Inchcape plc

Very good. Thank you, [ Sergey ], and good morning, everyone, and thank you for joining us.

I'm here with our CFO, Adrian Lewis; and our Head of Investor Relations, Rob Gurner. I'll give an overview of trading and strategic execution during the quarter before handing over to Adrian for more detail on our regional performance and the outlook, which has remained unchanged since March.

We'll then take your questions. Our performance in Q3 was supported by market growth, distribution contract wins and ongoing product launches.

However, headwinds remain in Asia. We delivered strong organic revenue growth in the third quarter of 8% and reported growth of 7% against softer comparators and in the context of a market growth of 5%.

This reflects the underlying strength and diversification of our business as well as consistent operational execution by our teams. We also continue to make progress against our Accelerate+ strategy.

We further scaled the group through the acquisition of Askja in Iceland, an exciting new market for Inchcape, where we are now the market leader. This bolt-on acquisition also helps to further strengthen and diversify our global portfolio of OEMs.

Our progress in optimizing our business is perhaps most evidenced with the disposal of a retail-only business in Australia, which generated annualized revenue of around GBP 100 million. As we have said before, optimizing our retail network is a core pillar of how we operate as a distributor in providing the most efficient route to market.

Our execution against Accelerate+ is also highlighted by our successful track record in winning distribution contracts, including the recent addition of GAC AION in Greece. We're also continuing to optimize our distribution contract portfolio.

And in this quarter, we have, in collaboration with our OEM partners, decided to exit 4 immaterial contracts in certain small Americas markets, which are unlikely to provide the opportunity for mutually viable commercial operation. So to sum up, Inchcape's performance during the third quarter was in line with our expectations and demonstrates our ability to execute against our Accelerate+ strategy.

This supports our confidence for another year of growth in 2025, in line with our medium-term target to deliver EPS CAGR of more than 10%. And with that, I'll hand over to Adrian.

Thank you, Duncan, and good morning, everyone. During the period, the group generated revenue of GBP 2.3 billion, up in Q3, 7% in constant currency and on a reported basis.

Reversing out the impact of disposed noncore retail assets and the impact of recently acquired businesses, organic revenue was up 8%, with distribution contract wins contributing around 1/3 of this organic revenue growth. Before looking at the regional detail, at a headline level, the market trends were as expected.

Underlying Inchcape TIV was up 5% compared to the first half of the year where industry volumes in our markets were down 2%. This is in part due to softer comparators in Q3, but also a continuation of the improving trends we have seen in the Americas and a strengthening rate of growth in Europe.

We outperformed the market with our volumes up 13% to around 91,000 cars in the quarter. And we spoke earlier in the year about the need to see a step-up in volumes in H2 versus H1 as well as improved growth rates.

This is a good indicator of the step-up in absolute performance as we anticipated. Summarizing the regions, starting in the Americas, the market environment continues to improve with our performance ahead of the market.

Colombia and Peru continue to see very strong growth and Chile, on an underlying basis, is showing positive trends. And it is worth noting that in Chile in September, we saw a very strong market due to regulatory changes, pulling demand forward.

This will normalize in Q4. Some markets like Costa Rica remained weaker.

We are seeing the usual seasonality in the region this year with our performance underpinned by new product launches and contract wins. Turning to APAC.

The macro and competitive dynamics that proved to be a headwind for us in H1 continued with the premium segment remaining weak. The Singapore market continues along the certificate of entitlement up cycle, but remains a highly competitive market as does Hong Kong.

Australia returned to growth in the quarter. Our performance in the region is supported by new product launches, such as the Subaru Forester in Australia and a number of Toyota products in key markets.

Demand for these is on track, and we expect this to be supportive of an improving performance in comparison to H1. And finally, our business in Europe and Africa continues to show positive momentum and market outperformance, especially so in Romania and Bulgaria, where we have seen strong growth.

Growth was enhanced by the contribution from the contracts announced in recent years across the region as well as a first contribution from our Icelandic operation. While only a revenue update, as expected, we have seen reducing inventory levels since the position at the end of June.

And as Duncan mentioned, we have maintained our disciplined approach to capital allocation. And alongside the acquisition of Askja, we have now acquired approximately GBP 200 million of our own shares, equating to 8% of the shares in issue as part of our GBP 250 million share buyback program that will be supportive of EPS growth.

In relation to acquisitions, we see these as a crucial part of our growth strategy, and we remain disciplined on valuation as we look across a healthy pipeline of bolt-on acquisitions. And finally, on to outlook.

Reiterating our position through the year, we have -- we continue to expect another year of growth at prevailing currency rates, including the impact of tariffs. Our outlook for this year is based on our expectation for a stronger second half of the year compared to half 1, and our performance in Q3 is supportive of this.

Our performance in the second half continues to be driven by product launches in a number of markets. And so far, these are progressing in line with our expectations.

Additionally, we continue to manage costs, inventory and working capital, and you have seen us take further steps in the optimization of our retail network. We continue -- we expect to deliver a higher rate of EPS growth relative to profit growth this year, driven by our operating performance and capital allocation and in line with our medium-term target of greater than 10% compound annual growth rate.

So now let's take your questions.

First question just on capital allocation. Can you just remind us how you think about the scenario in which there would be another buyback at full year?

And second question from me, obviously, your price mix element is slightly sort of negative 5% or thereabouts in the quarter. Are you able to just talk about how that likely impacts margin and things like -- how the price mix likely impacts margin, please?

I know that's something that has been a concern to people in the run-up to this.

Good morning, Arthur. Adrian, over to you both, please.

Thank you, Duncan. Thanks, Arthur, for the questions.

So I'll start with capital allocation. And I think our policy, Arthur, is really clear.

What we said in our medium-term guidance that was issued in March is that on the back of a very highly cash-generative business, turning profit after tax into cash at around 100%, we'll pay dividends with 40% of EPS, and then we will do share buybacks and M&A. And the balance between those 2 with the cash that we generate will be around -- will be decided based on a disciplined approach to valuation, and that's in the context of our own shares and a very healthy pipeline of bolt-on acquisitions.

As I said in my words, we are super excited about expanding the scale of this group. We were very pleased to find value in the Askja deal and continue to look at a pipeline of bolt-ons that were very -- that I think can add scale to this group.

But as we have done this year, you can expect us to be disciplined about how we do that in 2026. On price mix, what you've seen -- and absolutely, you've got it right.

So look, 13% volume growth in the context of a market growth of 5% and an organic revenue growth of 8%. So what you're seeing there and that delta between the 13% and the 8%, is really about a faster-growing Americas region, a faster-growing Europe and Africa region, where we play in segments that have a lower average selling price in comparison to Asia, which in proportion to the rest of the group is smaller in proportion than it was in previous years.

1/3 of our Americas business is Chinese brands, and 1/3 of our growth rate this year has come from new contract wins, which, as you know, is skewed towards Chinese brands. What that's doing is bringing down the average selling price.

We've been pretty consistent around our view on margin and how we think about margin as we look forward at around circa 6%. And I wouldn't -- and I don't think you should think about that price mix and changing mix within the business as a headwind to margin.

We're about driving scale through this organization, leveraging our overhead, and that's what's going to underpin margins as we look into the medium term.

Just one follow-up. Obviously, about 18 months -- well, 12 to 18 months ago, you presented some data on the profit progression in new contracts.

Is it reasonable to think that these contracts that are growing very nicely are progressing in line with what you presented that in the Driving Seat episode? I think it was in May 2024, if I remember correctly.

Yes. I think Arthur, great question.

I'll take this one, Duncan, if I may. Yes, look, you started to see us disclose the contribution that they are making to our overall growth.

It's around 1/3 of the 8% has come from contracts that have been signed over the recent few years. And I think net-net, we're at about 50 contracts in aggregate that we've signed over the last few years.

And the vast majority of them are still in year 1 and year 2. And that 5-year time line that we presented back in that in the Driving Seat webinar, how the average contract evolves, I think we're still pretty consistent with, and we're seeing those 2022 and 2023 contracts starting to climb up that curve.

I'd say one thing we have noticed it sometimes takes us a little to get from the moment of signing through to products in the market. Sometimes it's getting through homologation process, getting all the right vehicle specification documents into local governments where we're working with brands that aren't necessarily used to working in export markets and international markets.

That's taking us a little bit longer to get out of the blocks perhaps, but the trajectory of maturity continues to be on that archetype as we presented in May last year.

Just wanted to ask 2 questions about the growth building blocks. So firstly, your comment that 1/3 of the growth was from contract wins, so this is about 2.7% of organic revenue growth.

Should we assume that is the rough contribution you'd expect in Q4 and at the start of next year? And you've won a lot [Technical Difficulty] you mentioned.

So any help on timing of the ramp-up, that would be [Technical Difficulty]. And then secondly, your markets were clearly strong this quarter.

I mentioned there were some markets like Chile, and it sounds like you expect Q4 to be slightly softer, but the contract wins and end markets, do you expect Q4 to see positive growth at this stage?

Thank you so much, Abi. Adrian, you again.

Yes, so 1/3 of our growth absolute [Technical Difficulty] contracts, we're really pleased with that. Those contracts, which I referred to earlier as sort of 2022 and 2023 beginning to hit their straps as we expected to, as we -- when we look at the maturity curve that we expect to see.

We expect them to provide a contribution into Q4. And I think I'd point you to our medium-term guidance framework, which talks about a market outperformance.

Market is growing at around 1% to 2%, 2% to 3% outperformance to give a 3% to 5% volume growth. That's the sort of framework and how you should think about rolling forward, the contribution from these contracts that we've been running over recent years.

As I said, a lot of them are still in the foothills of their growth maturity curve, and we've got work to do to make sure that they contribute as we expect them to over the '26, '27 and '28 time period. On growth rates, looking into Q4, as we've said in the statements and in our words, Q3 had some softer comps.

So I would expect Q4 to be a growth quarter for us, but I wouldn't expect it necessarily to be as strong as we have seen in Q3, in part due to the comparators.

Is that helpful, Abi?

Yes, that's great. Just a quick follow-up.

Do you think you'll be disclosing the contract contributions going forward in your remarks or materials?

I think we've heard investors and our analyst community loud and clear that a greater level of disclosure in this regard is helpful. So you should expect to see us to start to talk about how it contributes to the group, both strategically and in the near-term results.

I also have 2 questions as well. Firstly, could I just return to the price/mix headwind from the first question.

I guess one element there that's been contributing has been a softer premium market, particularly in Asia. And as you look towards next year for the business, can you just comment on whether those pressures should ease as you lap this year?

Or is that on a worsening trend in that segment, please? The second question relates to Australia.

Just a clarification for me. Can you confirm you're now completely out of retail activity in Australia?

And is the sort of strategy evolved there? Or am I missing something because I thought there was a benefit to the partially integrated model there?

Very good. Thank you, David.

Look, I'll take those. So specifically about Asia, look, we we've seen 2 dynamics in Asia this year.

One is more pressure on the premium segment, and we've seen those declines, which we referred to at our interims of a 40% decline in the premium market in Indonesia as an example. And then generally across Asia, it's a really, really competitive environment.

Do I expect 2026 to see a big step-up or an improvement in that environment in Asia? Look, I think our teams are executing pretty well.

But we -- do I expect the premium segment to bounce upwards or for the competition and the competitive environment to reduce? No, I don't.

So I think we will continue to execute well, but Asia is super competitive and the premium segment is still quiet. But what I would say going back to the way Adrian is encouraging us to think about 2026 is we should apply our medium-term growth framework to how we think about 2026.

Then just in terms of Australia and retail, so let's be clear about what we're trying to do. We have had a program over the last half a decade or so of reducing our exposure to pure retail.

So like the U.K. business where we don't have distribution contracts, but we had end retail, and in Australia, what you see us do is take those dealerships in Brisbane, which are supporting OEMs where we're not the distribution partner, that is the business we've sold.

So it's exactly like you've seen us do in the U.K., the way you saw us exit Russia and other businesses in that regard. In terms of our distribution business, retail is super important.

We don't need to own and control all of it. And in fact, in Australia, we own about 20% of the retail, physical retail that supports our distribution contracts in that country.

And I would remind you, we've just launched Foton in Australia also.

A couple of questions, please. The first one is on the mutual exits from the small contracts in Americas that you've talked about.

I see that 3 of them are with Geely. And obviously, this comes on the back of the exit from Chile at the end of last year as well.

And I do remember that you have a global cooperation agreement with Chile -- with Geely, sorry. So just a question on Geely still is an important distribution partner and how are your discussions actually evolving with them?

If you could just share some more details, that will be helpful. The second one is on Asia, and I appreciate it's a Q3 trading call.

You've talked about a very competitive environment. There are continuous headwinds.

Could you talk about the margin recovery potential for that region going into the second half, please? We've obviously come down from the 8% to 9% margins in the last few years to 6.5% in the first half, but now we have higher volume contribution and positive momentum from product launches.

Could you just talk about Asia margins, please?

Yes, sure. Akshat, let me clarify your second question.

Are you talking about the Americas region?

Asia.

It's Asia, okay. Very good.

Thank you very much. I do want to clarify that.

Look, I'll take the first question and Adrian on the second. So look, let's put this in context.

We've won over 50 contracts over the last few years, many of them in our Americas business, with OEMs from Europe, from Japan and from China. And we did sign a global relationship with Geely just a few years ago.

So if you look at the Geely brand itself, yes, we have now exited the contracts that we signed in the Americas. We have done so in a highly collaborative basis with our OEM partner.

And we genuinely wish them all the very best as those contracts move to other third parties. But actually, let's not forget, we've also signed a whole bunch of contracts with smart, which is a Geely joint venture with Mercedes.

We have our Volvo business also in the Americas, and I'd hope that we would have some more Volvo businesses over time. So in terms of our relationship with Geely group, I think that's in super shape.

And those particular brands that we've exited, look, they're better off with other parties running those distribution contracts in those small markets in Central America.

And in respect of margins, Akshat, and you took the words right out of my mouth. This is a trading update, so I won't comment very specifically.

Safe to say, you're absolutely right. This descaling effect we saw in the first half of the second half skew of volumes weighed on margins.

We've seen that scale come back in the third quarter and expect to do so with product launches in the fourth quarter. We launched Subaru Forester into Australia.

We've got some product going into Singapore and Hong Kong, EV going into Hong Kong with the bZ3X started this month. And we've got some -- the Noah product going into Singapore.

They play in certain segments, which will be helpful to us, particularly in MPV, fleet and taxi. So we should see the -- we expect to see the rescaling effect in Asia.

Save to say that, that premium segment continues to be weak. And referring to Duncan's comments around it being a very competitive environment.

We've seen an improved performance in Q3 in the context of a market that is now flat and in the context of our half 1 performance. But I want you to sort of hear the words of caution of Asia being a difficult environment for us, but that rescaling effect will be supportive of a better margin profile in half 2.

A couple of questions from me as well. First of all, given the significance of the new contracts in terms of the growth profile, can you just give some color around the pipeline in terms of signing up new contracts, whether that's sort of OEM or region?

And secondly, we cast our minds back to the disposal of the U.K. retail operations.

I think from recollection, you retained some of the liabilities from any potential misselling of consumer products and commissions and what have you. Given the recent FCA paper, do you see any exposure for the group there in terms of that historic disposal, please?

Very good. Andrew, I'll take one.

Adrian will follow up on number two. So in terms of contracts, so we've won a lot, as I keep on saying on this call and in our previous engagements, and they're starting to come through in our revenue growth in the second half, which I am pleased about.

And generally, I've said this group will win somewhere around high single into double digits contracts annually. This year, so far, gross number is 9.

Do I think we'll sign a few more contracts before the end of the year? Most likely.

And then, look, are we going to hit 10-ish every year? This is a bit of a lumpy business in terms of contract wins.

But the teams are doing well, and we're talking to key OEM partners across our 3 regions. So in summary, you should expect us to sign a few more before the end of the year.

And Andrew, in relation to the U.K. retail disposal, your recollection is absolutely correct.

We did provide an indemnity in certain circumstances where that FCA investigation was going to come back to us as was appropriate at the time. Now the FCA is in their redress scheme, is in a consultation period.

So it wouldn't be appropriate for me to comment on how that would conclude before that does conclude. And I'd just point you back to what we said in our half year statements, we had an unquantified contingent liability set in our disclosure schedules, and we'll have to reconsider our position post the consultation period as that plays through for consumers through the third and fourth quarter, and you'll see more in our full year financial statements in the spring.

Just one for me. I'm just looking at the TIV data that you provided.

Just a couple of ones that I'd like to go on, Hong Kong. Is there anything in terms of phasing there in that being up 43% in Q3?

And then just across Europe, there's been remarkable strength, double-digit growth across most of the markets. What's driving that?

Good morning, Sanjay. Over to Adrian for both.

So Hong Kong data, yes, look, you remember last year, we talked about tough comps in the first half and weaker comps in the second half. And what you see in Hong Kong data was a little bit of that playing through.

Hong Kong is 10,000 units, 10,000 to 11,000 units a quarter business. We're lapping an 8,000 unit quarter in Q3.

And that's because there was a pull forward into Q1 last year -- sorry, Q2 last year with some regulatory changes where they changed the taxation rates applied to EVs on imports. That's what skewed the market.

12,000 cars in the quarter is a pretty decent quarter in what is a highly competitive market. There's nothing in this year's phasing that would indicate that's a pull forward, but we see that market as being a broadly 40,000 unit market and pretty stable at that level through the year.

In relation to Europe, yes, look, absolutely, we've seen a very strong market performance. There are some nuances in there, both slightly weaker comp, and you can see that in the historics.

Romania has a slight inflated number, I would say, because of some -- again, some regulatory changes there. We expect that to level out a bit into the fourth quarter, and you can see some fairly spiky quarterly data in Romania, big negative, big positive.

I'd encourage you in the circumstance for Europe to look at a full year rate of growth for the market as a barometer for momentum in the region.

Okay. Understood.

Is there any kind of distortion there from EV sales? Or is there anything to think about on that not just Romania but across Europe?

I would point to Bulgaria -- sorry, Belgium and Luxembourg as being a market that is shifting towards EV very quickly in relation to some taxation changes that came into effect at the start of this year, and that's a market that is shifting quite quickly to EV and BYD, where we're distributing for them has been -- we've been real winner in that space in that regard. And that's -- when we talk about some of the momentum we're seeing in those contracts, that BYD Belgium contract is one of those early ones that where we're seeing that business gather pace.

That's the only EV point I would make. And obviously, you can see the market data there was fairly flat, but it is a market that's shifting to EV.

I wouldn't read the other market growth rates as an indicator of an accelerated curve.

Thanks very much, [ Sergey ]. So thank you for joining us this morning, everyone.

To summarize, our performance in Q3 was supported by market growth, distribution contract wins and ongoing product launches, while headwinds remain in Asia. We reiterate our outlook for 2025, and we remain well placed to deliver on our target of greater than 10% EPS growth over the medium term.

That's it from us. Please get in touch as well if you'd like to follow-up on anything we discussed today.

Bye.