Sanford Bernstein Strategic Decisions Conference. 2 October PDF Free Download

Sanford Bernstein Strategic Decisions Conference 2 October 2013

André Lacroix Group Chief Executive

Agenda 1) Proven business model and strategy 2) The right markets and channel mix 3) Operational excellence delivery 4) Sustainable earnings growth 3

Global premium automotive group, partner to the world s leading car brands Right Markets: 70% of profits from Asia Pacific & EM 30% from UK & Europe Right Brands: 90% of profits from 6 leading premium OEMs Right Categories: Five distinct revenue streams offering growth / defensive mix Right Financials: Attractive growth prospects, strong cash generation & robust balance sheet Supported by the Right Growth Strategy 4

Inchcape Customer 1 st Strategy STRENGTHEN Superior customer value proposition through Inchcape Advantage Creating an incredible customer experience for the best car brands in the world EXPAND Selective investment in high margin / high growth areas 5

Operational discipline on Top Five Priorities Customer 1 st strategy to create differentiation Growing market share Growing aftersales Commercial initiatives to grow revenues ahead of competitors Improving margin Controlling working capital Selective capital expenditure Cash initiatives to grow profit and operating cash faster than revenue Brand portfolio of the world s leading premium and luxury automotive brands Balanced focus between commercial and cash initiatives 6

The right markets and channel mix Where does Inchcape generate its returns?

The right markets and channel mix APAC / Emerging Markets UK / Europe Total Distribution & VIR Hong Kong Guam Macau Saipan Brunei Singapore Romania Bulgaria Macedonia Albania Estonia Lithuania Latvia Australia New Zealand Ethiopia Chile Peru Belgium Luxembourg Greece Finland 66% 6% 72% Retail Russia China Poland 4% UK 24% 28% 70% 30% Note: H1 2013 Trading Profit 8

Premium & luxury automotive distribution in small & medium size markets 72% of Inchcape s trading profit comes from high quality distribution and vertically integrated operations in 22 small and medium size markets 90% of distribution / VIR profit from high growth and high margin APAC and EM regions Six core premium & luxury brand partners Toyota, Subaru, BMW, Volkswagen, Mercedes & Jaguar Land Rover Top 3 market share positions in 11 markets with scale advantage in all countries Defensive profit streams from scale aftersales businesses Robust growth prospects in all categories 9

Attractive distribution / VIR business model 22 Distribution & Vertically Integrated Retail (VIR) markets 11x VIR 11x Distribution Exclusive agreements, one distribution agreement per market per brand Act as the brand in the country, manage the value chain ex manufacturing Exclusive importer for all vehicles and parts Responsibility for sales and marketing activities for vehicle distribution Distribution of spare parts to all dealers providing aftersales service Light fixed capital footprint, high ROCE and strong cash generation 10

Focused on small and medium size markets Top 10 global auto markets account for 73%* of total new vehicle demand All Inchcape markets (Distribution and VIR) outside of the top 10 Superior management and operational processes to local competition 22 markets with robust growth characteristics Scale positions in Sales and Aftersales * 2012, IHS Automotive 11

Market share strength delivers scale returns Top 3 market share position in: Brunei, Bulgaria, Chile, Ethiopia, Greece, Guam, Hong Kong, Macau, Peru, Saipan, and Singapore Long established strong positions Strong share in new vehicles drives our pricing power and cost effectiveness Scale in the new vehicle segment creates scale in the Car Parc for parts and service activities 12

Selective investment in high quality large retail markets UK, China and Russia are amongst the largest premium / luxury automotive markets in the world China #2 UK #6 Russia #8 Excellent UK operations with class leading returns and retail standards Strong footprint with world class facilities in Russia positioned to leverage structural growth Six luxury retail sites in China Operational best practice processes transferred across the Group Our established UK business acts as an important source of expertise and strengthens our brand partner relationships UK 24% of Group H1 2013 trading profit Ranking from IHS Automotive (2012) 14

Operational excellence delivery How do we generate our returns?

Pro forma country operations footprint Head office Inchcape owned sites (x4) Dealer sites (x25) 16

Inchcape core purpose Creating an incredible customer experience for the best car brands in the world 17

Inchcape bespoke operational processes drive superior performance Market understanding & forecasting Supply management & logistics Marketing & innovation Dealer network development World class retail standards Customer service Inchcape Advantage Performance management Capex & investment Global IT infrastructure Risk management Investing in people Rewarding performance 18

Inchcape bespoke operational processes drive superior performance Market understanding & forecasting Supply management & logistics UK / Europe Marketing & innovation Dealer network development World class retail standards Customer service Inchcape Advantage Performance management Capex & investment Global IT infrastructure Risk management Investing in people Rewarding performance 19

Inchcape: BMW Chile Distribution business operated since 1994 Population 17.4m (6m in Santiago) 5.7% 3 year real GDP CAGR* Market leader with one of highest market shares for BMW in the World 38% market share of the luxury segment (2012) 38% 3 year BMW volume CAGR* * 2009-2012 20

In depth market planning and analysis Inchcape strategic plan and annual operational plan to forecast annual volume target Detailed model mix / segmentation analysis Price agreement per model with BMW Market forecast updated every month Daily traffic to track demand and update monthly supply forecast Market understanding & forecasting Performance management Capex & investment Global IT infrastructure Risk management Investing in people Rewarding performance 21

Strong growth in Vehicle Sales driving strong growth in Aftersales Strong growth in the units in operation (UIO) in recent years and set to continue UIO growth drives growth in the high margin aftersales business New site enables Inchcape to benefit from this growth Source: IHS Automotive TIV 2003 2009 CAGR +17% TIV 2009 2015E CAGR +25% 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Chile luxury segment Units in Operation (1-3 years) & TIV 0 2003 2009 UIO CAGR +19% 2009 2015E UIO CAGR +19% 2003 2005 2007 2009 2011 2013E 2015E UIO TIV Market understanding & forecasting Performance management Risk management Capex & investment Investing in people Global IT infrastructure Rewarding performance 22

New BMW Santiago flagship site New site consolidates 5 facilities in Santiago into one Class leading representation of the brand product range 10 BMW sales executives increasing to 15 Doubling of aftersales capacity New facility BMW World Chile World class retail standards Risk management Investing in people Rewarding performance 23

A new standard in design, innovation and sustainability LEED Gold certification one of the most sustainable buildings in the world Cutting edge architectural design facilitates customer flow, premium ambience and outstanding product display Distinct areas of customer experience segmented by vehicle type, e.g. M Sport and Motorrad Highest standards of technical capability delivering a superior customer experience World class retail standards Risk management Investing in people Rewarding performance 24

Marketing luxury market leadership As the distributor Inchcape is the national marketer for BMW in Chile Couple our local market expertise with support from BMW to promote the brand USPs effectively Luxury market share leadership position 40% 38% 36% 34% 32% 30% 28% 26% 24% BMW market share % of the luxury segment in Chile 27% 38% 2009 2012 Marketing & innovation Risk management Investing in people Rewarding performance 25

Inchcape bespoke marketing processes are a competitive advantage and drive market share Campaign created to leverage the completion of the new flagship BMW site in Santiago Emphasises BMW brand quality, product range, technology, design and comprehensive customer service offering INCHCAPE STARPLUS MARKETING MODEL Marketing & innovation Risk management Investing in people Rewarding performance 26

Innovation in customer service drives retention 3 Years Warranty 3 Years Free maintenance Online booking Online tracking Active reception Key reader Tele-service Mobile service Marketing & innovation Risk management Investing in people Rewarding performance 27

Sustainable earnings growth What drives the sustainability of our earnings growth?

What drives the sustainability of our earnings growth? 1. The right markets Robust broad based growth across all categories expected Inchcape distribution focuses on small and medium size markets 2. The right brands Six core premium and luxury OEM partners Long standing relationships 3. The right operational discipline Strong track record for our partners, with industry leading market market share and customer service metrics 4. The right financials Growth and defensive value drivers coupled with cost/cash discipline 29

Right markets: Strong growth forecast in global car market Global TIV* Global Car Parc** +24% 930 962 +20% 995 1,033 1,074 1,116 million 80 82 86 91 95 99 million 2012 2013 2014 2015 2016 2017 Source: IHS Automotive 2012 2013 2014 2015 2016 2017 Source: LMC Automotive Growth opportunities in all categories: New, Used, F&I, Service & Parts Growth opportunities across the value chain * TIV Total Industry Volume (number of new cars sold) ** Car Parc refers to the number of cars on the road 30

Balanced growth in APAC / EM and UK / Europe Inchcape markets % Inchcape Revenue H1 2013 % Inchcape Trading profit H1 2013 Trading profit Margin % H1 2013 GDP growth CAGR 2012-17 (Source: IMF) TIV growth CAGR 2012-17 (Source: IHS Automotive) Car parc growth CAGR 2012-17 (Source: LMC Automotive) Asia-Pacific & Emerging Markets 21 56% 70% 6.1% +2.8% +5.1% +3.7% UK & Europe 5 44% 30% 3.3% +0.8% +2.2% +0.8% 31

The right markets All of Inchcape s distribution & VIR markets are outside of the top 10 global markets Inchcape acts as a professional and well financed route to market for its brand partners in small and medium size markets Country ranking (TIV) Australia 14 Bulgaria 74 Belgium 25 Estonia 75 Chile 29 Brunei 79 Peru 42 Lithuania 80 Finland 45 Latvia 85 New Zealand 48 Macau 86 Romania 54 Guam 91 Greece 60 Macedonia 97 Luxembourg 63 Saipan >100 Hong Kong 67 Ethiopia >100 Singapore 68 Albania >100 2012, IHS Automotive (Inchcape distribution & VIR markets) Operational process and financial resource advantage versus the local competition 32

The right brands Six core relationships deliver c90% of profit Strong R&D capability to lead powertrain and segment innovation Premium brands pricing power deliver superior margins Portfolio of the world s leading premium automotive brands 33

Long standing relationships Inchcape length of brand relationships Inchcape delivers on market share and customer service excellence Years Established 20 relationships with 15 brand partners 10 across multiple 5 continents 0 50 45 40 35 30 25 Subaru BMW VW Mercedes JLR Toyota 34

The right operational discipline Market understanding & forecasting Supply management & logistics Marketing & innovation Dealer network development World class retail standards Customer service Inchcape Advantage Performance management Capex & investment Global IT infrastructure Risk management Investing in people Rewarding performance 35

Strong track record for our brand partners Inchcape (Crown Motors) 22 consecutive years of market share leadership in passenger and commercial vehicles Crown Motors the world s first distributor of all the major Toyota Group brands 36

The right financials Revenue Operating profit* Operating margin* 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 bn 5,885 5,826 6,085 3,313 3,109 2010 2011 2012 H1 2012 H1 2013 300.0 250.0 200.0 150.0 100.0 50.0 0.0 m 259.8 244.4 225.5 153.7 137.6 2010 2011 2012 H1 2012 H1 2013 5.0 4.8 4.6 4.4 4.2 4.0 3.8 3.6 % 4.6 4.4 4.3 4.2 3.8 2010 2011 2012 H1 2012 H1 2013 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 - p Adjusted EPS* 32.0 35.5 39.1 20.7 2010 2011 2012 H 1 2012 22.9 H 1 2013 300.0 200.0 100.0 m Net cash 276.2 243.5 205.8 189.1 2010 2011 2012 H1 2013 25% 23% 21% 19% 17% 15% ROCE 22% 22% 21% 2010 2011 2012 Strong profit and cash performance All at actual rates * Pre exceptional items. H1 2012 & 2012 restated for the adoption of IAS 19 (Revised). H1 2013 includes a property disposal profit of 6.2m 37

Performance management discipline 18% cost reduction since 2008 Robust free cash flow 58 (7) 200 150 100 m 686 (124) 613 50 0-50 -100 2008 Adj* Inflation Non LFL Cost Reduction 2012 2009 2010 2011 2012 FCF ( m) * 2008 Adj reflects a 25m increase for M&A Consistent revenue growth delivered with strong cost and cash controls 38

Balance of growth and defensive value drivers Global TIV* Global Car Parc** +24% 930 962 +20% 995 1,033 1,074 1,116 million 80 82 86 91 95 99 million 2012 2013 2014 2015 2016 2017 Source: IHS Automotive 2012 2013 2014 2015 2016 2017 Source: LMC Automotive Growth opportunities in all categories: New, Used, F&I, Service & Parts Growth opportunities across the value chain * TIV Total Industry Volume (number of new cars sold) ** Car Parc refers to the number of cars on the road 39

Growth value drivers Global TIV +24% % of Gross Profit 40% million 80 82 86 91 95 99 Global vehicles 80m 2012 2013 2014 2015 2016 2017 Source: IHS Automotive New Vehicle Sales F&I Structural and cyclical growth opportunities Growth opportunities across the value chain 40

Defensive value drivers % of Gross Profit 60% Global Car Parc +20% 962 995 1,033 930 1,074 1,116 Global vehicles 930m million Used Vehicles Sales Service Parts 2012 2013 2014 2015 2016 2017 Source: LMC Automotive Car Parc over 10 times the size of the new car market Growth opportunities across the value chain 41

Leading luxury and premium operator in the right markets 72% of Inchcape s profits are delivered in small and medium size distribution markets Selective investments in high quality retail markets, where OEMs are the distributors Strong market share positions and long standing relationships with the leading luxury and premium brands Inchcape bespoke processes deliver operational excellence across all categories: New, Used, F&I, Service and Parts Proven business model and robust industry growth prospects to support shareholder value creation Delivering sustainable earnings growth with strong cash generation 42

Appendix

Definitions Like-for-like The following are excluded from like-for-like sales: 1. Businesses that are acquired, from the date of acquisition until the 13 th month of ownership 2. Businesses that are sold or closed 3. Retail centres that are relocated from the date of opening until the 13 th month of trading in the new location Emerging markets Emerging markets are those countries in which the Group operates that have yet to reach a mature stage of development and accordingly are in, or are expected to return to, the growth phase of the development cycle. This currently covers the following countries: The Balkans The Baltics Poland Russia China Africa South America 44

Broad geographic spread - truly international United Kingdom (MLP) R Australasia South Asia North Asia Europe 35.1% of 12 Group Revenue 19.2% of '12 Group Revenue 6.3% of '12 Group Revenue 8.5% of '12 Group Revenue 10.1% of '12 Group Revenue 23.3% of 12 Group Trading profit 24.0% of '12 Group Trading profit 12.5% of '12 Group Trading profit 18.9% of '12 Group Trading profit 6.0% of '12 Group Trading profit Australia New Zealand D Key: R = Retail D = Distribution VIR = Vertically integrated retail (ML) = A market leader (MLP) = A market leader, premium brands D R Singapore VIR Brunei (ML) VIR Hong Kong (ML) VIR Guam (ML) VIR Saipan (ML) VIR Macau (ML) VIR Belgium D R Greece (ML) D R Finland D R Luxembourg D R Russia and Emerging Markets Chile (MLP) R VIR Ethiopia (ML) VIR Macedonia VIR Russia R 20.8% of '12 Group Revenue 15.3% of '12 Group Trading profit Albania D Bulgaria D R China R Estonia VIR Latvia (ML) R VIR Lithuania (ML) R VIR Peru (MLP) VIR Poland R Romania D R Note: Percentage figures represent revenue from third parties and trading profit (defined as operating profit excluding the impact of exceptional items and central costs) 45

Disclaimer The information and opinions contained in this presentation are provided as at the date of the document. Certain statements in this presentation, particularly those regarding the future prospects of Inchcape plc ( Inchcape ), returns, pricing, acquisitions, divestments, industry growth or other trend projections are or may be forward-looking statements. These forward-looking statements are not historical facts, nor are they guarantees of future performance. Such statements are based on current expectations and belief and, by their nature, are subject to a number of known and unknown risks and uncertainties which may cause the actual results, prospects and developments of Inchcape to differ materially from those expressed or implied by these forward-looking statements. Except as required by any applicable law or regulation, Inchcape expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this presentation to reflect any change in Inchcape s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. All information in the presentation is the property of Inchcape plc and may not be reproduced or recorded without the written permission of the company. Nothing contained in the presentation constitutes or shall be deemed to constitute an offer or invitation to invest in or otherwise deal in any shares or other securities of Inchcape plc. Inchcape 2013. All rights reserved. Proprietary and confidential information. No unauthorised copying or reproduction. Inchcape and the Inchcape logo are the registered trademarks of the Inchcape Group. The information contained in this presentation has been obtained from company sources and from sources which Inchcape believes to be reliable but it has not independently verified such information and does not guarantee that it is accurate or complete. 46

Sanford Bernstein Strategic Decisions Conference. 2 October 2013