book value increased is now over £1.5 billion on the fleet, which discounts any further residual value upside. As expected, leverage ticked up as we've progressed extensively with our fleet refresh, purchasing nearly 30,000 new vehicles in the year, which supports a younger, modern fleet, including purchasing fleet to support growth, particularly in Spain. With the new group refinancing which we recently announced, this brings increased headroom at attractive rates which we are entirely comfortable with and supports a business model which is delivering strong returns. Our fleet investment delivers profitable growth and generates strong cash returns over the life period of the asset. Board is confident in our outlook and accordingly has set a final dividend of 17.6 pence, making 26.4 pence for the full year, an increase of 2.3%. We have, of course, been mindful of the very broad range of shareholder views on the balance between dividends and share buybacks, of leverage ranges and capital allocation. We continue to be disciplined on the use of capital and to invest for quality returns and a sustainable future. We believe we have these priorities right for the business as it currently stands, with significant flexibility to capitalise on the opportunities we see before us. We turn to the next slide. So before handing over to Richard, I want to give my views on our confidence for the business in the coming period. I think it's important to look beyond the headline figures, which include disposal profits, and to focus on the operational trading outcomes. When I look at our markets, I can see the structural growth drivers remain intact, and these are leading to healthy demand, allowing us to be selective as to where we invest capital. We have the ownership to usership trend that drives outsourcing to rental and large claims partners will continue to outsource and there's plenty more market share to go for. The huge increase in connected vehicle data and available analytics benefit larger players like ourselves and we are actively leaning into this on behalf of customers to support future mobility related decisions. And we are also supporting the growing customer preference for tech-enabled omnichannel solutions, like our £10 million plus investment in our recent AI-enabled contact centre platform, which is being rolled out and which will drive efficiencies and productivity. These are significant investments that we are making, which will go a long way to delivering ongoing value. So with the structural growth drivers remaining robust, market conditions have substantially normalised. Residual values have been stable since October last year, 2024, and higher durations are similarly stable from around the same time. We've also taken action to exit the personal injury legal marketplace, which is no longer core to our activities, and this decision will improve claims and services margins going forward. And so we can see the current market conditions offer plenty of opportunities for profitable growth in rental and claims and services based on a platform which is robust and very well positioned with a simplified sales channel. It is the combination of these which makes us confident that disposal profits aside, we can see ourselves achieving mid to high single digit growth in both rental businesses and in our claims and services. And while we still have normalising disposal profits having a headline impact on PBT, we were never rewarded for them in value. So seeing disposal profits move into the rear view mirror might be useful in measuring the quality of the underlying earnings. On that note, over to Richard.

Thank you, Martin. And good morning, everyone. I'll start by looking at the headline underlying results. So overall, we're very pleased to say group results were modestly ahead of expectations. PBT was at 166.9 million, which was 3% above the consensus PBT at pre-close. And this was driven mainly by growth in Spain, helping underlying revenue, excluding vehicle sales, grow 2.3%. Whilst this PBT result was 13.8 million behind prior year, this was due to the expected normalisation of our disposal profits and some claims and services dynamics, which I will go through in more detail shortly. EBITDA also continued its upward trajectory, growing 18.2 million, or 4.1%. Net debt closed at 836.7 million, with our leverage slightly below 1.8 times. The year-on-year increase principally reflects our continued investment in the fleet, up 211 million year-on-year, both replacing our oldest vehicles and growing the fleet by 3,000 vehicles. We close with a total fleet of 131,600 and a net book value of 1.51 billion. It's that investment in fleet that will create growth in revenue, PBT and steady state cash flow in the future. Turning to the next slide, let's look at revenue. Underlying revenue growth, excluding vehicle sales, was up 2.3%. And as Martin said, this was a strong operational result, given some of the headwinds. In Spain, VOH growth was particularly strong at 9.4%, with strong demand and continuing good access to vehicles. Overall revenues grew 9.5% or 12.3% on a constant currency basis. The higher revenue growth percentage reflects the impact of carefully managed pricing. UK&I rental revenue growth is 2%, with VOH reducing 2.6%. VOH growth in H1 flattened out in the second half and we also took the opportunity to defleet older vehicles into a stable used vehicle market alongside a reduction in the broker segment. The 4.6% difference in VOH in revenue reflects both carefully managed pricing and also strong 9% growth in ancillary revenues. Claims and services revenues were broadly flat year on year. Growth came from our lower margin but higher returns incident management and body shop businesses, FMG and FMGRS. These were broadly offset by lower volumes and higher duration in credit and direct hire products in auxilis. So what did that mean for underlying PBT? Rental profits grew 10 million, which was a strong result. This was made up of rental volume net growth of 6 million and rental margin improvements of 4 million. This growth partially offset the overall reduction in underlying PPT, which reduced due to three key drivers. The first was foreseen and flagged, being the reduction in disposal profits, as they near normalised levels and were down £9.4 million year on year. Ultimately, I could see these being at a run rate of £10 to £15 million in each of the two rental segments, based on current fleet. The second was covered at interims. The cyber incident in H1 created a one-off profit impact of lost time and customer leads on the claims and services businesses most impacted. And the third element are other claims and services impacts, and I have a later slide to run through these. In the year, we also took 20.6 million of exceptional costs versus near the prior year. These related primarily to a strategic decision taken at the end of the year that New Law, our legal services business, should withdraw from the personal injury market and the consequential impairment of assets associated with that decision. These are included within our reported PBT alongside impacts of historical depreciation rate changes and amortization of intangibles as per prior years. A full breakdown of these exceptional costs can be found in the appendix to this presentation. The vast majority of these costs, it's important to understand, including the new law ones above, are non-cash, with the cash costs limited to 2.8 million of cyber costs and 1 million of restructuring costs associated with the new organisational structure. Turning now to cash and net debt. As previously shown, we have reordered our cash flow to reflect our priorities to invest in organic growth and fleet replacement, alongside other capital allocation priorities. And what you see here is just that. Whilst net cash consumed was higher than prior year, this was principally driven by both net replacement and growth capex, investing in the future of the business. Replacement capex increased broadly as expected. As guided, this year we stepped up our replacement efforts as vehicle supply has now improved and OEM discounts have markedly returned. The used vehicle market was stable in H2 and there was strong customer demand, particularly in Spain. This supported investment of a net 388.3 million in net replacement capex and 65.1 million in growth capex. As a consequence, average fleet age reduced in both markets to around 28 months, i.e. reflecting a disposal age of about four and a half years. The movement was higher in UK and I due to the ageing having been greater there. We've also maintained a strong focus on working capital, leading to a strong inflow in the year. We added more third-party insurers into protocol and the business mix in claims and services business is now less from Auxilis with its longer working capital cycles and more from the shorter cycle FMG and FMGRS. Turning to the next slide, our balance sheet remains robust with prudent leverage increasing but as expected. Higher cash consumption led to a 95 million increase in net debt to 837 million. These funds are fleet assets that have increased 211 million to 1.51 billion. Leverage increased to just below 1.8 times. Let me explain why. We buy a vehicle to earn income over its life. However, on acquisition, there is debt, but no EBITDA, to offset that for the leverage calculation. As a result, leverage in such growth periods increases. Our expectation remains that we will remain within our previous leverage guidance range of one to two times, but this year it is likely to move to the top end of that band. Following the refinancing completed in the year and increases to facilities, our headroom increased to £412 million, providing plenty of capacity for future growth and reflecting the confidence of our banks in our business model. Finally, on this slide in the top right shows that we have returned over £326 million to shareholders since the merger, both through dividend and buyback. I will now cover the claims and services EBIT movement in more detail. Claims and services EBIT was impacted by three key factors, reducing profit and margins. Importantly, however, Rocky still remains higher than the other two segments at 17.6% this year. On the left, you see the differing financial characteristics for the different services provided within Claims and Services, as shared before at the teach-in, and on the right, a bridge to the Claims and Services EBIT year on year. Taking the right bridge first, the cyber incident in May last year impacted New Law, our legal services business, and Auxilis. We would clearly not expect this to repeat in FY26. Auxilis experienced a quieter summer, as reported at intrams, but the movement year-on-year was principally due to a significant reduction in hire durations. This reduction was higher than expected but has stabilised in H2, and so we expect to achieve profit growth overall in this business from FY25 into FY26. Then in FMGRS, our investment in new sites and the efficiency of our repair model added a further year-on-year growth of 3.6 million. This growth is principally linked to the number of repair technicians and their productivity, where we have been highly focused. And despite the headwinds and the changing business mix, divisional rocky held at 17.6%, reflecting that we scaled capital employee commensurately. Longer term, we still see claims and services as overall returning Rockies of more than 20%. And as context, if one added back the cyber incident impact, Rocky would have been 20% this year. Then on the left, you can see why margins are so much lower this year, as higher margin auxilis revenues were offset by lower margin direct repair. Given all of the above, we expect growth for this segment in FY26 and margins of above 5%. On the next slide, I often get asked why our steady-state cash flow is lower at the moment and how long that will last, so this slide is designed to help illustrate the point. Our steady-state cash flow is lower in this period because we have a higher level of replacement capex than normal, following supply chain shortages in earlier years. So how do we see this in the chart? Taking FY25, we see the 16.7 million of steady-state cash in purple, and then at the top, the EBITDA figure, up 62% over five years, with the net replacement capex in pink. Finally, in the green line, you see the number of replacement purchases made in each year. These replacement purchases were just below 25,000 in FY20, dipped in FY22 and FY23 due to supply chain challenges, and since FY24 have been more elevated. What is very clear is the degree to which replacement capex, shown in pink, impacts steady-state cash. So why is replacement capex currently higher? you need to unpack this and to remind you replacement capex is essentially the new vehicle purchase cost less the disposal cash multiplied by the number of replacements each of these drivers will therefore impact to some extent so taking them in turn when purchase prices increase net replacement capex increases And as we price rentals on Rocky, this will benefit the future. And so in a way, there is an element of embedded growth inside replacement capex. You can see that reflected in the balance sheet, as I've said earlier, feet assets growing 211 million to 1.51 billion. For disposal prices, when residual values and disposal prices were elevated, that reduced net replacement capex. This also helped reduce replacement capex in supply chain constrained years. Then, as a general rule, the number of replacements is the size of the fleet divided by the average defleet age of the fleet. So if the owned fleet is 120,000 and the average defleet age is 56 months, then there will be about 27,000 replacements. So you can see in FY22 and FY23, we replaced many thousands of vehicles fewer than that due to the supply chain challenges. We see the impact of that as we defleet vehicles. Our defleet criteria is determined by mileage and condition, not a target replacement capex number or fleet age. If it comes back unfit or uneconomic for rental, we send it to Vanmonster or Acacion in Spain for sale. But it can go out again. It will do just that. So you can see for the last couple of years, we've been replacing more than the average. So what does this mean looking forward? Three points. EBITDA is growing. Since FY20, it's up 62%. And this replacement and growth capex in FY25 now is locking in EBITDA growth in the future. Second, we have made good headway into the replacement cycle for the last two years and are now well through the replacements required and so replacement capex will start to reduce over FY26. This year we have been arguably at the hardest point in the cycle. Disposal prices have been lower as we are selling old vehicles often bought five and a half years ago Purchase prices have inflated a lot over those years but are levelling out, and the number of replacements is higher, replacing the fewer replacements in FY22 and FY23. So finally, as net replacement capex falls to those steady state cash flow increases, we would expect steady state cash flow generation to increase from the 16.7 million in FY25 to 200 million pounds plus in FY27 or FY28, depending on mix and assuming continuing market stability and other assumptions. It won't be a straight line, but we are confident of this trajectory. And so, what does this mean for returns and in the context of capital allocation on the next slide? First of all, on the left-hand side, returns typically go down during periods of high fleets investment. To illustrate this, I've shown an example LCV. Here you see that over its life, the capital employed reduces as we depreciate the vehicle. Pricing will typically stay constant or improve and costs will change through the life, typically highest in the third year of ownership due to replacement of key components. High level, this profile can equally be true of a claims and services contract with investment in fleet and or working capital. So in this example, a vehicle on an average returning 16% ROCI is below that in the first two years and on or above that in the second two. And then the second point on this slide is that we take a relentless, disciplined approach to capital allocation. Our capital allocation priorities are set out here and we always test opportunities against our requirement to be substantially ahead of WAC on any investment. In terms of growth in rental businesses, we see double-digit ROCIs, and this is why we are confident on new fleet spend. In claims and services, ROCIs can vary significantly by product type and contract, but would typically be above rental and overall expect 20% plus. Dividends are cash returns to shareholders, and we're committed to a sustainable and growing dividend. Similarly, share buybacks are another way to return value to shareholders, and we discuss these methods frequently. Whilst on paper a share buyback may have high returns, this must be weighed against the multiple organic and inorganic opportunities available to us that provide long-term growth for the business. And finally, acquisitions. Acquisitions will be used where they meet our criteria. As I showed before, we have spent £45 million on acquisitions since merger, with FMJRS featuring on the claims and services margin slide earlier, very positively contributing to the results, and Fridge Express and Blakedale growing fleet at just over 20% in rental UK and I, while generating strong returns to shareholders. With that, my final slide, medium-term views. So bringing that all together, we would expect rental margins of 15% to 16% in UK and I, which includes the impact of about 10 million that Martin referenced of NI and National Living Wage increases this year offset by other actions, and 17.5% to 19.5% in Spain. Whilst in claims and services, we expect an achievable margin of 5% plus, reflecting the change in product mix. With residual values more stable, we would expect disposal profits to settle at around 10 to 15 million pounds in each of the two rental segments. With net replacement capex normalising, steady state cash is expected to increase year on year in FY26 and reach 200 million pounds plus in FY27 or FY28. We also expect growth capex in FY26 as we still see strong demand for growth of our integrated mobility solutions. So overall, pleased to have delivered FY25 results modestly ahead of expectations and to have a medium term view of strong growth opportunities. And with that, I pass back to Martin to introduce the business updates.

Okay. Thanks, Richard. Look, you've given a lot of granular detail there and some workings out in terms of that sort of capex cycle, cash flow cycle. I think when people play this back in slow motion, they'll catch up with all of that. But it should be fairly straightforward. I think the business has been operating over 40 years on this sort of model. So it should be straightforward. Thanks for the explanations there in detail. So before I hand over to the business leaders, I just want to highlight, looking at slide 18, just want to highlight the work that the executive committee have made in aligning the group initiatives in a couple of areas. Firstly, we just make great efforts to ensure we have a coherent and sustainable people strategy to support a group of nearly 8,000 colleagues across a number of active markets. We've been mapping out our proposition that we can offer employees in terms of their career journey and the support we can provide to make them successful. Succession planning for key roles is an important aspect of the business and one we have been working on extensively. So we have a clear line of sight of upcoming talent and the methods that we need to develop for our best people. We recently announced that we were honoured with a King's Award for Enterprise this year, and this was in a category which is not well represented. So for promoting opportunity, especially social mobility. For us, this is all about our early careers efforts and our apprentice programme. which has won a number of awards, and as we seek to find ways to attract talent who might not think of the automotive industry as a viable career path. In real terms, the programme of work has taken the average age of our automotive technician population down from 54 years of age to 41, so a 13-year drop over three years by running our programme for apprenticeships, and that's a fantastic position to be in. We've also thought strategically about our technology roadmap, as well as tactically. And aside from the AI investments I mentioned earlier, there are some large scale upgrades coming up to implementation, which will refresh our operational technology, making it simpler to process transactions. And finally, I wanted to reiterate the appointment of Rachel Coulson, who joins our CFO in August from Pearson, where she has been deputy CFO for a number of years. Rachel is an excellent candidate and her broad experience in technology is a key skill that the business will benefit from. On that note, I'm going to hand you over to Jorge.