Inchcape plc (INCH) Earnings Call Transcript & Summary

Hello, everyone. I'm Duncan Tait, CEO of Inchcape. I am delighted to be introducing the first of our In The Driving Seat series, which puts the spotlight on an area of our business with one of our senior leaders. We start the series with the Americas, which Romeo Lacerda, the CEO of the region, will take you through shortly. As usual, you will get an opportunity to ask questions following Romeo's presentation. You can submit your questions via the Q&A functionality of the webinar. Let's get started. As a reminder, this is our strategic framework, which we call Accelerate. It has 2 huge and exciting growth opportunities, distribution excellence and vehicle life cycle services. Both of these are supported by 3 key enablers. Firstly, culture and capabilities. This is about people, relationships and innovation. Secondly, digital, data and analytics. This is key to our differentiation and growth. We chose the Americas as one of the regions to locate a digital delivery center, which is supporting the deployment of digital and our use of data across all our regions. And thirdly, efficient scale operations. This is all about leveraging our scale. With all of these elements firing in the right way, all on a bedrock of responsible business, I am confident that this strategy will deliver more customers, more markets, more OEMs and fundamentally more value for all our stakeholders. Romeo will talk about the fantastic progress he and the team in the Americas have already made on various aspects of our Accelerate strategy. Here, we show the size of the opportunity in the 2 key growth drivers, and it is fair to say that the opportunity in each is enormous. On the left-hand side, you can see the total number of vehicles that are sold every year, around 90 million. The OEMs in-source distribution in the largest markets, this includes China and the U.K., but also markets like Brazil and Mexico. Outside of the larger markets, there are about 17 million vehicles sold in markets that are best suited to Inchcape. So a 17 million addressable market for distribution excellence, of which today, we have around a 1% share. That makes us the global leader. It also clearly demonstrates that there is a huge amount of headroom for growth. On the right-hand side, we break down the vehicle life cycle value. The initial user phase, where Inchcape is very present, accounts for 25% of the total profit pool for each vehicle's life. 75% of the profit turns up from year 4 onwards, and this is a segment that is currently underserved by Inchcape. This is the focus of the vehicle life cycle services growth driver. So 2 enormous opportunities that we are looking to take a greater share of. Digging a little deeper into the 17 million vehicles per year distribution opportunity. We have split the 17 million by region and focused on the Americas. There are 1.8 million vehicles sold every year across the Americas in these typical distribution markets. Out of a total of 26 markets, Inchcape is present in 11, giving us coverage of the vast majority of the addressable opportunity. However, as of today, we distribute 40,000 vehicles, which is a little over 2% market share. We see significant opportunity to increase this through market share gains with our existing OEMs and by via expansion of our OEM relationships in the market. Secondly, there are still 15 markets, including several smaller markets, within which we may be able to expand our footprint in the future. As Romeo will show you, the Americas region has been on a tremendous growth trajectory over recent years, both within existing markets and new markets, and we continue to be excited about the opportunities in the region. On this slide, we show how important the Americas is for us. The contribution from the Americas has grown from 2% in 2016 to GBP 1.2 billion or 16% of group revenue, inclusive of acquisitions announced to date. The group has actively shifted to more attractive segments, but they focus on distribution and has deliberately reduced its retail-only footprint. This has significantly changed the shape of the group to give us greater exposure to distribution, a segment with higher margins and returns. We have also entered into more attractive markets, targeting markets with lower motorization rates while also bolstering our presence in certain higher-growth markets. The Americas certainly ticks that box. Let me now say a few words about today's presenter, Romeo Lacerda. Romeo joined us in September 2021, replacing Ruslan Kinebas, who we moved to the APAC region to replicate the success he has driven in the Americas and Africa region. Romeo brings more than 30 years of consumer goods experience, spanning several regions, including over 20 years in LatAm. Romeo is also fluent in 3 languages, which is extremely valuable when doing business across the region. In terms of some of the core enablers of our Accelerate strategy from a digital and data perspective, he successfully led e-commerce in Europe for Mondelez International, overseeing significant revenue growth during his tenure. He established strong relationships with the likes of Google to leverage data and drive personalized campaigns for leading European brands. He also has considerable M&A experience, acquiring and integrating businesses of varying size, including small family-run businesses and larger scale transactions across LatAm and EMEA. Before I hand over to Romeo, let me remind you that Inchcape is on an ambitious growth journey, both in the Americas and in our other regions, and we are excited to be in pole position to capture these growth opportunities. Romeo, over to you.

Thank you, Duncan, and hello, everyone. I'm Romeo Lacerda, CEO of Inchcape's America Africa region, and I am very pleased to be presenting on the Americas region to you today. Let's first start with some key facts about our operations in the Americas. The business is headquartered in Chacabuco, Chile, where I am. We have 3,000 colleagues across the region with our present spanning 11 markets and 25 OEM brands. The region generates annual revenue of GBP 1.2 billion. And in 2021, we distributed over 40,000 new vehicles. We have a physical dealer and service network across 272 locations. 25% of which are owned by Inchcape, with the majority of dealerships operated by third parties that we appoint in our markets. Our business has a rich heritage with our oldest distribution contract dating back to 1923 for Mactac in Colombia. We bought this business back in 2016 when we purchased Indumotora. In addition to doing an excellent job for our OEM partners, we work hard to develop and retain talent, which brings me to the Americas executive team. As Duncan mentioned, I joined Inchcape last year, having most recently been President of Western Europe at Mondelez International. I joined Inchcape because I was excited to join an industry undergoing huge transformation. And I saw a unique opportunity to help shape the future of Inchcape. I was really, really impressed with Inchcape's people and culture from the very start. This is an organization with deep knowledge, no ego and a drive for results. And it also gave me the opportunity to come back to a region I know well and one with significant growth opportunities. Here, you can see the Americas executive team. They bring a diverse range of experience, both from inside and outside of Inchcape, with many having spent time in other industries and other geographies. Several of the executive team members joined Inchcape, the acquisition, which is a testament to our culture to retain capabilities and continually develop our people. My team is energized by the accelerated strategy and the tremendous opportunities that lie ahead for our region. Let's now talk about growth of the Americas. The Americas business has grown significantly since 2016 when the group's focus on distribution was launched with the Ignite strategy. Then we had distribution agreements for BMW in Chile and Peru and one with Motorrad, BMW's motorcycles brand engine. We have now expanded our business in over 9 more markets and added a further 23 OEM brands. Between 2016 and 2021, the region's revenue grew at a CAGR of around 40% from less than GBP 200 million to GBP 1.2 billion of annual revenue. Over the same period, we have grown profit at a CAGR of 50%. This is a fantastic performance, and we continue to be excited about the future growth potential. Before we get into the specific drivers of our business, let's take a step back and compare the Americas to Inchcape's other markets, including more developed ones around the world. On this slide, I have set out some macro information on the markets in which we operate. The population data shows how meaningful the region is in terms of size with over 200 million inhabitants compared to 900 million across our global footprint. GDP per capita data shows how the Americas lags both our global footprint and significantly lags more developed markets. However, the GDP growth prospects in the short and longer term are very attractive in this part of the world. We'll come back to motorization rates and new car volumes upside shorter. But you can see how under-penetrated the car park is across the Americas and how much potential upside there is in this region. Another factor which support growth in the Americas over the medium and long term is the growth of the private net debt, which has significant headroom in the region. On the hot topic of electric vehicles, while the Americas is likely to lag behind more developed markets, we absolutely expect adoption of EVs to gradually rise and we are embracing this trend. And our business has a solid history of managing successfully in the inflationary and volatile markets, which I will comment on shortly. Putting this all together, I hope it is clear that the Americas has significant growth potential, and we are well positioned to capitalize on this opportunity. In terms of the building blocks of our top line growth, we start with new vehicle volumes where we are exposed to generating higher growth markets with rising rates of motorization. Secondly, we aim to outperform the market by gaining share, helped by our omnichannel platform, our analytics platform and by finance and insurance. We can also use our VLS lever to further develop our used car presence and of course, to drive growth of our aftermarket business. The third pillar is M&A, where we have an opportunity to expand OEM relationships via contract wins and acquisition and to broaden our market footprint. We will now look at these 3 growth drivers separately. Starting first with the organic drivers. On this slide, you can see why we are excited about the future growth prospects for new vehicle volumes in the region. On the left, to show the vehicle motorization rate for the Americas markets compared to Inchcape's markets and other more developed markets. The motorization rate is the number of the vehicles relative to a country's population. As a country becomes more developed and its consumers more economically empowered to purchase a vehicle, the motorization rate will increase. At fewer than 200 vehicles per 1,000 people, the upside for the Americas is enormous when compared to Inchcape markets worldwide, and even more so when compared to developed markets with close to 700 per 1,000 people. On the right, we showed 2021 new vehicle volumes in the Americas. Inchcape overall and more developed markets compare with a 10-year average and 10-year peak. To get back to the 10-year average, there is nearly 30% upside in the Americas and close to 70% upside to reach the peak level. Again, the Americas has significantly more growth potential than in developed markets. Now on to 2 factors that will enable us to drive outperformance, digital and data. We have successfully rolled out our digital experience platform across a number of brands and markets over the past 18 months, hovering more than 85% of our revenue base. When we compare the functionality of our digital platform to those of other distributors in the region, it is clear that we are significantly ahead in online shopping functionality, online service booking and general user experience. We work with the global team supported by our DDCs, or Digital Delivery Centers, one of which is based in Bogotá, Colombia. Our teams continually work to enhance functionality to ensure we offer the best customer experience. As the leading distributors in the Americas region, we have access to substantial amounts of relevant operator data, giving us a clear competitive advantage. The team is working on a number of initiatives to drive valuable insights from this. For example, we recently piloted a parts-pricing optimization tool, using our data analytics platform. We created an AI-based parts pricing algorithm across our SKUs. The algorithm looks at demand for parts, considers competitor pricing and adjust for inflation and supply. Initial results are already showing an improvement in terms of profitability. We are in a strong position to continue to make better use of our data to improve our customer relationships and our financial performance.

What sets us apart from our players is that we have created a strong digital architecture in anticipation of future business growth. Today, we have 2 powerful platforms serving the need of our customers and OEMs. DXP, digital experience platform; and DAP, Data Analytic Platform. DXP is in-scale proprietary omnichannel platform for customer and distributor, providing access to our 4 rounds of configurable products and services from first sales and comparison to after-sales support. The power of the platform lies in connecting the speeding of our people, retail, network and our customers with our data analytic platform and the close partnership that we have with powerful software providers like Safer, Google and S&P. DXP is globally scalable, a factor that is critical to its success. It can be adapted to any market and OEM planner and can be implemented in multiple languages and currency. Together with DXP platform, we have created the second key platform, DAP. The data and digital enabler is at the heir of Inchcape Accelerate strategy, and we use analytics to improve every part of our value change from vehicle sales to aftersales, marketing and operations. Since we began working on the strategy, we have developed a variety of credited machine learning algorithm, including latest scoring, demand forecasting, bulk pricing, chunk reduction and sales promotion evaluation, globally scale and internal capability as a key differentiation for us. We have created a leading digital and analytic platform and all technological progress is impressing all OEM brands. Also, we have a very strong cybersecurity monitoring because we focus a lot on protecting our operations and more new investment. Inchcape is taking control of all deliveries and all support, and for that, digital delivery centers, DDC, have been created, which as today they mostly develop and deliver the technological solutions that we are demanding as a company. The ambition is for us to be able to deliver the solution that we need very quickly and for all the knowledge that this development demand to remain within the company to incubate future solutions. With this Digital Delivery Center, we are attracting fresh and innovative talent to our company in order to develop them and grow together in the technological world. We are becoming the automotive digital development hub for Inchcape.

Another key driver and opportunity for customer relationship management comes from finance and insurance products. This is all about driving broader and deeper customer relationships. It improves accessibility of a brand or a model in a market. The ongoing communication with the customer enable us to deepen that relationship and our ability to offer finance pricing on our websites enhances the transparency for our customers. It is important to note that our model means we do not take any financial risk. In the Americas, we have a fantastic example of the benefit of finding a good financial partner with FORUM in Chile, a leading car finance provider. In the days of BMW, over a 10-year period, we have tripled the number of warranted future value contracts. You may be more familiar with the term TCP and have overseen a 30% increase in contracts with Subaru since we took over distribution of the brand. These guaranteed future value product customers are 4x more likely to come back and purchase a car than those taking other finance points. Our current priorities are to develop partnership with local finance providers across other markets, continue to build awareness of the GFV products, including training of the dealer network and expand our warranty offerings. Scaling finance and insurance products across our markets is a huge opportunity and one that we think will continue to gather pace particularly as use of private credit rises in the Americas region. Another driver of our outperformance is aftermarket. We have had great success with our Suzuki business in Costa Rica, post acquisition in 2018, seen in excess of 10% improvement in aftermarket profits. Our initiatives have enabled the business to be recognized by Suzuki for several years in a row in their global awards as best-in-class. We implemented various initiatives to help drive this improved performance, including in-sourcing the parts call center, increasing the number of proactive calls and customers purchasing spare parts. We opened up a dedicated wide shop facility for other brands and developed relationships with insurance companies, which has supported higher throughput, and we launched a tiered service plan, helping build trust with customers who are more price sensitive, resulting in improved retention rates. We have similar opportunities to replicate these initiatives across other markets. The final driver of organic growth from outperforming market volumes comes from vehicle life cycle services. Both used vehicles and aftermarket provide greater stability and are higher gross margin than new vehicles. In the Americas, our exposure to both used and aftermarket lags the distribution segment. We will tackle used cars with the launch of bravoauto, our multi-brand digital-first used car platform. The rollout of bravoauto across the Americas will start with Colombia in the second half of 2022. In Colombia, the market size for new cars is 200,000 and more than 1 million used cars every year. The market is highly fragmented with lots of mom-and-pop pillars, and there is a significant opportunity for us to professionalize the used car market. As is our strategy in other markets, we will focus on generating traffic and awareness using low-cost leads to DL-listing platforms. Fundamentally, we are looking to address 3 core customer pain points: lack of transparency, simplification of the buying process and access to finance products. With bravoauto, we think we can address all of these and build our reputation and business in an extremely cost-efficient manner with results that are accretive for the group. As Duncan said, this is an area that is significantly underserved by Inchcape today, and we are launching initiatives that will help unlock untapped potential. That covers the organic drivers of our growth and some of the success stories. Let's now move to consolidation and expansion. On this slide, we show what we have done in the past few years in terms of consolidation in the Americas. The first thing to note is that between 2010 and 2015, we did not win any distribution relationships. It is only since 2016 that we have started on this journey. There are a variety of deals on this slide. Some were larger deals in multiple markets with multiple brands, but we also won some where the OEM was not happy with the incumbent distributor, and we want to deal on the basis of our own capabilities. We'll discuss more about this in the upcoming slides. In total, over this time period, we have added close to GBP 1 billion of distribution revenue in the Americas, of which GBP 500 million is the new markets and GBP 500 million in existing markets. So how do we think about the opportunity going forward? Duncan mentioned, the 17 million vehicles that are distributed every year across typical distribution markets, of which 1.8 million vehicles are distributed across the Americas. As the market leader, Inchcape distributes just over 40,000 vehicles every year with the rest split between independent distributors and OEMs who do not currently outsource distribution in the market. We believe opportunities will continue to arise from both groups. In terms of the outsourcing of OEM operating national sales companies, OEMs are increasingly focusing their attention on the very largest markets. We are allocating limited resources, both people and financial capital to address the case trends. We believe they are looking for fewer but stronger partners. And they are, of course, putting more emphasis on digital and data capabilities. In terms of the 300 independent distributors in the region, most are small, multi-generation family run businesses. These lack the resources and frankly, preferability to invest in the new age of automotive distribution, which is much more focused on technology. This is one key reason that we believe we will continue to lead in the consolidation of this highly fragmented industry. This chart shows the top 50 distributors across the Americas. And you can see where Inchcape sits in terms of the number of markets in which we operate and how many OEM brands that we distribute. You can therefore see that Inchcape is truly the leading distributor in the Americas by some distance. So what are the benefits of regional scale? We can leverage our technology, co-invest. We have greater knowledge generation and sharing of best practices. And importantly, the regional organization structures are aligned with that of our OEMs. We are also able to drive cost efficiencies by reducing back-office overheads. Let's now dive into some examples of our consolidation and expansion. Prior to 2019, Inchcape did not distribute Mercedes-Benz anywhere across the world. However, we did have a 30-plus year rate retail-only relationship with Mercedes in the U.K. During 2019, Inchcape agreed to take over distribution from Mercedes-Benz in Colombia, which Mercedes was doing themselves. And we also identified a number of other markets in the region as part of our plan to build scale with the brand. Fast forward to today, we are now the #1 distributor of Mercedes-Benz in the Americas. Digging a little deeper into the Colombia business since taking over the operation from the national sales company, we have leveraged our broader distribution capabilities in a number of areas. For example, we have put a greater focus on finance and insurance products, leading to higher financing penetration. We have captured new revenue streams. For example, the launch of Mercedes-Benz certified used cars, give us access to a new customer base and retain vehicles in our network for longer. And we have integrated the business into our existing operations, sharing of our parts distribution center, which has helped reduce costs. We are really pleased with the strong start we have made to our relationship with Mercedes-Benz and that the successful Americas relationship has opened up other conversations with the brand for us globally.

Hi. My name is Hector Corredor, and today, I am the Managing Director for Inchcape Daimler Colombia operation. I used to work for Daimler and I did it for more than 11 years performing different roles, latest one as an MD of Mercedes-Benz cars in Colombia. I led with other college at Daimler, the negotiation process and final acquisition closed in February 2020 between Mercedes-Benz cars and Inchcape. But why Daimler decided to change from a market performance operation to a general distribution operation. Latin America and the Caribbean are made up of more than 40 countries, 5 different languages, which make the administration difficult and really expensive. This is why Daimler started a process to choose strategic allies that can acquire operation in the region, aiming to concentrate the business in 2 or 3 big distributors with experience and a great company profile. This is how Inchcape arrives and has already rich agreements not only in Colombia, that is the biggest market for Mercedes-Benz but also Uruguay, Ecuador, El Salvador, Guatemala, Barbados and the Caribbean. Today, I can say that the Mercedes-Benz business in Colombia is different. Inchcape is a faster and more flexible organization. It gives more importance and attention to the Latin American market. Inchcape looks for new businesses opportunities, searching to deliver full potential. The sub-distributors that we have right here in Colombia feel that Inchcape is more aware of the issues.

Our most recent acquisition was Ditec, a family-owned business in Chile, which has been operating for more than 60 years. As this quote from Sebastian, Ditec's former President and still a minority owner, says, Inchcape leadership in digital and data will help propel the business into a new age of automotive distribution. This was a key driver of this reason to sell to Inchcape. I think we expect we'll continue with further distribution businesses. With this acquisition, we added first-time distribution relationships with Porsche and Volvo and another market with Geely. It was also another opportunity for us to deploy our leading digital and data capabilities and then to showcase them to our new OEM partners. While we already had a long-standing distribution presence in Chile with BMW Group, Subaru and DFSK, the addition of Porsche, Volvo and JLR complement our existing OEM footprint in the country. The acquisition of Ditec is mutually beneficial, enabling the business to move into Inchcape's global footprint and digital capabilities while also further broadening our OEM footprint.

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Prior to Ditec, our most recent addition to our portfolio of OEM brands was Geely, with whom we signed a global strategic partnership in July 2021. As a reminder, Geely is one of the 4 most brands in China, and in 2021, sold more than 1.3 million vehicles, the vast majority in China. Its parent company owns other OEM brands such as Volvo, Lotus, and the London electric vehicle company. Our distribution relationship started first in Chile at the beginning of this year, and you can see the evolution of volumes of the Geely brand in Chile over the past few years. We are the third distributor of Geely vehicles in Chile since 2016, and our performance in 2022 year-to-date significantly outperforms the volumes achieved by the previous distributors. The factors driving our success include brand positioning and the effective marketing campaigns, use of financing products and the appointment of a dealer network. Following our success in Chile, I'm pleased to share that we are in advanced conversations regarding our second distribution market for Geely and will begin distributing in Ecuador in 2023.

It has been 3 months since Geely brand was launched in Chile in January. To my team, it has been fantastic to work with Inchcape, Chile. The team is full of energy, very young and very open mind to all the new ideas. This is the character we have been looking for from our distributors. We communicate with each other on a weekly basis and through rounds of discussion, we generated a very effective and tailor-made launching strategy for Chile, and the stable increase of sales volume in recent 4 months, it's the proof that we are in the right direction.

Another example of our expanding OEM footprint with the markets where we already have presence is with the BMW Group. We have distributed the BMW brand in Chile and Peru since the 1990s and have maintained a market-leading position in the premium segment in both markets for several years. During 2020, we were awarded the distribution contract for Mini and Motorrad in Peru and for Mini in Chile. And in the all 3 cases, we have improved market share in our first year of operation. With the addition of these brands, we don't need any more physical outlets and instead, have a purposed existing infrastructure to accommodate these brands and drive greater awareness among consumers. This leveraging of our existing infrastructure enable us to generate healthy operational average, and we are encouraged by the initial results. The performance in Chile is a good example of the operational leverage we get from adding new brands in existing markets. Our press in Chile prior to 2016 was limited to 2 brands, BMW and Motorrad. At the end of 2016, we purchased into Motorrad, which broadened our brand footprint in Chile as well as enabling us to expand into new markets across Americas. Since 2020, we have added 6 more brands in the region, and I have spoken about the success we have had with some of those. Since 2016, we have tripled our revenue in Chile and increased profit by wild excess of 5x. Note that this excludes any contribution from Ditec, which we completed during quarter 2. By adding scale in existing markets, we are able to reduce overheads by consolidating back-office functions. With our digital and daily investments and our shared services centers, we would expect to be able to improve this even more over time. We have shown how expanding intramarket brand presence supports performance. We target noncompeting OEMs across the brand pyramid. On the left-hand side is the category of passenger vehicles. We can have several brands in a single market, and we aspire to have maximum coverage across and within the various buckets, always working in conjunction with our partners. In addition to this breadth of passenger car brands, we also target commercial vehicles, both light commercial vehicles, heavy truck and machinery. Both passenger and commercial vehicles are equally relevant and attractive in our role as a distributor. Having a broad brand presence give us maximum leverage of the cost base in our market, and we see significant opportunities for us to expand within our markets. To bring this session to a close, let me give some examples of our track record of integrating new businesses. Starting on the left, Vertu Motors was bought in 2016. This both strengthen and broaden our geographic reach in the Americas. The acquisition added GBP 400 million of revenue when we combine it with our existing business and consolidate it to back-office. Many employees will retain, bringing a range of capabilities to our business. Most importantly, Indumotora provided the catalyst for our expansion across the region. In 2018, we bought Rudelman. Predominantly, a Suzuki business in Costa Rica and Panama. The business invested in a best-in-class aftersales center and has been recognized by Suzuki with Global Aftersales Awards consistently for several years. And in 2020, we were delighted with the acquisition of a national sales company, our first branch here. Following our expansion with Mercedes-Benz, we set up a center of excellence which supports all markets, and today, we are pleased to be Mercedes-Benz's leading distributors in the region. I would like to finish this section by talking about our ESG program, which aligns with the values of our OEMs. One important element of our accelerated strategy is our responsible business plan. In the Americas, we have made significant progress over the past 12 months. In planet, we have set carbon reduction initiatives and formalized recycling practice in our parts distribution centers. Under the people pillar, we have created an inclusion and diversity dashboard and launched online training programs that cover 100% of the population. In places, we have provided safe driving awareness training and partnered with a charity to recycle car parts into prosthetics. And in practices, we have rewritten and centralized policies and created greater reselling awareness. We, at Inchcape, feel really passionate about how we can positively impact newly acquired business and the communities in which we operate. Before my summary, I would like to play a short video. [Presentation]

I hope that has give you a sense of the fantastic progress the business has made in recent years and the exciting growth opportunities ahead. Our business has grown significantly since 2016, outperforming the broader market supported by market share gains, growth of aftermarket and new business wins. Our various initiatives have helped profit growth faster than revenue. We have a long track record of successfully managing volatility, and our team is made of seasoned managers who have experience of navigating varying market conditions. They also have a number of tools at their disposal to help manage the impact of inflation, political uncertainty, regulatory approval and supply chain challenges. For example, fast decision-making and drove-over price, hedging portfolio shifts and careful inventory management. During the COVID period, Inchcape moved fast to reduce cost and manage inventory levels. This agility meant we bounced back faster than the competition, gaining market share and showing a V-shaped recovery in terms of net revenue and profit. We also have successfully integrated an improved trading business that have added to the group since 2016. And all of our markets are fully committed to executing the group's accelerated strategy. Bringing this all together, the Americas is a large and attractive region with compelling characteristics. The group's investment in digital and data set us apart from our competition. Our plug-and-play global distribution platform means we are positioned for fast expansion and seamless integration. Our capabilities and geographic scale enable us to capture new opportunities and efficiencies. We are committed, responsible business and have a number of initiatives that we are proud of. Overall, we are confident that the Americas will continue to be a strong and profitable growth driver for Inchcape.

Excellent. We will now move to the Q&A section of the event, for which we have around 25 minutes. We've had a number of questions coming already. [Operator Instructions] There will be grouping the questions into subject areas and the most popular area so far has been growth. So let's begin with that. What do you consider to be the greatest opportunity for growth in the Americas?

Thank you, Raghav, for the question -- for covering the question. Listen, if we think about the Americas, normally, we think about 2 big areas. Number one is around distribution excellence. The other one is about VLS, or vehicle life cycle services. If we go to the first one, there are many opportunities. If you think about growing market share in the markets where we already operate, our current market share is only 2%. And in many markets, we only operate with 1 brand catering for 1 customer service. I can give you the example, for instance, of Uruguay, where we only operate with Mercedes or the example of Panama, where we only operate with Suzuki. So increasing the number of OEMs and brands that we work in those markets can definitely provide an avenue for us to grow market share and to grow the business. Secondly, there are 50 markets in Latin America that we don't operate today. They are kind of quite spaces for us. Those markets, just to give you a couple of examples, could be Dominican Republic, Paraguay, Bolivia or many others. So we can enter, we can start operating there. But it's not only that, it's also about taking advantage of the VLS opportunity. For instance, we have underserved the used car segment, and we believe we can do a much better job in that realm. So we are launching, for instance, now in the second half of this year, bravoauto in Colombia, and we'll follow suit with a couple of other markets in the beginning of 2023. There are other opportunities like F&I and others that I will not elaborate too much here, but you can have a sense of the growth opportunities that we have in the Americas, which are enormous.

And to follow up on the same topic of growth, Romeo, can you give some quantitative or at least qualitative guidance on the outlook for the Americas, particularly in the context of the 40% per annum growth that you showed on your slides that you delivered since 2016?

So we have seen over the last 5 years, a very important growth, both in top line and also on bottom line, and this is, thanks to the work of my predecessor and then the great team that we have here in the Americas. But if I look forward, what I see is that we have very strong fundamentals in place in this region to believe we can keep growing at a fast rate. Number one, the motorization rate is still very, very low. It's around 200 vehicles per 1,000 inhabitants. If you compare that with other markets that we operate, in Inchcape, this is less than half. And if you compare that to developed markets, this is less than 1/3. So there's a lot of leeway in there to grow the business. Secondly, vehicle continues to be very aspirational in this region in Latin America, even more so after COVID. And we believe that consumers will keep coming back to acquire vehicles over time. Then you have, of course, the question of GDP that people continue to have higher income over time, yes? So those are some factors that show that there's a lot of potential in this region, and this region will continue to grow for the foreseeable future. So that's the way I see the opportunities here in Latin.

Excellent. We've got a number of topics to cover. So I'll move on to one on team here, Romeo. Can you talk about the skill set of your team and whether they have what it takes to drive the future of the business?

Of course. So in one of my first slides that I presented today, I showed you the team that we have in the Americas. It's 11 strong teams and a couple of elements that reinforce why I believe this team is very capable. Number one, they come from 8 different countries. So they have a wide spectrum of experience. Number two, some of them, they have 30 years in the automotive industry. Some others, they come from different industry, which makes for a very good blend between different perspectives. And finally, this team, I think 7 out of the 11 they came through acquisitions, which shows our ability to identify great talent and to keep nurturing and developing them over time. So this team is very seasoned, and they proved over time and in different countries, different companies, they can manage the volatility and the events that normally come to the fore in a region like Luxembourg. So that's why I believe it is fronting.

One on VLS here, Romeo. Why have you chosen Colombia as the rollout destination for bravoauto? And do you expect to roll that out across other parts of the region?

So Colombia is a big market in terms of new vehicles. We are talking about around 200,000 vehicles per year. And then the used car market has -- is a factor of 4x that number. It's north of 1 million. So it's a large market that shows a lot of potential. It's a growing market by the way. But the other interesting fact about Colombia is that this is a very, very fragmented and underdeveloped market with lots of moms and pops and also consumer-to-consumer relationships. So we believe there's an opportunity there to come in and to professionalize that market. So we are -- what we aim to do is to bring solutions in terms of improved transparency for the transactions, simplifying the buying process, both for the sellers and also for the buyers and then to bring access to finance products. We -- by doing that in Colombia, we can gain market share quickly there, and we can, as I mentioned, professionalize that market, but this is not only the preserve of Colombia. So we have a couple of markets that are lined up for early '23. So we should be able to be present in a couple of markets -- in 2 or 3 markets very quickly across Latin America. One thing before I finish is to mention that used cars can be exploited -- used cars opportunity can be expected not only via bravoauto, particularly in countries where we have BMW and also we have Mercedes, we are driving the brand certified vehicles with a huge success. So it's a blend of exploiting these different opportunities in different places in the used market.

Romeo, you talked about macro trends and volatility. We've had a few questions on this. In the Americas, there are certain countries that have proven tricky and volatile historically. How can you give confidence that you can manage through a period of economic weakness and high inflation?

Yes. Volatility is probably one of the hallmarks of this region, and so crisis are constant. But at the same time, they go fast, yes. So there's lots of ups and downs in Latin America. That's very clear to me. But on the other side, there are many opportunities as well. This region is blessed with an economy that will continue to grow with low motorization rates and so on. That's why, as I mentioned before, I believe there is a huge opportunity. The way we navigate this volatility is, number one, counting with a great team. And I spoke a little bit about the experience, how seasoned they are and so on. But secondly, it's about the tools that we use in this market. For instance, very, very important in the continent like Latin America, we have a very strong grip on your inventory management, and we use the SOP2 across the board in order to do that. Cash management is also very important. Understand your hedging policy, how you can protect against volatility and then being a team that is very, very close to the ground, understanding what's going on and adapting portfolio choices, adapting our pricing policies and adapting, as I mentioned before, the way we manage the inventories. Now we have proven that we have been successful, and one example I can give of that is how we manage COVID. In COVID, we -- all of a sudden, we had a huge drop in terms of demand and the team is very quickly gather around and to find a plan to cut costs, reduce inventory in construction with our OEMs. So we managed to execute that plan thoroughly. Then we bounced back, after COVID was over, in a strong pressure, and we have been gaining share over the last year and a half. So that shows a little bit what this thing is capable of.

And to follow up on that, Romeo, on current trends, I guess this concern of global recession, how does this difficult consumer backdrop impact the desire to own a vehicle? Of course, in Latin America, we also suffered from the high inflation. We suffer from high interest rates that are coming our way as well. So we definitely are not immune to that, but I'm having a good amount of experience in Latin America. I can say that inflation is not foreign to those markets. Actually, we leave that as it's in our day to day. What's important is that we continue to pass on all these inflation through prices as much as possible, and then we navigate those lockers moving forward. So we continue to be bullish in Latin America because I believe we have the means to overcome those difficulties and to navigate those. And then one final one on current trends here, Romeo. Are you seeing any changes in the supply-and-demand dynamics in the markets that you operate?

We see a lower tick in terms of supply coming from our OEMs. Of course, they are very different in terms of their behavior, in terms of their supply patterns, and in terms of demand, it continues to be red hot. Of course, this can change along the way, but our order books are still very strong, and we haven't seen any change in terms of demand from the time being.

Okay. Let's move on to M&A. We've had a couple of questions on M&A. You've done a lot of M&A in the Americas in recent years and added new OEMs like Volvo and Porsche just this year. Can you provide a sense of the pipeline?

So in terms of M&A, we continue to be engaged with several prospects distribution companies. I can tell you that we have a dedicated M&A research, working with the team here in Latin America, and we also work very, very closely to the central team in the U.K., yes. What I can provide to you in terms of information is that our pipeline is very vibrant, and it's very strong at this moment.

And moving then to strategy here, Romeo. How has the Americas strategy changed since you joined?

So when I joined, I was fortunate enough to be here at the same time that the group was launching the accelerated strategy. So my contribution is, today, is to embrace the strategy and to drive the execution of that strategy successfully to bring it to life. So we -- and those are the main tenants are distribution excellence in VLS. I spoke a little bit about it, and I believe that delivering on that strategy, bringing it to life is already a big contribution. Some evidence of what I mentioned to you would be the following: number one, out of the 3,000 employees, we have 200 volunteers across the board that every month or every other month, they come to discuss the strategy even to the shop floor with our employees so that the employees are engaged. They understand where we are aiming, and also, they can understand what their contribution to the strategy is. We are very, very energized with that strategy. And at the same time, in terms of M&A, we are providing that we are presenting some examples that we can work with strategy with 2 acquisitions already in the last 90 days. So those are some examples. If you want to have the momentum of the engagement of our teams around the strategy, just go to LinkedIn and check accelerate strategy in Latin America, and you'll see how many activities, how many comments, how much engagement we have in that. So those are some examples of my commitment to the strategy, and we work them together as a team.

And then to go one level into the strategy here, Romeo, on digital and data, how sustainable would you say that your leadership in digital and data is versus your distribution peers?

So today, we see a customer changes significantly in the way they behave when they go through to buy a car. A couple of years ago, a typical customer would visit our dealership stores 5 times before buying a car. These days, they visit between 1 and 1.5 times. They rely a lot on the digital part in order to fulfill their needs, in order to compare prices and so on. When they come to the dealership, they are already further along in the customer journey. So this is a critical element. We need to understand that. And some of the brands and the countries, we already have more than 55% of our volume heavily done by the -- in the digital space. So according to our internal benchmarks, we know that in terms of functionalities, we are between 1.5 and 3x better than completion, but this is something that changes a lot over time. So we do those checks almost every quarter against competition in order to make sure that we stay ahead, and then we work together with our central team to develop and deploy new capabilities. We work together with our digital delivery centers in order to make sure that we keep that business against the other distributors in the region. So DXP and DAP have been fundamental for our success, and we'll continue to bet on those 2 for the future.

And another one on a strategic -- one of the strategic pillars, I guess, of F&I that you mentioned, Romeo in your presentation. What impact has the introduction of financing had on your market shares in individual countries and across the region?

Yes. Finance insurance is a critical tool because what financial insurance does, it allows more consumers to come to the franchise because it lowers the amount of money they have to spend on a monthly basis on a vehicle. So in a way, they monetize its vehicle store for customers. We also know that once customers come to our F&I tools, they have 4x more chances to stay in our franchise compared to the other tools in the marketplace. So that has been critical for us. So I provide some examples. During the presentation, in the case of BMW here in Chile and also in the case of Subaru, what we are trying to do is rolling out that experience that we have not only in Chile, but in countries like Costa Rica and Panama, 2 other countries. What is critical there is to find good finance partners that understand our language that understand the opportunity of the market and then go together with us in managing in this opportunity. So F&I, again, a great opportunity for us, and we are going to drive part into the future as one of the key enablers in terms of growth for us.

Thank you, Romeo. I've got a couple of specific ones here that have been submitted for Duncan. Duncan, as shown today, there's been good progress in LatAm. Why has the region proven so successful? And what have been the barriers to replicating this in other regions?

Thanks, Raghav. Well, first of all, let's acknowledge that the Americas business has grown and grown very nicely for us. Some credit should go, of course, go to Romeo's predecessor, Ruslan, who -- the region was just GBP 200 million per annum-ish when Ruslan takeover the Americas and Africa. He's worked very closely with all of the independent distribution partners to get to know them to build our footprint with those 2 major acquisitions that build out our Americas business. And of course, then we've had organic growth on top. And since then, Romeo has taken brands like Geely that he mentioned before, but also let's remember, we've added many, many under 1 year of being inside, I guess, the Inchcape magic and Chile went from nowhere to #1 segment share. For many, we end up with a very happy BMW group and Inchcape. Now we've moved Ruslan to look after our Asia Pacific business, and one of his missions is to replicate what he did in the Americas in Asia Pacific. And yes, if I take a step back, Raghav, let's not forget, we have these 2 huge growth opportunities in front of us. One is the 17 million vehicles, the distribution excellence, of which we have just over 1% market share globally. The second bit is this enormous opportunity in vehicle life cycle services. And frankly, we have the opportunity to replicate what the Americas team have done across all of our markets. One comment I'd make just in terms of M&A. The pipeline is strong, not just in Romeo's region, but also in our other distribution businesses, small deals, medium-sized deals and even larger deals. And we'll continue to pursue that part of our agenda as well as driving organic growth in each of the other regions, but I'm very, very pleased with how the Americas has executed and very, very pleased, as Romeo said before, about how they've embraced Accelerate and got that whole region rocking and excited about what we're up to as a group.

Thanks, Duncan. You started to answer another question that was specifically aimed at you on deal pipeline for the Americas. But the second part of the question is, how much do OEMs pay to your performance post acquisition? And how great a part of future acquisitions will existing national sales companies be?

Look, let's answer the second part first. So if you break out that 17 million vehicles we have, about half of that 17 million are under the control of OEMs directly with our own national sales companies. What are we seeing? We know that OEMs have got to be successful in the transition to EV, and they must be successful in the world's largest markets, for instance, the United States and China, both selling 20 million vehicles a year in those markets. Therefore, as they concentrate on that part of their mission, I think that from an Inchcape perspective, we're a great partner that these OEMs can use across all of the regions to drive performance for them and manage the transition to EV in these lower volume, more complex markets while the OEMs concentrate on EV and those larger markets. So if I look at our pipeline today, we have opportunities for -- to buy independence and to work with OEMs to buy their assets also. Now in terms of your first point around how much attention to OEMs have paid to performance. Look, it's the -- if you look at what we say in terms of Inchcape's values, value #1 for us is Inchcape delivers. And my word, do we deliver? I think the Geely example is a great example. Selling 10 to 12x more vehicles than any other OEM distribution partner has done for them in Chile before, I think, speaks to the magic that Inchcape brings to OEMs and that creates more opportunity. I don't think we'd be having the conversation about more LatAm markets, more African markets, European and APAC markets with Geely if we weren't performing in that first market. So yes, of course, the OEMs pay attention to how we perform. They also pay attention -- I mentioned Mercedes in particular about their feedback around when we bought the Colombian NSC from them. It is not just about performance, it's also about how do we treat their people, what are our practices like around how we run these markets with our commitment to anti-bribery, anticorruption and anti-money laundering, great health and safety programs, our compliance programs, our cybersecurity programs are a bedrock of our value proposition to OEMs. And the more Inchcape drives for what extends our leadership, I think the more opportunities we'll have.

Thank you. A question -- another question that we've had is, the presentation seemed to focus more on the midsized markets. Does Inchcape offer greater differentiation in mid than smaller size markets?

I think we offer solutions for both markets. So if we talk about midsized markets where we have had great success, still have. Chile is one of them. Colombia is another one. So those are mid-sized markets, but then we have great success also in smaller markets. Let's take Guatemala, Salvador, Uruguay. So those are examples that shows that we can play on deductions, working the last mile of the ride without any plan.

Thanks, Romeo. There's a question here on OpEx. I guess Gijsbert's not on the call, but I'll ask it anyway. What share of OpEx relates to back-office infrastructure or infrastructure that you're able to leverage?

So what we try to do as much as possible is to leverage or to scale up everything that customers do not see and try to be more exclusive on everything that customers do see. So that encompasses the opportunities for us in terms of IS, how do I talk about DXP, DAP and technology. So that encompass finance, agile and so on. So what we are trying to do is trying to scale that up, not only in our current operations, but when we buy new businesses, as I mentioned to you before, because of Ditec or in terms of seeing some offers in the current year, we use that same infrastructure and leverage the scale on that basis. So that's the way the former that we use in order to leverage our structure and at the same time, over time, reduce the overheads as a percentage of our revenues.

We're fast run out of time. This will be the final question we'll take today. For those questions that we have not had time for, we'll get in touch with you directly. So Romeo, to close, what have you been impressed by since joining the group? And where do you see the most room for improvement?

So what impressed me the most in Inchcape this year that I have been here is the growth trajectory, the growth story of this company. So it's an organization that wants to grow in terms of top line, in terms of bottom line. It has a very clear strategy on how to do it, and it was walks the talk. So it's -- you don't see that very frequently across the board. But then it's not only this hard part, it's also the soft part. This is an organization that is very humble. It's an organization that is focused less on the ego of people and much more from building business for the future on strengthening the relationships with the OEMs. And finally, the industry is in transformation. So I am particularly very excited with the possibility to shape the future of Inchcape together with the team, together with Duncan and my peers. So there's a lot going on for us, I think, for the future. What keeps me awake at night is more the ecos or more the case of Latin America, the volatility that we talked about. I do believe we are equipped to deal with that volatility over time, but of course, in order to be successful in this region, you need to be always 1 or 2 steps ahead in order to be successful. And so -- it's okay. It's part of life, but it keeps me awake at night that would be the end.

Very good, Romeo, thanks so much. Thank you for a great show, Romeo, but most of all, thank you to all of you who have joined today. Thank you very much for your questions and engagement. That concludes the first of our In The Driving Seat sessions. This event will be available on the group website later today, and in the meantime, I look forward to seeing you all on the 28th of July for Inchcape's 2022 interims. Thank you very much for joining.