Zigup Plc (ZIG.L) Earnings Call Transcript & Summary

Welcome to the Redde Northgate results for FY '22. I'm Martin Ward, Chief Executive and joining me today is Philip Vincent, our CFO. I'll run through the agenda. So first of all, I'll just give a general overview on the results. Philip is then going to cover the financial review in detail. He'll come back to me then for a business update before we have a Q&A. After the Q&A, we intend to have a 10-minute break, and then Philip is going to run a depreciation workshop for those that want to stay behind. Okay. So starting with Slide 5, please. This is an overview of our achievements. So this year has been a strong operational performance against the backdrop of ongoing constraints in supply chains and recovery in activity from COVID-related lows. Our actions have seen rental margins improve in Spain and in the UK&I driven by a combination of cost and efficiency gains, targeting preferred growth sectors and tightly managing inflationary pressures. And it's been a year in which we have seen more take up of our broad integrated mobility platform services by new and existing customers with a number of contracts won with major insurance brands and other new partners. To meet these new business wins and grow capacity, we have been forward-investing in people, growing our car fleet and developing our technology, which embeds our service delivery. And there's been a lot of good work within the business functions to maximize the benefits from our central services such as HR, IT and finance. And as an example, we have just commenced our Connect project in the group, which is the foundation of our digitalization plans, with Phase 1 aiming to join up all the businesses on one common communication platform. And we have taken a disciplined investment approach to our work locations in terms of improving our energy efficiency, waste management and work environment and at the same time, finding ways to reduce our carbon footprint. And the ongoing efforts from our colleagues are impressive in terms of the recognition and awards achieved this year, such as the Fleet News Rental Company of the Year winner, which is the first time any of our businesses has won this award and two 2022 award from Business Vans, winner for Fleet Management and Best Long-term Rental Provider. And although we don't always get it right, we are consistently rated excellent by our customers through Trustpilot. We have also made good progress with our strategic mobility platform across the vehicle life cycle that appeals to both existing and new customers, and substantial multiyear revenue synergy wins secured so far marked this strategy out as a clear success. We have been selective and disciplined in our M&A activities, either taking bolt-on growth opportunities to broaden our reach in existing markets or to extend the overall capabilities of the group. We are focused on maximizing these opportunities and since the merger in February 2020, we have now added 5 businesses or asset purchases to the group. And my last point on this slide is the launch of our Group purpose & values, which were formed post the merger, which was significant in our goal to ensure we are working as one team. We have sought to communicate our purpose and values clearly, together with our strategic narrative and connecting this with one of our -- and this connected with one of our highest scoring ratings on our recent employee customer feedback. Turning to the next slide. So the result of these efforts was a very strong financial performance for the year. As you can see, key underlying metrics have seen strong progress across the board. And the early visibility we had on trading allowed us to raise market expectations to over GBP 150 million PBT for the period. Underlying revenues were up 24% to over GBP 1 billion, and PBT was up 62% to over GBP 151 million, which starts to reflect some of the success from our integrated platform, combined with our focus on cost control and managing inflation. ROCE has continued to improve with a 4.4 percentage point increase at 13.9% as we make better returns from the assets we own. Based on this performance, the Board has recommended a final dividend of 15p, making the total dividend for the year of 21p, up 36% on the previous year. We have also made good progress on our share buyback announced in March this year with circa GBP 20 million delivered to shareholders through this route as at the end of June. We view both dividends and buybacks as appropriate routes to deliver shareholder returns, taking into account our capital allocation priorities. Next slide, please. So before handing over to Philip, I would just touch on some of our achievements since the merger just over 2 years ago. The delivery and execution of the merger has been successful, and this should be the last reporting period we specifically reference merger-related benefits. Going forward, we see the benefits of the merger being measured in the form of group operational efficiencies and customer wins on the integrated platform. But it is worthy to note that the business has delivered on all the elements set out in late 2019 when discussing the strategic rationale of the merger. We now have a platform which delivers a broad suite of mobility solutions, which is attracting strong interest from a wide range of blue-chip and other customers. Our integrated platform offers a compelling proposition with GBP 300 million of lifetime contract value already signed with 5 major insurance brands, and we have seen a significant uptake in customers taking up accident management services. We have delivered cost synergies of over GBP 20 million, which was twice the original target, and we have seen the benefit of the integrated platform deliver incremental revenues from existing customers who have deep and long-standing trusted relationships with Redde Northgate. This year's results highlight some of the significant achievements both within the business operations and with our customers, which is testament to the hard work of all our colleagues in Spain, Ireland, and the U.K. over the past year. And I express my and the Board's thanks for their tremendous efforts, which have delivered these results. These results also show that the combined business has built stronger resilience through a broad market offer very different to the past and with a substantially diverse customer base. Thank you. I'll now hand you over to Philip to cover the financial review.

Thank you, Martin, and good morning, everyone. So if we turn to Page 9, I will start with an overview of the full year results. So the second half of the year followed the strength we had seen in the first half, and revenue, excluding vehicle sales, grew to just under GBP 1.1 billion, 24% higher than the prior year, driven by the recovery of Redde post-COVID. Total revenue, including vehicle sales, was GBP 1.24 billion, growing 12% year-on-year. And vehicle sales revenue of GBP 149.9 million was 35% lower as the continued restriction in new vehicle supply and strong rental demand have reduced the used vehicles available for sale. The volume of vehicles sold was 16,600, a 40% reduction on the prior year, which has been offset by higher sales prices. Claims and services revenue was GBP 530.3 million, a 46% increase, with volumes exiting the year at approximately 90% of pre-COVID levels. And disposal profits were GBP 50.1 million. That's an increase of 25% with PPUs increasing 106% as a result of the increasing sales price of used vehicles. Underlying profit before tax of GBP 151 million increased GBP 58 million or 62%. And whilst we continue to benefit from the very strong used vehicle market, if we exclude all disposal profits from both periods, underlying profit before tax increased 91%, demonstrating the improvement in the underlying business. Underlying earnings per share was 50.8%. That's a 64% increase over the prior year, in line with the increase in PBT. And return on capital employed increased 4.4 percentage points to 13.9% as a result of the strong growth in profits, and the increase in the disposal profits accounted for 0.8% of this increase. And steady-state cash generation before growth CapEx was GBP 216.4 million, increasing 54%, benefiting from the tight control over cash spend and the underlying performance of the business. And investment in the own Northgate and ready fleets to meet demand increased to GBP 128 million and resulted in free cash flow reducing to GBP 12.3 million. And net debt, excluding IFRS 16 of GBP 452.1 million, increased 3.2%. Now if we turn to Page 10. So this year, I've included a waterfall chart, which shows the growth of underlying PBT from GBP 93.2 million in FY '21 to GBP 151.3 million this year. Now last year's underlying profit included GBP 40.2 million of disposals profit, and FY '22 includes GBP 50.1 million. And you can see the GBP 9.9 million increase in disposal profits in the center with the lower volumes at a higher sales price. And importantly, you can see that rental volume and rental margin combined contribute GBP 21.5 million increase in profits in the year. And the Redde volume and margin contributed GBP 27.9 million increase in the profits in the year. So the improved underlying performance of the business in Northgate and Redde, not including disposals, is driving 85% of the increase in profits. Now I'll talk through the headlines of the 3 operating segments. So let's start with Northgate U.K. and Ireland on Page 11. So Northgate U.K. and Ireland had a good year with vehicle hire revenue of GBP 346.6 million, growing 11.2% year-on-year. And closing VOH was flat year-on-year at 49,200, and average VOH was 6.1% higher than prior year. The average hire rate was 3.7% higher than prior year, with price increases applied carefully across the year. Our minimum term contracts account for around 36% of VOH compared to 33% last year. The rental margin for the year was 15.3%, and this represents a 2.6 percentage point increase compared to the prior year. And the [ higher ] rental revenue and margin increased rental profit by 34% to GBP 53.1 million. Vehicle sales volumes of 10,400 were 34% lower than the prior year. And this reflects the fact that the prior year period benefited from additional used vehicle stock due to the impact of the COVID-19 lockdown at the end of FY '20 and the restricted market supply of the new vehicles in the current period. And 60% of our sales were through our e-auction platform. Residual values for vehicles have continued to be high with the average profit per unit of 4,300, increasing over 80% in the year. And the increase in the sales value more than offset the reduction in the number of vehicles disposed, with disposal profits of GBP 44.8 million, increasing just over 20%. The hire rental and disposal profit resulted in underlying EBIT of GBP 98 million, a 28% increase over the prior year. And as we enter FY '23, we have continued to see strong rental margin, and utilization has remained high as our disposal profits -- disposal PPU, sorry. So now if we move on to Page 12 to look at Northgate Spain, where underlying EBIT of GBP 43.9 million increased 30%. Hire revenues increased 7.3% to GBP 220.6 million, and our constant exchange rates increased 12.8%. The average hire rate has increased 2.4% in local currency compared to last year with price increases on new contracts applied in the period. And the percentage of minimum term contracts at the end of the period was 36%, in line with the prior year. Rental margins increased 2.5 percentage points to 17.5%, with the prior year reflecting cost of customer support during COVID. The [ higher ] rental revenue and margin resulted in rental profit of GBP 38.6 million, an increase of 25.5%. And a total of 6,100 vehicles were sold in the period, 47.4% lower than prior year due to the restricted market supply of new vehicles. And sales through our digital e-auction platform were 39% compared to 24% in the prior year. And the disposal market in Spain has also continued its strength with a profit per unit increasing over 200% since the last year, and disposal profits of GBP 5.3 million increasing from GBP 2.9 million. EBIT of GBP 43.9 million was 30.2% higher. As we enter FY '23, we've continued to see strong rental margin and utilization, and disposal PPUs remain high. So now if we turn to Page 13, we can look at Redde. So volumes have steadily increased, reaching around 90% of pre-COVID levels, and we'll stop making comparison to pre-COVID volumes in FY '23 as other factors such as the new contract wins become more significant. Revenue was GBP 543.7 million, which was a 46% increase from the prior year due to the volumes of traffic increasing. And hire length has also extended during the year due to the impact of macro challenges in the supply chain for parts. EBIT for the year was GBP 35.6 million, a substantial increase from the prior year, reflecting the higher traffic volumes, and as expected, FMGRS now profit enhancing. Redde also made investment into process and systems for the new contract wins that will benefit future periods from FY '23. And debtor days were at 159 at the end of the period, that's 20 days lower than prior year. And we expect Redde's contribution to grow in FY '23 due to a full year of normalized run rate of traffic volumes as well as the new business wins. So now if we turn to Slide 14 and have a look at cash flow and CapEx. So steady-state cash generation of GBP 216.4 million was strong and GBP 76.3 million higher than the prior year, driven by the growth in the underlying performance of the business. EBITDA of GBP 366.7 million was GBP 64.4 million higher than the prior year with good growth in each business. A net replacement CapEx of GBP 106.7 million was in line with the prior year and continues to benefit from tight controls over the acquisition of new vehicles and high residual values. Working capital, including noncash items, was a GBP 33.5 million outflow due to the reversal of COVID payment deferrals and the impact of increasing Redde volumes. And growth CapEx of GBP 108.6 million reflects a growth in the fleet to meet rental demand, predominantly in Spain and growing the Redde fleet to meet the increasing volumes, and was GBP 127.7 million higher than prior year. And free cash flow was GBP 12.3 million, an GBP 85.5 million reduction on the prior year, reflecting the investment for growth. As well as 7.5 million shares purchased as part of our buyback program. Now if we turn to Slide 15. As we enter FY '23, the business has a strong financial platform on which to grow. We continue to operate with very comfortable headroom in all of our covenants, and year-end leverage is 1.4x compared to 1.5x last year, with our policy remaining to manage our leverage within the 1 to 2x range. I'll now update you about a very successful refinancing of our borrowing facilities at the half year. But as a reminder, we raised GBP 792 million of facilities, that increased our headroom by GBP 104 million. This included new private placement loan notes of EUR 375 million with 6-, 8- and 10-year terms at a weighted average fixed coupon of 1.32%. That's 106 basis points reduction compared to the previous coupon. In addition, we renewed our RCF facility for 4 years at GBP 475 million. So not only did the refinancing increase the overall facilities and reduce the overall cost of drawn debt by 50 basis points, but also significantly lengthened the maturities and provide a greater diversification of the sources and of our lenders. And our drawn borrowing facilities at the year-end were GBP 426 million, with GBP 382 million of headroom against our facilities at a borrowing cost of 1.9%. Now the increase in the amount of fixed rate loan notes means that the total proportion of our group borrowings at the year-end in fixed rate instruments were 76%. That's up from 28% at the prior year-end. This is obviously very helpful when we're operating in an environment of rising interest rates. The refinancing and the resulting lower cost of borrowings makes it harder for contract hire to compete on interest costs, but it has continued to develop as a source of additional funding in the U.K. with 10,800 vehicles on contract hire across the whole fleet, almost double that of last year, and utilizing GBP 155 million of credit lines. Our objective is to employ a disciplined approach to investment to deliver sustainable compounding growth. And we have continued to invest in organic growth with investment in growth CapEx, charging infrastructure and investment in our branches. And we continue to pay a sustainable growing dividend in line with our policy, and we have made 3 acquisitions during the year and another after the year-end. Having completed the above and with adequate headroom on our facilities, the Board launched a GBP 30 million buyback program in February of this year, as we believe it represents a good use of funds and generates a strong return for our stakeholders. As at the end of June, we purchased 5.4 million shares for a total consideration of GBP 20.6 million. And at the end of this program, the Board will keep buybacks under review. And the Board is proposing a final dividend of 15p, which will result in a full year dividend of 21p, 36% growth from the prior year. Now if we turn to Page 16, I'll update you on our fleet depreciation rates. So we've been operating in unprecedented time since the merger. We've witnessed the global pandemic, the disrupted supply chains and production around the world, alongside a global chip shortage and most recently, the war in Ukraine. All of these factors combined have resulted in a significant impact on the supply of new vehicles across Europe. As a consequence of this, residual values of vehicles have increased substantially through the year. Whilst residual values have now stopped increasing, they're not expected to revert to normal levels for the next couple of years. The consequences of this are that the vehicles in our fleet today that were purchased earliest are now over depreciated. They have depreciated book values that are close to or below the expected sales value at disposal. And accounting standards require that depreciation rates are reviewed at least annually and are set so that neither a profit or loss is made on disposal of an asset. And after discussions with our auditors, we've concluded that in line with accounting standards, we will reduce depreciation rates from May '22. And this will only affect vehicles on the fleet purchased in FY '20 or earlier. This depreciation rate does not impact cash. It only impacts the timing of statutory profits in relation to these vehicles over the remaining holding period and does not impact the total profit of these vehicles over this period. Now to ensure the performance of the business is transparent to all our stakeholders, we will be reporting the impact of the rate change outside of our underlying results, and it will only impact statutory results. So there are going to be no impact on underlying PBT and there'll be no impact on cash. Now the reduced depreciation cost resulting from lower depreciation rates on FY '20 and earlier vehicles delivers an increase to the statutory PBT. Now the estimated impact in FY '23 is GBP 46.8 million. There's no impact on FY '22 as the adjustment is only being made from May of this year. As a result of the change in the depreciation rate, the statutory depreciation charge in the next 4 years is going to be lower by a cumulative GBP 94 million. And consequently, the profits of these vehicles over the next 5 years will be lower by GBP 94 million. Now these calculations are based on the estimated fleet plan and will vary based on when vehicles are sold, which is partly dependent on when we receive new vehicles. Now for those of you wanting to understand this depreciation rate change in more detail, after a 10-minute break of the first part of the presentation, I'll talk you through a worked example and explain how we arrived at our depreciation rates and also go through the disclosure of the impact on our FY '23 numbers and what that will look like. So thank you, and I'll now hand back to Martin for the business update.

Thank you, Philip. Thank you for that. Okay. Let's take a look at the market. Let's have an overview of the market. So what are we seeing? Market commentators are forecasting a tougher economic environment over the coming period, which will undoubtedly bring potential challenges to many businesses. Fundamentally, our market proposition is the mobility of people and goods, which is the oldest principle of trade. No matter what the economic climate, this principle holds true. And our role in the market is to make sure our partners and customers can do this with flexibility when they need their mobility. The shift from ownership to rental provides this flexibility and in tough times, even more so. I believe we have put ourselves in the best position to support customers doing any probable economic downturn, delivering mobility products and services in a flexible and efficient way. I am confident that the depth and experience of the management team, that also navigated through a tough COVID period and produced significant cash growth, will be very relevant in any period of economic stress. And as Philip highlighted, we completed our refinancing and have extended our maturities and lowered our financing costs to circa 76% of our borrowing on fixed terms. And we have carefully managed inflationary pricing improvements over the past year and would expect to continue to manage these responsibly as we go forward. Our customers recognize the inflationary challenges the market pose. And whilst no one welcomes high inflation and what that means, we have strong relationships with our customers, which have supported price movements as the cost of goods and services have increased. And as we look at traffic on the roads, we anticipated last year that overall traffic levels in the period were likely to be lower than in 2019, mainly due to homeworking and changing work patterns, and this has been the case. However, in absolute terms, our new customer contracts, present and yet to commence, will deliver volume growth through the financial year. And we have now added more than GBP 300 million in lifetime contract revenue in the past 12 months alone with a good pipeline of new opportunities ahead. The U.K. vehicle supply outlook has continued to present challenges, which means demand for vehicles is high. If you look at the chart on the top right, the Society of Motor Manufacturers and Traders forecasts a shortfall of 1.7 million vehicles through to December '22, which in turn creates increased demand for used vehicles. We should anticipate there will be a softening in the wider economy through consumer cutbacks on large ticket items like car purchases, taking into account preexisting orders yet to be filled, which might bring some relief to supply in '23, but this will still be dependent on semiconductor and car part supply chains recovering. If we look at the chart on the bottom right from BCA, we can see used vehicle pricing has been strong through the period, but has come off from the peak seen during the early part of the calendar year and from the peak period in autumn for cars. And although we have seen some softening in vehicle values, current used pricing remains relatively strong compared to historic values. We have anticipated values will gradually fall as the year progresses, but this is likely to be moderated by reduced used vehicle availability. And as we have said before, we anticipate a lower volume of de-fleets in this current period due to strong rental demand. Across the U.K., Ireland and Spain, we are currently securing new supply at around 40% to 50% of what we would typically see, which makes retaining fleet to service demand a priority to support our customer base. And finally, on this slide, within the business, we are very focused on managing and mitigating our own inflationary pressures, whilst also recognizing the cost of living increases and the highest impact this has for our lower-paid colleagues. This year, we structured our pay awards so that our lowest paid colleagues receive the highest percentage increases across the workforce, which materially stepped up their incomes. And to attract new recruits, we increased the minimum starting salaries at the entry level. This has had a very positive impact on those within the business as well as increasing new application rates. If we turn to the next slide. So this should be a familiar slide to you all. There is a useful reminder of how many services and customer touch points we have across the vehicle life cycle. Each of them can work independently of the others as the services are vertically provided by our business units. But an increasing number of customers and partners are seeing the benefits taking a fuller suite of services for cost and operational efficiency, which supports the customer journey. So let me be clear on this point. This platform is unique in its product and service combination. There is no other provider offering all of the solutions in one place or with the ability to integrate these services along the vehicle life cycle. It's this platform which is driving customer wins and upselling services to existing customers. And it's this platform which is transformative in addressing our markets. We are planning to digitize all elements of this platform over time, albeit we have already developed and embedded some of the new platform technology in our customer systems. This represents strong and resilient position that should lead to long-term relationships. And supporting this is a strong level of win conversions, which we are seeing, which is very exciting. Okay. Next slide, please. Thank you. So if we look at our customers, and we have a broad range of customers and partners, many with long-standing relationships built on trust and delivering value services. These customers and partners are drawn from a variety of organizations, which amplifies the diverse nature of our revenues. This includes government and local authorities, leading motor insurers and brokers, dealerships, large fleet operators, lease companies and SMEs. And this growing customer base brings with it demand for services and rental supply. As I mentioned earlier, we are seeing a reasonable proportion of new supply coming through, and we can continue to grow that as fleet becomes available. Currently, anything coming off rent in the fleet, for whatever reason, is quickly snapped up by a customer or sold. Given this dynamic, we are encouraged that our depth and breadth of market cover gives us significant flexibility and good potential to thrive in difficult times. Okay. If we look at Slide 21, so our platform, why do customers choose our platform? Well, there's a multitude of reasons, but mainly they find benefit in joining up the services they need from one provider who handles all the mobility for them. This reduces cost, improves efficiency and more importantly, it is joined up. We added a further services platform this year with EV consulting expertise and advice. Our Drive to Zero program offers help and practical support on owning and running an EV or a hybrid fleet. And where required, we are providing EV-charging point installation through our own ChargedEV business, which can offer a broad range of options not tied to any manufacturer. And as I highlighted earlier, we are increasingly bringing our newest product suite to the market digitally. Our FMG Connect portal and Northgate fleet management app are examples how we connect with customers with real-time reporting for governance, risk and order checks to live claims, incident handling, record keeping, data capture, fleet reporting and training, all of which reduces the operational cost and friction which comes with having multiple service providers across all the touch points, offering the benefits normally reserved for large fleets to all fleets. And if we turn the page, we can look at some case studies. So the market driver for our mobility platform are best expressed through understanding 2 recent customer wins. On the left side is a leading insurance brand who historically had a single product service with Redde many years ago before going to arrival. They returned to us after the merger as the benefits of working on the mobility platform were very clear. This partner has taken a wider suite of products across the platform delivered through a newly built technology system, which is embedded into their own systems. This integrates the customer journey as they move across the platform with limited touch points and handoffs, ensuring a seamless effort on service delivery. This is a significant customer development, which has not been system integrated at this level previously and has the scope to develop even further. The launches go in live shortly with revenue benefits commencing in the coming months. And on the right-hand side, in new Northgate fleet customer, which is becoming a typical story, currently with a fleet of 30 vehicles provided by 10-plus different suppliers and looking to expand to 70 vehicles. The attraction of consolidation, bringing lower cost, support across all vehicle marques with full service maintenance, repair and replacement together with accident management was a compelling choice. We also added consulting support for their EV transition plan with new EV vehicle supply options, EV charging installation delivered through our ChargedEV business and green energy sourcing options. This package of support and service proposition is unique and compelling. We are not a one-touch renter of vehicles. This shows how we can help businesses easily manage their fleet end-to-end with flexibility and choice and support their transition to EV. It's this one-stop service which makes this a strong proposition, and our account teams are buoyed by the strength and depth of these services, which is supporting increased conversions. Okay. Next slide. So on acquisitions, so acquisitions have and will continue to play an important role in our growth strategy under our broadened pillar. We are a consolidator in our markets, and our balance sheet strength means we are one of the first calls people make when looking to dispose of a business in our sectors. We have a disciplined approach to reviewing M&A and look for the right opportunities that either have strategic benefits, extend our capabilities or consolidate for growth. Given our wide platform and increasing appeal to grow services in addressable markets, there are a number of motivations for judging M&A opportunities. The three actions we took in '22 are good examples of the different rationale. So early in the financial year, we acquired a parcel of 2,000 vehicles and related customer contracts, which, at the time of severe supply constraint, was a useful addition to our fleet. And although of a different scale to the nationwide acquisition of the previous year, the purchase of ChargedEV was also strategically significant as it helped accelerate our position and capabilities in the supply and installation of EV charging points, a growing marketplace, which supports not only our own transition, but the wider EV market. And in March this year, we acquired a very interesting specialist business called GRG, which provides call handling and vehicle recovery services to a number of police authorities. This acquisition was highly complementary to our FMG business with several long-term contracts with local police authorities in place. And in the last few days, too late to make the cut for these slides, we completed the acquisition of Blakedale, which is a leader in the supplier of specialist traffic management vehicles to highway contractors, which added circa 320 traffic management vehicles to the fleet. And we welcomed 65 new colleagues to the group. This acquisition extends our reaching capabilities with highways infrastructure build and maintenance operators who are set to benefit from long-term government spending commitments. Okay. Slide 24. So our EV transition. So the transition to electric vehicles, or non-ICE solutions, is set to be a fundamental structural shift for many customers with their fleet over the next decade. In some instances, we are working with newer OEMs to suitably scope EV vehicles, which would be more widely accepted by customers. We are also working with our trade body to ensure that government clearly understand the requirements of supporting EV fleets, particularly vans, and the different usage requirements they have. We have also invested and continue to invest in rolling out EV-charging stations across our entire branch network, which will support the growing take-up of EVs that we handle through the business. EV and hybrid cars have been a part of the fleet for many years and have continued to reflect the car park. Our EV and hybrid stock now represents 11% of our car fleet, and this is expected to grow in line with demand. And we have also ensured our workshops and train technicians are well positioned to cope with the growth in EV-related work as the training program to accredited standards continues to be rolled out across the technical workforce. For Redde Northgate, it's a great opportunity to work with our customers and support them in this transition. It's not just about supplying the vehicle itself. There are many considerations, and our account teams and service professionals are well placed to support our customers with in-house skills and expertise. Presently, product technology and the lack of national charging infrastructure investment are major impediments to being able to make meaningful progress on the mainstream take-up of EV vehicles for the van fleets. And this is likely to take time to change over the medium term. However, we are supporting change now with those customers that want to move forward, and we are well positioned to continue to support this change over time. Our ChargedEV business has now installed over 6,000 charging stations for our customers and will continue to support demand in line with customer take-up. Meanwhile, interest from our fleet customers on using our consulting advice and guidance as to how to best position approach to EVs over the coming 3 to 5 years is growing. And as I highlighted in the case study, our drive to zero support and advice for customers looking to reduce their carbon emissions in their fleet is yet another example of value-added services from our platform. And if we look at our sustainability journey on the next slide, the move to non-ICE vehicles is also part of our own net zero journey. Scope 3 emissions, so those from our customers, are estimated to make up over 95% of our total carbon footprint. But we think of this transition as a strategic imperative and one which will define our own net zero trajectory and interim targets. Technology and regulatory developments will shape the timetable of much of our own progress, and the road map for vans shows there needs to be a significant shift in battery technology to support commercial usage to become mainstream. However, we know that billions is being spent in battery technology. And over time, this will improve the capabilities and range suitable for commercial use. The question for the U.K. is, will this be in time to make a difference before 2030? We have, therefore, been very focused on what we can directly affect now within our business and within our people and communities. Over the past year, we have been growing a deeper understanding of our material ESG issues to address, combining this with a clearer view of our carbon footprint. We are now in a position to set realistic targets that can be measured and reported upon, encouraging behaviors investment to help reduce the resources we consume. It's carved in all our management objectives, and we seek to show good progress on this. And equally important, focus on how we support our people through the ESG strategy and attract and retain the skills and talent we need for the future. Alongside this, we are very focused on ensuring our benefits and career development is well aligned with our purpose and values, and we have ensured that these are made part of the colleague discussion from day one. We are building a business which is centered on being trusted by our customers and partners and to manage their everyday mobility services and to make this easy. We're also building a business and culture, which is trusted by our colleagues to behave responsibly and to be a great place to work. If I look at the next slide, I just want to cover better on resilience in our business model. I said it earlier, the combination that Redde Northgate provides is unique and transformative. Our mobility platform is supporting a new level of resilience. Our position is strong but we are realistic enough to know we're not going to win everything we touch. However, the structural drivers supporting our position are favorable. Rental over ownership and a new wave of outsourcing is a positive. We have a unique position, which is winning blue-chip customers and long-term contracts. As I said, our customer base is diverse and resilient, not just the large customers, but those who rely on their vehicles every day to support making a living. They are resilient. Our pipeline of future organic opportunities is good. And with strong conversion rates, we should expect more progress on customer wins. And our view on inorganic growth with a strong balance sheet and financial strength drives further ambition. So there is confidence in the team that our resilience for our business model on this platform is stronger than either business stand-alone. Okay. And finally, before Q&As, just our view on the outlook. So the new financial year has started very well with good levels of volumes and activity across the group. Some of the new pipeline is coming from businesses that have not outsourced previously, now looking to move out of house, which is encouraging us that there is more opportunity to pursue in this economic climate. The integrated mobility platform is winning deals and embedded technology being part of it offers long-term integration benefits and resilience with customers and partners. The challenges of supply constraints are being managed well. Our fleet team has strong relationships in the market and are securing deals when these become available. And inflation costs are being managed with customers as we are proactive on this. We are mindful of the economic uncertainty and how that's at the forefront of people's minds and the uncertainty that brings. I'm sure it will bring challenges, but I am confident that Redde Northgate can deliver long-term sustainable value. So thank you for listening. I hope the points were clear, and we'll now take questions.

There's a microphone going to come around. So David's hand is up first, so I'll go with David. David?

It's David Brockton from Numis. Can I ask two question areas. The first one on the contract wins, which is clearly, clearly impressive. Can you just talk about the win rate there? And to what extent you've lost any and reasons why you may have lost any? How the pipeline looks? And also sort of the profitability life cycle. So how long does it take for these contracts to become profitable? That was the first question area. So sorry, there's several in there. Maybe I'll do the second one after.

Okay. So David, on the win rates, the conversion is up over 75% of what we see. So we assess what -- if the customer or prospect is in the market or whether they're just sort of gathering market intelligence, but it's over 75%. That's been a demonstrable increase over the historical position for the business. On the pipeline, I mean, we are seeing across -- as I said, across the platform, we're seeing different customers coming to the market with opportunities. So not just insurance companies, but other companies as well, there are -- would have handled their mobility in-house. So it is strong. So as I said in my presentation, we do expect to see other opportunities convert this year as well. And in terms of profitability, I mean, the life cycle of some of the bigger wins, we would be investing. So if we're successful on those, we tend to forward invest. So we have to bring people on and train them, and then we sort of spread those out throughout the group to provide the services. If it requires vehicles, we have to acquire vehicles in advance because generally, these are big-bang switchovers. So we've got people in advance trained, vehicles in advance ready on the fleet and obviously, investment in the technology platforms that we deliver with the customer. So we expense that as we go along and then the revenue follows. So the way we model them, they are profitable accounts, of course, because we wouldn't take them on. But of course, once they come onboard, then we get the monthly revenues. The monthly volumes build up, but it's a big bang. So you get 1/12 of the expected volumes in month one.

Okay. And then the second question was just in terms of getting hold of new fleet. Can you just talk about sort of what you're seeing in terms of OEM cost inflation? Is there anything you can do to mitigate it or get hold of more fleet than currently available?

So yes, getting hold the fleet. So yes, I've said we're securing about 40%, 50% of what we would typically see. The environment is a strange environment because I don't think the OEMs know exactly what their supply chain looks like at any one given time given the challenges that they have. But where we do secure that fleet, we look at the relative holding costs because when we bring a vehicle onto the books, it's the holding cost of that vehicle and how we therefore price that out into the market. So whilst there have been increases in the absolute cost of the vehicle, it's moderated through the holding cost. So what we look to do is pass on the holding costs increases if there are holding cost increases to the customers. The lifetime of that vehicle will have a value. And as Philip will be going into more detail in depreciation, clearly, used values being strong, you have to take a view on where that will land. Greg was next with his hand up. Sorry, I'll just go in that order. Thanks.

Just a few from me. On Redde, could you talk about the medium-term profit potential for that business? In the context of it, now looks like 90% of pre-COVID levels looks like the new norm. And you've obviously will add on FMGRS and the new business wins onto that. So where does that leave you on a medium-term view? And then just on the M&A, with the view being a mobility solutions platform, is there any key areas that you wish to add in over the next 12 months that you haven't got already?

Okay. So on the first question, Greg, around the sort of the profitability for Redde. So obviously, in these results, it's still a recovery out of COVID. So as we say, the absolute volumes of the business will grow. And historically, the profitability was around 8%, 9% EBIT margin. So we should expect to get to 8%, 9% EBIT margin as the business sort of normalizes. So that's the sort of the level of profitability that we would expect to see. On M&A activity and across the platform, our platform is broad, providing service across that platform. I wouldn't say there's complete white spaces. But what I would say is that there are other addressable markets that we could enter that are quite significant. So we're a strong B2B provider. We provide a lot of B2C services. If you think of our insurance base, we're providing services directly to policyholders. So it's almost like a B2C delivery on behalf of our partners. So we do see other addressable markets where we could potentially grow the mobility solution. We've got quite a bit to digest here coming through. We're comfortable with what we've got coming through and how we will bring that on. But we've got ambitions as well to continue to grow this. So where this is over the next 12 months, we continue to look at those spaces. They're not white, but we can look at the spaces to see what is the art of the possible. I'll come over here. Mike, first, sorry. Yes. Just to Andrew. Sorry, Mike was leaving.

Andrew Nussey from Peel Hunt. A couple of modeling questions for Philip. If we look at the Northgate U.K., obviously, VOH, opening VOH and closing VOH was largely unaltered but the average up over the period. Was there anything particularly moving around the period ends in terms of what we should take forward for this year? And secondly, in terms of margin, obviously, sort of indicating the 15% aspiration. But in the first half, second half of '22, there was quite a big movement. Was there anything in the second half margin that we should be aware of? And actually, the third question, in terms of Spain, where competitive pressures obviously have historically been very high, I sense it'll probably eased because of the market environment. Just what your thoughts might be over the medium term, if things might get more competitive as normalization comes through?

Okay. Why don't I take the first two, and I'll let Martin answer the third. So on U.K. VOH. So as you know, in the U.K., we have slightly more seasonality than we do in Spain. We do have a peak in the U.K. just before Christmas. And then it generally drops off slightly as we move into January and February, and we would normally de-fleet some of those vehicles. What we've been doing this year, clearly managing the fleet very carefully due to the restricted supply. And so when vehicles have been coming back, those that do need to be de-fleeted are de-fleeted. Those that don't need to be de-fleeted, we've been pushing to customers. And we've been very selective about where we push those to. So we're consciously effectively rotating the fleet from lower-margin customers to higher-margin customers over time, which is enhancing our margin. And I think the other thing I'd say just on margin, yes, look, we have said 15% is probably sustainable in the long term. And I think at the interims, we spoke about the fact it isn't equal in H1 and H2. Generally, in H2 in the U.K. specifically, we do tend a slight dip in the margin. It's slightly lower than the first half, and that's due to the number of rentable days we have in the U.K. because we rent per day in the U.K. rather than per month as we do in Spain. And that caused a slight dip mathematically in the month of February, which brings it down slightly.

And on your third question, Andrew, in Spain. Yes, I mean I think actors are acting rationally in Spain. There is a shortage of supply. Demand for the vehicles is very high. But it's also the proposition of the workshops and the body shops in part of that proposal. So historically, you've seen operators sort of undercutting on rates and which is driving down and negotiating away margin. That's not the case now. I think operators, fleet operators are looking for that combined service where they get more integration with the workshop and the body shop side of things to reduce costs. But as I say, I think the overriding factor is that vehicle supply is tight, and therefore, customers will work with companies that can secure that supply. Mike?

It's Mike Allen from Zeus Capital. Two from me, if I may. Just on Spain, so EV stock, you said was about 11%. I'm assuming that's at group level. And I'm assuming the EV stock as a percentage of fleet in Spain is lower than the group average. I just wondered if it is lower, roughly how much it is? And whether there's a -- the EV take-up in Spain might be slower or quicker than the U.K.? And then the second question is just in terms of the supply chain in LCV, clearly impacted as we've seen in the car markets as well. But are we seeing EV vans being favored over these? Also the kind of fuel mix of supply that's coming through as well, please?

Okay, Mike. I'm happy to take those. So in -- yes, so the 11% car fleet is across our car fleet. Effectively, that's 11%. Last year, we gave a measure against the U.K. car park. I think we're slightly ahead of the U.K. car park in our EV. So we are seeing more EV packages of supply coming through and available to us. But don't forget, we've always said, we will sit behind demand because we won't speculatively take EV on the fleet. It's going to be demand-led from the customers. So we're ahead of where the car park is in the car side. On the van side, as I mentioned in the presentation, there is limited real-world availability of vans that can do a proper commercial job. There is EV vans coming on the fleet, and we will be ahead of the car park when you measure that as well, but they are limited to how you can use them and which operators would use them. But we -- as I said, but we are building that. Our manufacturers -- sorry, your question on Spain as well is. So Spain has got a slightly different time scale to the U.K. It was brought forward last Tuesday. So EU regulators are bringing forward the 2040 transition to 2035. And then the individual European countries will have to put that into policy, which we expect to be in autumn this year. So that won't allow them with the U.K., but it will make ICE transition brought forward to 2035. So the uptake of EV in Spain is slower than the U.K. just because of that difference in time line. But what I would say is, is that the team there are very focused on that transition as well. So they are encouraging with that support of services to engage with the customers, to get the plans in early and to develop that. And we are seeing some good signs of customers engaging on that front. Your second question on the supply chain. I was going to say, are they favoring EV over diesel? I would say manufacturers are favoring prestige marques and higher-margin vehicles over anything. So if the semiconductors -- the automotive industry canceled a lot of semiconductor deals during COVID. And automotive industry is only a small bit player in semiconductors in the global stage. So actually getting back on supply is difficult. So where they have got supply, they're putting them in the very high-marque, high-margin vehicles. So we couldn't say there's a differentiator between electric van over a diesel van. What we would say is that what we want to do is support customers understanding their transition and the timing for that transition. So where diesel vans are coming off production and being secured, we will secure them. But equally, what we're seeing is we're introducing more parcels of EV into parts of the fleet. The customers can see how these operate in their fleets. We've got good examples of one customer, just to share an anecdotal story, who said, right, I want to make a change for the environment. I want all my fleet to be EV next week. And we said, yes, fine, we can have a look at this. We evaluated the fleet. You'd have to double the fleet to do the same amount of work as a commercial fleet today. And then we moderated that. But we put 5 EV vehicles in with the customer so that they could get on that journey straight away. So there is some demand there, and we want to sort of meet that demand. So it is a transition story which we we're behind, and we will see more progress on that as the time goes by.

David Farrell from Jefferies. A couple of questions. If we go back to 2008, 2009, the last recession, could you kind of give us an idea of what the split of end customer was back then and maybe how it's transitioned over the intervening years? And then my second question was -- and clearly, you're having difficulty getting the supply that you want in terms of new vehicles. Your competitors are probably struggling even more. They're also probably facing higher interest rate charges going forward because they probably haven't taken the same benefit in terms of refinancing. Do you see kind of you actually got a few opportunities opening up over the next 12 months of buying distressed assets?

Thanks, David. Sorry, do you want to take the first question and then I'll...

Well, I can take it on the Northgate side, if that's helpful.