Inchcape plc (INCH) Earnings Call Transcript & Summary

Well, good morning, everybody. Welcome to Inchcape's Full Year 2024 Results. I'm Duncan Tait, Group CEO, and I'm joined by our CFO, Adrian Lewis. Here's today's agenda. I'll give an overview and strategic context. Adrian will then run through the 2024 results, before outlining our medium-term targets published today. I'll then sum up and discuss the outlook for 2025. Today's presentation is available on our website, and a recording of today's session will be available later today. After the presentation, we'll take your questions. So I'll start with our key messages. First, we delivered another year of progress in 2024. Second, we updated our capital allocation policy, and today announced a new GBP 250 million share buyback program. And third, we are today announcing new medium-term targets, including a target of EPS compound annual growth in excess of 10%. In 2024, we delivered 4% revenue growth and 5% PBT growth. During the year, we launched an evolved strategic approach, Accelerate+, sold our U.K. retail business and achieved a record year of 22 Distribution contract wins. Our updated capital allocation policy includes dividends up 40% of EPS, a commitment to ongoing share buybacks and value-accretive acquisitions. And in the context of our new medium-term targets, we expect another year of growth in 2025. Over the next 6 years to the end of 2030, our target is to generate GBP 2.5 billion in free cash flow, which will be deployed in full to drive compound annual growth in EPS in excess of 10%. Now Inchcape is well placed to deliver on our medium-term targets, supported by our clear and compelling investment case, the key dynamics of which are highlighted on this slide. Powered by Accelerate+, Inchcape is the leading global provider of an essential function in the automotive industry, distribution. Our business is characterized by sticky, long-term relationships with OEMs in smaller and more complex markets, supported by Inchcape's highly differentiated technology capabilities. Our business model drives our attractive financial profile, which is capital-light, with resilient margins, highly cash generative and delivers high returns. This financial profile enables Inchcape to deliver a disciplined capital allocation policy, ensuring we drive value for our shareholders. And this investment case will help us to deliver on our new medium-term EPS target of in excess of 10% compound annual growth. Now Accelerate+, our new strategy, has been designed to help scale and optimize our business, enabling Inchcape to deliver on our medium-term targets. Accelerate+ is driven by the quality and dedication of our 18,000 highly talented people around the world. We've built a collaborative, entrepreneurial and high-performing culture that provides the bedrock from which we can deliver future success at Inchcape, and we're very proud of what we have achieved. This culture is driven by our dynamic leadership team, where we made a number of changes last month to help deliver on our growth ambitions. These changes were the manifestation of our global talent planning process, which is regularly assessed by the Board, with a particular emphasis on developing internal talent. Scale will be achieved through winning distribution contracts, value-accretive bolt-ons and further developing our market-leading technology capabilities. Over the last 5 years, Inchcape has built a portfolio of 230 Distribution contracts with over 60 OEM partners in approximately 40 diverse markets. Following 2 years of record new contract wins, we're now embedding these contracts into our business. In 2024, we won two contracts in APAC, both in Australia, with Deepal, a Changan electric SUV brand; and Foton, a light commercial vehicle brand. In the Americas, we won 14 new contracts, including various Changan brands in a range of markets, as well as Great Wall Motors and JAC Commercial Vehicles in Colombia. And in Europe and Africa, we won six contracts, including two more with BYD. On M&A, since 2019, the group has executed eight acquisitions. Our pipeline remains healthy in a fragmented, independent distribution landscape. We'll continue to focus on accretive bolt-on deals, and we are not currently looking to target any large-scale acquisitions. On Technology, we developed a market-leading approach in the use of data to support our OEM partners. In 2024, we rolled out the latest versions of DXP and DAP, our customer experience and data analytics platform, into more markets with more OEMs. In addition, we utilize technologies like AI to drive efficiencies across our business. Accelerate+ is also focused on optimizing key elements of our business to ensure Inchcape remains the most efficient and effective partner for our OEMs. Firstly, we are optimizing our business to the divestment of non-core assets. Since 2019, we have disposed of a range of non-core retail assets, generating approximately GBP 750 million in cash proceeds. In 2024, we sold our U.K. retail business and a retail aftersales business in the Americas. This approach has ensured that Inchcape is fully focused on our distribution value chain, which is capital-light, more cash generative, higher growth and higher margin than retail only. Secondly, on optimizing. As we grow, we aim to ensure that we have an optimal portfolio of brands, which is best suited to our business and our markets. In the context of 44 new contract wins and a portfolio of 230 across the group, it is important that we continue to exercise discipline around those that work for us and for our OEM partners. Connected to this, in 2024, we mutually agreed to end four immaterial Distribution contracts with certain OEM partners. You should expect Inchcape to continue to grow and rationalize our contract portfolio to ensure we optimize our market presence and leverage our infrastructure in the most important way. In addition, we continue to optimize our third-party network in certain markets where we see the opportunity for enhanced returns. And finally, on this slide, we will also optimize through value-added services. This includes the distribution of relatively high-margin OEM-certified parts, supported by our Digital Parts Platform in APAC as well as developing and delivering Finance and Insurance products by utilizing our global scale and strategic partnerships. In addition, we'll continue to support New Energy Vehicle transition with early-stage specialist capabilities, and we'll continue to develop our used car proposition, leveraging our strong third-party independent retail network. So driven by our diversified and scaled global market leadership position, our long-standing and valuable OEM relationships and differentiated technology capabilities, Inchcape delivered progress in 2024. We delivered across a range of financial metrics during the year, which Adrian will now take you through. So Adrian, over to you.

Thank you, Duncan, and good morning, everyone. During 2024, we generated revenues of GBP 9.3 billion with revenue -- with operating margins of 6.3%. Adjusted PBT was GBP 444 million. We delivered another excellent year of free cash flow generation, producing GBP 462 million, and this was 151% free cash flow to adjusted profit after tax conversion rate. And this is a new metric for us. Net debt reduced to GBP 190 million with closing leverage of 0.3x. And return on capital employed was 27%. Adjusted basic EPS was 71.3p. And today, we declared a final dividend per share of 17.2p, taking the total dividend per share for the year to 28.5p. So in summary, our performance during this year is a reflection of our continued operational delivery and strategic progress. So let's now turn to the key drivers of our top line performance. We grew 4% in constant currency terms, driven by 2% of organic growth and a 2% benefit from the acquisitions we made in APAC in 2023. APAC organic growth was flat with mixed market momentum, particularly in the second half of the year. Europe and Africa again outperformed with 11% organic growth, supported by an order bank unwind, particularly in the first half. And the Americas revenue declined 4% organically, with organic growth of 1% in the second half of the year compared to minus 9% in the first half. And these growth drivers were offset by a 5% impact from the translational currency headwinds driven by the strength of the pound. And this slide highlights our operating margin bridge, which shows we continue to deliver operating margin resilience with margins of 6.3% for the year. This was down slightly from the previous year, partly due to regional mix, with a larger contribution from Europe and Africa, which is relatively lower margins compared to other regions. Our overhead to revenue ratio was stable as our continued cost discipline and the benefits of cost synergies at Derco offset inflation. Translational FX had a 10 basis point impact on operating margins affecting regional mix, and this was driven by the combination of the strengthening of GBP against our major currencies and the material impact of Ethiopia, where we saw half 2 impacted by the devaluation of the Birr. So now let's look at each of our regions, starting with APAC. We performed in line with the market and delivered resilient margins against a mixed market backdrop, especially in the second half. Organic growth was flat, and reported revenue grew 6%, 9% in constant currency with a translational effect of minus 3%. In the second half of 2024, Australia saw a market decline affecting overall organic momentum in the region. And in respect to the acquisitions made in 2023, these integrations of these businesses is well on track. Operating profit grew with operating margins down slightly to 7.8%, not forgetting some non-recurring property profits that enhanced operating margins in the prior period. And FY '25 mixed market momentum is expected to continue, with competitive dynamics, particularly in Singapore and Hong Kong. Growth in the region is expected to be second half weighted, with tough half 1 comparators, and more importantly, the timing of planned product launches of key models in core brands as well as the ramp-up of new contracts. Regional margins are expected to remain resilient through continued discipline around costs. So now let's look at the Americas where we saw a robust performance across the region with momentum building in half 2. Revenue fell by 4% in constant currency, with the region returning to growth in the second half with some positive price/mix help. Strategically, the region saw strong progress with 14 Distribution contract wins reflecting the strength of Derco's relationships, particularly with Chinese OEMs. Operating profit in the Americas was down mostly due to FX. And to a degree, the reduced scale of the region, which is reflected in operating margins, down 50 basis points to 6.3%. As momentum improved in the second half as did our margins with an exit rate of 6.6%, with improved operating efficiencies across the region as our Derco synergy program nears completion. And as we continue to look at our portfolio and optimize our business at the end of 2024, we completed a transaction to dispose of a dilutive retail aftersales business which generated revenues of GBP 80 million in revenue in 2024. And in relation to the contract exits that Duncan mentioned earlier, these were immaterial at an operating profit level. Looking forward into 2025, we remain prudent about expectations for a strong market recovery, and we continue to expect to deliver margin resilience. On to Europe and Africa, where we deliver a strong outperformance in a market, which grew. Organic revenue growth of 11% reflects the continued strong performance of our portfolio of brands as we outperformed the market. Organic growth in Europe started to normalize in half 2, reflecting the order bank unwind that drove a strong half 1. Performance in Africa was resilient in the context of fiscal turbulence. Operating profit grew with the continued elevated operating margins of 4.7%. And in the second half, operating margins started to return to historic levels as growth slowed considering the dilution from the acceleration of new contracts. And in addition, Europe delivered strategic progress in diversifying the region's OEM partner portfolio, with six new contracts across the region, including BYD in a number of markets. And for 2025, lower revenues are anticipated against tough comparators, with operating margins expected to moderate towards historic levels. And this is one of my favorite slides. We've spoken the strategy update in November about a 10.8 million unit total addressable market, made up of the 38 markets where we operate and those markets where it may be appropriate for us to have a presence in the future. And to help investors better understand the momentum in our markets, we will now be publishing this table as an appendix to our results and quarterly trading announcements. I have commented in each of the regional summaries about our relative performance. So I will not say more now, and I will allow you time to digest at your leisure. I did want to touch on progress in relation to Distribution contracts in 2024. We achieved a record year with 22 contract wins, 85% of which were won with Chinese OEM brands, all of which will help us to drive market share over time. And as Duncan mentioned earlier, we also exited four contracts in 2024, and it's important to note that these contract exits were mutually agreed with our OEM partners in specific markets where we felt it would make more sense from a commercial perspective for others to run those brands or for the brand to exit the market. Retail space within our and our third-party network has been reallocated to other brands within our portfolio. And looking ahead, for the 44 Distribution contracts won since 2021, the details on the right-hand side of this page is the data we shared in our May 2024 "In the Driving Seat" webinar, where we set our expectations for how the average contract will perform at maturity. We expect this to be between GBP 20 million to GBP 30 million in revenue, and GBP 1 million to GBP 2 million in adjusted operating profit for the average contract. And each contract typically aspires to achieve up to 2% of share in the relevant markets. Now back to our financial performance, and this slide shows our income statement for the year. The group delivered adjusted operating profit for the year of GBP 584 million. Adjusted net finance costs were lower at GBP 142 million, driven by the impact of a reduction in average net debt. This was partly offset by an increase in inventory financing costs associated with a more stable working capital profile. Adjusting items amounted to an expense of GBP 30 million, primarily driven by one-off costs related to acquisition and integration costs of GBP 42 million, mainly related to Derco, which are now largely complete. This was partly offset by gains on disposals of the aftersales retail disposal in Americas and the reversal of COVID era impairments on distribution agreements in Central America. Adjusted PBT was GBP 444 million, 5% lower at actual rates, but 5% higher on a constant currency basis. And on FX, you will see in the RNS that we have provided an additional disclosure on the future impacts of translational FX movements across key currencies. The key -- the effective tax rate increased to 31.3% due to the impact of Pillar 2 tax regulations. And adjusted basic EPS was down 7% to 71.3p, mainly due to FX translation effects, offsetting the profit growth and the impact of the share buyback program. And finally, in November 2024, the Trustee of Inchcape Motor Pension Schemes completed a buy-in transaction. This has substantially reduced the risk of pension liability volatility for Inchcape with the insurance policy being purchased, requiring no incremental funding from the group. Now as Duncan mentioned earlier, our focus on the balance sheet during the course of 2024 has delivered a substantially delevered balance sheet with net debt reducing from GBP 601 million at the start of the year to only GBP 190 million at December 31. This deleveraging was supported by another excellent free cash flow performance, underlining the highly cash-generative nature of our business model, with adjusted free cash flow of GBP 462 million with a free cash flow to profit after tax conversion rate of 151%. A significant component of our strong cash flow was a working capital inflow of GBP 195 million as we continue to focus on efficiency and inventory management, with inventory falling further on an underlying basis and as we further align our supplier terms typically within recently acquired businesses. Now this excellent working capital performance follows changes that we made at the start of 2024 to our incentive schemes for management, incentivizing an improved average working capital position throughout the year. Dividend payments and share buybacks amounted to GBP 294 million as we executed on our capital allocation policy. And the net of these elements saw leverage fall to 0.3x EBITDA, down from the 0.8x at the end of 2023. So just to sum up this section. In 2024, we delivered on a number of financial KPIs. We grew the top line. We maintain disciplined levels of CapEx. We delivered higher returns with resilient margins, and generated a significant amount of cash. Supported by our performance last year, we remain well placed to deliver growth in the future. And that brings us on to the next item on today's agenda, our new medium-term targets that were published for the first time today. This slide summarizes these targets and sets the financial direction for the group to the end of 2030. And this encapsulates how we aim to deliver through the cycle and drive value for shareholders. So from left to right, starting with our key value drivers. Firstly, we aim to generate organic compound volume growth of 3% to 5% through market growth and our outperformance. Secondly, we expect to continue to deliver consistent and resilient operating margins of around 6%. And thirdly, supported by the highly cash-generative nature of our business, we anticipate converting profit after tax into free cash at a rate of 100%. And delivering on these drivers will enable us to generate approximately GBP 2.5 billion in free cash flow by the end of 2030. And the cash the business generates will consistently be deployed through our disciplined approach to capital allocation. With our dividend policy unchanged, the balance being deployed between a commitment to ongoing share buybacks and value-accretive acquisitions. By combining growth from the business and our capital allocation approach, we expect to deliver in excess of 10% compound annual growth in EPS over the 2025 to 2030 time frame. Now let me take you through each element of our key value drivers, starting with organic volume growth. We have a long-term ambition to grow market share to 10% in each of our markets, and we will achieve this through organic growth and acquisitions. And this chart shows that since 2019, against a flat total addressable market, we have nearly doubled our market share from 1.6% to 3%. Now the majority of this growth has come from the eight acquisitions we have executed in that time, as well as outperformance organically. Many of the markets we are in experience volatility. But through our geographic diversity, we expect our markets in aggregate to grow between 1% to 2% annually. And we expect to outperform and grow market share, driven mostly by the maturing nature of our contract wins and further new contract awards, driving volume growth of between 2% to 3%. And as a result, we expect to deliver organic volume compound growth of between 3% to 5% before any inorganic expansion. And on to our next value driver, resilient operating margins. A similar chart to this was presented in our May 2024 "In the Driving Seat" webinar, and it serves to outline our margin profile. Starting on the left, around 85% of the group's revenue comes from Vehicles and about 15% from Parts. Taking into account the underlying Vehicle or Parts costs and considering the cost of distribution, logistics, insurance, storage, we generate gross margin between 15% to 18% overall with margins on Vehicles of between 10% to 15% and Parts of between 40% to 45%. Looking at our operating cost base, a higher proportion is variable or semi-variable and runs at approximately 11% of revenue. And this nets out to an operating margin range of between 5% to 7%, which is typical in Distribution businesses, with our blended margin of approximately 6%. Now looking ahead, we see many positive drivers to our operating margin. These include economies of scale, particularly as we grow share and leverage our infrastructure, together with optimizing our retail network. Another margin tailwind is value-added services as we look to monetize the customer lifetime value through higher-margin products in Parts and Finance and Insurance. However, we also recognize that there are margin headwinds to consider. These include an increasingly competitive and dynamic environment. And as we look to invest in our new Distribution contracts, they tend to be margin dilutive in the initial years. Given this balance, we are confident that we will deliver resilient and consistent margins of around 6% through the cycle and over the medium term. Now this slide shows our track record of free cash flow generation and is the underpinning of our medium-term EPS target. The chart on the left shows the absolute level of annual free cash flow, with the dark blue blocks, showing our underlying annual free cash flow and the lighter blue blocks showing -- highlighting the working capital in and outflows. As you can see, working capital optimization, particularly in newly acquired businesses, has been a major driver of free cash flow in recent years. Typically, when we acquire a business, we find opportunities to improve inventory management and align supply terms as part of adopting the Inchcape operating model. Excluding the working capital benefits, we have produced on average over 100% of profit after tax conversion rate. And with our capital-light operating model and leveraging all of the third-party dealer networks, supported by global best practice in tax, treasury, cash management, we see the opportunity to continue to deliver 100% free cash flow to profit after tax conversion on an annual basis. And this, combined with further working capital optimization will enable us to generate a total of GBP 2.5 billion in free cash flow, up to and including 2030. And this cash flow will be deployed through our capital allocation policy outlined on this slide, which we have updated. We will continue to pay dividends at 40% of earnings. And our policy is then to balance capital allocation between our commitment to an ongoing share buybacks and value-accretive acquisitions. And our policy remains to run leverage below 1x EBITDA. We will remain disciplined and continue to look carefully at the balance of capital allocation between share buybacks and M&A. And for 2025, we have announced a new buyback program of GBP 250 million, which is expected to complete within 12 months as we skew our allocation towards buybacks, reflecting the value we see in the Inchcape shares. And this will serve to drive EPS growth and value for shareholders. So to sum this section up. To the end of 2030, we expect to generate GBP 2.5 billion in free cash flow. We will deploy this cash flow to drive shareholder value with a consistent dividend policy and in excess of 10% annual compound growth in EPS. And that's it for me. I'll hand back now to Duncan.

Very good. Thank you very much, Adrian. So let's sum up for 2024. Inchcape delivered continued progress in '24, reflecting our diversified and scaled global market leadership position, our long-standing OEM relationships and our differentiated technology capabilities. During the year, we delivered record contract wins, launched Accelerate+, disposed of several non-core retail assets, and achieved industry-leading customer reputation scores. We also delivered against a range of financial metrics during the year enabled by our disciplined approach to capital allocation. Looking to the medium term, Inchcape will deliver growth and value supported by our key growth drivers, resilient margins, our highly cash-generative business model and our updated approach to capital allocation. We expect to generate GBP 2.5 billion in free cash flow, which we will deploy in full and drive shareholder value in excess of 10% compound annual growth in EPS, and this will continue to be underpinned by a consistently high return on capital employed. Importantly, our executive teams and management teams across Inchcape are being incentivized to deliver on our medium-term targets, specifically EPS. In the context of our medium-term targets, 2025 is expected to be another year of growth at Inchcape at prevailing FX rates, with product cycles and the ramp-up of new contracts skewing growth towards the second half of the year. We expect to deliver higher EPS growth in 2025 driven by profit growth and our new share buyback program of GBP 250 million. So just to finish, we are really excited about the future growth opportunities for Inchcape as we continue to build on our leadership position.

[Operator Instructions] I would now like to hand over to Rob Gurner, Head of Investor Relations, to begin taking questions.

Thank you, Rachel. Good morning, everyone, and thank you for all your great questions. We've got plenty to get through. First question today is for Adrian, I think. It's around the share buyback and capital allocation, Adrian. Can you discuss the rationale for the buyback? And can you discuss our approach to capital allocation generally?

Thanks, Rob, and thank you very much for the question. It's something we thought long and hard about when we were thinking about how we were going to optimize value for our shareholders. And when we think about the cash-generating capability of this group and how we're going to use that cash for the -- to drive the most value for shareholders, we really have two choices, and we think about that through our capital allocation policy. You can see on our capital allocation policy, which has been updated for this year, we have a commitment to ongoing share buybacks and value-accretive bolt-on acquisitions. And the GBP 250 million share buyback that we announced reflects really two things, the value that we see in our shares off the back of the confidence that we have in our earnings capability. That makes the Inchcape shares very, very valuable. And that's why the Board last Friday opted and unanimously agreed the best use of that GBP 250 million was to invest it and focus it in buying the Inchcape shares. Now we still have capacity to grow this company inorganically through bolt-on acquisitions, likely at the lower end of the scale of acquisitions in highly synergistic circumstances, with value accretion at the top of our mind. So it gives you a bit of a framework for how we think about share buybacks, vis-a-vis, inorganic expansion.

And then just a follow-up and then a related question. Can you talk a little bit about CapEx and investment in the business, organic investment in the business?

Sure. Yes. Look, we -- the updated capital allocation policy, in the old version, we talked about CapEx being less than 1% of revenue. And actually, when we think about how we -- our free cash flow metric that includes CapEx, which last year was about GBP 60 million in aggregate, so we've been tracking historically significantly lower than the 1% that we've been running at. And as a distribution company, we find that we are a less capital-intensive organization, vis-a-vis, say, a pure retailer where you have high capital demands to put in lots and lots of physical infrastructure, retail sites that we will be very familiar with here in the U.K. We typically do that through third-parties in the markets we are working in, which is why we've taken CapEx off. It's still part of the maintenance of the organization, but not a big capital item that we would call out as part of capital allocation.

Thank you. Duncan, a couple for you here. First, I would say, is around strategy. What new markets are we looking at in terms of strategic sort of targets, if you like? And sort of linked to that, can you talk a little bit about the sort of pipeline on bolt-on M&A and which regions we see the greatest opportunity?

Sure. Thank you very much, Rob. So first of all, on the question about which new markets. So we're in about 40 markets today across our Americas, European, Africa and APAC businesses. And we have opportunities in each of those regions where there are countries that we are not yet present, which suit Inchcape's value proposition to our OEM partners, which essentially is the markets that are best suited to us are lower volume and more complicated markets. These are the ones where our value proposition for OEMs really plays out. You can see that, in fact, with BYD's award to us just this year of two further markets with Latvia and Lithuania, both low TIV, more complex markets, and we now run BYD across the Baltics. Now our emphasis or our #1 priority, though, and Adrian mentioned this just -- or touched on this a moment ago, is to scale in existing markets. And that suits our scale narrative about being a bigger and bigger player in our existing markets. But of course, strategy always meets reality in the available of new assets, and there will be sometimes when we do move into new markets over time. In terms of pipeline, Rob, look, we have -- we are actively managing our pipeline from early-stage opportunities, right through due diligence and the pointy end of our pipeline. And we have bolt-on acquisitions, which we are looking at across the three regions.

And just sort of connecting to that, and I think this is for you, Duncan, maybe Adrian, you wanted to comment. But a couple of questions around the regions. Firstly, can you talk about the competitive dynamics in the regions? And what is our long-term strategy in each of the three regions, please?

Well, Rob, if you look at what we've built out over the last few years, our three regions are about of equal size if you look at revenue, in revenue terms. That gives us geographic diversity. And as we scale in each of those markets also, we get more and more resilience inside our business. And of course, look, as ever, inside this industry, we'll have some markets that are growing, some declining and some flat, because we have to face the reality of these markets, they are volatile and cyclical. And therefore, having more markets is important to the overall resilience of the business.

And can you talk about trends for the last -- can you talk a little bit about trends for last year? Adrian, maybe over to you for each of the regions.

So look, if I just go quick whistle stop tour around the world, if I start in Asia Pacific -- our footprint in Asia Pacific covers the likes of Singapore, Hong Kong, Brunei, Thailand, Guam, Saipan, and down to Australia and New Zealand. And we saw really a mixed momentum and certainly a tale of two halves. The first half in the region being a strong growth half and in the second half, Australasia, which is one of our larger markets in the region. We saw that in a decline of, I think, Q3 was minus 13% from a market perspective, and then around minus 8% overall for the second half. So a real tale of two halves. And as we look forward across Asia Pacific, we'll see some tailwinds, the likes of Singapore will continue to grow. We think, Hong Kong, it should be relatively flat with current run rates. And we think Australasia will be more second half weighted in terms of that growth momentum. Our business -- it's a bit unusual for us this year. We are calling a second half weighting to Asia Pacific, predominantly based on product cycles. Normally, product cycles are pretty flat across our business. But actually in Asia Pacific, particularly with the Subaru range, it's pretty second half weighted with the strong hybrid Forrester, which will be introduced into Australia in Q3. That's a big part of our portfolio in that region. So we are calling a second half skew for AsiaPac. If I go to the Americas, Americas was perhaps the other way around with a weaker first half in '24 with the decline seen in the second half of '23 persisting in the first half. But actually, the second half, we started to see some shoots of green. We started to see some growth in the region. Overall, our business grew 1% in the second half. So we're looking forward to continued growth in 2025 in the Americas. We are cautious, though, we're not calling a big rebound. Those markets are still at the lower end of the spectrum, if you look through historical averages. And so we think there's opportunity to grow. There's an election in Chile in November, which is typically preceded by some weakening in consumer confidence as consumers wonder what a new government or what the election cycle will bring. So we're just a bit cautious about calling a big upswing that's in that market. And in Europe and Africa, we saw the market grow by about 3% and our footprint within the market, and our brands that we grew share very strongly. We still over traded a little bit in Europe, particularly in the first half. So we are expecting a bit of contraction in '25 in Europe, but predominantly based on the very tough comparators we have in '24. Sort of a sense of how we see the region.

Thank you, Adrian. And then back to you, Duncan, for sort of a macro picture of the sector, the auto sector, in particular -- particularly around EV, particularly around tariffs and particularly around competitive pressures from new OEMs coming into the market. How do you see that playing out in all regions?

So this is -- I mean, this is such a big topic, Rob. Look, if I start off with the tariff conversation, look, I said this on Sky News earlier this week, which is we just need calm heads in our industry regarding tariffs. But if you look at the impact that it could have on Inchcape, look, we could see the supply chains of our OEMs see increasing costs, that clearly would have an impact on our business. Subject to what happens in Mexico and if it becomes more difficult for OEMs to export then into the U.S., we might see greater product availability in terms of volumes going into some of our markets, as Adrian said before, in certain markets, we can do with better supply. And it causes just general uncertainty. Look, I think the big thing for me, Rob, to that point is the OEMs already had a lot on their plates prior to the tariff conversations with the move to EV, a relatively flat global market across the whole of the world, which is about 90 million units, and the rise of Chinese OEMs. And that puts pressure on the whole of the OEM base. And I think that reinforces the reason why independent distribution in these small and more complex markets is super important. And our value proposition to OEMs is, you get on with the really big things you're managing and will drive performance for you in our markets. In terms of the move to EV, look, I've said this on several occasions. The move to EV is unstoppable, but it is not going in the straight line that people drew during the COVID years, that we would have this ever-moving upward line that would grow and grow and grow until you got to 2030, 2035. It's clear, it's not going in a straight line. It's also clear that the rate of adoption of EVs is dramatically different in markets. In our Hong Kong market, it's north of 70%. In other markets, it's less than 1%. And the impact on Inchcape, therefore, is that we need to make sure that our growth agenda of scale in market is linked to us having an OEM portfolio that can move at the pace of the transition in each of our markets move towards a low-carbon EV future. So the move to EV and our growth agenda are completely intertwined, and it means we should scale in each of our markets.

Thank you. And the competitive dynamics, can you talk a little bit about that in some of our markets, where we're seeing the most pressure.

In terms of us against other distributors?

So new OEMs coming into the industry.

Look, there's new OEMs coming into every market. Adrian and I did a tour around Asia Pacific earlier this year. I was in the Americas in December and again in November. Look, you can see new OEMs, typically Chinese OEMs launching in every market. Rob, you know that we are, in our markets, the biggest distributor of Chinese vehicles already on top of our brilliant OEM portfolio that we had before. So this will continue. We are part of it.

And on a related question, the quality of EVs coming out of China and the relative cost, is that an issue for us? How are you managing that? And how do you see the future there?

Look, the job of our teams in the markets is to build a ladder of brands as we scale. So we can address high rolling consumers down to people who are buying entry-level vehicles. Our existing OEM partners plus our Chinese partners play really well into the different price points in that regard. So building scale, having some very good partners that we have today, I think, plays very well for Inchcape to grow.

Very good. For Adrian, I've got a stack of questions coming your way. Financial questions coming your away. Firstly, can you talk about the potential for more capital recycling and asset disposals? Why don't you answer that one, and I'll...

Okay. So you saw us do a bit of this in 2024. We sold a business in Latin America, a retail parts after sale -- a retail parts business, which was -- which had about 60 or 70 sites across Chile. It was a dilutive business, not core to our group and came with the acquisition of Derco. So we sold that to someone who's more focused in that space. You'll notice on the balance sheet, there is some assets held for sale, some retail sites in a certain part of Australasia. And we're going to continue to do what we would refer to as good housekeeping, where we see assets that might not be completely consistent with the group strategy or there's opportunities to redeploy the capital that's currently deployed in assets in certain assets in more effective ways, and that is absolutely part of our GBP 2.5 billion cash flow aspiration between now and the end of 2030. So you're going to continue to see us do this and make best use of the assets we have and the capital we've got deployed across this group.

Working capital, do you see any further opportunities to improve working capital performance? And what sort of free cash flow conversion do you expect in 2025?

So 2024 was an absolute stellar year on the back of a stellar year in 2023 in terms of working capital performance. We've invested a lot of time, energy and effort developing some of our sales and operational planning tools as well as changing some of the incentives for our management teams around the group to really focus on looking after the balance sheet and the inventory that we hold in this group as much as we focus on driving the P&L. And we've seen a real response from our teams, which we should be very thankful of and we are very proud of. And that generated a free cash flow conversion rate of 151%, GBP 463 million last year, of which GBP 190 million is working capital. So we closed the year with about GBP 145 million of working capital. And I have been quite clear -- the aspiration here is to run this group at a neutral working capital position. So we've got a bit of a way to go. Don't please pencil that in for 2025. It might take us a bit of time to get there. But absolutely, the aspiration of this group is going to -- is it to run at neutral. And we've made huge progress from where we are a few years ago of several hundred million pounds deployed in working capital. And in terms of free cash flow guidance, we're very transparent in our new medium-term targets that we will convert profit after tax at a rate of 100% free cash flow conversion rate.

Two more questions for you, and then I'll hand back over to Duncan in a second for other questions. First is on adjusting items. What is the outlook for this year in terms of those adjusting items? And the second is on dividend. Can you talk about the dividend policy and the payout ratio and the cut in 2024. Can you explain the drivers of that, please?

Sure. Okay. So two different items. So adjusting items outlook. We've got a little bit of the Derco synergy program to finalize. So there will continue to -- we said we would spend GBP 70 million on the Derco synergy program. In aggregate, we have now spent about GBP 67 million or GBP 68 million. So there's a bit more to go in terms of finalizing and closing off that Derco synergy program. Outside of that, notwithstanding hyperinflation accounting, which continues to be an adjusting item, because of the way that it works, there are no material items to consider. And subject to any further acquisitions, which may create non-recurring items, that we'll update the market as and when those occur. In terms of dividend policy, look, it's formulaic. And in our new capital allocation policy, we have remained unchanged in our approach to dividends. It's 40% of basic adjusted EPS. It was consistent -- that's consistent with 2023. And the dividend changed versus the prior year, basically because of two things: one, because of the disposal of the U.K. and two, because of foreign exchange translation effects on our profit levels. So whilst we grew profit in 5% in constant currency terms, the effect of a stronger pound and all of our profit base being overseas meant that the reported earnings were lower year-over-year, and that drove a slightly lower dividend year-on-year as well. As we look forward, the share buybacks will reduce the share count. And with earnings growth, you'll see our earnings per share grow, and we've guided to greater than 10% on a compound basis. And our formula going forward will be to pay 40% of basic adjusted EPS in the future. And therefore, you'll see that dividend grow as EPS grows.

Great. Thank you. And then back to you, Duncan, a couple of questions around Board and management perception in investment. How invested are the Board and the management team in the business? And what's the Board's view of sort of recent share price performance and valuation?

Well, let me start with the latter point first, Rob, and the message we sent to the market, which was Tuesday of this week, is we're very clear that our company is undervalued. There is a conversation we have with the Board very regularly. And on Tuesday morning, we set out medium-term growth targets, a new capital allocation policy, a determination that this company is locked on to growing earnings per share greater than 10%. We have changed management incentives accordingly for the top 400 or so people inside the company. And then, what you saw on Tuesday morning was that all of our -- on Wednesday morning, but certainly this week, all of our independent directors have topped up their shareholding, some of them very considerably. And Adrian and I also topped up our shareholding in the company, too, and I'd expect us to continue to do it.

Thank you very much. And back to you, Adrian, for questions around the medium-term targets. The first is, can you just give an understanding of the 10% plus EPS CAGR? What's the balance between buybacks, capital allocation and underlying growth? And what are the biggest risks to achieving the targets? What keeps you awake at night on that?

Okay. So the building blocks to that 10% EPS growth are pretty simple actually. We've guided organic volume growth of between 3% to 5%. We don't see significant price inflation coming. There's been lots of inflation in recent years on vehicles. So we think that, that has probably reached the end of its cycle. And so therefore, we think the top line of this organization should be broadly guided by that 3% to 5%. We see a resilience in our margins, and we've just spoken about the 100% profit after tax to free cash flow guidance. That's going to generate about GBP 2.5 billion between now and the end of 2030. So that's a 6-year program. And we're going to reinvest that capital in either share buybacks and accretive -- value-accretive bolt-on acquisitions. So if you were to do those maths, 3% to 5% from growth with resilient margins and a consistent return, that gets you about halfway to that greater than 10%. And the capital we deploy will then give us the tailwind that sits above that. As an example, last year's share buyback, which was GBP 150 million, brought back 4.9% of the group's equity. So that immediately puts almost 5% on our earnings per share on a pro forma basis. And so with the GBP 250 million, we expect that to be a significant tailwind to get us off to a fast start with that 10% target.

Thank you. Question around government policy. And how much does the labor market -- the current labor market and government policy affect our operations, particularly around staffing and costs? And has the budget -- the U.K. budget had any impact on our business? Perhaps back to you, Adrian, those two.

Yes. And sorry, Rob, I didn't answer your risks and what keeps me awake at night question. So let me do the government policy one first. This is a group of 18,000 absolutely brilliant and fabulous colleagues. About 190 of those are -- sorry, about 130 of those are based out of our St. James's Square U.K. headquarters office, because this is a business that believes it is best represented regionally and locally. And so the main sort of colleague base and the significant -- the most significant consequence of the U.K. budget last November was all around employer-related taxes. So actually, it's a relatively small direct impact on this group. It does make life a bit more challenging being an employer in the U.K. But as I say, we've got 18,500 colleagues around the group and 17,800 of them are based outside of the U.K. Going back to the risk question. What keeps me up at night overnight? Look, I think the thing that we have to work really hard at is working really closely with our OEMs to make -- and our local market circumstances, where we see really fast changes in market circumstances, be it through government regulation, be it through taxation regimes or changes that materially impact consumer demand, we need to be very fast in reacting with our OEMs to adjust our model lineups, adjust our inventory flow and make sure we've got the best possible products for the consumer base that is there. Otherwise, you can get all high and wide on the wrong inventory, and that is a problem for us. Now we've got some brilliant tools that help us do that, operated at a market level, overseen by our regional teams across the group and then Duncan and I take a lot of care over that also. But that's probably the biggest risk, fast-moving regulation in markets and our ability to respond to it with our OEM partners.

Okay. And then, the final question, and forgive me, there are a couple of questions we will come back to you directly on, because we haven't got time to answer them. The final question is around contract wins. And it's a question for both of you, I think. Adrian, firstly to you, can you just talk about the financial dynamics of the contracts? And then Duncan, could you just talk a little bit about our track record and future opportunity?

So I'll perhaps start off then. So contract wins are a really important source of growth for this company. Our strategy is all about growing scale in our existing markets and growing our market presence. But by growing scale in our existing markets enable us to be more efficient and put more volume through the same infrastructure, be that the importation facilities that we run around the group, be that the retail facilities that third parties run by putting more volume and more brands through that existing infrastructure enables us to be more efficient and grow our economies of scale. And the contract wins are a great way of doing that. We've won 44 in total, 22 were last year. From a financial dynamics perspective, we shouldn't think about those contracts as being a big capital burden upfront. We're largely leveraging third-party infrastructure to take those new brands into market. We're leveraging existing dealerships by allocating space to them to make sure they've got the most effective route to market. And from a cost base perspective, of course, we have to invest in some people, some advertising and promotion to get the brand out there. But largely, these brands are leveraging the existing facilities that we have. So they're pretty neutral at the start. It takes us a few years to get warmed up and work out how to best get that brand into a market. So typically, we find them somewhere between year 3 and year 5 hitting their stride and getting into the maturity phase. And each brand has the aspiration on average of being 1% to 2% of the market that it goes into. Some will be bigger and some will be smaller. But on average, about 1% to 2%. And at maturity, they'll generate between GBP 20 million to GBP 30 million in revenue at regional margins in order to support bottom line growth for shareholders.

Very good. Thanks, Rob. Thank you, Adrian. So look, just in terms of contract wins, we've been building up our contract wins this decade. In 2023, we won 15. In 2024, we won 22. So to Adrian's point, we are in the immaturity phase of the vast majority of our contracts, and we're building them up and building up that flywheel. In terms of what might be a reasonable amount for us to win, I don't think the 15 or the 22 are illustrative of what would be a normal run rate that is probably high single-digit contracts per annum. Would love to give an update on this year, so far, we've won five, two in Europe, three in the Americas. And coupled with that, as we've scaled our contract base from 140 to 230 just over the last 4 or 5 years, -- we are also taking the opportunity where we -- you have a mismatch of expectations between our OEM partners and Inchcape. We're also taking the opportunity to rationalize our portfolio, and we have had some exits in '24. There were four of them. And I think we will continue to optimize that portfolio as we go forward. But our net wins versus this housekeeping, I think is in a very, very good place, and we're winning with A class OEMs.

Very good. Right. I think we're done. Thanks so much for your questions. And as I said, we'll come back to you for the questions that we weren't able to answer. Thank you very much for your time.

Thank you for joining us today. That concludes the Inchcape Investor Presentation. Please take a moment to complete a short survey following this event, and I hope you enjoyed today's webinar.