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

All right. Good morning, everyone, and welcome to Zigup's interim results. I'm Martin Ward, CEO. And joining me today on the presentation is Philip Vincent, our CFO. Just in terms of agenda, if we look at the presentation, I'm going to give a very brief overview of the results for the period. I'm going to hand over then to Philip to do a deep dive into the financial review before coming back to me for a business update and then closing off with questions and answers. So if we just go to Slide 4, I just want to set the scene for the half year results. So it's been a good interim period as we continue to invest in the delivery of our mobility strategy, and profit performance for the group is in line with market expectations. Vehicle supply normalized there's no current issues, and the direction of travel for the rental fleet since the year-end is tracking upwards. So we expect to see growth in the VOH through to the full year. Disposal profits continue to trend downwards as expected, albeit these are still elevated in Spain, but we expect them to reduce over time. And our current investments in the fleet, as seen in the increase in assets on the balance sheet, will generate steady-state cash flows of over GBP 200 million in FY '27, supporting both future growth and a sustainable dividend policy. Normalization of the supply chains in the claims and services area is driving down repair cycle times and hire lengths, but we saw revenue growth from additional mix of work, mainly repair volumes. Some really good work being undertaken around customers, which is driving performance, and we are pleased to see our Trustpilot scores continue to be rated as excellent and supports great customer outcomes. So based on the momentum we have to date, we are confident on the full year market expectations. Now look at Slide 5, a stand-out for me, cash has been strong, enabling us to make investment in growing the fleet now with a book value of GBP 1.4 billion. And this investment in fleet assets continues to add balance sheet value whilst maintaining leverage well within our target range of 1x to 2x and through a disciplined capital allocation policy. The forward visibility we have on cash is also supporting a growing and sustainable dividend in line with our policy. And if we look at rental, as I said, the direction of travel in the rental fleet is up, both in renewing customer contracts and securing new orders. Spain continues to power ahead, adding over 4,000 to the average VOH on a comp basis. And we have seen further traction from cross-selling across the business verticals, which is a continually developing position, and I'll go into that in the second half. And installation agreements have been entered into with British Gas and Scottish Power for EV charging installation, both for domestic and commercial customers. And overall, we are looking at a strong pipeline going forward. In Claims and services, we continue to grow repair volumes across our market sectors, which is an enabler to build out more crossover services. More digital connections are being made to support self-service and enhance our efficiencies. And we've seen good uptake of cash protocols by insurers, which reduces costs and adds to our cash collection efficiencies. And if we look at sort of customer delivery, as of March this year, the UK&I business is represented through one management team, you remember me saying that at the full year, which simplifies our customer engagement across the brands and delivers more market opportunity with strong positioning. Our Trustpilot and survey feedback from our laser focus on customers makes us a standout provider of services and, as I say, rated as excellent. And when you visit our branches across all of our territories, you can actually feel a palpable energy and purpose as a direct result of bringing customer feedback to the top of the KPI sheet with every branch team having visibility over how they are performing. And our ongoing investment, investing in new sites that are designed for efficient workflow and equipped with the latest tooling as well as rolling out ADAS, advanced driver assistance systems, and repair and maintenance tech throughout our own sites to demonstrate a best-in-class operating model. This, in turn, is driving efficiencies and will improve margins over time. And ensuring we have next-generation technicians through our expanding apprenticeship scheme, which now numbers over 400, providing talent succession. We'll come back to have a further update on the business, but overall, we are pleased that with near normalization of residual values and supply chains, we are seeing some good outcomes, which underpin our performance. On that note, I'm going to hand you over to Philip to cover the financial results in more detail.

Thank you, Martin. Good morning, everyone. So I'm going to start off by looking at the headlines. So if we turn to Page 8, first of all. So the first thing to note is our overall group results are in line with what we expected at for the half year. Now importantly, underlying revenues, excluding vehicle sales were GBP 775 million. That's 5.6% higher than the prior year, with growth across the business. Earnings before interest and tax decreased GBP 15.9 million, or 13.8%, to GBP 99.1 million. Now GBP 8.9 million of this decrease is due to the expected normalization of our disposal profits. And the balance is due to claims and services profits, which I will talk to in a moment. And the rental business has continued to perform very well. We have continued replacing our oldest vehicles and have been investing to grow the fleet to 132,500 vehicles, and we've done this whilst keeping our leverage flat at 1.6x year-on-year. And it's this investment that's going to generate significant cash in the future periods. Now if we turn to Slide 9, let's have a look at the revenue. So we have seen the continued benefit of our integrated platform with revenue growth across the business. UK&I average VOH was 4.6% lower as it is cycling through a tougher H1 comparator given our VOH evolution, which I will explain on the next page in a minute. Supply has been good and CapEx has been invested in replacing older vehicles as well as growing the fleet. And product extension and carefully managed pricing enabled rental revenue to grow 1.7% in the UK&I. And Spain continues to operate very well with strong demand and with good access to vehicles, enabling average vehicles on hire to grow 7.4%, which, combined with pricing, resulted in rental revenue growing 8.6%. Our claims and services revenue grew 6.1% with good growth in direct repair revenue, partially offset by a reduction in credit hire revenue. And vehicle sales revenue of GBP 128.7 million was, as expected, GBP 48.8 million lower than the prior year with fewer vehicles sold at lower residual values. So if we turn to Page 10, I'll just explain the VOH trends in a little bit more detail. So these graphs are showing the VOH progression for the current half year as well as last year. So if you look on the left-hand side, first of all, at the UK&I graph, you can see that H1 this year is comparing to a tough comparative last year. And you may recall at the year-end, I explained that VOH in U.K. and Ireland had fallen during the year as vehicle supply was improving, but not at a rate required to replace our disposed fleet. So we started this year 3,000 below May last year. And as a result, average VOH declined 4.6% in H1. Now I'm pleased to say that both supply and pricing available from OEMs has moved in our favor since April. And by November, VOH has surpassed the prior year, and we expect VOH in H2 to continue to increase, which is positive for the outlook. Now, the picture for Spain is different. The better access to vehicles last year meant the VOH grew through the year, and this growth has continued into the current year, with average VOH growing 7.4% year-on-year with continued strong demand. Now if we turn to Page 11, we'll look at our group profits. So this chart bridges the prior year's underlying PBT of GBP 99.1 million to GBP 82 million this half year. And as expected, this year sees us working through the previously flagged normalization impacts on vehicle and parts supply chains. And the headline figures in these results reflect this. Disposal profits, which you can see in the middle of the chart, are GBP 8.9 million lower as expected, with a reduction of GBP 4.3 million in UK&I and GBP 4.6 million in Spain. Residual values are normalizing in UK&I with a 14% reduction in H1, but with values flattening now in recent weeks. And total volumes sold decreased 7.4% year-on-year with average LCV PPUs reducing from 3,500 last year to 1,600, reflecting the lower residual values but also the fact we're selling older fleet and a different mix with a lower PPU. And in Spain, residual values -- sorry, lost my script. In Spain, residual values saw an 11% reduction in H1 and average PPUs at GBP 1,900, slightly lower than the prior year's GBP 2,300. Now, average VOH fell 4.6% in UK&I and increased 7.4% in Spain, as I said, with overall volumes increasing profits to GBP 2.7 million. Rental margins remained strong in both the UK&I and Spain with slight reductions, all in line with our expectations. UK&I margin of 15.7% is ahead of our 15% medium-term guidance, and Spain is even higher at 19.3%. Now, both businesses continue to deliver operational efficiency alongside improving procurement and sensible annual pricing increases. And Spain's translated results have also faced a currency headwind in H1, which has reduced their profits by GBP 1 million. Now, the increase in Claims and Services volumes in FMG and FMGRS was somewhat offset by lower credit hire volumes, delivering an additional GBP 1 million of profit. Now Claims and Services EBIT margin of 4% is 230 basis points lower than the prior year. So, in May, the business was the victim of a cyber incident. The incident resulted in a loss of around 1 week of referrals in May for Auxillis, and systems are offline in NewLaw for much of May and June, while we carried a full burden of overhead cost but no corresponding revenue. Now this one-off incident in the first half reduced Claims and Services profits by GBP 4.2 million and reduced the margin by around 70 basis points. And in addition to that, we have treated GBP 2.8 million of third-party adviser and IT costs in relation to this incident as exceptional and outside of underlying PBT. Now the remaining GBP 5.5 million reduction in margin is mixed, with more income from FMG and FMGRS and less from Auxillis due to, as expected, improved supply chains, which have benefited our rental business by reducing the amount of time vehicles have to spend in our rental workshops and at the same time reducing the time to repair vehicles in our body shops and so reducing the length of our credit hires. And second, the quieter summer with fewer incidents being managed with insurers reporting a 10% reduction in insurance incidents over the summer. And interest costs increased GBP 1.2 million due to a higher average level of debt. Now if we turn to Slide 12, we'll look at cash flow. And I'll start off by saying that our CapEx and cash flow is playing out as we expected and in line with what I explained at the year-end. So EBITDA of GBP 228.6 million was GBP 8.6 million higher than the prior year, driven by the underlying performance of the business and spend on net replacement CapEx increased GBP 75.4 million to GBP 178.9 million as both the UK&I and Spain continue to replace their oldest vehicles. We had GBP 38.5 million inflow from working capital, reflecting the normal ebbs and flows of payments and receipts and the fact that around 70% of our Claims and Services insurers are now within protocol. A reminder that protocol agreements with insurers lay out agreed settlement terms, mechanisms and timing of payments improving the efficiency and speed with which we collect our cash. And in the prior period, there was a working capital outflow as the business was investing in working capital for new contract wins. And we paid dividends of GBP 39.3 million and chose to invest a further GBP 53.5 million in new vehicles to grow the fleet in response to the customer demand that we saw. That total net CapEx spend in H1 was GBP 232 million. That's GBP 128 million higher than the prior year, which is reflecting the good vehicle supply that we now see in both Spain and the UK&I with the fleet now reaching 132,500 vehicles and no increase in leverage year-on-year at 1.6x. GBP 5.3 million was spent on completing the share buyback program. Now, I just want to cover a few points on CapEx. So, I explained at the year-end in July, we will continue to replace the oldest vehicles in our fleet. And I said that I expect our total net CapEx to increase just over 1/3 this year, but that could change depend on access to vehicles and demand. Now vehicle supply is good in both the U.K. and Spain, along with very strong demand for our services. We, therefore, will spend more CapEx this year to both replace the older fleet and grow with existing and new customers. And total net CapEx will increase more than that 30%, but we will remain within our prudent leverage range of 1x to 2x. And I also explained that modeling on the basis of what we would like to achieve within the business and given our expectations of vehicle supply over the coming 24 months, it would suggest that the average age of the fleet would reduce to around 28 months in both Spain and the U.K. And that was on the basis that replacement go as planned and RVs, residual values, trend as expected. Now, the slide shows a reduction in average fleet year-on-year. And also, since the year-end, the average fleet in the UK&I has decreased 2 months to 32, and in Spain has reduced 1 month to around 29. And this investment in new replacement vehicles will generate significant cash over the next few years, and we can decide whether to invest that cash for more growth or to reduce our debt as we go forward. And remember that in the long term, we expect our net CapEx to reduce substantially with a corresponding momentum to cash generation principally driven by our appetite for fleet growth and where else we choose to invest. We carefully control that rate of spend on CapEx, managing our debt position and taking opportunities for growth. And both our cash flow and our operational KPIs benefit from this investment in new fleet through better hire rates, utilization and lower maintenance. Now whilst the additional CapEx initially reduces overall net cash flow generation, this will quickly turn around to strong, steady cash flow. And I said in July that this could move from, say, mid GBP 100 million to GBP 200 million steady-state cash flow from FY '27, and then significantly higher thereafter, accelerating to well above GBP 200 million, everything else being equal. And that view is unchanged. So we're executing our CapEx plan and our overall capital allocation in line with that which we laid out earlier this year, taking the opportunity to invest slightly more given good supply, strong demand and plenty of facility headroom. So now if we turn to Page 13, and let's just have a look at the balance sheet. So our balance sheet continues to strengthen with over 132,000 vehicles now, a net book value of GBP 1.4 billion. That's up GBP 200 million compared to the prior half year and net debt only up GBP 27.5 million and leverage flat year-on-year at 1.6x. So our strong balance sheet has enabled us to raise a further EUR 190 million of loan notes across 7- and 10-year tenors at an average rate of 4.4%, which provides additional headroom to invest in our business, but it's also reduced our overall cost of borrowing, with the cost falling year-on-year 30 basis points to 3.2%. And the chart at the bottom of the slide bridges our net debt as of April to October '24, and our net debt closed at GBP 782.5 million with GBP 347 million of headroom. So we generated just under GBP 50 million of steady-state cash, excluding lease payments. And that included a net GBP 178.9 million investing to replace our oldest vehicles. And we invested a further GBP 53.5 million, mainly growing the fleet in Spain. And then we returned GBP 44.6 million to shareholders in the form of dividends and share buyback. And then at the top right, I've got our chart we've included for the last few presentations, which shows our return since FY '21, which is now GBP 214.5 million in dividends. We've invested GBP 45.5 million in acquisitions, extending the products and services of our platform, and we've returned a further GBP 90.2 million to shareholders through the share buyback. So the business continues to generate good cash. It's being invested, as planned, in replacing and growing the fleet to generate sustainable returns. And as I said, our expectation of generating significant cash from these investments is unchanged. So thank you, and I'll now hand you back to Martin for the business update.

Thanks, Philip. So look, I mean, my takeaway from the financials is if we look at competitors in our market operating with a large fleet, they're normally leveraged at between 3x and 3.5x, and we're leveraged at 1.6x. It's very undemanding in terms of what we're doing.

Yes.

If you grow the business, if the rental side of the business grows, you're investing in the fleet. But don't forget that's a corresponding asset on the balance sheet in terms of value, quite a liquid asset as well. And you've got all the future cash flows from that. I think Philip said it quite a few times, but I sort of nail the colors to the mast on this. When you're cycling the fleet and you're investing, you're going to be growing the fleet, you're going to put the cash into that. But it's all the future cash flows that come off the back of that. So the takeaway there is in FY '27, GBP 200 million plus steady-state cash and then growing beyond that. So we expect the business to be able to generate a lot of cash from the investment cycles that we are in now.

Yes.

Anyway, that was your last public presentation to analysts in the market in a plc world.

It was?

How'd you feel?

I feel good. I'm not going to be here in July, doing it again. No, I jest. I was reflecting at the presentation at the weekend, and a lot has changed since we brought the two businesses together. They're fundamentally different. The businesses are different in terms of the products and services, is much broader than they were going through the merger. We operate them in a completely different way as well. We operate them in a much more efficient way than they did premerger, I think, and that continues to get more efficient as we go forward. I was just looking at the numbers from our first reporting period, which was April '20. Our Capex -- our net book value of our fleet has gone up by GBP 0.5 billion. And if you look at our -- the consensus for profits for this year, that would've gone up GBP 100 million underlying PBT and our leverage hasn't moved, 1.6x, April '20, 1.6x now. So that's not a bad set of results overall over that period. And I think when you look at the balance sheet now, we just raised some more funding. We've got a really strong balance sheet. As Martin said, yes, our absolute debt level has gone up a little bit, but our net book value of our fleet has gone up more. Our leverage is very prudent. So I believe I'm leaving the balance sheet in a really strong position to fund future growth as well. So, sad to be leaving. Sad not to have all the conversations with you guys twice a year, but excited for me, personally, for a new opportunity.

Okay. Well, before I move on, just to say thank you for your efforts. It's been a pleasure working with you over the last 5 years, Philip, and I sort of wish you well in your new pastures.

Thank you.

But we're not quite done yet. So we're going to move on to the sort of business update then. So if we just look at Slide 15, our platform of integrated mobility services is a differentiated proposition. We're combining products that were once commoditized and adding a layer of service wraps that, in combination, are creating value and efficiencies for our customers and our partners. Those structural trends that we talk about of usership over ownership and outsourcing remain favorable, and that's the theme of the discussions we're having in the market today. And the scale of our business supports longer-term thinking about the depth and the capacity on what we can do. Our markets -- Philip mentioned, our markets are reaching normalization, which is supply chain functioning as expected, which does create a clear view of those market opportunities. We have a strong business model that is stable, and it's good to be operating in the mobility space, which is an essential enabler to the overall market economy. We have a strong financial position as we've just been discussing, and we can invest in growth through the upcycles with good levels of lending support, which generate sustainable returns, well above the cost of our capital. But equally, you got to remember, in down cycles, so we're in an upcycle, we're investing; in down cycles, the business will throw off excess cash as we did during the pandemic when we're not purchasing vehicles. If we turn to Slide 16 and just look at the rental market overview. So outsourcing to rental is the preferred option for our business users as it provides flexibility without all the holding costs and without having to commit to large capital outlays to acquire a fleet. The Autumn Budget delivered a lot of news for businesses. But on the upside, it announced an additional GBP 500 million of road maintenance spend alongside some larger transport infrastructure bills, which is a positive for a number of our customers. Van rental new business wins following better supply is at the highest level we have seen since 2019. And this is feeding the upward trend supporting H2 and beyond with high-quality selective customers. We are continuing to grow out our ancillary sales like telematics, fleet and accident management and EV packages, which supports our differentiated model. For example, there's been a 65% increase in active customers with fleet under management, and we have seen over 750 vehicles go out on rent through crossover opportunities between our different brands. And whilst there's been a lot of recent public noise around EVs, ZEV mandates and the scale of charging infrastructure yet to be delivered, we continue to see a reasonable level of demand for eLCVs from an increasingly broad customer base, with our biggest single order of over 600 eLCVs received to date to be rolled out over the coming year. And Spain, Spain has been a standout performer with a record fleet size and our rental proposition's gaining further market share. The economy in Spain is strong, and demand is coming from a wide number of sources, which builds on the spread of market sectors that we operate in. We've got new sites and service points adding to the scale of the operation in Spain, which supports future growth. For example, we've got two new service points coming online and one additional used vehicle sales outlet scheduled for the second half. If we turn to Slide 17 and look at the U.K. As we've covered, no current issues with securing new fleet, and we expect good pricing support for volume orders as manufacturers vie for market share. Residual values in the U.K. should become less of a talking point. Our car fleet RVs, residual values, have been stable throughout 2024 post H2 2023 decline. And eLCV residual values have trended downwards as anticipated, and we expect these are now close to normal. And then if we think about Spain, normal supply for new vehicles has been there for a while. We've got a broadened relationship with a number of manufacturers, which spreads the concentration of risk when you've got a product, a wide offering product to a selection of customers. As I said, residual values in Spain are still elevated, but they are moderating, and they are expected to continue to trend down as per the U.K. over time. Don't know what time, but over time. And I mentioned the ZEV mandate, just to talk about that briefly. The government-led consultation has been expedited to review what measures are needed to support further OEMs -- to support the OEMs and the market with the EV transition. And just to be absolutely clear, there is no market participants seeking to change the 2030 date for alternatively fueled car sales -- cars. But we are seeking, as a lot of the trade bodies are, the government to support the generation of demand. So whether that's sort of subsidies or some way to create that demand to support that transition. Vans are still under review as to the date for transition, but it's clear that product viability and infrastructure to support eVans falls way short of the mark in present terms. So the outcomes of the ZEV consultation are important for establishing what supply manufacturers will provide into the U.K. Ultimately, manufacturers will determine how supply comes into the U.K., which in turn has implications for availability, pricing and residual values. Zigup has an advantage, along with other large-scale operators, of being able to support EV supply with demand for both eCars and eVans. And having the current fleet in excess of 132,000 is, therefore, a good upside risk to protect availability should supply become restricted. So I'll just say it's just one to watch out on the ZEV mandates in terms of sort of what comes in, not asking to change the dates, as we said, but what is that demand going to look like? What is that supply going to look like? I turn to Slide 18 and look at Claims and Services. So as Philip mentioned, we had a quiet summer period than expected. The traffic volumes were recorded as being normal, but we saw 10% less incidents reported in those summer months. There's no hard evidence as to what caused this, but post-summer, there's been a return to a normal correlation to traffic and incidents. So, as I say, it has normalized. I mean, one thing to point out is that part of the consumer duty outcomes, insurers have been implementing changes and they're trying to dial in the right approach across their business lines. So there has been some disruption in that process, which is now finding better direction. And as I said earlier, repair cycle times are improving following normalization of the supply chain, which in turn is reducing hire lengths. But what we're seeing is that it's returning to historic norms. Net-net, whilst this impacts our overall profitability, a faster journey through a claims process supports a good customer satisfaction outcome and faster cash collection as we've seen in the cash collection during the first half because there's less to contend with on a claim. And as the insurance market cycles through hard and soft periods, a lot quicker these days, which shapes the cost of motor insurance premiums, so claim settlements form a big part of this and gaining efficiencies through that claims process is a fundamental driver that supports that front-end pricing for insurers, and our platform offers a best-in-class operating model and provides an advantage over a single source product. So structurally, this should continue to support our momentum. And demand for services remains high, especially on repair capacity. And we inked a number of renewals during the period, and we feel positive around business development conversion from the pipeline. And as Philip mentioned earlier, we had a cyber incident in early summer, which meant we had to briefly pause some of our business operations on a precautionary basis whilst we sought assurance. Okay. Turning to Slide 19. Just -- I want to focus on our people very briefly. Just to say, I am immensely proud of the team we have working in the business who deliver these great customer experiences and outcomes and strive to make Zigup a great place to work. We do invest substantially in our talent pool and our apprenticeships to ensure we have the best-in-class future leaders, technicians and experts in our business. And we have been recognized across a number of industry events, both here and in Spain for innovation, best rental company, new service and environmental initiatives, which is testimony and recognition from outside agencies to the great work our people do. There were more awards, too many to mention, and I want to say thank you to all of our team for their efforts. And then turning to Slide 20, touching on technology. Technology is a growing part of what we do. We've said before, we use robotics, and we've got the early introduction of AI tools to support data analysis. We have a number of programs live and pending in the business that will continue to support an incremental drive for efficiencies and enhance our customer experience. So we are using that tech stack to win business and to enhance our overall efficiencies. We are disciplined in our technology investments. But like many businesses operating at scale, there is significant potential to drive a greater capacity and operational leverage through these tech developments, and we are on a journey to unlock these benefits. Okay. I'm going to go to Slide 21, just touch on the outlook. So everything that we've said today, I mean, these are strong foundations that we are operating in the business. There's a good pipeline of orders and prospects, and there's that opportunity, as I say, to drive those new efficiencies. So based on the visibility we have, including the normalization of disposal profits and the positive trends for the group, our outlook for the balance of this year remains unchanged and in line with market expectations. So that concludes this part of the presentation, and we're now going to sort of move to take questions.

Okay. David has got his hand up.

It's David Brockton from Deutsche Numis. Can I ask a couple around the Claims and Services business, please? Firstly, can you just comment on whether you think credit hire lengths are now back to a normal level as supply has improved? Or is there further moderation that we should expect on the business there? Because obviously, there's two sort of underlying impacts there in terms of both volume of claims but also that normalization impact. And secondly, you might be able to correct me, but it doesn't feel like there were as many new contract wins or you haven't talked about them as much as you have in previous results in respect of new claims customers. I just wondered if you could just comment on the pipeline there and what that looks like.

Yes. Okay, David. Do we think credit hire lengths are back to normal? I think what we're seeing in the business is they are close to normal with what we expect to see for this time of the year. So as we cycle through that sort of winter, we can see -- we believe they were back to normal. So we're not expecting further moderation. But as I say, we've got to get through that sort of winter period as well to prove that out. On the second part, we've got a strong prospect pipeline. It does take some time to convert clients, new clients, new wins. I said before, we've had a very strong conversion in the business. And we do expect to be able to convert from prospect -- that strong prospect pipeline that we talk about. We have mentioned some in there, not necessarily Claims and Services, but the Scottish Power contract, the British Gas contract. And as I said, there is a strong pipeline from which we are converting from. So we're confident on the visibility that we've got that supports not only this year but sort of future growth as well. Okay. Afonso?

It's Afonso from Barclays here. I have three questions, if I may. The first one is on the supply dynamics you are seeing. Would you say that supply has fully normalized by now? And how should we think about fleet growth in the U.K. versus Spain as we head into the second half and fiscal '26? The second one is on your commentary around the U.K. budget and expected investment in infrastructure. How accretive do you think this will be in the second half? As I'm assuming this was mostly an impact for your fiscal '26 year? And then one last one for Philip. As you've seen -- I mean, as you wrap up your tenure at Zigup, you've seen a lot of transformation in the business over the last 5 years. Can you tell us what has surprised you positively over this period? And if you could go back, would you have done anything differently?

Okay, it's like an interview.

I'm going to give Philip time to think about that one. And so deal with the first question, Afonso. Supply dynamics, are they fully sort of normalized on the fleet? Yes is the answer. So there is no issues in securing new fleet, both in the U.K. and Spain. I said and I appreciate when you're doing the presentation, there's things that sort of pick out. But some of the manufacturers want volume in the market now as well. So that brings about different conversations in terms of where your sort of negotiation leverage is as well. So that's a positive in terms of being able to place orders, large orders. My watch out was just that ZEV mandate because, as you know, there's targets set around cars, 22% this year, 10% of vans have to be alternatively fueled. Manufacturers are paying close attention to what the government will do. So if there is not enough incentive that creates that demand that enables them to place EV or alternatively fueled vehicles into the U.K., you could argue that they're going to cut back on ICE supply as well. Now different manufacturers have got different positions. But if they fold their arms and limit supply to the U.K., that creates that dynamic again of limited supply, et cetera, et cetera. So we're watching very carefully. As I said, it's not about the date change. This is about what support will be there for EVs. And that's why we think having our fleet of over 130,000, I think, is a strong position because that protects availability for your customers and that gives you a sort of a good position in the market. On question two, the U.K. budget infrastructure, do we expect that to feed in? It's hard to say when exactly that would feed in, but we have a lot of customers working in those sectors. So we've got the traffic management business for our Blakedale, got the Northgate rental business that's got exposure to those sectors, infrastructure, construction and maintenance. So we're seeing good demand coming from those sectors. They're normally quite big businesses. Some of them are publicly listed. So they've got good visibility on the sort of the projects that they're doing. So that feels quite buoyant at the moment to us. I'm not saying that we're penciling anything for H2. I think we'll just see how that sort of shows itself through the numbers. Hopefully, that's given Philip enough time to think.

Yes. So first one, what surprised me, I think it's cash flow. We do generate a lot of cash as a business. We haven't always been able to demonstrate that because we're always investing for future growth. We know we make a good return on that. And ironically, what came out of COVID was no one knew what was happening across the whole economy. We switched off those growth taps. We switched off CapEx spend, and we threw off a load of cash even though there were no incident or accidents happening on the road. So we had no cash contribution from [ Redde ] at that point. And the rental side was just started to throw off cash, and it threw off cash really quickly. Our lenders have got comfortable very quickly. We threw off like something like GBP 90 million of cash in 6 months. So it shows we are -- we do generate a lot of cash. We choose to then invest that in future growth. And I think that even surprises how much cash does come off when you just switch off those taps. That and the fact that the rental product is so sticky as well. Remember, we only ever saw 6% of the fleet return. That was a surprise to everyone when 70% of the fleet is what we describe as a flexi product broadly. Would I do anything differently? That's a tricky one to answer, and that does feel like an interview question. I think -- look, when you look back, you always say, actually, could you have done things slightly quicker? But look, we've done a lot, as I mentioned earlier, since the merger, you can only move so quickly when you're trying to bring two companies together. So I don't think I'd say that. What would I rather we didn't do? I'd rather we didn't change depreciation rates, to be frankly, because that's painful. But I think we disclosed that as clearly as we could. But...

Thanks. Andrew?

Andrew Nussey from Peel Hunt. A couple of questions as well. First of all, just exploring the U.K. vehicles on hire. And if I sort of read the chart correctly, you're probably about 45,000 now on a very steep trajectory through the period. What will that look like through the second half? And secondly, it sounds like you're sort of a little bit nervous about what might supply look like over the next maybe 12 months given the regulations. Are you running a slightly lower level of utilization? I know it's a crude measure than perhaps would normally be the case to protect yourself from that point. And thirdly, on the cyber incident, has that impacted your conversion of new contract opportunities. Customers may be slightly nervous about what that might mean? And have you had a clean bill of health now?