CAPITAL MARKETS DAY: POWERFUL MULTI-LAYERED GROWTH 6 JUNE 2018 2
TODAY’S INCHCAPE TEAM CENTRAL AND REGIONAL TEAM MEMBERS
Stefan Bomhard Richard Howes Sunita Entwisle Bertrand Mallet Ruslan Kinebas
CEO CFO Head of IR Chief Development Emerging Markets Officer CEO
Dean Sykes Helen Cunningham Shaun Carroll Steve Archer
Emerging Markets Emerging Markets Global Supply Global F&I Operations Director HR Director Chain Director Director 3
POWERFUL MULTI-LAYERED INVESTMENT PROPOSITION GROWTH AND CASH RETURNS
Distribution at our core: A highly cash generative and sustainable business model
Strong and increasing weighting to high growth markets
Ignite strategy driving organic performance ahead of market growth
Continued consolidation a material driver of value creation
Sustainable business model well placed to benefit from future industry developments
Well positioned to deliver shareholder value through organic growth, consolidation and cash returns TODAY’S AGENDA 5
CAPITAL MARKETS DAY AGENDA
END OF SESSION OVERVIEW AND VISION ACTIVITY POWERFUL MULTI-LAYERED GROWTH DISTRIBUTION: INTEGRATED ROUTE TO MARKET
The Distribution business model explained
IGNITE: DRIVING THE BUSINESS FORWARD
Operational excellence
Consolidation
Future trends and opportunities DRIVING GROWTH THE INCHCAPE OPPORTUNITY THROUGH A Multi-layered growth FUNDAMENTALLY ATTRACTIVE CONCLUSION / Q&A BUSINESS MODEL
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY POWERFUL MULTI-LAYERED GROWTH
OVERVIEW AND VISION DELIVERING A POWERFUL INVESTMENT PROPOSITION 7
THE INCHCAPE WORLD TODAY UNIQUE GLOBAL DISTRIBUTOR AND RETAILER
GLOBAL DISTRIBUTOR AND RETAILER 2017 PROFIT BY CHANNEL * 31 Markets Distribution core RETAIL 19%
81% DISTRIBUTION
LONG-TERM PARTNERSHIPS 2017 PROFIT BY REGION * Strong brand portfolio Regionally diverse AUS 20% Number of years of partnership ASIA 35% 51 48 45 30 29 29 26 EM 25% Toyota JLR Suzuki Mercedes VW BMW Subaru UK/EUR 20%
* Proforma for C.America Acquisition announced March 2018 and excluding £9m property profit in Australasia (Retail)
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STRONG TRACK RECORD OF DELIVERY GROWTH AND CASH GENERATION WITH STRONG RETURNS
CUMULATIVE CASH RETURNS v FY17 Share buyback (cumulative)
REVENUE £8,949m Dividends (cumulative) 1,019M PBT £383m
PBT CAGR (‘14-’17) +8%
FCF £314m
DPS PAYOUT 40% £47M NET CASH £80m
ROCE 30%
2011 2012 2013 2014 2015 2016 2017 2018*
Note: PBT pre exceptional items; 2018 cumulative cash returns inclusive of 2017 final dividend
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ACTIVELY DRIVING DISTRIBUTION AND REGIONAL MIX SUPPORTIVE TO GROWTH AND FCF
PROFIT: REGIONAL MIX PROFIT: CHANNEL MIX POSITIONS INCHCAPE WELL FOR:
Australasia 20% 27% Distribution Emerging 11% 25% Markets 71% 81% Growth UK/Europe 29% 20% Retail Asia 35% 33% 29% 19% 2014 2017 PF 2014 2017 PF FCF EM mix +14% vs. FY 14 Distribution growth conversion supported by acquisitions UK c.10% of profit
Note: Proforma (PF) for Central America Acquisition announced in March 2018. Pre exceptional items; 2014 split excludes £17m of property profit in Asia (Distribution ) and 2017 excludes £9m property profit in Australasia (Retail)
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INCHCAPE’S FUTURE DELIVERING SUSTAINABLE GROWTH
HOW THE FUTURE LOOKS INCHCAPE’S INITIATIVE
Established portfolio of attractive regions Slower new car growth in developed markets Growing exposure to higher growth markets BUSINESS OPTIMISATION Focus beyond new cars
Growing size of business Leverage scale across all revenue streams
CONSOLIDATION Fragmented Distribution market Continued focus on M&A and new contract wins
To develop a differentiated value proposition, Future industry trends: Digitisation and enhance opportunities INNOVATION
Sustainable business (right partners, right markets) Future industry trends: EV/ Shared mobility Opportunities to capitalise on emerging business
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY 11 THE INCHCAPE WORLD TOMORROW POWERFUL MULTI-LAYERED EARNINGS GROWTH
DISTRIBUTION AND FAST GROWTH FOCUSED STRENGTHENED BUSINESS
- Focus on business optimisation Profit increasingly weighted to Distribution - Consolidation of fragmented industry - Differentiated customer proposition: Innovation Profit increasingly weighted to faster growth markets BEST SOLUTIONS FOR OEMS AND CUSTOMERS
Sustainable and growing business
AMBITIONS SUPPORTED MARKET DRIVERS BY MULTI-LAYERED PROFIT OPERATIONAL EXCELLENCE GROWTH ATTRACTIVE STRATEGIC M&A / CONTRACT WINS TOTAL RETURN OPTIONS BUYBACKS DIVIDEND
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DISTRIBUTION INTEGRATED ROUTE TO MARKET 13 THE DISTRIBUTION MARKET GLOBALLY OEM PREFERRED ROUTE TO MARKET IN SMALL TO MEDIUM SIZED MARKETS
THIRD PARTY DISTRIBUTION MARKETS: Markets where OEMs don’t Regional TIV * Small and Medium market TIV Approximate split have a factory (All markets) (%) of total region
Where a third party can drive Latin America 4M 1M (30% region) greater volumes than OEMs Asia Pacific 40M 3M (10% region) Where profitability for an Africa and Middle East 4M 3.5M (90% region) OEM is maximised through out-sourcing Eastern Europe 4M 2M (60% region)
Other (USA, W.Europe) 30M 4M (15% region)
Global c.80M c.14m (20% region) Inchcape has c.1% share of the small and medium markets
* TIV = Total industry volume for new passenger cars
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY 14
DISTRIBUTION: THE BRAND CUSTODIAN BROAD OPERATIONS ACROSS THE VALUE CHAIN
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY 15
NETWORK MANAGEMENT – GREECE CASE STUDY EFFECTIVE MANAGEMENT DURING A CHALLENGING PERIOD
STRONG BUSINESS DEALER NETWORK MANAGEMENT MARKET SHARE STRENGTH ENHANCED
Inchcape operating since 1986 2008 FINANCIAL CRISIS 30000 14% 11.9% 12.1% Presented network with 3 year plans 10.5% 12% No.1 brand in Greece 25000 9.3% Helped retailers downsize with 10% 20000 13 times Toyota’s Triple Crown achievement benchmark analysis 8% 15000 c.20-30% of network sales through Inchcape Helped retailers prepare feasibility plans for banks 6% 10000 owned dealerships, remaining through third party Supported some retailers with credit 4%
5000 2% AWARD WINNING MANAGEMENT OF SITUATION 0 0% 2001-2005 2006-2010 2011-2015 2016-2017 Very few dealerships lost during crisis (Avg) (Avg) (Avg) (Avg)
Total network only became slightly loss making Toyota Registrations Market share despite volume decline - Against the difficult market backdrop Market share growth through crisis Inchcape Toyota remained one of the most profitable Distributors Recognised as “best practice” credit control procedures by Toyota - Future potential is strong
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BRAND POSITIONING – INCHCAPE SUBARU CASE STUDY SUCCESSFUL BRAND POSITIONING: OUTBACK IN AUSTRALIA
2014 OUTBACK PERFORMANCE: INCHCAPE’S ACTION PLAN: THE RESULT: 2015 AND BEYOND Changing market landscape, with growth Product architecture: >300% increase in Outback sales in SUV products across brands More relevant product architecture across FY15 vs. FY14 Outback an undifferentiated product range (price points and spec options) Niche audience: Marketing: Market share became more balanced Existing Subaru owners across the range Unique Australian approach to build Less emotional draw; pragmatic decision Older customer emotional draw and differentiate Considered expensive Highlighted family appeal Not appealing to families Developed understanding and visibility of product Outback market share 8.6% Broader appeal to drive strength of segment 7.8% across range
3.1% 1.9%
2013 2014 2015 2016
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INCHCAPE’S PORTFOLIO OF DISTRIBUTION STRONG BUSINESSES GLOBALLY
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY 18
BARRIERS TO ENTRY IN DISTRIBUTION STRENGTH IN BUSINESS MODEL AND INCHCAPE'S POSITON
HIGH BARRIERS TO ENTRY
Exclusive distribution contracts: one contract per brand Well invested business
per market Strong track record of delivery
Long-standing relationships with brand partners – Financial strength very low attrition Presence across 31 markets, with 39 brands Partners require track record of delivery – OEM partnerships up to 51 years difficult to enter industry Global scale advantage Strength and expertise across areas, from logistics Experienced management team to brand development Ethical and professional plc for international business Financial capability to execute and invest in assets and talent
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY TOYOTA’S VIEW ON DISTRIBUTION YOSHI INABA EXECUTIVE ADVISOR TO TOYOTA MOTOR CORPORATION, INCHCAPE SPECIAL ADVISOR 20
TOYOTA’S VIEW ON DISTRIBUTION AN OPTIMAL ROUTE TO MARKET FOR OEMS
THE DISTRIBUTION MODEL HAS BEEN KEY TO TOYOTA’S SUCCESS
Long history with Distribution partners; it has contributed to Toyota’s success in Japan and internationally
Toyota’s core competency is innovation and manufacturing
Driving the most from a market through Distribution is more than just pushing volume, it includes: 1. A strong focus on customer experience and brand development 2. Development and maintenance of the right infrastructure 3. Strong capabilities to execute
Distributors have the local expertise and relationship with governments
Good Distributors will invest for the evolving future and attract talent to run the business successfully
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY 21
TOYOTA’S PARTNERSHIP WITH INCHCAPE 51 YEAR PARTNERSHIP FOR A REASON
LONG-STANDING RELATIONSHIP WITH INCHCAPE ENABLED THROUGH STRONG PERFORMANCE
Partners since 1967
Inchcape represents Toyota (and associated brands) in 19 markets
Inchcape is a top 4 independent distributor for Toyota
Market leadership positions across markets that Inchcape operates in; award-winning businesses
Recently expanded relationship with Hino contracts acquired in Chile and Colombia
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY 22
TOYOTA’S VIEW ON THE DISTRIBUTION LANDSCAPE EVOLVING TRENDS HIGHLIGHT NEED FOR STRONG PARTNERS
CONSOLIDATION IN THE MARKET INCREASINGLY A FACTOR
Ability to understand and invest in the future is key given changing landscape, as well as to execute
Toyota needs to trust a Distribution partner will invest to create the right customer proposition for each individual market, e.g. where necessary digital infrastructure
Industry trends driving consolidation; increasing number of companies willing to sell their businesses
The best Distribution partners are increasingly required; financial and talent resources are key
Inchcape is an attractive alternative for OEMs looking for candidates to succeed current distributors
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY INCHCAPE’S FINANCIAL MODEL DRIVEN BY DISTRIBUTION FOCUS 24
DISTRIBUTION: ACTIVITIES ACROSS THE VALUE CHAIN HIGHER MARGIN PARTNERSHIP OPERATION
DISTRIBUTION RETAIL-ONLY
c.80% inchcape EBIT c.20% inchcape EBIT
Brand positioning Brand positioning VALUE CHAIN EXPOSURE National marketing National marketing Logistics Logistics (In Market) Parts Distribution Parts Distribution Network Management Network Management Retail Retail
EXCLUSIVITY WITH OEM Exclusive contract for distribution in market Non-exclusive relationship
LEVEL OF CONTROL Higher control Limited control
VEHICLE PRICING IN MARKET In agreement with OEM Set by OEM
VEHICLE COST TO INCHCAPE Costs negotiated with OEM Effective cost set by OEM alongside volume target
VOLUMES Negotiated against Inchcape forecasts Driven by OEM volume targets
FORWARD ORDERING c.6 months; continual negotiating Limited; but targets limit flexibility
CURRENCY Some transactional exposure in a few markets No transactional risk
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GROSS MARGIN DRIVEN MODEL LOWER FIXED COSTS IN DISTRIBUTION
FY17, £M DISTRIBUTION RETAIL DISTRIBUTION MODEL
Adjusted to a fully-rented basis Higher margin business driven by gross margin Greater variability of overheads Gross Margin % 18% 11% Greater allocation of costs to A&P SG&A % Sales 10% 9% Lower exposure to property occupancy costs
Split of SG&A: High margin protection
Employee Costs 45% 55% FIXED / VARIABLE BASE Property Occupancy Costs 13% 20% Distribution overheads c. 50/ 50 (Fixed/ variable)
Advertising and Promotion 15% 4% Retail overheads c. 65/35 (Fixed/ variable) on fully rented basis
D&A 6% 7% CAPITAL INTENSITY Other Overheads 21% 14% Distribution capital light
Trading Profit Margin % 8% 2% c.30% of Group’s total capital employed
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EFFICIENT CASH MANAGEMENT LOW NET WORKING CAPITAL
CASH TAX BELOW EFFECTIVE RATE INVENTORY £M FY17 Day Sales c.90% vehicles, 10% parts Vehicles target 1.5 month forward cover * Inventory 1,769 72 FY17 £86M Parts – just in time approach Financing -1,456 -59 23% of PBT (last 4 yr avg) Net Inventory 313 13 Inventory largely securitised Payables -779 -32
Receivables 464 19 WELL INVESTED ASSET BASE
Net Trade -2 0 FY17/FY18 capex c.£100M PAYABLES (EX INVENTORY FINANCING) Working Capital Non-inventory related accruals, tax payable c.£25M ‘non-underlying’ NWC % SALES FY19 reversion to underlying 0.3% capex RECEIVABLES Receivables relate to Insurance and OEMs Slightly ahead of D&A Cleared funds to release car to customers
* Ex In-transit stock Average over last 4 years
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY 27
STRONG CASH GENERATION DRIVEN BY DISTRIBUTION BUSINESS
SOLID FCF AND EXCESS CASH GENERATION UNUTILISED ANNUAL CASH GENERATION
Solid Normalised FCF
c. £245M - £285M (on current earnings) £408m
Dividend payout set at 40% (£100m) 70%: £285m Normalised annual ‘excess’ c. £145M - £185M 60%: £185m £245m -£100m £145m
FY17 EBIT Cash utilised by Free cash flow Dividend Unutilised cash business
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BALANCE SHEET STRENGTH HEADROOM TO COVENANTS; FOCUS ON BEING PRUDENT
NET DEBT INVENTORY FINANCING – SHORT TERM FLEXIBLE FUNDING Net cash £80m at December 2017 £1.4bn SRC against £1.8bn inventory
Debt covenants: 75%-85% inventory funded over year
Interest cover: >3x ; Plenty of headroom Evenly split across Distribution and Retail
Board policy: 1x Net Debt / EBITDA 75% OEM financed; effectively committed
25% banks; uncommitted
CORPORATE DEBT – LONG TERM COMMITTED FINANCING INTEREST RATE SENSITIVITY £620m of RCF - £270m undrawn, mostly to 2022 Total debt mostly UK financed; interest rate sensitivity mostly BOE
£285m USPP – majority fixed rate to 2024-2029 Every 25bps drives c.£3m increased interest charge
Interest break-down (£M) FY17 Effective cost of debt * Inventory financing 24.3 1.80% Corporate debt 15.3 1.60% Interest income 14.6 Total 25.0 Note: *Includes interest free period
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY 29
FINANCIAL BUSINESS MODEL SUMMARY
Distribution: A higher returning model
Cash generation to support strategic decisions
Strong balance sheet to support growth outlook
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY Q&A POWERFUL MULTI-LAYERED GROWTH
IGNITE DRIVING THE BUSINESS FORWARD 32
THE BUILDING BLOCKS BEHIND IGNITE STRATEGY IGNITE FRAMES INCHCAPE'S STRATEGIC FOCUS
GROWTH OPPORTUNITIES
OPERATIONAL EXCELLENCE: MAXIMISING PROFIT AGAINST UNDERLYING MARKET TRENDS
THE DRIVERS BEHIND CONSOLIDATION: VALUE-ACCRETIVE OPPORTUNITY OUR IGNITE STRATEGY IN FRAGMENTED MARKET
INNOVATION: TAKING ADVANTAGE OF OUR SKILLS AND SIZE TO LEAD
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IGNITE: DRIVING THE BUSINESS FORWARD A STRATEGY TO CONTINUALLY STRENGTHEN INCHCAPE
IGNITE: AN INTERCONNECTED STRATEGY, ENHANCING OUR OPPORTUNITIES FOR THE LONG TERM
OPERATIONAL EXCELLENCE: MAXIMISING PROFIT AGAINST UNDERLYING MARKET TRENDS Supports our Enhances organic TRUSTED BY position as a and efficiency consolidator opportunities CONSOLIDATION: CUSTOMER OEM VALUE-ACCRETIVE OPPORTUNITY (B2C) (B2B) IN FRAGMENTED MARKET Increased Enhances opportunity to capability to A strategy that strengthens relationships deliver solutions consolidate INNOVATION: and reinforces the growth opportunity TAKING ADVANTAGE OF OUR SKILLS AND SIZE TO LEAD
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IGNITE: DELIVERY SINCE 2016 LAUNCH EARLY SUCCESS SUPPORTIVE OF STRATEGY
KEY ACHIEVEMENTS TO DATE
BUSINESS OPTIMISATION AND LEVERAGING SCALE Internal organisation enhanced with global and regional roles Achievement of procurement savings Delivery on revenue objectives
CONSOLIDATION 7 Distribution deals over the last 24 months Two large-scale Distribution acquisitions after 25 year gap Meaningful Latin American platform established New business with existing and new OEM partners
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ENHANCED SKILLS ACROSS GROUP TO DRIVE CONTINUED DELIVERY
ORGANISATION ARCHITECTURE REFLECTIVE OF IGNITE FOCUS
INVESTMENT IN KEY STRATEGIC SKILLS BEST IN CLASS EXPERTISE Customer Experience - Leveraged capability and expertise across Revenue streams (e.g. F&I, Used) Inchcape worldwide Leveraging our scale (e.g. supply chain) - Recruited from a range of relevant sectors M&A/ Strategy
SKILLS REPLICATED ACROSS INCHCAPE Global and regional responsibilities by strategic pillar Regional developments achieved under existing cost structures Economies to be achieved on investments already made
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY THE MARKET OUTLOOK UNDERLYING SUPPORT TO INCHCAPE’S OUTLOOK 37
A STRONG COLLECTION OF BUSINESSES AT DIFFERENT STAGES OF PENETRATION AND GROWTH
Passenger vehicle and commercial vehicle Inchcape Market per ‘000 ppl Other Markets
900
800 United States Italy Poland New Zealand 700 Estonia Canada Finland France Austria Germany 600 Greece Spain Switzerland Japan Australia Belgium Bulgaria Sweden 500 United Kingdom Denmark Netherlands Russia South Korea Croatia Lithuania 400 Luxembourg Argentina Latvia Romania 300 Bosnia-Herzegovina Brazil Mexico Macedonia Thailand Chile Turkey 200 Costa Rica Ecuador China Panama Guatemala Hong Kong Singapore 100 Colombia Peru Ethiopia Bolivia GDP per capita 0 (USD at PPP) 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Thousands Source: IMF, BMI
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EXPOSURE TO FASTER GROWTH MARKETS RECENT ACQUISITIONS FOCUSED ON HIGHER GROWTH MARKETS
Passenger vehicle and commercial vehicle per ‘000 ppl
900 Inchcape Market 800 United States Other Markets Italy New Zealand Poland 700 Estonia Recent Canada Japan Finland Austria France business wins Switzerland Germany 600 Belgium Greece Spain Bulgaria Sweden Australia Denmark 500 United Kingdom Netherlands South Korea Croatia Lithuania 400 Luxembourg Russia Latvia Mexico Argentina Romania 300 Brazil Bosnia-Herzegovina Costa Rica Chile Thailand Turkey China 200 Macedonia Panama Hong Kong Guatemala 100 Ecuador Peru Singapore Colombia Bolivia Ethiopia GDP per capita 0 growth CAGR 18-23 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% (USD at PPP) Source: IMF, BMI
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY 39 MULTI-LAYERED PROFIT GROWTH: DISTRIBUTION MARKET SUPPORT
FY18 Group TIV growth not indicative of ‘norm’ 2017 GROUP Current UK performance exceptional PROFIT BY AUS 20% REGION * ASIA Singapore’s structural cyclicality well managed 35% by Inchcape EM 25% Total Industry Volume UK/EUR (TIV) growth through Current portfolio mix supportive to growth 20% the cycle in Distribution: Driven by Distribution markets
2017 GROUP c.+3% PROFIT BY RETAIL Further active shift over time to faster growth markets CHANNEL * 19% annual growth Will increasingly support the growth outlook
Market share gain opportunity 81% DISTRIBUTION Strong brand portfolio
* Proforma for C.America Acquisition announced March 2018 and excluding £9m property profit in Australasia (Retail)
OVERVIEW DISTRIBUTION: INTEGRATED IGNITE: DRIVING THE INCHCAPE CONCLUSION AND VISION ROUTE TO MARKET THE BUSINESS FORWARD OPPORTUNITY OPERATIONAL EXCELLENCE ENSURING ORGANIC GROWTH AGAINST TIV OUTLOOK
41
OPERATIONAL EXCELLENCE ENSURING ORGANIC PROGRESS AGAINST TIV OUTLOOK
Ensuring that Inchcape is maximising the GROWTH OPPORTUNITES opportunity against all revenue streams
Enabling opportunities possible though leveraging global scale OPERATIONAL CONSOLIDATION INNOVATION EXCELLENCE
Leveraging best-in-class learnings across the group
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DEAN SYKES/ STEVE ARCHER/ SHAUN CARROLL
DEAN SYKES STEVE ARCHER SHAUN CARROLL
Emerging Markets Global Global Supply Operations Director F&I Director Chain Director
>5 years in >10 years in Multi-industry supply Inchcape UK Inchcape UK chain expert
Multi-industry retail Prior to Inchcape Prior to Inchcape experience at GE Capital at G4S and JCI
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FULL POTENTIAL ON REVENUE STREAMS REVENUE OUTSIDE NEW CARS INTEGRAL TO BUSINESS MODEL
GROUP PROFIT MIX REVENUE STREAMS: A FOCUS BEYOND INDIVIDUAL PROFIT POOLS GROUP GROSS PROFIT SPLIT BEYOND DISCRETE PROFIT POOLS, MULTIPLE REVENUE STREAMS REINFORCE INCHCAPE’S STRENGTH BY (APPROXIMATE) ENHANCING THE CUSTOMER PROPOSITION
AFTERSALES USED CARS Used 10% Experience post initial sale core Access to a wider customer base to overall Brand experience Aftersales Integral Affordable entry into each brand 40% and Brand loyalty More F&I, Aftersales Maintains vehicle value, to enhancing enhancing capability to churn brand value New and driving 50% FINANCE & INSURANCE profit
Enables New and Used sales Increases higher margin aftersales activity Finance and Insurance within Maintains vehicle value, ‘New’ and ‘Used’ gross profit enhancing capability to churn
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AFTERSALES OPPORTUNITY TARGETING THE GROWING ADDRESSABLE MARKET
GROUP: AFTERSALES (c.40% GROUP GROSS PROFIT) IGNITE DEVELOPMENTS:
45 Units in operation (m) - 0-5 years old across Inchape markets Proprietary tools to optimise capacity 44
43 Customer innovation, e.g. express service
42 Focus on key KPIs such as retention 41
40 Enhanced customer satisfaction monitoring 39 Investment in Aftersales 38
37
36 AIM OUTPERFORM THE 1-5 35 2016 2017 2018 2019 2020 YEAR CAR PARC GROWTH
Source: IHS
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AFTERSALES ACTIONS DETERMINED BOTH SUPPLY AND DEMAND INITIATIVES
Stage 1: Opportunities identified through span of performance benchmarking PROFIT OPPORTUNITY: Stage 2: Supply or demand issue identified Higher margin business
Limited incremental costs SUPPLY DEMAND per hour sold; strongly leverages existing staff and infrastructure Workshop can’t meet all demand Unutilised workshop THE ISSUE Waiting times, lost Poorer economics opportunity
Technician recruitment Service/ MOT reminders Additional ramps Extended warranty programmes SOLUTIONS Extended opening hours Express Service Workshop load/ layout Offers
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AFTERSALES: ETHIOPIA CASE STUDY SUPPLY INITIATIVE: FOCUS ON WORKFLOW
ISSUE VEHICLE WALK-AROUND FACTORY PROCESSES Long lead times indicated CHECK DURING RECEPTION a supply challenge READY FOR SOLUTION TECHNICIAN Processes and workflows to transform productivity READY FOR Introduced a walk-around check WORKSHOP list for each incoming vehicle: Check for damage Simple check of mechanics READY FOR CUSTOMER Ensured optimal factory flow throughput servicing process
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AFTERSALES: ETHIOPIA CASE STUDY SIMPLE CHANGES CAN HAVE LARGE BENEFITS
FIRST FULL YEAR OF MEANINGFUL RESULTS IMPLEMENTATION
2015 2016 2017 Motivated and empowered employees NPS 63.7% 64.7% 69.2%
VEHICLE THROUGHPUTS 3,245 3,744 5,247 Customer satisfaction
HOURS SOLD 132,055 153,219 201,546
Significant improvement APPOINTMENT LEAD TIME (DAYS) 18 14 8 in financial performance
REVENUE % INCREASE +15% +35%
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AFTERSALES: CHILE CASE STUDY DEMAND: EXPRESS SERVICE AND LEARNINGS FROM THE UK
BMW CHILE CASE STUDY – DEMAND FOCUS: EXPRESS SERVICE
Recent initiative to enhance demand LEARNINGS FROM UK RETAIL: MERCEDES Express service launch following successful trials in the UK Mercedes implemented express service in 2016 Delivered strong improvement
UK MERCEDES KPIS 2015 2016 2017
Hours sold growth +8% +8%
NPS score 73% 76% 83%
Profit growth +15% +12%
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USED HISTORICALLY LESS OF A FOCUS MAXIMISING THIS REVENUE STREAM
SPAN OF PERFORMANCE ACROSS MARKETS MODEL DEVELOPED (NEW/ USED VOLUMES) Proof of concept centre built 0.90 Processes defined and refined 0.80 Playbooks and communication tools developed 0.70 0.37 Used cars sold Initial roll out to home market 0.60 for every 1 New car Scale then leveraged 0.50 Across markets 0.40 0.37 Retail and distribution models 0.30
0.20
0.10 AIM 1:1 IN KEY MARKETS 0.00 (0.5 GLOBALLY) UK GROUP
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USED FOCUS ON STOCK AND PROCESS STANDARDS BEING IMPLEMENTED
FOCUS AREAS IGNITE DEVELOPMENTS 01 02 03 FROM TO ONLINE OFFERING MERCHANDISING PROCESS Price “cost up” Consistent, market referenced pricing of cars Negotiate with customer Competitive pricing Reduce the price until it meets displayed online the market rate Standardised online product imaging and videos Listening and engaging Quicker preparation of vehicles for sale Right vehicles for each site to reduce days stocked Centralised pricing - prices can go up as well as down!
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USED: RUSSIA CASE STUDY MEANINGFUL UPLIFT IN PERFORMANCE
Driven by Ignite in 2H, little success prior to this INCHCAPE RUSSIA USED CARS SALES (UNITS)
12000 Used/ new ratio currently:
2016 - 1: 0.3 10000 2017 - 1: 0.6 8000 2018E - 1: 0.8
6000 FY17 success: 4000 Used GP +49%
Growth in units sold: 62% 2000 vs. Market +2% 0 2012 2013 2014 2015 2016 2017 2018*
* Projected
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USED: CHILE CASE STUDY PILOTS HIGHLIGHT OPPORTUNITY IN DISTRIBUTION MARKETS
DEC Programme launched for Subaru 80 cars 2017 238 units 5 times 54 KGBP Sales per Early days but delivering results (pilot results) Stock Stock turn Gross margin month Used/ new ratio currently: 0.4 8 times 154 units 118 cars 87 KGBP Sales Stock turn Gross margin -35% APR +48% +60% +61% 2018
BEFORE AFTER
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DEAN SYKES/ STEVE ARCHER/ SHAUN CARROLL
DEAN SYKES STEVE ARCHER SHAUN CARROLL
Emerging Markets Global Global Supply Operations Director F&I Director Chain Director
>5 years in >10 years in Multi-industry supply Inchcape UK Inchcape UK chain expert
Multi-industry retail Prior to Inchcape Prior to Inchcape experience at GE Capital at G4S and JCI
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OUR FINANCE AND INSURANCE STRATEGY STRENGTHENING OFFERING AND PRACTICES
F&I Revenue Growth
Local Market Initiatives
Inchcape Finance Market Products on way of Retention Forces offer Selling F&I Strategy
Suitable Organisational Design
Strong Market F&I leader
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FOCUS ON PURCHASE AND PROTECTION F&I A KEY ENABLER TO GROWTH
F&I IGNITE STRATEGY
HELPING CUSTOMERS PURCHASE THEIR VEHICLE HELPING CUSTOMERS PROTECT THEIR VEHICLE
Deposit Monthly Future Payment Value
Creating & developing market leading financial solutions Enabling customers to protect their investment Easier access for customers to purchase cars Help customers maintain value and appearance – enhancing future value Monthly payments and vehicle choice is linked Solutions that enhance the ownership experience Leveraging our knowledge & best practice Developing the ‘usage’ rather than ‘ownership’ culture
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F&I GLOBAL REVIEW CONDUCTED HIGHLIGHTED MEANINGFUL OPPORTUNITY
INCHCAPE F&I MODEL NEW CAR FINANCE PENETRATION (MAIN MARKETS) - Agency commission model 82% 67% 65% 57% - Insurance products include motor insurance as well 48% 42% as protective insurance products 36% 26% 26% 26% 25% 23% 21% 17% GLOBAL REVIEW FINDINGS Best practice sharing opportunities - Limited holistic approach to vehicle and F&I sales in some markets - Poor retention of F&I in most markets, given limited focus INSURANCE PRODUCTS PER CUSTOMER (MAIN MARKETS) 2.4 - F&I development not driven purely by regulation 1.8 1.8 or culture differences 1.6 1.5 1.2 1.2 - Vehicle protection insurance products not well developed 0.7 0.5 0.5 0.4 0.3 0.2 0.2 - Opportunity to improve performance and differentiate Best practice sharing opportunities
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F&I AREAS OF DEVELOPMENT DRIVING PROFIT GROWTH
F&I IGNITE STRATEGY
INCHCAPE WAY OF SELLING FINANCE RETENTION STRATEGY - Implement clear and transparent ‘Inchcape - Most likely customer conversion is one with an existing Way Of Selling’ globally finance package - Ensure global best practices make purchasing - c.750,000 customers globally with an Inchcape simple, enjoyable and effective finance agreement - Introduce software solution to ensure correct time to follow-up with customers - Tried & tested in the UK; being rolled out globally
PRODUCTS ON OFFER MARKET FORCES - Develop and introduce appropriate finance - A panel of partners builds competitive tension and insurance products globally - Greater tension delivers greater banking margin
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F&I CASE STUDIES HIGHLIGHTING THE STRATEGY IN ACTION
RUSSIA: VEHICLE CARE INSURANCE PRODUCTS ASIA/LATAM: MARKET FORCES
- Leveraged our product NEW DEALS STRUCK relationship strategy THROUGH PANEL and launched a new Paint TENDER PROCESS: & Fabric protection product into Russia Chile BMW - Developed into the customer £3M annualised profit buying process Singapore through incremental margin achieved - Good customer feedback Hong Kong
- Annualised incremental profit c.£2m for 2018
- Global roll-out planned with 8 further countries due to launch in Q3
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F&I MEDIUM TERM TARGET £30M INCREMENTAL PROFIT THROUGH F&I
F&I Revenue Growth
Local Market Initiatives
Inchcape Finance Market Products on way of Retention Forces offer NEW TARGET: Selling F&I Strategy £30M INCREMENTAL MEDIUM-TERM PROFIT OPPORTUNITY
Suitable Organisational Design
Strong Market F&I leader
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DEAN SYKES/ STEVE ARCHER/ SHAUN CARROLL
DEAN SYKES STEVE ARCHER SHAUN CARROLL
Emerging Markets Global Global Supply Operations Director F&I Director Chain Director
>5 years in >10 years in Multi-industry supply Inchcape UK Inchcape UK chain expert
Multi-industry retail Prior to Inchcape Prior to Inchcape experience at GE Capital at G4S and JCI
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LEVERAGING OUR SCALE: PROCUREMENT OPTIMISING OUR GLOBAL COST BASE
OPPORTUNITY DEVELOPMENTS TO DATE - £600m third party costs, with a vendor base of c.35,000 Creation and consolidation of the global procurement function - Growing business increases third party spend
£20m annualised savings to date focused on: ~£8.6B COST BREAKDOWN - IT ~£400M EBIT SG&A People - Facilities Management Services ~£800M Vendors - Aftersales Services Vendors
OEM Spares Achievements to date largely with a regional
COGS and national focus ~£7.4B OEM Vehicles - Next step enhances the global focus
Labour
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PROCUREMENT SAVINGS TO DATE CASE STUDIES: GLOBAL AND REGIONAL
GLOBAL: DELL REGIONAL: UK RETAIL VEHICLE MOVEMENT Global assessment concluded in 2016: Regional assessment in 2016: Dell penetration across Inchcape was high: c.35K vehicles moved in the business 82% Laptops; 54% Desktops Local agreements at each site:100+ providers No standardisation or leverage across markets Limited efficiency considerations No supply contracts in place (e.g. vehicle preparation location)
Global agreement signed: 2017 Motor Trade Delivery agreement signed: 2017 Group global catalogue created and implemented System to coordinate logistics nationally Group transitioned completely to Dell early 2017 Car transporters bid for delivery jobs Number of invoices reduced to 4% of original number Average price reduction: 20% Reduced spend: 12% Group saving: c. £120k Group saving: c. £1m
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GROWING BUSINESS ENHANCES OPPORTUNITY CASE STUDY: M&A AND PROCUREMENT
REGIONAL / M&A: PERU CUSTOMS SERVICES
Regional assessment: BMW and Subaru had different customs service providers Different prices for a similar service PERU No price negotiations for many years
One agreement signed: 2018 Example of economics of scale driven through M&A Standardised service with one supplier
Reduced spend: 47%
Group saving: c. £200k
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THE NEXT LEVEL OF PROCUREMENT ENABLING GREATER GLOBAL BUYING
THE NEXT STAGE OF THE PROCUREMENT JOURNEY
PURCHASE TO PAY (P2P) PLATFORM
- Drives the next level of savings; part of increasing IT-enabled solutions
- Enables greater global procurement
- Incremental saving per annum with iterative consolidation of suppliers and further leverage of scale
INCREASED MEDIUM TERM TARGET: £50M PROFIT OPPORTUNITY (8% ADDRESSABLE SPEND)
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OPERATIONAL EXCELLENCE / IGNITE
REVENUE STREAM OPTIMISATION GLOBAL COST EFFICIENCIES OFFSETTING + Aftersales outperformance + Procurement savings ▬ Inflation + Increased Used penetration ▬ Reinvestment + Increased F&I profit
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OPPORTUNITY FOR CONSOLIDATION INCHCAPE’S SHARE: 1%
Eastern Europe Central Asia Distribution-led regions with c.14M TIV,
North Africa 20% of Global total
Asia Inchcape has 1% share Pacifics Middle East with a global presence Africa Latin America
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IGNITE’S CONSOLIDATION FOCUS SUPPORTED BY GREATER OEM RELATIONSHIP FOCUS
OEM relationship focus a key enabler to strategy GROWTH OPPORTUNITES Inchcape well placed to act as a consolidator
Renewed internal focus alongside changing landscape and a need for stronger players OPERATIONAL CONSOLIDATION INNOVATION EXCELLENCE Focus on fast-growth markets and Distribution businesses
Consistent with disciplined approach to capital allocation
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CLEAR CHANGE IN STRATEGY THROUGH IGNITE INCREASED ACTIVITY, ESPECIALLY WITH LARGE DISTRIBUTION DEALS
Large-scale acquisitions IGNITE STRATEGY LAUNCHED 2016
1993 2007 2016 2017 2018 Subaru Australia Baltics multi- Indumotora BMW Estonia BMW Guam (TKM) OEM JLR Thailand PSA Rudelman Australia JLR DISTRIBUTION Colombia
2006-08 2013 UK Retail: Australia Meaningful bolt- Retail RETAIL ons (Lind, EMH) (Trivett) Russia Retail: Entry and expansion
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Bertrand Mallet Ruslan Kinebas Helen Cunningham
Chief Development Emerging Emerging Officer Markets CEO Markets HR Director
Previously Mondelēz Previously Mitie, 10 years at Inchcape International, Cadbury Bureau Veritas
Previously at Multi-year experience Multi-year experience Disney, Bain across EM across Europe
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HIGHLY FRAGMENTED MARKET MOSTLY SMALL FAMILY-RUN BUSINESSES
CATEGORY # OF COMPANIES * EXAMPLE PLAYER INCHCAPE ACQUISITIONS
> 20 markets 4 companies Inchcape
> 10 markets 5 companies Abdul Latif Jameel
> 5 markets c.15 companies Sime Darby
INCHCAPE’S PRIMARY CONSOLIDATION FOCUS
> 3 markets c.25 companies Jardine Cycle & Carriage Indumotora
BMW Estonia, PSA Australia, JLR Thailand, 3 markets 850+ companies Family-run businesses Rudelman, JLR Colombia
* Cumulative number of companies
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ATTRACTIVE DISTRIBUTION GROWTH MARKETS DISTRIBUTION MARKETS GROWING TWICE AS FAST AS GLOBAL AVERAGE
THIRD PARTY DISTRIBUTION MARKETS:
Small and Medium Distribution markets set to Regional TIV * Small and Medium outperform Global total market market TIV market TIV (All markets) (%) of total region CAGR (2018-23) Inchcape already well placed Latin America 4M 1M (30% region) 4% for relative growth globally
Asia Pacific 40M 3M (10% region) 3% Opportunity to capture this incremental growth Africa and Middle East 4M 3.5M (90% region) 6%
Eastern Europe 4M 2M (60% region) 6%
Other (USA, Western Europe, 30M 4M (15% region) 1% Australia) Outperformance against Global TIV Global 80M 14m (20% region) 4% which is set to grow at 2% over the period
* TIV = Total industry volume for new vehicles.
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INDUSTRY TRENDS SUPPORTIVE OF CONSOLIDATION CATALYSTS FOR CHANGE
SUPPORTIVE INDUSTRY TRENDS CATEGORY # OF COMPANIES *
Contracts originally handed out in the 60s/70s. Some founders in family-run businesses have no succession plan > 3 markets c.25 companies
OEMs looking for professional, well-funded partners capable of investing for the future Majority of industry: small players OEMs increasingly looking to consolidate in fewer, with limited resources stronger partners 3 markets 850+ companies Given long-term nature of partners and financial requirements few eligible bidders for businesses of scale
* Cumulative number of companies
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INCHCAPE A NATURAL CONSOLIDATOR WELL PLACED GIVEN CAPABILITIES AND RELATIONSHIPS
INCHCAPE’S CAPABILITY
Proven success in integrating businesses
Financial capability for larger deals
Ability to build bolt-on contracts into existing regional structures, leveraging scale
Strong OEM relationships enable the process
Regional presence provides a seat at the table; higher likelihood given Inchcape’s footprint in all regions
Ability to invest against global returns
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OPPORTUNITY DISCOVERY PROCESS INCHCAPE STRUCTURED TO SOURCE DEALS EFFECTIVELY
SOURCES FOR DEALS OEM OEMs can drive deals OEM support required OEM Inchcape strategic advantage given focus on relationships PARTNER
THIRD PARTY DISTRIBUTOR Typically involves relationship building as mostly family-run
INCHCAPE SET UP: Central M&A execution and origination team Regional origination capabilities and focus SELLING INCHCAPE Inclusion in regional objectives and targets DISTRIBUTOR
Strategic advantage given regional presence ‘Eyes and ears’ on the ground
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TYPES OF OPPORTUNITIES COORDINATED STRATEGY TO CREATE OPTIMAL PORTFOLIO
CONSOLIDATION OPPORTUNITY
PLATFORM DEALS SMALLER SCALE / BOLT-ONS
e.g. South America (Indumotora) e.g. BMW Estonia Create a strong platform for future opportunity in a particular Leveraging existing regional infrastructure and knowledge makes geography; Strategic value deals attractive; incremental market share drives profit at low risk
Enhances global scale leverage Strategic benefits even with smaller contracts
Acquisition price reflective of business strength Optimal market structure includes brand exposure across the and strategic opportunity consumer spectrum
Larger profit base acquired; immediately earnings enhancing Price often reflective of physical asset value; limited financial resource requirement Strong financial capability given annual FCF generation as well as strong balance sheet to access additional funds if required Near-term earnings accretion limited but opportunity to achieve strong returns over time
Transformative deals intended to drive bolt-ons
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SCALING ACROSS SEGMENTS OPTIMISES VALUE TARGETING DIFFERENT CUSTOMERS WITHIN A MARKET
Target non-competing brands across the consumer OPTIMAL PORTFOLIO: HONG KONG EXAMPLE spectrum, including commercial vehicles COVERAGE ACROSS THE SPECTRUM WITH NON- PASSENGER VEHICLES COMPETING BRANDS
Maximises leverage through each market’s
back-end infrastructure and Inchcape Group’s Luxury knowledge of market
Look at product pipeline and positioning against Premium each market for relevance and attractiveness COMMERCIAL VEHICLES
Volume Not purely focused on premium Complementarybrands
Entry Wealth creation in EM makes affordable brands attractive Commercial Vehicles Supports higher than average margins
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INCHCAPE’S OPPORTUNITY HEAT MAP GLOBAL STRATEGY MAPPED OUT
PLATFORM SMALLER-SCALE/ DISTRIBUTION MARKET TIV INCHCAPE SHARE OF REGION DEALS BOLT-ONS SIZE (TIV) GROWTH CAGR DISTRIBUTION MARKET
Latin America 1M 4% 3%
Asia Pacific 3M 3% 4%
Africa and Middle East 3.5M 6% 0.1%
Eastern Europe 2M 6% 2%
High Low Significant value creation opportunity opportunity through even a small increase in consolidation
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SCREENING PROCESS RIGOROUS TRANSACTION CRITERIA FOR ALL ACQUISITIONS
RIGHT MARKETS RIGHT BRANDS FOR THE MARKET
Good economic management - Product and price offering Long-term market growth trajectory - Complementary for the existing portfolio Strong underlying structural growth drivers VALUE TO - Build-up across consumer spectrum Political environment INCHCAPE: GROWTH & RIGHT OPERATIONS RETURNS RIGHT EXPECTED RETURNS
Profitability, market share and opportunity For larger deals, Project-WACC targeted in Investment requirements years 2-4 vs. Group WACC of c.8% Complexity of the business (i.e. non-core assets) Bolt-on deals can be goodwill- free Management and employee strength (and retention) Very high returns Opportunity to scale in market with other brands Strategic benefit to the wider group
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ACTIVITY PROGRESSION OVER LAST 24 MONTHS SELECTIVE AROUND DEALS THAT PROGRESS
MANAGEMENT MANAGEMENT BOARD APPROVAL APPROVAL APPROVAL
HEADLINE AGREEMENT/ EXPLORATORY PRELIMINARY DUE CONFIRMATIVE DUE FINAL NEGOTIATION DISCUSSIONS DILIGENCE DILIGENCE
Some terminated, Some ‘kept warm’ PROGRESS 7 DISTRIBUTION Illustrative pies DEALS
Initial market initial External market Market and Value and deal assessment analysis business visits terms finalised Understanding Business case created Detailed due diligence: of business model Potential risks assessed Operations / Assessment of Employees / Finances Initial valuation potential complexities determined Business case tested
Risks assessed in detail Valuation refined
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INTEGRATION PLANNING ROADMAP HIGH IMPORTANCE TO ENSURE BUSINESS CONTINUITY
PRE-DEAL PREPARATION POST-DEAL EXECUTION
Due Diligence Integration Workshop Integration Project Continual monitoring
Strong internal capability Integration workshop held Workshop output clearly Integration steering committee: within 2 weeks of deal signature defined project plans Processes and learnings Regional CEO refined with each deal by key workstream Involvement across teams: Acquired business CEO Identify key factors that Priority focus: Key leaders from acquired influence integration success Regional HR Director business Business continuity e.g. leadership strength Experienced Inchcape Integration of financial Regional FD Pro-active planning to mitigate functional and integration reporting and systems Regional COO identified risks experts Communications Global IT director
Group General Counsel PMO Lead
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INTEGRATION DELIVERY CREATING ALIGNMENT AND FOCUS TO DELIVER DEAL VALUE
INTEGRATION PROJECT
OEM Centralised PMO overseeing Acquired delivery of project plans & key business milestones whilst ensuring focus leadership COMMERCIAL team on business continuity: FINANCE Finance system migration Combined Data migration integration team HR & ORGANISATION leveraging Treasury process handover best of both Employee transfer/cultural integration IT organisations Implementation of Inchcape business & risk management processes Inchcape LEGAL (e.g. new business products) functional & integration experts MARKETING
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SUCCESS OF STRATEGY TO DATE 7 DISTRIBUTION DEALS IN THE LAST 24 MONTHS
THAILAND CONTRACT WIN - 2016 SOUTH AMERICA ACQUISITION – 2016 AND 2018 BOLT-ON Jaguar Land Rover: Thailand Subaru: Chile, Colombia, Peru, Argentina Hino: Chile, Colombia 2017: OEM award recognising growth in 2017 2017: Double digit volume growth across the 2017: 1000+ Hino trucks sold through Chile markets; record sales in Chile, Colombia, Peru Suzuki: Argentina
ESTONIA ACQUISITION - 2017 2017: almost doubling market share JLR: Colombia (2018 bolt-on) BMW: Estonia
Performing in-line with expectations GUAM CONTRACT WIN - 2018 CENTRAL AMERICAS ACQUISITION - 2018
BMW: Guam Suzuki: Costa Rica, Panama AUSTRALIA CONTRACT WIN - 2017 First BMW Distribution contract in Asia Entry into Central America Peugeot Citroen: Australia for Inchcape Increase in Suzuki partnership
2H17: +75% volumes under Inchcape Chinese OEMs: Enhanced relationship
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BMW ENDORSEMENT VIDEO
PARTNERSHIP FOR 28 YEARS GLOBAL PRESENCE NEW BUSINESS
ESTONIA - BOLT-ON DEAL (2017) Peru Australia Consolidates our existing presence in Latvia for BMW Chile UK First BMW-supported acquisition in 10+ years
Estonia Russia GUAM - BOLT-ON DEAL (2018)
First BMW contract in Asia for Inchcape Guam Poland
Latvia
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LATIN AMERICA PLATFORM ESTABLISHED 3 DEALS GIVES US SIGNIFICANT PRESENCE
COSTA RICA CHILE FROM - 2016 TO - 2018
2 countries 6 countries Platform for 1 strategic OEM >6x 5 strategic OEMs continued profit and selected growth PANAMA COLOMBIA emerging OEMs
c. £200M sales c. £800M sales
c. 5,000 new c. 40,000 new vehicles sold vehicles sold
PERU ARGENTINA c. 500 colleagues c. 3,000 colleagues
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ENHANCING GROWTH OUTLOOK SOLID FUNDAMENTALS IN MARKETS ACQUIRED
STRUCTURAL GROWTH OPPORTUNITY TIV GROWTH
PASSENGER AND LIGHT COMMERCIAL VEHICLES PER 1,000 CAPITA ’18-’22 CAGR
800 750 700 COSTA RICA +5% 650 600 550 500 450 PANAMA +5% 400 350 300 250 200 COLOMBIA +5% 150 100 50
0
CHILE +2%
UK
Peru
Brazil
Israel
Chile
Russia
China
Latvia
France
Estonia
Finland
Mexico
Greece
Australia Panama
Germany PERU +5%
Argentina
Colombia
Costa Rica Costa
South South Korea UnitedStates
Source: BCG analysis, BMI
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CREATING A REGIONAL PLATFORM CASE STUDY: INDUMOTORA
PLATFORM DEAL OVERVIEW PROCESS
£231m all-cash deal Meaningfully enhanced position in South Family-run business America Meaningful expansion in South America. Succession driven acquisition Drove: Region with significant opportunity (organic 2 countries to 4 and inorganic) 1 key OEM to 4 Shifted Group further to higher growth markets 4x increase in South American profit and higher margins (FY17: 7.4% vs. Group 4.9%)
MARKET BRANDS EXPECTATIONS/ RETURNS
High growth markets Predominately Subaru and Hino Acquisition price: 8.6x EBITDA (LTM) Chile, Colombia, Peru, Argentina Strong relationships and delivery in other 11% target ROIC expected in year 2/3 markets Average TIV (18-22E): +4% CAGR * vs. group WACC 8% Suzuki in Argentina FY17 EBIT delivery ahead of plan Enhanced relationship £30m achieved Brands complementary to existing BMW 8% accretive to Group businesses in Peru and Chile
* Excluding Argentina where Inchcape’s presence is smaller
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SUBARU ENDORSEMENT VIDEO
PARNTERSHIP FOR 25 YEARS STRONG BUSINESES NEW BUSINESS
INDUMOTORA – Peru Australia TRANSFORMATIONAL DEAL
Enabled us to enter South Chile Argentina America
Expanded our relationship beyond Australia where we built Colombia New Zealand a strong position for the brand
Strong support for the Indumotora acquisition
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DEVELOPING KEY OEM PARTNERSHIPS CASE STUDY: RUDELMAN
PLATFORM DEAL OVERVIEW PROCESS
£201m all-cash deal Scale presence in two very attractive Family-run business Central American markets Succession driven acquisition Entry into Central America, meaningful build Shifted Group further to higher growth on South American platform markets and higher margins (FY17: 10% vs. Group 4.9%) Strategically enhanced relationship with Suzuki Predominantly Suzuki business
MARKET BRANDS EXPECTATIONS/ RETURNS
High growth markets Strategic expansion of partnership with Suzuki Acquisition price: 9.1x EBITDA (LTM) Costa Rica, Panama Leading market shares in strategically 11% target ROIC expected in years important markets: # 2 in Costa Rica in Average TIV (18-22E): +5% CAGR 3 to 4 2017; # 5 in Panama in 2017 Year 1 earnings enhancive: A brand positioned for growth in the region Mid-single digit guidance Enhancement of presence with emerging Chinese brands
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RIGHT BRANDS FOR THE RIGHT MARKETS SUZUKI ATTRACTIVE IN EMERGING MARKETS
ATTRACTIVE FOR EMERGING MARKETS LOW COST ASSEMBLY
Assembly Plants Production (’000) Suzuki has built and maintained strong market positions in Costa Rica and Panama India 1.600 (52,0%) Japan 871 (28,3%) Hungary 250 (8,1%) Complementary for emerging markets Indonesia 250 (8,1%) Vietnam 80 (2,6%) Broad customer appeal driven by desirable, competitively- Thailand 10 (0,3%) priced models defined by Japanese quality Others 13 (0,4%)
Line-up led by SUVs and small-engine compact cars, SUZUKI MARKET POSITIONING suited to local preferences COUNTY MARKET POSITION COUNTY MARKET POSITION COUNTY MARKET POSITION India 1 Indonesia 4 New Zealand 6 Strong underlying customer base Bolivia 1 Peru 4 Croatia 6 Hungary 1 Panama 5 Greece 7 Costa Rica 2 Israel 5 Global 8 Strong product pipeline, with partnerships established Chile 2 Slovakia 5 Colombia 9 to develop powertrains Uruguay 2 Thailand 6 Ecuador 9 Japan 3 Philippines 6 Vietnam 10
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ENHANCED RELATIONSHIP WITH SUZUKI A COMPONENT OF RUDELMAN’S STRATEGIC VALUE
STRATEGIC OEM RELATIONSHIP LONG-STANDING RUDELMAN REPRESENTATION ACQUISITION Rudelman acquisition enhances our relationship with this
SINGAPORE COSTA RICA key brand Distributor Acquired since 1975 Distribution in 2018 Develops the spectrum of our key OEM product portfolio
c.500 vehicles c.7,700 vehicles PARTNER OF CHOICE IN ACTION
INDUMOTORA ACQUISITION
ARGENTINA PANAMA Acquired Acquired Distribution in 2016 Distribution in 2018
c.230 vehicles c.5,100 vehicles
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CHINESE OEMS: FUTURE PROOFING ACQUISITIONS HAVE ESTABLISHED SOME KEY RELATIONSHIPS
LONGER-TERM PARTNER PORTFOLIO CONSIDERATIONS Primarily a commercial vehicle manufacturer Strong range of passenger vehicles, including SUVs Chinese brands added to the Inchcape Large footprint in other South American markets portfolio; relationships being established Relationship 3 million units globally in 2016 - one of China’s ‘big four’ Complementary pick-up truck line ups Plan to stop selling non-electric cars from 2025 established Recent £60bn factory investment with EV powertrain investments Rudelman and Focus on longer-term evolution of the industry China’s largest SUV and pick-up producer Significant R&D capabilities Indumotora Chinese brands don’t have an established Launched first EV in May 2017 route to market; opportunity for Inchcape BAIC ranked no.137 of Global Fortune 500 companies Investing heavily in new powertrain development, multiple EV R&D centres globally
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JLR COLOMBIA: BOLT-ON SUCCESS DEMONSTRATING THE PLATFORM BUILD OPPORTUNITY
BOLT-ON DEAL BUILDING PRESENCE IN COLOMBIA BUILDING JLR PARTNERSHIP
No payment for contract Brings existing OEM relationship into a new market Leverages the scale built through a transformational acquisition Colombia UK (since 2018) Australia Thailand NEW CONTRACT WIN (since 2016) Russia COLOMBIA Hong Kong JLR retail in Bogota, 90% of JLR’s sales Macao Exclusive Parts distribution across Colombia Complementary to Subaru, Hino and Chinese Estonia brand presence in Colombia Latvia Lithuania Finland
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LATAM: CONTINUED BUSINESS OPPORTUNITIES SEGMENT COVERAGE MATRIX DEMONSTRATES POTENTIAL
OPPORTUNITY TO: CHINESE MARKET SUBARU HINO SUZUKI BMW JLR - Supplement strong organic growth with new BRANDS organic opportunity
- Gap analysis Costa Rica - Expand brand exposure in existing markets
Panama - Leverage regional strength to move into further adjacent markets
Peru - Latin America become increasingly more meaningful in the Inchcape mix Chile
Business pre 2016 Indumotora Colombia
Rudelman New bolt-on business Argentina
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FINANCING AVAILABILITY ACQUISITION SPEND SINCE 2016 v Comfort to leverage to 1x net debt /EBITDA
Would allow for at least c.£500m net debt position £451M £19M Replenished with excess cash per annum £201M
EARNINGS ACCRETION Larger scale debt-funded deals in year 1 £231M Smaller deals dependent on circumstances
RETURNS Project WACC determined for each project Target to hit project WACC around year 3 South America Central America Other Total spend acquisition acquisition acquisitions * Note: * Other acquisition spend includes spend on BMW Estonia, PSA Australia
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CASH UTILISATION PRIORITIES CUMULATIVE CASH RETURNS
Excess cash post capex, Share buyback (cumulative) working capital, dividend Dividends (cumulative) 1,019M
Value-accretive M&A opportunities
£47M
Remaining excess FCF
distributed through buybacks
2011 2012 2013 2014 2015 2016 2017 2018 * 2018
Note: * 2018 cumulative cash returns inclusive of 2017 final dividend
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STRATEGIC OPTIONS
Strong balance sheet and 60-70% FCF conversion
M&A / CONTRACTS WINS BUYBACKS Large consolidation opportunity Excess cash returned to shareholders c.£500m spent over last 2 years £400m returned to shareholders since 2013
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INDUSTRY TRENDS PRESENTING OPPORTUNITIES
INDUSTRY TREND ADVANTAGEOUS BUSINESS ATTRIBUTES
Digitisation Greater control of response to trends as the ‘OEM in market’ operating across the value chain
Exposure to less developed markets with lower vehicle penetration and Powertrain less developed infrastructure Electrification – further behind the curve with more net vehicle growth to go
Strong portfolio with OEMs investing in R&D ahead of the industry
Autonomous Business opportunities presented Vehicles & Mobility
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BERTRAND MALLET
Bertrand Mallet
Chief Development Officer
10 years at Inchcape
Previously at Disney, Bain
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DIGITISATION: EXAMPLE OF INNOVATION ENSURING WE LEAD IN CUSTOMER EXPERIENCE
A period of change in the Automotive industry GROWTH OPPORTUNITES OEM partners looking for those with solutions for the downstream side of their business
Development of strong digital solution will OPERATIONAL CONSOLIDATION INNOVATION strengthen Inchcape as the partner of choice EXCELLENCE
Strengthens consolidation opportunities
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INDUSTRY NOT KNOWN FOR THE BEST EXPERIENCE CUSTOMERS DESIRE A DIFFERENT EXPERIENCE
INDUSTRY LACKS CUSTOMER TRUST WE HAVE A CLEAR UNDERSTANDING OF CUSTOMER DESIRES
Survey: Sector customer experience score *
Retail 38 FRIENDLY AND OPEN Hospitality 37 Restaurants 35 Technology 24 FAST AND SIMPLE Leisure 24 Banking 23 Air travel 20 CLEAR AND TRANSPARENT Public Services 18 Media 17 Mobile 15 WHENEVER AND WHEREVER Public Transport 14 Utilities 12 TAILORED FOR YOU Automotive 12 Insurance 11
Source: Engine study; * Sample of 1,024 surveyed, 2015
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A NEW OMNI-CHANNEL EXPERIENCE OUR VIEW ON THE IDEAL CUSTOMER JOURNEY
Research Consideration Purchase Delivery Ownership CUSTOMER Sources of info Transparent prices Seamless Convenient Access to gurus JOURNEY Personalised info Access to experts Easy checkout Helpful handover Simple, flexible service STAGES Reviews Flexible test-drives Delivery tracking Engagement Content rich Convenient locations
IDEAL Omnichannel Diverse physical format Automated processes Convenient delivery Strong automation MODEL Strong website Customer-centric staff Seamless platform
SEAMLESS TRANSFER THROUGHOUT JOURNEY
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CUSTOMER-CENTRIC, OMNI-CHANNEL MODEL BEING REFINED AND LAUNCHED IN FIRST MARKET
PILOT FOCUS
Integrated omni-channel platform
Customer-centric sales staff
Data analytics and automation
Optimised store formats
Building for global scale
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FULLY INTEGRATED COMPETITIVE ADVANTAGE INCHCAPE CAN MOVE QUICKER WITH FULL CONTROL
Assembly Logistics Distribution Marketing Sales F&I Fulfilment
Fully integrated OEM INCHCAPE DISTRIBUTION INCHCAPE RETAIL distribution
Inchcape has a clear advantage with both Distribution Partnerships with OEMs means we can develop and Retail capability the model alongside them to ensure optimal success
Fully integrated markets (where Inchcape directly Well positioned to move now, not just future focused operates all retail sites) provides an opportunity to move at speed and with control
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THINKING MOBILE FIRST ENHANCING OUR DIGITAL CAPABILITIES
NUMBER OF VISITS THE WEB IS OUR FLAGSHIP Our customers are mobile first - treating our Digital dealership as our Flagship
To be successful we must be data driven and have strong digital & analytical skills
These skills are the foundation to being successful in the future development
Digital gives us the opportunity to develop depth of expertise, delivering excellence consistently at scale
16x FOCUS AREAS:
Data analytics
Website performance
Search Engine Optimisation Web Dealership Mobile focus
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CASE STUDY: SINGAPORE SEO BENEFITING THE BRAND POSITIONING
SEO (SEARCH ENGINE OPTIMISATION) EXAMPLE: SEARCH OF TOYOTA’S MOST POPULAR 10 CARS
Training and new tools used to optimised web February: Inchcape content first result for 5 out of the 10 car searches content for search Search improvements Better visibility has increased our share of voice in searches for Toyota April: Inchcape content first result for 8 out of the 10 cars searches Increased traffic to Inchcape websites Drove down the visibility of parallel importers
Top result in a search generates significantly higher click-through
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CONSOLIDATION AND INNOVATION RUDELMAN VIEW ON INCHCAPE’S DIGITAL STRATEGY
YOAV RUDELMAN PREVIOUS OWNER OF RUDELMAN/ CURRENT CEO FOR COSTA RICA AND PANAMA
Rudelman had made good progress in the digital journey, particularly in CRM
However, as a family-run business, did not have the depth of resource necessary to implement a full end-to-end solution
To now be part of an organisation that is using its scale to develop and refine an end-to-end, omni-channel customer experience solution, is truly exciting
Family-run businesses are more resource constrained, but also sometimes constrained in making business change decisions Inchcape has a clear advantage
This clear strategic advantage for Inchcape was another reason that Inchcape was the right partner for us to join
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ELECTRIFICATION AND AUTONOMOUS NEUTRAL TO INCHCAPE AND POSSIBLE OPPORTUNITES
INDUSTRY TREND ADVANTAGEOUS BUSINESS ATTRIBUTES
Digitisation Exposure to less developed markets with lower vehicle penetration and less developed infrastructure – further behind the curve with more net vehicle growth to go
Powertrain Greater control of response to trends as the ‘OEM in market’ operating Electrification across the value chain
Strong portfolio with OEMs investing in R&D ahead of the industry Autonomous / CLICKShared MobilityTO EDIT Business opportunities presented
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ELECTRIC VEHICLES PENETRATION OF UNITS ON THE ROAD SLOW
Change in powertrain does not alter DEVELOPED MARKET EV PENETRATION the Distribution business model
Many Inchcape markets are much less likely to develop the required infrastructure in the medium-term INCHCAPE HAS Even in more developed markets with EXPOSURE TO likely greater infrastructure investment UIO 21% 17% LESS MATURE (Units in Operation) of the 1-3 year total 12% car parc will very gradually increase 9% MARKETS TIV UIO TIV UIO TIV UIO Any aftersales impact from fewer parts 2016 2022 2027 is limited by the slow evolution of EV penetration of cars on the road 17% of UIO (1-3) in 2027
ICE Mild-Hybrid / PHEV BEV
Source: Beryll's Strategy Advisors
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AFTERSALES IMPACT NEUTRAL IMPACT ON AFTERSALES MANAGEABLE
DEVELOPED MARKET EXAMPLE Aftersales risk to the Group is limited Aftersales gross profit impact to 2027 and offset by both the penetration rate and the lag to car parc Estimated 4% decline in market aftersales gross profit 100 98 96 1 1 Confident can offset marginal 1 1 headwind through: Manageable(c.5%) increases in service retention rates Higher retention of EV customers as tech is new
Already servicing EVs; have 2016 Service and Parts 2022 Service and Parts 2027 the knowledge Aftersales Bodyshop Aftersales Bodyshop Aftersales Gross Profit Gross Profit Gross Profit
BATTERY ELECTRIC VEHICLE UIO (1-3) <1% 9% 17%
Source: Beryll's Strategy Advisors
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EV PRESENTS OEM OPPORTUNITIES WELL POSITIONED FROM A BRAND PERSPECTIVE
MORE MEANINGFUL OPPORTUNITY WITH BRAND WINNERS OEM R&D SPEND 2016 (£M)
We are very well positioned in terms of 9,000 brand partners who continue to out 8,000 7,000 invest competition (R&D spend) 6,000 5,000 Smaller Inchcape portfolio brands have R&D 4,000 agreements with larger OEMs 3,000 2,000 As new EV players emerge it creates 1,000
opportunities for Inchcape given - JLR
our strong global capabilities Fiat
GM
Ford
Audi
BMW
Nissan
Group
Group Toyota
– we are investing in these partnerships now Honda
Renault
(exAudi) Mercedes
VWGroup
ELECTRIC VEHICLES PRESENT SHARE OPPORTUNITY WITH THE RIGHT BRAND PARTNERSHIPS
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AUTONOMOUS VEHICLES / MOBILITY MAJORITY OF VEHICLES WILL REMAIN PRIVATELY OWNED
Current & Future annual vehicle sales, Private Vehicles New Shared Vehicles Million Units TIV Growth Private Vehicle Decline Urban-focused phenomenon
’15 – ’30 CAGR = 2% Will drive increased shared mobility 115 and lower private vehicles in 23 some markets 41 10
Reduction in TIV However, global penetration still due to TIV Growth due to urbanisation, MaaS driven by macro-economic growth macro-economic factors etc. in less developed markets e.g. 105 87 population / GDP ~90% of Global vehicle sales remain private Increased demand for shared mobility fleets
2015 Macro-economic growth Private Vehicle Decline 2030
Sources: McKinsey, “Automotive revolution – perspective towards 2030” (Jan 2016)
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NEW PROFIT POOLS MAY EMERGE EMERGING BUSINESS OPPORTUNITIES
Inchcape already supplies Ride-hailing per-mile estimated vehicles to fleets, including Uber cost breakdown Incremental profit opportunity 1.48
1.25 0.14 Inchcape has a strong 0.71 New B2B business capability and history in fleet model opportunity management services, as 0.51 well as some fleet ownership 0.17 0.34 0.34 Not cannibalistic
0.26 0.26 Opportunity to participate Limited investment in incremental business Driver-based Autonomous
opportunities Running Costs Cost of Car Fleet Manager Profit Fee to ride hailer Income to Driver
SHARED MOBILITY AN OPPORTUNITY FOR INCHCAPE
Source: Goldman Sachs analysis
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INDUSTRY TRENDS: GREATER OPPORTUNITY DEVELOPMENTS THAT ALLOW US TO STRENGTHEN OUR BUSINESS
INDUSTRY TREND ADVANTAGEOUS BUSINESS ATTRIBUTES
Opportunity to strengthen our route to market Digitisation Further demonstrates Inchcape’s commitment to OEM partner of choice
Powertrain Net neutral impact on Aftersales profit Electrification Potential new OEM partners
Autonomous / Low vehicle penetration markets shield from reduced ownership Shared Mobility Incremental opportunity through new B2B business models
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THE INCHCAPE OPPORTUNITY MULTI-LAYERED INVESTMENT PROPOSITION 120 MULTI-LAYERED PROFIT GROWTH: EARNINGS AND CASH RETURN COMBINED
ANNUAL RETURN CONSIDERATION
MARKET Inchcape market growth expectations ORGANIC DRIVERS Supported by increasing exposure to EMs
GROWTH OPERATIONAL Revenue stream optimisation EXCELLENCE Global cost efficiencies ATTRACTIVE TOTAL Strong balance sheet, annual FCF CONTRACT RETURN STRATEGIC WINS/ M&A Large consolidation opportunity Actively shifting to higher growth, OPTIONS cash generative businesses BUYBACKS Excess cash returned to shareholders
DIVIDEND 40% payout ratio
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CONCLUSION DRIVING GROWTH THROUGH A FUNDAMENTALLY ATTRACTIVE BUSINESS MODEL
122
POWERFUL MULTI-LAYERED INVESTMENT PROPOSITION GROWTH AND CASH RETURNS
Distribution at our core: A highly cash generative and sustainable business model
Strong and increasing weighting to high growth markets
Ignite strategy driving organic performance ahead of market growth
Continued consolidation a material driver of value creation
Sustainable business model well placed to benefit from future industry developments
Well positioned to deliver shareholder value through organic growth, consolidation and cash returns
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CLOSING REMARKS CHAIRMAN
Nigel Stein
Chairman
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THANK YOU 126
DISCLAIMER
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