Inchcape: Industry leader in a fragmented market Andr Lacroix - - PowerPoint PPT Presentation

Inchcape: Industry leader in a fragmented market

André Lacroix Group CEO

Inchcape Overview

• Unique business model positions Inchcape as global industry

leader

• Leading independent automotive distributor and retailer with scale operations in

26 markets

• Superior operating and customer-facing processes
• Long standing relationships with the strongest motor manufacturers
• Four value drivers - growth (Vehicle sales, F&I) and defensive (Parts, Servicing)
• Highly respected management team
• Industry leading margins and track record of profitable growth and

shareholder value creation

• Resilient financial performance demonstrating strength of business

model in a downturn

• Strongly positioned for the upturn

Industry leader in a fragmented market

Automotive Value Chain

Manufacturer Distributor Retailer Customer

Inchcape Distribution, Retail and VIR operations OEMs

The Distribution process: OEMs use independent

distributors and importers in small / medium sized countries

Distribution in Belgium, Greece, Australia, New Zealand, Balkans, Finland, Baltics, Chile, Peru Inchcape role: New cars & parts: From ordering, logistics to delivery Warranty: From claim to reimbursement Operational Role: Management of Dealer network, national marketing responsibility together with promotions, public relations and pricing, customer database management and back office functions

OEM

Distribution

Dealer Dealer Customer

Production, shipping and landing of vehicles by the OEM

Dealer Network Inchcape owned Dealer

The Retail process: OEMs use their own national sales

company to distribute and appoint independent dealers

OEM – National Sales Company Dealer Dealer Dealer Network New vehicles Used vehicles Aftersales

Accessories Finance & Insurance Finance & Insurance Used warranty Parts sales Service / Bodyshop

Customer

Scale operations with the best performing OEMs concentrated on regional basis where Inchcape retails only Inchcape role: New cars: Sale and delivery to customer Used cars: Part exchange refurbish and resale Service & Body Shop: Service and repair Parts: Sale to motorists and independent dealers Operational: Local marketing, promotions and back office functions

Dealer Inchcape owned

The VIR process: 100% owned Distribution / Retail

• perations in City State markets

VIR in Hong Kong, Macau, Guam, Saipan, Singapore, Brunei, Baltics, Ethiopia Inchcape role: New cars and parts: From ordering, logistics to delivery to sale to customer Used cars: Part exchange refurbish and resale Service & Body Shop: Service and repair Warranty: From claim to reimbursement Operational Role: National marketing responsibility together with promotions, public relations, customer database management and back office functions

OEM

Distribution Retailing

New cars F&I Service/ Bodyshop Parts sales VIR

Inchcape owned

Our business model economics

151.1 7.7 18.7 37.7 44.7 50.2 Operating profit £m 3,297.9 205.1 214.4 1,702.5 736.6 439.3 Sales £m 4.9% 11.8% 23.7% 28.1% 31.6% % of Group profit TOTAL** 3.8% 6.2% Retail 4.6% 8.8% 6.5% Distribution Emerging markets Mature markets 2.2% 6.1% 11.4% RoS 51.6% 22.3% 13.3% % of Group sales Retail Distribution VIR H1 2008*

* Prior to the downturn ** Includes central costs

Inchcape: Our Strategy

To be the world’s most customer centric automotive retail group Operating in 26 markets Market leader in 15 markets Partnered with the world’s strongest automotive brands Proven and resilient business model EXPAND Consolidation in high margin / high growth areas

Inchcape Vision and Strategy

STRENGTHEN Customer-focused

• perational excellence

in every site

Our Customer 1st strategy is proving a strong differentiator in a fragmented industry

INCHCAPE ADVANTAGE

EXPAND Consolidation in high margin / high growth areas STRENGTHEN Customer-focused

• perational excellence

in every site

What is Inchcape Advantage?

• Group-wide strategic programme to put the customer at the

heart of everything we do

• Clear objective to ‘systemise’ the way we deliver an outstanding

customer experience every day, every time, everywhere – at every stage of the customer journey based on deep customer understanding

• A customer-focused ‘retail’ organisation rather than a traditional

‘deal’-driven dealership group

• Leveraging the benefits of the Group to quickly share innovation

Inchcape Advantage is our competitive advantage as we bring world class retail skills into a fragmented industry

Inchcape Advantage portal:

Rigorous performance management

Net Promoter Score & Mystery Shop

Traffic Leads Test Drives Capture Rate % Enquiries Bookings Lead Times Capture Rate %

Quantity Measures Quality Measures

Rigorous real time measurement - site by site Globally accessible systems to identify areas for focus & recognise progress

Net Promoter Score & Mystery Shop

Purchase Phase Ownership Phase

Our Customer 1st strategy is proving a strong differentiator in a fragmented industry

EXPAND Consolidation in high margin / high growth areas STRENGTHEN Customer-focused

• perational excellence

in every site

EMERGING MARKETS

10,000 20,000 30,000 40,000 50,000 60,000 100 200 300 400 500 600 Car parc per 1,000 population GDP per capita (USD)

Australia Finland Belgium Germany UK USA Greece Poland Estonia Lithuania Latvia Bulgaria Russia Romania Singapore Hong Kong Chile Peru China India

Developed vs. Emerging market growth Car parc per 1,000 population

Source: Global Insight Industry Forecast Reports, International Monetary Fund Note: Data based on 2008 figures

12 17 39 56 10 20 30 40 50 60 2005 2006 2007 2008

Group position scaled up in the high growth, high margin Emerging Markets

• The Group now enjoys scale representation in the Baltics, Balkans,

Russia, Ethiopia and South America

• New Retail footprint with large scale facilities delivering superior

returns

• Benefiting from fewer but bigger and better retail facilities

134.6 201.2 606.8 1,056.7 200 400 600 800 1,000 1,200 2005 2006 2007 2008 3.7 5.7 16.6 17.8 2 4 6 8 10 12 14 16 18 2005 2006 2007 2008

% of Group profit* Revenue Sites

Note: On statutory basis. 2007 and 2008 Emerging markets are disclosed per the new IFRS segmentation * Pre exceptional items £m £m

Appendix III - Financial Information

Six years of record growth

Historically strong performance of revenue and profit growth in an expanding market

3,320 3,517 3,855 4,170 4,488 4,842 6,057 1,000 2,000 3,000 4,000 5,000 6,000 7,000 2001 2002 2003 2004 2005 2006 2007

Revenue

87 102 140 155 176 214 270 50 100 150 200 250 300 2001 2002 2003 2004 2005 2006 2007

Operating profit*

2.6 2.9 3.6 3.7 3.9 4.4 4.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2001 2002 2003 2004 2005 2006 2007 189 164 152 187 195 237 293 50 100 150 200 250 300 2001 2002 2003 2004 2005 2006 2007

Return on sales Operating cash flow

£m £m £m %

CAGR 10.5% CAGR 20.8% CAGR 7.6% * Pre exceptional items

RoCE**

28.3 27.9 33.4 32.0 32.9 31.6 25 26 27 28 29 30 31 32 33 34 2002 2003 2004 2005 2006 2007

%

** ROCE (Return on capital employed) defined as

• perating profit pre exceptional items/net assets

EPS***

2.81 4.63 4.17 4.55 6.32 6.41 1 2 3 4 5 6 7 2002 2003 2004 2005 2006 2007 *** Adjusted for the 2006 share split and 2009 Rights Issue

p

Inchcape: Management of an unprecedented industry downturn

Rapid and unprecedented sales deterioration in a number of Inchcape’s core markets

• Unprecedented speed
• f decline in new

vehicle markets started in Q3 08

• All markets quickly

impacted by the downturn

• Driven primarily by
• Falling consumer

confidence

• Abrupt lack of

consumer credit

Sources: UK = SMMT, Australia = Vfacts, Singapore = OneMotoring (* LTA data shown, includes parallel imports), Hong Kong = Local Government, Greece / Belgium = ACEA, ,Russia = Association of European Business (Russian foreign brand vehicle sales) – figures are for new light vehicle sales, year-on-year change

Core market year-on-year sales volume changes

(35)% (30)% (25)% (20)% (15)% (10)% (5)%

• Q108

Q208 Q308 Q408 Q109 Q209

Russia Greece Belgium Hong Kong Singapore Australia UK

(25)% (20)% (15)% (10)% (5)%

• 5%

10% 15% Q108 Q208 Q308 Q408 Q109 Q209 (40)% (35)% (30)% (25)% (20)% (15)% (10)% (5)%

• Q108

Q208 Q308 Q408 Q109 Q209 (60)% (40)% (20)%

• 20%

40% 60% Q108 Q208 Q308 Q408 Q109 Q209 (20)% (18)% (16)% (14)% (12)% (10)% (8)% (6)% (4)% (2)%

• Q108

Q208 Q308 Q408 Q109 Q209 (35)% (30)% (25)% (20)% (15)% (10)% (5)%

• Q108

Q208 Q308 Q408 Q109 Q209 (60)% (50)% (40)% (30)% (20)% (10)%

• 10%

20% 30% 40% 50% Q108 Q208 Q308 Q408 Q109 Q209

Group-wide streamlining of management focus

• n our Top 5

Major cost restructuring programme started Weekly performance management system to reduce stock / inventory Changed management bonus metrics from EP to operating cash flow Final 2008 dividend cancelled to protect 2009 cash flow Successful Rights Issue to re- establish balance sheet strength with support of our shareholders

• Swift management response to mitigate

the effects of the downturn

Oct 2008 Apr 2009 Nov 2008

Focused on executing our Five Priorities to improve our competitive position and maximise cash flow

Growing market share Growing aftersales Managing working capital Selective capital expenditure Reducing costs

Managing the downturn: our Top Five Priorities

Successful restructuring delivers L4L cost saving of 13% Significant destocking reduced working capital by £207m since Dec 08 Capex focussed on strategic sites in key markets New vehicle demand weak but share growth in most markets Resilient aftersales now 50% of gross profit

Resilient financial performance

20,000 40,000 60,000 80,000 100,000 120,000 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 200 400 600 800 1,000 1,200 1,400 1,600 1,800 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09

Vehicle trend Revenue trend

H1 -27.4% H1 -15.5%

At actual currencies

£28.1m Net debt: Free cash flow: ROS*: £87.4m 3.1% £188.4m Operating profit*:

H1 P&L and Cash flow

* Before exceptional items

Units £m

Inchcape: Industry outlook

The skills and investments required to compete in retail and distribution channels will drive consolidation Wealth increase in Emerging Markets will grow car penetration

Industry outlook and implications for Inchcape

Increase demand for greener vehicles will accelerate the replacement cycle in mature markets Inchcape is partnered with the best OEMs who are committed to investing in the newest technology, smaller and greener segments Inchcape has scale operations in the Emerging Markets and will seek to expand through strategic investments Inchcape superior processes and strong balance sheet position us well to benefit from the consolidation Inchcape’s business model has four value drivers including used cars and aftersales. In H1 2009 aftersales was 50% of gross margin The increase in the car parc in mature and emerging markets will provide growth opportunities in used cars and aftersales

Concluding Observations

Strongly positioned for the market upturn

• Robust Business Model, superior

processes and proven management

• Improved competitive position
• Operational gearing benefit from a

lower cost base

• Delivers strong EPS growth in up

cycle

• Strong finances, attractive to OEMs
• Replacement cycle in Developed

markets

• Emerging markets growth given low

car penetration

• Industry consolidation opportunities

Business model strength in a market downturn

• Strong EBITDA and cash flow

performance

• Robust profitability in our

Distribution businesses

• Scale 3S facilities benefiting Retail

businesses

• Aftersales resilience
• Flexible cost structure
• Rapid working capital reduction
• Significant net debt reduction