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

Good afternoon, ladies and gentlemen, and welcome to the Redde Northgate plc Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today, and we'll publish those responses where it's appropriate to do so on the Investor Meet Company platform. Before we begin, I would like to submit the following poll. And I would now like to hand you over to the Head of Investor Relations, Ross Hawley. Ross, good afternoon, sir.

Good afternoon, and thank you, and welcome, everybody. This session is part of our interim results roadshow program and is the second online session we've undertaken, the first being at our full year results in the summer. Do please have a look at the earlier one, if you want to a little bit more detailed introduction to the business on that, but there's an end of focus really on our results. But I have with me Martin Ward, Chief Executive of the company; and Philip Vincent, CFO. I was going to first ask Martin to just do a short recap of business, but really just highlights in terms of our interim results. And then we'll go into some themes and questions. And obviously, Philip will also talk some points about the financial performance and cash flows of the business. So do please put questions into the chat, and we will manage those as we go through. But I really wanted with that to then hand over to Martin to talk with the highlights of the results, so Martin.

Okay. Thanks, Ross, and good afternoon, everybody. Just to sort of recap what we do so that we understand what the business is about. I think our purpose best to describe does keeping customers mobile. From our perspective, we have an integrated services platform, which deals with the life cycle of events that can happen when customers are either running a fleet or have some form of [ famous ] service that they need to deal with under their insurance. I think we can best describe the provisions as services like vehicle replacement, vehicle rental, repair, where we own our own body shops, salvage vehicle disposal. We have our own brand, Van Monster and Ocasion in Spain, which sells used vehicles. Van Monster brand is the biggest seller of used vehicles, used vans in the U.K. So we have some very good data points on what's happening in the market. And as I say, it's about a plethora of services across our platform in the life cycle. So just imagine any event that happens, whether that's roadside recovery following an accident, replacement vehicle taking a vehicle to a repair body shop to have that repaired, currency vehicles, legal services recovery, salvage and disposal. So as I say, quite a range of services across our platform. And that's been expanded if I sort of quickly move into our interim sort of results. The strategy that we set out in 2020 of putting our services together to create this platform has been delivering through this period for these results, we've seen demonstrable growth in the underlying business. And what I describe as the underlying businesses, if we excuse disposal profits out of our results, the underlying business grew 9%, predominantly through the claims and services business, which has been a growing market for us. So overall, we have seen double-digit growth across all of our P&L metrics. We've seen quite a bit of revenue growth, so up nearly 17% and PBT now nearing GBP 100 million for the period. More importantly, we've seen good returns on our capital invested as well. Our ROCE is up nearly 15%. And our cash collection has been very strong, which is supporting our dividend position, we would be able to declare a 10% increase in our dividend for the interim period. So overall, we've seen growth in our sectors that we serve. The momentum from the business contract wins that we previously announced. This is the GBP 300 million of lifetime revenue from some large brand names that we have publicly made available. Those contracts are reaching their run rate and maturing and they've given us strong growth, better growth than we'd anticipated. And also in the period, we were successful in winning new business as well, converting from our strong pipeline. So we took on [ municipality ] repairs for that specialist company, where we're undertaking a large volume of repairs, which went live about 2 months ago. And if we look at that momentum, it's continued to be strong. So the pipeline, as I say, is very good. We expect to see further progress to our claims and services business. So overall, as we stand back and look at the results, these have been really, really good results, and we expect that momentum to continue.

Fantastic. And should we... Just sort of think about some of the, when we've been going around on roadshow we into our second week. I think some of the things which have come out from that, and I think what we talked about, in particular, is actually to say the theme of the strength of the platform, which got brought together through the work over the past couple of years. Do you want to just talk a little bit about how that's actually coming through and what you're seeing and how our customers are actually seeing and funding that strength in what they are looking for.

No, indeed. I mean we talk about, we've seen this sort of structural trend to outsource. We announced in the last period, we announced to win with Lex Autolease, for example. So that was a fully outsourced contract to deal with the fleet that's under that brand. So what's particularly appealing to the prospects and the customers that we have signed up is this integrated position of providing services that are more joined up. And when I look at the sort of the market and the structures that are happening, there are companies that can provide services in the verticals and you can get best-of-class, best-of-breed in those verticals. But what's more important in a more sustainable future is about providing that integration so that the end customer journey is a better experience. You don't have all the handoffs. It didn't with something like an incident, let's say, like roadside accident recovery, for example, previously, you would have a firm that would come and make that recovery, take a vehicle to a storage yard engineer would have to go out and look at the vehicle, authorize it to be repaired, take it to a body shop, somebody then would have to provide a [indiscernible] vehicle. So you have all those events happening, but we have the combined that into a signal proposition. So therefore, you'll have that sort of strong customer relationship where you're dealing with all the events through that life cycle. And we've seen that polarization from customers in the market will want that service. So that's the sort of momentum that has driven the growth that we've seen in this period, and there's more to come.

And as you talk about that momentum in the period, I think what's been clear is that it's not just about new wins as it's actually people who come on to the platform, seeing the kind of services we've got, and then actually looking to add more both in terms of volume and also in terms of other products and services along that because they see the benefit.

Indeed, I mean, with existing customers we saw and we did announce some new contract wins with existing customers where they are developing that integrated approach. I mean what I would say is day 1, sometimes you win a customer and it might be on a vertical. It might just be a repair contract that you're undertaking. But what tends to happen and what tends to follow is, they want the integrated services with the [ Kurty ] car, the replacement vehicle, the like-for-like vehicle and so forth. And the other services that flow from that. So as those contracts become available to us through the supply chains, we're having those conversations. We're making good conversions on that and then joining up the service. And what's more important as well is these are not seasonal touch points, these are services which have been delivered on a digitized basis as well. So we're on that journey of creating that digital platform for everything that we take on in the business today comes through a digital platform. We invest the time and we make that investment in our systems, both from a customer's perspective and our perspective, so we can tie up, join the position so that we can take a lot of the manual effort out of that service position. So this is very attractive to customers. This is a strong market for outsourcing. As I said, that structural trend to us also is there. There's plenty of market growth to go for. If I gave an example, we're undertaking just shy of 200,000 repairs in the business today. the size of the U.K. market alone, it's 4.2 million repairs. So there are plenty of opportunities to grow that space into that space, and there's plenty of opportunity to join that more services with our existing customers.

So in many ways, what you're describing is that there's a push from the market in terms of this structural trend to outsourcing. But also, we're putting them in because we're actually offering them services, almost they didn't know they wanted in the first instance, but actually seeing them the benefit of having them all joined up in one place.

Yes. I would say the services exist, we're not reinvented the win in terms of the services. What we have reinvented is, as you say, joining them up and making them available in one place. And that's the unique feature Redde Northgate is offering into the market is that integrated mobility platform. When we first came together back in 2020, we had to describe what mobility meant because people had this vision of mobility in the U.K. something else. What you've seen now is you see a number of international brands come out and rebrand under the mobility brand because it's important about providing that service that enables that mobility. So yes, this has been a sort of a growing position.

So it's very much is a differentiated offering from people.

Indeed.

And with that strength, in some ways, comes, I think what we talked about in terms of quality of earnings or visibility of earnings, some of the statistics which we talk about in terms of contract visibility, which we have about more than 12 months. That's something...

Yes. No, I mean that's a key point for us, Ross, to be honest. The quality of business, I look at the contracts, I mean, we made a point in the interim results to say that 80% of our [ cable ] services business was underwritten for the next 12 months plus, so these are contracts with large insurance companies and blue chips that are multiyear. And they tend to renew in terms. So we have a long-term relationship with these customers and then the ones we hope to be the same. You're digitizing. You're putting the IT hooks in to be able to transact this business. As I said, they're multiyear. So these are quality earnings. I mean the market, I feel looks at disposal profits and says, okay, well, maybe there isn't a quality earning to that. But I say look at the underlying earnings of the business and look at the journey that we've been on from when we merge to where we are on an underlying basis, and you can see good levels of growth, which we would expect to continue from the momentum that we have. And I think that quality of earnings, I think, is under marked.

Yes, fantastic. I sort of think with that as a good backdrop on that, it's probably worth of handing over to Philip now. And maybe just talk to some of the highlights. And obviously, we talked about the underlying growth within the business. Philip, do you want to just give some highlights and some thoughts on that, please.

Sure. Yes. Thanks, Ross. So I'll just give an overview on 3 slides. I think we'll start off with our key KPIs for the H1, we had a really good strong set of results across all of our KPIs for H1. We saw good growth including our PBT, which grew 18.3% and our EPS grew 18.9% in line with that growth in PBT, and EBITDA has increased 10.7%, and that strong cash flow that we've generated in the half year, we invested across our business. So we invested in fleet. We invested in working capital to take on new contracts. We invested in acquisitions such as FridgeXpress at the beginning of H1. And also, we've been continuing to make returns to shareholders, not only in our dividend, but also in the terms of our share buyback program, which we continue to run. And we've done all of that investment and that spend whilst maintaining our leverage of 1.6x, which is in line with the leverage we had in H1 last year as well. We're comfortably within our range of 1x to 2x. Our return on capital employed continued to improve, so 14.8%. That's up 1.3 percentage points on the prior year. And our dividend for the half year of 8.3p is in line with our policy of paying 50% of the prior year full dividend. Now if we go on, you can have a look at our revenue. And this chart effectively bridges our revenue from H1 last year to H1 this year. As Martin mentioned, we have just under 19% of growth in our revenues, demonstrating that we're continuing to demonstrate the performance of our platform to our customers. U.K. & I had a positive movement in vehicle supply in H1. We started to get a bit more visibility, and we are able to grow our revenues 4.4% without growing our vehicles on hire. And we did that through careful pricing actions for our acquisitions, but also through growing our ancillary revenues such as telematics across the business. Now Spain has had much better access to vehicles in H1, and they were able to grow their vehicles on hire, which alongside with careful pricing grew rental revenues 10.2% year-on-year. In claims and services revenue, that increased 25.7% or GBP 86 million. And within that increase, GBP 66 million of that increase came from the contract wins, which we won in the last 18 months. And the platform is attracting more customers, and we've also got a very strong pipeline of new potential contract wins as well. So new opportunities continue to exist. And we have vehicle sales, which increased to GBP 108.8 million. And within that, U.K. & I vehicle sales increased to GBP 82 million. And we've extended the capability of our disposals platform in the U.K. Van Monster to sell cars as they de-fleeted from the Redde fleet. They now passed on to Van Monster, and after that increase, GBP 72 million relates to the cars and other non-fleet vehicles. Spain has also increased their vehicle sales year-on-year, and that's because they're getting better access to new LCVs, they're able to start [ sightings ] through the fleet and de-fleet more vehicles. And in the U.K. & I, we're seeing strong residual values that are still way about pre-COVID levels. And similarly in Spain, despite the increase in supply coming through, we're still seeing very strong residual values. And in Spain, the PPEs have actually increased GBP 200 year-on-year. Now if we move on to our profit. Again, we have a similar waterfall here that bridges our profit from one half to the second half. So profits grew over 18%. And our underlying business, as Martin mentioned, if we take out the disposal profits, the operating profit from all of those business units has grown over 9%. And we've grown that underlying business every year since the merger. So we've got that strong underlying growth, which is currently being supplemented by strong disposal profits as well. So we've seen strong demand for the rental services and supported growth in our total vehicles on hire across all of the rental businesses in Spain and the U.K. have then increased profits by GBP 3.9 million, and then improvements in rental margins levered a further GBP 1.9 million. So in the U.K. and Ireland, we had a rental margin of 16.3%. That's up 0.7 percentage points year-on-year, and Spain's margin increased 0.4 percentage points to 20.8%. Now we expect U.K. & I's full year margin to be in line with our midterm guidance of 15%, but Spain is likely to be higher than that for longer now. And then we've got disposal profits delivering an additional GBP 10 million. So in the U.K., a decreased GBP 0.6 million, strong residual values and still above pre-COVID levels. And in Spain, disposal profits increased GBP 10.6 million, aided by the increased vehicle supply. And then Redde's volumes continue to grow, and the business delivered an additional GBP 5.9 million of profit. That's an increase of 28.7%. And then interest costs increased GBP 6.5 million due to a higher interest rate and a higher level of debt, which we use to support growth across the business. So all in all, Ross, a very good first half.

Fantastic. Thank you. I'll come to some questions and try and [indiscernible] answer those questions. And Philip, I think we'll talk about cash flows, which I think some questions are a little bit later on. But Martin, just coming back to you, a lot of focus as ever has been on vehicle supply. And I think it would be good to get your thoughts on how you see this developing. Clearly, there's been some easing in Spain. And actually, I think you've talked about the U.K. as well, having a little bit more visibility and more conversations with the OEMs. Do you want to sort of take both markets and give some thoughts on that?

Yes. Okay, Ross. I mean, I'll start with Spain. I think that's probably the easiest conversation. Supply of and car has not been problematic at all. So what we've seen is that we've been able to take on a dual fleet, meet the demand that we have from the customer base and new customers in Spain. And we've seen VOH and we've seen the sort of overall position in Spain growing as a result of that. Equally, that's allowed us to rotate the fleet in Spain. So when we look at the sort of the stock that we have, Spain is now coming down in terms of age of fleet as a result of that sort of rotation. And despite that, strong supply, residual values have stayed relatively strong compared to historic composition. So that sort of supply-demand curve hasn't quite worked in the normal sense. So we're still seeing very strong position there. And there is some good underlying growth that we're getting in Spain as a result of that such that we will be expanding the network to take on that growth as well. And then if we turn to the U.K.&I, what I'd say, first of all, is getting a hold of cars is not a problem. There seems to be a plentiful supply of cars from a wide variety of manufacturers. However, on Van, 2023 has been a challenge in that scarcity, the estimates from the society, motor manufacturers and traders still shows that new registrations for vans will undershoot the long-term average. So from our perspective, we see another 12 to 18 months where we're still playing catch-up on registrations. And because vans are a workhorse for many, many businesses, it's not something that you can go without. So we've seen strong demand despite not having vehicles available. And sometimes, we've seen that strong demand coming into the business for vehicles. So even though we've taken the fleet down and rotated some of the fleet out in the U.K.&I, we still achieved higher revenues and higher profitability by working the assets even harder from what we've got. But as we look forward, what we can see with orders from OEMs on the progressive position is, is that more supply will come into the market for vans in 2024. We have agreed terms with the majority of manufacturers and there is a sort of an underscore there in terms of what type of productivity we will see from new supply. So I'm more confident in terms of what's coming through the pipe, as I said, it's still a bit far short of what long-term average looks like. But nonetheless, supply will pick up.

Fantastic. I see a question from Steve here about the electric vehicle dynamics in terms of how do we actually handle them on the fleet? Do we publish statistics, to which the answer is we do. And actually on the bedside, you'll see some pie charts with those. But how do you see the EV market developing? And what are customers saying to us about what they're interested in.

So on the car fleet, I mean, the first thing I'll say is both on the car fleet and the van fleet, we run ahead of just ahead of the U.K. in terms of what's on our fleet compared to the U.K. car park. For cars, I think people are sort of starting to normalizing, now more people that get in electric cars, therefore, a lot more will come through our business, whether we're replacing them, repairing them or whatever through the U.K. On vans, I would say that the market is still playing catch-up. There hasn't been what I would call a proper workhorse of the van that can replace a combustion engine run at the moment. However, it is getting better. We've been running open days at a number of our branches where we've had all the product lineup for manufacturers across the EV van. And we've invited customers new prospects to come and have a look at close, so they can sort of test drive and evaluate what the capabilities are of the product. And we've seen some good take up. We had our first big 100-plus order from a large energy company, which was good news. And we've seen that interest in terms of customers placing some orders for EV vans as they come on board. But clearly, the government has pushed back that across in terms of that transition from 2030 to 2035. We're keeping up our momentum because we see this as a good way of transitioning with our customers, working to the momentum with our open days and that evaluation. And I think we will continue to see an uptake. But we're not going to speculate. We will get product that customers want, and we will stay ahead of the U.K. car park on the basis as things evolve.

Fantastic. You said that there were customers there a lot of times and Ross N, not me, was asking a question just in terms about customer service and how you track those and how you take into account sort of customer interest and focus. Obviously, it's been a core focus for the business, always is. But just in terms of how customer service is managed and how you look at those. Is there anything you'd like to talk about?