Zigup Plc (ZIG) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Zigup Half Year Results for 2026. Let me start by saying that I'm really pleased to be reporting on a great start to the year with performance exceeding even our own expectations. It's a very busy time in the business with lots of positive things happening, and we expect to see this continuing in the second half. So let's cover today's agenda more fully if we can turn to Slide 2. So just to mix it up a bit, we've changed the format slightly from previous results so that I can give some thoughts on the first half performance and cover our operational and strategic shaping. This includes talking about the evolution of the U.K. and Ireland operating model we'll be putting in place going forward and the benefits that will bring. I will then hand over to Rachel Coulson, our new CFO, who recently joined us from Pearson in August to talk about the financial review and the full year look through. Rachel has hit the ground running and has brought genuine curiosity, energy and pace to the table. She is particularly good at holding people to account and for getting things done. Rachel will hopefully give some insights and first impressions on the business as well as covering in more detail, the financial performance. And then to finish, I will give a brief roundup, and then we move to questions and answers. So turning to Slide 4 in the deck now. So great performance. So what are the key takeaways for these results? Firstly, the first half has delivered a great result, both operationally and financially. Revenues were up 4.5%, and the total fleet has grown to over 135,000 vehicles, which is a new high. Spain particularly had a standout performance, growing its rental revenues in double digits and reaching a record level of fleet volume and vehicles on rent. And given the strong economy in Spain, we have been focusing much of our growth CapEx in this territory, which in return is delivering sustainable margins and quality earnings. And this comes alongside robust performance in the rest of the group with customer and partner demand healthy across the business, notwithstanding the challenges in the U.K. economy. With the current visibility we have on trading, we are confident to signal our full year expectations being at least at the top end of the current consensus range. And that means at or above GBP 155 million in adjusted PBT for the full year. We are also embarking on the next phase of evolving our U.K. and Ireland operating model, which enables us to deliver our product and services in a simpler and more consolidated way, supporting customers with their growth needs from a single point of contact. We have already seen the benefits of growing our platform of services. And now operationally, we will make it simpler to deliver these. The focus of this change in the U.K. and Ireland operating model is efficiency, enhanced customer delivery and further consolidation across our supply chain, which reduces the number of suppliers we deal with. We expect that the simplification will deliver at least GBP 20 million of annualized savings once fully implemented by FY '28, and Rachel will cover the high-level cost to achieve this and the phasing of the benefits. It's also worth noting, and we have discussed this before, that we are reaching an inflection point in our steady-state cash. So with continued EBITDA progression, normalized fleet replacement CapEx, lower disposal volumes and expected stability in both new vehicle costs and residual values, we will see steady-state cash flow building out as planned. So if we turn to Slide 5, I can showcase some of the operational progress in the first half. So starting with the fleet, we are at our highest ever total fleet with over 135,000 vehicles. And the change in this period has been driven by Spain growing its average VOH, or vehicles on hire by 11%. And if you look back 3 years, Spain has grown its fleet by 30% while keeping its utilization and margins consistently strong. And the rental market in Spain is growing. More broadly across the group rental -- group rental demand has been growing in areas such as infrastructure with significant fleet orders received and yet to be fulfilled. For example, we secured a sizable order from the largest Spanish rail maintenance operator due for delivery from February '26. We also had a large order from the Irish rail equivalent, which will support our growth in Ireland. And in the U.K., a large utility company has added over 1,500 of its owned and rented vehicles onto our fleet management solution as well as placing orders for new vehicles, demonstrating the benefits of our platform. In all, of scale, 8 different fleet operators have signed contracts on an aggregate of 1,250 new vehicles, reflecting the strength of our offering. And in the U.K., to give you a flavor of these industries, we've had an additional 300 vehicles supporting fiber rollout to a customer who we have worked with for over 18 years to over 100 vehicles each for a water utility, a housing association and a rail engineering contractor. That's just to give you a sense of where we're seeing that demand. And what we see as being a disciplined use of capital is that in the U.K. and Ireland, rental revenue and profit grew against a modest decline in vehicles on hire, principally due to the selective focus on customer channels and margin. And to be specific, historically, Northgate found incremental income from older vehicles coming to the end of their rental life through shorter-term final rental via third-party broker channels. Given we have now de-fleeted many of our older vehicles, there's less stock available for these channels, and we have focused available short-term fleet into higher-margin opportunities. And a good example of this is a recent contract with a fleet partner to provide Royal Mail with nearly 300 vehicles on a short-term basis over their busy period but at the right margin. In Spain, the double-digit fleet growth we are seeing comes with the need for capacity growth. And we opened up 2 new service points in the first half. There are plans for more to come matched to growth. And also, we are planning a second delivery hub in Barcelona to replicate the success we saw from the Madrid hub. In the U.K. and Ireland, we have continued to refresh and relocate locations for both Northgate branches and FMG RS body shops, expanding capacity in each instance into better, modern, well-equipped sites that can support future growth. This is also part of our program to increase productivity from our physical estate using new equipment and increasing use of technology, which supports capacity. So to round up on this slide, we were pleased to secure and now onboard Howden Insurance, who are a well-respected and international insurance broker. We look forward to working alongside them as they continue to grow their presence. And examples of other extensions to mention include Tesco Insurance, where we renewed our multiservice contract over a long-term period. And we have secured a recovery service contract with an insurer who has significant presence in the U.K., but this is against the backdrop of only having a limited historical relationship. So we hope to see this develop over time. So across our mobility solutions, there's a lot of activity and a great deal to be confident about. If we look at Slide 6, I want to touch briefly on some of the more strategic initiatives we have been progressing. So we're doing a stack of work to support our strategic plans. And here are some examples of some projects we are currently working on, just to add a bit of color. So in Spain, I briefly mentioned Barcelona is due to get its own delivery hub in the next 12 months as we look to repeat the success and learnings from the Madrid launch this spring. Having this capability has greatly sped up the delivery and distribution of new vehicles to customers, which in turn supports a faster rental growth. In the U.K., both Blakedale and FridgeXpress have expanded from a single site locations to providing national coverage by leveraging the Northgate branch network. This has enabled a more compelling proposition to national customers who have local requirements. Blakedale, which you know is our highways traffic specialists, has also brought on its 1,000th vehicle onto the fleet, more than doubling in size, which has been a success story from the moment we acquired the business. And FridgeXpress, our temperature-controlled vehicle specialist, is a similar sized business and on the same path. And having this specialist capability has allowed us to expand our range of vehicles to include arborist vehicles and cherry pickers to help satisfy a broader need from customers looking for us to be the one-touch solution for their fleet. In the U.K. and within our body shops, we have been growing flexible capacity by expanding our network of mobile repair technicians and also aligning them directly with a local body shop, which flexes capacity. This provides another layer of customer options, which adds to the speed and efficiency of getting vehicles repaired smarter and is a real winner with our partners who like the benefits this brings. We're also developing a number of specialist centers, which can undertake full structural aluminum work, which will be a growing requirement of a modernizing car park. And this investment allows us to internalize this work, which was previously outsourced. And just to complete this slide, touching on our technology progress, which to date has been supported by an expanded capacity recovery operations center in Huddersfield and the commencement of our new contact center system, which is being rolled out across the centers in the U.K. In Spain, the new e-auction site for selling used vehicles has maximized the sales values being achieved through increased functionality and analytics. In all, we are making good progress in this area. If we turn to Slide 7. Here, we are looking at the reasons for making the changes to the U.K. and Ireland operator model, which is shaped to see -- to how we see our markets evolving. So firstly, to step through the journey. In early 2024, we brought the UK&I businesses under a single management structure, which aligned our approach and vision to delivering our platform services from a single source. Secondly, we have continuously worked on creating the cross-sell of services to all our customers and partners, which was made easier under the single management team. We have seen good evidence of this working, and there is much more to go for. And thirdly, we are delivering on a full refresh of the technology infrastructure that now enables all our businesses to communicate and connect with each other, which has facilitated a joined-up approach. So these 3 things taken collectively provides a simpler trading environment, slicker customer engagement and pooling of skilled resources, which leads to efficiency gains and the ability to consolidate supply chains further. The primary focus of the changes is simplification and efficiency. The financial benefits of these changes are [ estimated ] to be around GBP 20 million. And as I said, Rachel will cover the high-level financial phasing on this. So turning to the last slide in this section and continuing with the changes to the UK&I model. So this is Slide 8. This is what it looks like in terms of operating in the UK&I. So in essence, it's bringing together our core rental offerings into one entity, which will be our Northgate Mobility brand. And similarly, for our repair, direct claims and recovery businesses, these will consolidate into FMG. So 2 very distinct operating businesses in the UK&I and the Northgate Mobility and FMG, and Spain stays exactly as it is. So as we roll out the changes, Northgate Mobility, just to be clear, will be the brand for our rental activities. So this means LCVs, the vans, yes, our specialist vehicles and the replacement cars we provide as part of the not at fault insurance-related services. These will all be provided through Northgate Mobility. The businesses under the FMG brand are the services contracted directly with insurance companies and the wider automotive market in terms of managing their at fault or direct claims and incident management services, including the roadside recovery businesses and our RS body shops, which provide the repair facilities. We will simplify the number of sub-brands we operate under, which is a natural evolution of our One Road program of providing a single point of contact for our customers. These changes deliver a clear path to simplifying and maximizing our resources and assets for best returns. And I'm pleased to see that the strategic pillars of enable, deliver and grow are providing the right framework to evolve our plans to achieve the full potential of the business. So thank you for listening and hopefully absorbing most of that, and I'll hand you over to Rachel.

Thanks, Martin. Good morning, everyone. I'm really pleased to be here presenting my first set of Zigup results alongside Martin, especially as there are many positive updates to share with you today. Before we get into the financials, I thought I'd offer some initial impressions now that I've been in role since August. Since joining Zigup, I've had the opportunity to visit many parts of the business and speak with customer-facing colleagues. I've been impressed by the depth of expertise, commitment and commerciality across the business. I can also see how the unique combination of assets across Zigup are focused on delivering outstanding customer service. And it's clear there's an opportunity for technology to be an increasingly valuable tool as we evolve to address customer needs in an efficient and responsive way. From my previous experiences, I know transformation comes in many forms, but pace and energy are critical for success, and I think we're showing evidence of that at Zigup today. I've kept many of the familiar slides in case for these interim results, but I would expect as we evolve the business, there will be changes over time. Overall, I view these as being a strong set of results, which will set us up well for the full year. Underlying revenue increased 4.5%. Underlying EBIT, excluding disposal profits, grew by 11.5% to just over GBP 81 million, supported by growth in each of our major business units. Disposal profits normalized as expected. We continue to invest to drive sustainable growth in the business by expanding and refreshing the fleet. This is demonstrated in the growth of fleet assets on the balance sheet to GBP 1.68 billion. This was delivered whilst keeping leverage within the range previously outlined of 1x to 2x. Underlying EBITDA, a key component of steady-state cash and something we'll come back to you later, grew by 7.6% to GBP 246 million. And today, we're proposing an interim dividend of 8.8p, following our policy of paying 50% of the prior year final dividend. Let's move to the key elements of sales performance. UK&I rental revenue increased in the half year by 6.5%, driven by carefully managed pricing actions, vehicle mix and a near 20% growth in value-added services such as telematics and fleet management. This was a strong result given average vehicle on hire in the half year was slightly down through our changing approach to the broker channel, targeting higher-margin opportunities. There continues to be underlying incremental demand for the fleet with significant new orders, as Martin said, across our larger fleet customers. The Spanish team delivered an excellent revenue performance of over 16% growth. This was partly due to the positive ongoing market conditions in Spain, both at a macroeconomic level and in the continuing shift from ownership to rental, but was also due to healthy demand for our unique market offering. Claims and Services revenue was broadly flat year-on-year due to lower claims volumes. We continue to grow and renew our long-term contracts and expect these to contribute in the busier second half of the year. So how has that translated into profit? Rental profit has grown GBP 9 million, driven by trading performance and margin improvement. The latter focused on continued cost control whilst covering investment in the fleet and our network to service our customer needs. Spain is in line with our 17.5% to 19.5% view on margins and typically has a slightly stronger first half. Phasing into the first half associated with one customer contract benefited UK&I margin by approximately 1%, but I would expect this will normalize for the full year, in line with our 15% to 16% medium-term guidance. Overall, disposal profits, which, as you know, are difficult to forecast, reduced year-on-year as expected. Claims and Services saw a modest profit improvement of around GBP 1 million due to continued efficiencies across the cost base. These were partially offset by the impact of New Law as it manages through its claims runoff program. Given trading expectations and the actions underway on New Law, I expect H2 margins will be much closer to our medium-term guidance of 5%. Our net finance charges increased due to higher debt funding levels than in the prior period. Coming in as CFO, I've been impressed by the financial discipline across the business and clear decision-making processes underpinned by the long-standing capital allocation policy. Next, you'll see our familiar cash flow slide reordered into our priorities. EBITDA is growing and net replacement CapEx was broadly as we expected. The outcome of these together was a more than doubling of our steady-state cash flow to over GBP 48 million. Growth CapEx in the period increased and was focused on capitalizing on the strong Spanish market environment, including supporting some large minimum term contract wins. And as you can see, fleet age is now at a comfortable level in both geographies, offering greater flexibility and a less pressing need to exit aging vehicles than over the past 18 months. As an example, in the U.K., average disposal age in the period was 53 months, down from 56 months a year ago. Our usual table shows a robust balance sheet with substantial fleet assets, which grew by GBP 170 million since year-end. We have significant headroom at GBP 340 million. And given the high proportion of fixed rate debt, our borrowing costs are also stable at 3.2%. And with the refinancing completed last year, we are very well set up with an average maturity profile in the 2030s and no principal facilities due over the next 18 months. Alongside this table is the CapEx chart used at the full year, but looking at the past 4 years in 6-month periods. It helps to visually demonstrate one of the key takeaways from today being our view that we believe we are reaching the inflection point in steady-state cash that both Philip and Richard have talked about before. Now as promised, building on the exciting news on the UK&I operating model that we announced this morning but have been working on over the past few months. Martin outlined the evolution and its rationale purpose and core structural elements. I'm therefore going to confine myself to talking about the overall program in terms of timetable and our initial view of the financial impact. This program is now moving at pace with clear execution plans and a timetable expected to be largely complete within the next 18 months. In the statement this morning, we indicated that our current view is that these changes would deliver around GBP 20 million of incremental savings in financial year 2028. We're at the early stages of execution, but to give you some sense of scale, I'd expect the supply chain actions to be the largest portion of the expected savings. And to note, both myself and our Head of Procurement have experience in this area and at this sort of scale, including building more strategic supplier relationships. I'm sure there's interest in the onetime costs associated with this program, and I wouldn't expect them to be much more than GBP 5 million in total and to not have an impact on the profit guidance for this financial year shared today. And as a rough guide for financial year 2027, I could see us achieving around half the savings run rate in the year and a little more than half of the program costs as some of these will be more front-end loaded. I'll set out more clearly at our full year results, how the savings should be phased and reflected alongside our go-forward guidance. Finally, this exercise will no doubt have some impact on the corporate reporting of the businesses, but that's not something that we'll implement this year. And I promise Ross and I will give you clarity in the coming months about what might change and at the appropriate point, some historic analysis. And to finish off, I'd like to cover current year expectations. Based on the factors we laid out earlier on first half performance and what we see in the second half, we are confident that full year underlying profit before tax will be at least at the top end of the current range of expectations of GBP 150 million to GBP 155 million. And whilst we're still working through the U.K. budget news, there should be no impact on this year's financials or medium-term guidance, including the incremental savings shared today. And with that, I'll hand back to Martin.

Thank you, Rachel, and thanks for sharing your insights as well in terms of what you've seen in the business. We clearly have a great opportunity ahead of us. I think that was very clear, by the way, that presentation, so I appreciate that. And to finish then on the last slide and before we move to questions and answers. As I said earlier, it has been a great start to the year with some notable highlights. Demand from customers and partners in our markets is healthy, and there are good reasons to be confident in the continued success of our strategy and to delivering our full year results, as Rachel said, and I said earlier, at the top end of the current consensus. We're also doing -- the work that we're doing in the UK&I will deliver significant benefits, not only to our bottom line, but it will also offer greater agility in how we approach both suppliers and customers and create further velocity in our business. And as I said, Spain is continuing to grow its market position very well with excellent execution of its plans. And finally, Rachel has outlined how we see our steady-state cash flow building from here. And I know many of our investors and potential investors will welcome that confidence. For me, the growth in steady-state cash generation will bring into play a range of options as we think about capital allocation and how we can make good use of that capital to grow. It is an exciting time to be part of Zigup, and we are working at pace to create some velocity in the business and to deliver meaningful and sustainable outcomes for our stakeholders. My thanks to all our colleagues who make this possible. Thank you. So on that note, if we can move to Q&A, that would be great.

The microphone is going to David. If you could just say your name before for the online.

It's David Brockton from Deutsche Numis. Can i ask 2, please. The first one in respect of the UK&I fleet growth from here and the second one in respect of, I guess, replacement CapEx and the average age of the fleet. You sort of gave clearly the reasons for why VOH was down through the first half and that focus on higher-margin customers. Going forward, can you maybe just touch on the supply dynamic in the U.K. now and your expectations around fleet growth from here? That's the first question. And then the second question, the average age of the fleet has continued to trend down through the first half. I know you're not managing the business to an average age, but should we now view that as a sort of a sort of stable level going forward and therefore, that replacement CapEx having stabilized?

Thanks, David. So look, on the first question on the UK&I sort of fleet growth, I mean, you're right to say we have focused very much on the quality of earnings. That's been the key. In these results, you've seen revenue growth, profit growth, 14% of the EBIT without disposals, but the fleet modestly come off. And that's a deliberate sort of position for us. I talked about in my presentation, I talked about the channels that we previously supported where we are less supportive sort of going forward. We will -- our aim is to grow, but grow profitably. That's the key thing I want to emphasize. It's not about pure volume. I think I've said before in our conversations in the past and presentations, Northgate as a rental company for fleet can put a lot of volume on, but it's got to be at the right margin for the right returns with quality, sustainable outcomes. So that's how we're strategically focused in the U.K. to do that. We're seeing that in Spain. You could see that sort of demonstrable growth with the margins have been improving. If you look back over the years, you can see the strength of that coming through. And that's the plan for the UK&I as well. So as I say, we'll allocate the capital where we see good sustainable returns. On the second part of the question in terms of the age. So yes, the age is coming down nicely. We don't target age in the way that we run the business. We don't say there's a landing point and therefore, build the model to that age. It is where we are operating now with the fleet is in a good place. Customers don't want to change vehicles every 2 years because every time you change a vehicle, it comes with a new price point, of course, for the customer as well. So we're comfortable operating with the fleet where it's at. I mean it will change a little bit. So the age might get a little bit lower, but we're not targeting it. The key thing is that we've got a fleet now which is in a good steady-state position. And we'll know by the end of this financial year, whether that's now fully inflected and represents sort of where we are.

It's James Rose from Barclays. 2, please. First is to Rachel. When you sort of came in and scrutinize the business, did you see any areas for reinvestment opportunities which you want to prioritize? And in that case, is that GBP 20 million, is that already a net figure? Or is it purely a sort of efficiency cost out figure? And then secondly, could we touch on ancillary services? I mean you've mentioned a few times in the statement, telematics and fleet management uptake going pretty well. Do you have a percentage of customers which take you up on this? And is that a meaningful sort of upside opportunity to -- for us to think about?

Okay. Do you want to take the first question?

Yes, I will. Thanks, James. So I think we're demonstrating today that we are investing in the business. We've talked about the investments that we're making in growth CapEx, particularly in Spain, given the opportunity that is there. And also Martin mentioned some of the investments that we're making in technology in terms of how we think about rolling efficiency and the opportunities around that area. So I think we are making those investments and the savings that we've talked about today are on top of those investments. So you should think about it in that way.

And yes, so look, the ancillary products are growing at double digit. For us, you've got to view ancillary as being sort of the package of services because when you're tying in the ancillary products with your rental and everything else, that's the platform of services. That's a stickier proposition with the customer. So we are building. So it's double-digit growth, let's say, in the ancillary sort of side of things, but we're building a position where we become that one-stop solution for our customers. So that's why the ancillary products are important about supporting something that's just more than renting a piece of metal.

Andy Smith, [indiscernible]. Two questions. One is on claims and services in that the revenues have gone down and the margin has gone down. Now I would have thought given you had to say, the cyber claim last year at GBP 4.2 million, you would have had a bit more of a kicker this year. So is it possible to explain a bit more dynamics to claims and services, that's what's going on in the revenue and the EBIT. And I do note that the full year guidance is a 5% margin. And then secondly, on growth CapEx, I see at the first half, you spent, say, GBP 74 million on growth CapEx. And I know you don't give guidance on it, but is it possible just to give a little more color on the direction of growth CapEx?

Okay, Andy. Let me just check, make sure we got the right numbers because the Claims and Services margin, EBIT margin has gone up.

It's gone up.

Yes. So it hasn't gone down. It's gone up from 4% to 4.2%. And as we've said and Rachel covered, the direction of travel is we're heading towards the sort of 5%. So as we -- that is our direction of travel. So we expect it to improve.