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

Good afternoon, ladies and gentlemen, and welcome to the Zigup Plc Investor Presentation. [Operator Instructions] Before we begin, we would just like to submit the following poll. And if you would give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to Head of Investor Relations, Ross Hawley. Ross, good afternoon sir.

Good afternoon, and welcome, everybody, to this online presentation. So with me this afternoon are Martin Ward, our Chief Executive; and Philip Vincent, our Chief Financial Officer. For those who have seen our previous questions on this, you know that we try and run this always as fireside chats while running through a presentation, but obviously, the presentation is available to you on our website along with the transcript. But we will use some of the slides for that. However, this is much easier as a dialogue if people ask questions. So do please use the chat function and as well as the Q&A function, and we'll have a look to see what we can answer as we run through a number of different themes and topics. But I think in the first instance, I'd like to hand over to Martin to really use the first couple of slides from our presentation, which we gave last week to really talk about in overview terms of full year results for 2024. And with that, I turn over to you.

Thank you, Ross, and good afternoon, everyone. Look, this has been a fantastic set of results this year. I'm going to talk to the underlying numbers that's easier to reconcile for the business. So revenues have progressed up nearly 14% to GBP 1.5 billion. You can see that flowing through to our EBIT of over GBP 213, up 13%, and through to our record PBT, nearly GBP 181 million. So we've continued to deliver on the strategy that we set out for this business back in 2020. I think every time we've provided an update to the market, it has been a story of growth and good sort of metric delivery. All of this sort of flows through to be able to support a good ROCE return and we're up at 0.4 percentage points to 14.5%. And we've also been able to increase our dividend or propose to increase our dividends, which we return to shareholders for this year, taking the full year to 25.8p, up 7.5%. So overall, that's been achieved whilst to maintain a debt leverage, which is challenging at 1.5x. So we've invested a lot in the business this year. We've been operational, we've been very busy, and we've made some great investments in our fleet. The value of the fleet now on our balance sheet is GBP 1.3 billion. So as we make those investments, you see the corresponding value come across in the balance sheet. And then if I just look on a non-financial basis, look at the operational performance, I mean, it has been very busy and the business has cemented a leading differentiated proposition in the market with the platform of services appealing to a wide number of customers. And it has been an exceptional year for that operational progress. We've added to our rental capability, the broad range of new products and value-added services in both the UK&I and Spain. And one good example to bring this to life is the acquisition of Blakedale. Blakedale has been a standard performer in the traffic management space. And we have supported growth with investment in that fleet, which is at 35%; new customers, up 18%; and operating profit, up over 100%. We also support their customers with additional services, including the specialist fit-out of key customers, their owned vehicles who trust in our expertise in the specialist area. Similarly, Claims and Services, which is formally known as the Redde side of the business has grown its specialist capabilities and broadened its offering, including a new out-of-hours, first notification of loss and accident vehicle recovery service for insurers, which is seeing growing demand. And our scale has allowed us to do more for our existing partners, including contract expansions and new outsourcing customers such as Lex and Abacai insurance, which went live in the year. We also won a new contract to support a long-standing group customer, Royal Mail, with repair capacity and have more opportunities in the pipeline. Investment in automating and digitizing our systems and process is a long-term program that brings immediate benefits. For example, we launched a self-service portal for a direct insurance rental customer where around 75% of monthly activity is now going through online with no manual intervention. We plan to roll this out more widely this year to other partners. An investment in our integrated repair facilities, an independent network, now numbering over 600, is increasing our repair capacity, which remains a scarce commodity. When I think about our broader initiatives, our Customer First program, for example, has reenergized the team after what's been a difficult period where supply constraints and parts delays, of course, real challenges for those on the frontline. And looking at the structural trends towards EV take-up in the LCV market, there is positive momentum in the UK&I. The fleet compared to last year is now up over 140%. In Spain, the pace is a little bit slower, albeit with a 16% increase. We've also responded to a changing EV infrastructure market by developing new partnerships with energy providers. These are increasingly the best routes to those looking to install home and workplace chargers. So overall, the progress in financial year '24 was significant and positions us very well for the opportunities ahead. Okay. So that's my overview. I'm sure we'll go into a lot more detail, Ross.

Thank you for that. And thank you. I can see some questions already coming in. The way which we're going to do this is to look at certain kinds of themes. So if I haven't asked your question straight up, it means because we're likely to talk about things such as dividend, the capital allocation a little bit later on in the program. But I think, Martin, just to touch on one thing, is the feedback scores and how important are they to the business? And how have you seen those develop? And then your opinion about those?

Yes. Look, customer is key. That is a key focus for this business, and we've made sure that everybody sort of understands that. Things that we put in place, feedback from customer engagement surveys, NPS scores, Trustpilot, all of these things give us a very, very quick feedback around how we're performing as a business. We get it right for the customers and our partners. We tend to have a very happy business. A good example would be at our branches. I mean, you're familiar with our branch setup. If you walk into one of our branches, now you can see a QR code on the wall. You can instantly scan that QR code, and you can give us feedback on the spot in the branch to tell us whether we're getting it right or wrong. So we can see that instant feedback. So we've been able to develop that across our sort of branch network, across our customer contact centers, so we can see where we're getting it right. And it's important to us, as I say, we're getting right for the customers and our partners, we'll get it right all the time. And it's something which partners do look at themselves. It's increasingly important. When you're providing the services that we have across that platform, there's multiple touch points with the partners, with their customers. So they are relying on you to make sure that you are delivering on all the things that you've either promised or the customer would expect. So it is something that feedback, that NPS scores, the SLAs, the Trustpilot scores, that loyal customer feedback is important. So it's something which we think stands apart from the rest of the market.

And I think as we know, this is slightly significantly higher than the rest of the sector in terms of things like the Trustpilot scores versus [ NPS ].

Indeed, look, we can always do better. But if I look at our Trustpilot in our rental sector, for example, we reported 4.7, which is an excellent rating on the Trustpilot for the company. I think that's even gone up to 4.8 more recently. But it does -- it lets everybody know that we are on display for our customer service. We want to get it right. Sometimes, we get it wrong, [ don't get me wrong ], we will see 1 Star reviews where we get it wrong if you search for them. We want to get it right, and that's sort of the heart of what we do, where we put the Customer First in terms of delivery.

Fantastic. So I think, Philip, if we turn to you to just sort of give an overview of the performance in the year. We'll come to cash flows and everything a bit later on. But maybe just talk to some of the slides which are familiar within terms of that overview on the financials?

Yes, sure. Thanks, Ross, and good afternoon, everyone. I think I actually skipped this slide. And we've covered all of the headline numbers, which overall are very positive as Martin talked to. And I'll go to the group revenue waterfall on Page 8. All we can see here is that we continue to see the benefits of our platform that we've developed is continuing to attract customers across all of our businesses. And we had group rental revenue growing at 6.4% across the group for the year. Now within that, U.K. and Ireland average VOH actually reduced by 7.7% year-on-year due to the limited access of vehicles during the year, although it did improve significantly in H2. And the rental revenue within the U.K. still grew at 4.6% through both product extension, but also carefully managing our pricing to customers. Now in Spain, the access to vehicles has returned to normal and average vehicles on hire grew 4.1%. And with careful pricing, with customers in Spain, rental revenue grew 8.4%. The Claims and Services revenue grew 19.4% and that's benefiting from the full-year impact of the new contract wins, which we announced last year as well as growth from our existing contracts and customers expanding their products and services requests from our platform. And then in terms of Vehicle Sales Revenue, that was GBP 312 million, just under GBP 160 million higher than the prior year as the new vehicle supply improved in U.K. and Ireland and continue to be strong in Spain. Now I'll just talk through kind of the headlines on the profits. If we turn to the next slide on the profit waterfall. So this is obviously bridging our underlying profit from last year to the current year of GBP 180.7 million. And you can see here that group rental volumes in U.K. and Ireland and Spain contributed an additional GBP 6.7 million of profit before tax. And our procurement activity continues to develop in both U.K. and Spain. And that's alongside careful pricing meant that we managed cost inflation across the businesses. And also then alongside extending products and services to our customers and a continued focus on customer profitability as well. We've seen Spain rental margin of 18.2%, which was higher than we expected in the year. And over time, we do expect that return to our medium-term guidance of 15%, but is likely to be higher for longer still. And in UK&I, that was in line with our expectations. So it went up 40 basis points and was at 15.5%. Our disposal profits decreased by GBP 3.8 million in U.K. and Ireland as we're selling older vehicles with lower residual values and lower profit per unit, but it increased GBP 14.1 million in Spain, where access to new vehicles has returned to normal. Now, residual values have fallen in the U.K. and Ireland and in Spain, and that's partly reflecting the older vehicles that are now being sold into the market. But overall, they do remain high compared to what we've seen versus historic levels. And then the increase in Claims and Services volumes from existing and new contracts contributed an additional GBP 8.8 million in profit. And Claims and Services earnings before interest and tax margin at 6%, reflects the mix effect of the business, all of which contribute to the profits of the business as well as high return on capital employed. And then the final block there, you can see interest costs increased GBP 9.7 million due to a higher average level of debt and the full year of higher interest rates, and that was offset by a reduction in our corporate costs of GBP 1.1 million. I think the final point that remains importantly is that if we exclude all disposal profits from our underlying profit and underlying EBIT increased 10% year-on-year. So that continues to demonstrate the underlying growth of the business.

Fantastic. So just looking at some of the questions. So William has been asking about the Claims and Services side, in part just about seeing the growth there, maybe talk us through a little bit of that, but then also, just in terms of the financial disclosure from that. I think just from my perspective, if you went to our website, you will see we did a [ teach-in ] in January, which gave a lot more detail to try and explain that the Claims and Services business. So there's more information there, but I'll ask Philip to comment on that in a moment. But Martin, it's a strong growth prospects, a really good year from Claims and Services.

Absolutely. I mean you can see, I mean, the revenue there from Claims and Services have grown year-on-year. It's heading towards GBP 1 billion of revenue. So it's obviously becoming a big part of our brand portfolio. And the key thing here, as I said it last year, and I'll repeat it. What we're seeing is we're seeing procurement teams in the market from the insurance companies and some of the [ lease co ] et cetera, where they are consolidating their supply chains. So previously, insurers would rely on us in a larger part of the market, in repairs, there could be some [indiscernible] type businesses where you get repairs undertaken. So today, that is a more -- much more consolidated position. Insurers are looking in the supply chain for quality businesses that can operate on a national and regional basis, have the right credentials from an ESG perspective, the right credentials that customer feedback in terms of how you handle them. But also importantly, how you're investing in your platform as well. For example, keeping with repairs, the technology that you're using to do repairs. So if you're not using the latest technology, you're not seen as an efficient supplier. There's new techniques out in the market in plastic welding, aluminum welding, and ADAS where you put in that sort of radar into the screens and so forth. We've been able to do that in-house as well. So there's a lot of areas where it's important that you get this right. And when you get it right, and obviously, you're starting a good chance of sort of winning more contracts in the market. Now I've said in our outlook, I talked about our pipeline. Pipeline is very, very strong. We have a lot of tenders on the go, with large, medium size insurers and [ lease co ] et cetera. And we've got a good sort of conversion rate. So we're quite optimistic about our future on Claims and Services side, we expect that to continue to grow.

Fantastic. And Philip, just any comments on the margins someone is asking about that as well?

Yes. So we've commented on the margin in the past. And for Claims and Services, we see the margins around 6%, and that reflects a mix of businesses. If you were to go back to premerger days, the Redde, we are often asked, what is -- will it go back up to 8.5%, 9%, the Redde used to operate at. And that all depends on the mix of the business. What we've seen is we've seen quite a lot of the growth coming from the accident and incident side of the business, which is operating at a lower margin, but a very high return on capital employed. So that's a pure mix that's coming through there in the margin on Claims and Services, but it's all very profitable and all very good return on capital employed towards generation of cash.

Fantastic. I just want to touch on Spain before we move to the U.K. and talk about the rental business there. Spain keeps on delivering.

Well, no [indiscernible] Indeed, we will -- but I mentioned that the [indiscernible] Spain has been a standard performer and we've good set of results in Spain this year. Supply, did supply -- did normalize earlier in the cycle. So therefore, we've been able to take a good advantage of the supply and the demand. As Philip mentioned, rental rates margin have been sort of stronger and stayed higher for longer. And the team there are exciting. So we're very pleased with what we're seeing come out of Spain, and it looks like the economy definitely is strong. Inflation is still high in Spain, by the way, it's about 3%. But nonetheless, the economy is strong and doing well. So our outlook on Spain is very, very positive.

Yes, very much. Okay. [indiscernible], is there any significance in the name change. I think you'd say, yes, there is absolutely.

There is, look, I mean, I made no secret of it when the businesses merged back in 2020. You had 2 identities in Redde and Northgate. 7,500 people in the group, it's important that we retain some identity. So we put the name together, doesn't sort of flow off the tongue. But it was always the intention at the time to undertake a name change and to try and reflect services that we put together, the proposition and the platform that we have. It's a bit longer than we planned. Of course, we went into a pandemic 3 weeks after the merger. But having done announcement [indiscernible] we've done a lot of work on this to get it right. It's not going to be everybody's cup of tea, but really positive feedback. When we took this out to a 3,000 strong focus group, so they didn't know who we were, what we did. And we asked for feedback on the name. So we sort of went to that selection process about what we could secure IP on, what we thought was fresh and modern, what was easy to remember, what was kind of simple, how do we want to portray ourselves. And the feedback we got was super, super strong in terms of the emotions and how people sort of thought about the name, where they resonated. And we've been delighted with it. We -- the pictures that we've got up there on the slide, we launched that to our leadership conference recently just before we took the name per se. And the feedback was very, very positive. Let's say, take some moment just to sort of understand it. But it felt all the right feelings, emotions, and the color, look, feel, modernization and it moves us away from that conversation about, tell us about the Northgate business, tell us about the Redde business. People now say tell us about the Zigup Platform. So that's where we wanted the conversation to go. That's how we see that in the market and partners and our customers responded very positively as well.

And I certainly -- this is obviously -- this presentation is in the new slide -- sorry, in the new format and the annual report coming out at the end of the month, I think looks absolutely fantastic. But in terms of this year, the name change was almost a combination of a number of other actions as well, particularly about the One Road strategy and the elements we're trying to simplify some of the organization side.

Indeed, I mean, one of the things that we did at the same time is that we unified the management teams in the UK&I. So we did have a Redde management team and a Northgate management team, we brought them together. They have a Chief Operating Officer and now that sits across all the UK&I and delivers our P&L. And what enabled us to do is have that focus on the platform where we can sort of cross-sell, share information, share the leads, deal with the customers as one team. That's very, very important. So that's resonated very, very well. It also enables us to sunset our previous strategic framework of focus, drive and broaden, which has served us very well for the last 4 years. That's a framework that we used to deliver all the points around the merger, the synergies and get the business in sort of good shape. To sunset that strategic framework, we've introduced Enable, [indiscernible] grow. And that resonates really well with our several refreshed position in terms of delivering the services across the platform. And then so we'll be able to do that at the same time as the Brand Launch with the strategic pillars and the management team. So the 3 things that come together very deeply.

Yes. I think if we go back to slide, I think you mentioned something which is the Zigup Platform. And I think this is really a reflection of what has been achieved over the past 4 years. And there's a question here just about customer retention. And I think maybe if you could just talk a little bit about what this platform delivers and actually how you see that customer retention and the length of contracts, et cetera, being a real strong point for us?

A good question. Yes. Look, I mean, the platform is more than just sort of want to move away from commoditized services. So speaking about it in the simplest terms, it's easy to talk about rental. In the old days of rental, rental was a piece of metal. And anybody with a checkbook could [ grab ] that 5,000 vehicles, open up a shed and rent vehicles. And that pretty much was a race at the bottom on a commoditized service. The world has changed, and we've definitely moved a lot further forward in terms of how that proposition goes forward. So we talk about sort of a life cycle of events that happens when you want to take mobility, whether you run a fleet, operate the fleet, drive the vehicle itself, whether you're a policy holder, an insurer or a leasing company or deal through dealership. So we talk about the life cycle of events, all the things that could occur from the start to the finish. We provide a service into that life cycle. So we have a touch point either it's integrated. We own the service. We service delivery, have the capability to that or we manage it. But together, we put that on the platform, we can deliver service to any type of mobility user. And we've been expanding the services even since we merged in 2020, added new products and services into that platform, developing the multiple touch points that we have with customers. So to the question, how does that then play out in terms of attention? Well, I think everybody knows that if you've got more than one service proposition into a customer, tends to get a stickier proposition. You have 3 stickier and so on and so on. So we've been embedded in technology. We've been embedded in our processes. We can develop the services across the -- our customer reach. And therefore, the propositions get stronger and stronger and stickier and stickier. And we deliver value back to our -- to end users in terms of the services that we provide. And as a consequence, back to your point earlier about customer service and rent. We get that right. We get the value proposition right. And we have all the services product right, and you've got a good set of ingredients there to make sort of longevity key -- retention key in your contracts, and that's what we're aiming for.

I think that's very true. I think maybe if we just kind of look at the Enable slide because I think we a couple of questions about technology, whether it's telematics or whether it's in terms of what we're doing with some of customers here. So Gary, when you're asking about how the digital apps and telematics being received by the market, et cetera, I think it's something which we've been very pleased and sort of seeing quite how many people are embracing that both on the rental side and within Claims and Services?

Absolutely. I mean we use Enable very much about sort of how do we deliver our services into a market. And we've got to move forward in terms of how customers want to interact with us, how we want to interact with them. So there's a lot of sort of platforms and portals that we've developed in the year and continue to develop. So we will explain this as we go along, there's no one big digitization program. We've got a sort of a plan of work with delivering these sort of fine size formats. But the more we can make it easier to use our services through Enable if you like. I mean you talk about -- I'll give you one example. I mentioned it, but -- it's important that we use for Direct Hire. So when the customer wants to rent a vehicle from us by other insurance company predominantly, prior to putting the portal up there, we would manually do over those Hire, we have to contact customer center with the end user, deal with all the sort of the logistics, a range of thin set it all up, and therefore, consuming their time, consuming our time. Actually, that was one product that was right for self-administration. So a customer now could come, it's a portal, they can undertake all of that themselves, everything that they want, they know what be able to get them when they get a net and so on, and self-administrated 75% of all those hires now got through on a digital basis. Clearly, it's an efficiency saving, clearly customers want to use that portal, and we've been rolling that out across other partners as well. And there's other things as well, robotics that we've been using in the business. So this year alone, I mean, we've embedded 20 claims processes, core claims processes on robotics. So that means that we've spent hundreds of hours per month process where the robot is getting near 100% accuracy and been able to complete, what I would call, mundane taks freeing up our staff to do sort of more value-added stuff. So across the phases, there's a lot of examples here, Ross. There's a lot of examples that we can talk about in terms of that sort of enablement. But that's an ongoing program.

Yes. Thank you. And I think hopefully that answers a number of questions just in terms of digitalization side of it. I think, Philip, I'm going to take a moment to just talk about that leverage and that cash flow side. But maybe just to tee that up, that just we have a supply and demand side. I think it's not a tipping point, but actually, I think you've identified that certainly in the U.K. supply has started to come back in a number of different ways.

Absolutely. I mean we've talked about the constraints in the U.K. for the last couple of years. Post-pandemic supply chains have disrupted, very difficult to get a hold of new stock. We said last year, the second half of last year, definitely visibility has been growing. And yes, we can see that now. So in the U.K., supply has come back very strongly now. So we can see where that product is coming from. And we've got the demand for that product. We've got customers that are waiting to either replenish their fleet or take our new fleet. So demand and supply has started to come back into balance. In Spain, we said that vehicle supply normalizes a little while back. So we've had the benefit of been able to take on that new supply and meet the demand that we've got and hence it shows the growth in the VOH growth, the fleet growth in the top line.