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Edited Transcript of INCH.L earnings conference call or presentation 25-Jul-19 10:59am GMT

Half Year 2019 Inchcape PLC Earnings Call

London Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Inchcape PLC earnings conference call or presentation Thursday, July 25, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Richard Howes

Inchcape plc - CFO & Director

* Stefan Bomhard

Inchcape plc - Group CEO & Executive Director

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Conference Call Participants

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* Georgios Pilakoutas

Numis Securities Limited, Research Division - Analyst

* James Christopher Corkey Wheatcroft

Jefferies LLC, Research Division - Equity Analyst

* Samuel James Bland

JP Morgan Chase & Co, Research Division - Research Analyst

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Presentation

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Stefan Bomhard, Inchcape plc - Group CEO & Executive Director [1]

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Good morning, everyone. Thank you for joining us for our 2019 interim results webcast and conference call. I have with me Richard Howes, our Chief Financial Officer; and Sunita Entwisle, our Head of Investor Relations.

In a moment, I will start with the main highlights for the half year before handing over to Richard, who will take you through the financial results in more details. I will then provide a strategic update before concluding with our outlook for 2019. Following this, we'll, as usual, be happy to take your questions.

But before I start, I would like to thank Richard again for his contribution to Inchcape over the last few years. Richard will be leaving Inchcape at the end of August, as you know. And I would like to say thank you, and that I have truly valued his partnership. Our search for a new CFO is well underway, and we will update you as we progress on this front. So let's get started with the highlights.

The first 6 months of 2019 have been challenging, due largely as expected to temporary Subaru supply constraints in Australasia and continued Ethiopia FX-related supply issues. This led to a 13% group PBT decline year-on-year. However, if we were to exclude these temporary supply related issues in Australasia and Ethiopia as well as the yen impact, but also the benefit from the Central America acquisition, PBT over the period was broadly flat year-on-year. Within the group, we have seen good progress in Asia and Europe distribution and have seen our retail business grow after a challenging 2018. Within Retail, the UK and Australia have stabilized. This is encouraging against the backdrop of continued market contraction, and it results from the actions we have taken to improve our performance in those markets.

Over the period, we made the strategic decision to sell 3 Australia retail sites that sold non-Subaru and non-Peugeot Citroën vehicles as well as 7 less productive Audi and Volkswagen sites in the UK. Combined, these provide a cash inflow to Inchcape of GBP 34 million. These are all retail sites in our nonexclusive retail business, where we do not participate in wider distribution activities. Therefore, they have limited synergy with the rest of our network and have no impact on our wider OEM relationships. These decisions reflect our strong focus on capital deployment and productivity.

Distribution continues to be our core focus, with around 90% of profits generated through that channel. We continue to make strategic progress over the period as we consolidated our new BMW Lithuania distribution business, which completes our BMW position in the Baltics. We also started operating our first BMW distribution contract in Africa.

Today, we reiterate our fiscal year '19 outlook for resilient year-on-year profit, excluding yen headwinds. The second half will benefit materially from 2 large Ethiopia orders, for which currency has been secured, as well as a normalized supply in Australasia, which we have already seen since May.

In line with our confidence in our cash generation, EUR 100 million share buyback, which was announced in May, is underway.

Our group revenue, over the period, grew 3% in constant currency, which is pleasing. However, due to some supply headwinds in Australasia and Ethiopia that I mentioned before, constant currency PBT declined 13%. Elsewhere, our good performance in Asia and Europe distribution and underlying growth in our Australia distribution was offset by a weaker Chilean market. With a slightly positive FX conversion over the year, our actual currency PBT declined 12% and EPS declined 7%. EPS benefits from a lower tax rate, and there is a very small benefit from the GBP 100 million share buyback that is underway. Our dividend per share remained flat on the prior year and is mechanically 1/3 of our previous year's dividend. Our return on capital employed, on the old accounting standard, was 23% and continues to demonstrate the attractiveness of the distribution model.

Now talking about Distribution, Distribution continues to be our focus as a business, with H1 profit growing 38% since 2014, helped by contract wins and acquisitions as well as organic growth. This is despite the supply contraction and yen headwind we've experienced in this most recent period.

Geographically, APAC and Emerging Markets now contribute around 80% of group profits, whilst the UK represents around 5%. While Retail is a key component to the Distribution business model, the rationalization of some less productive, retail-only sites that I've mentioned earlier is very much consistent with our focus for the business.

Now before I pass on to Richard, I want to remind you of how I see Inchcape's medium-term opportunity set. Near-term headwinds do not detract from the large opportunities I see ahead for the group. Firstly, our Distribution-led business model is unique and sustainable. Great involvement and control of the value chain, in partnership with the OMEs, allows us to command higher returns. We are in markets that have underlying structured growth drivers and are highly cash-generative. Our partnerships are long-standing and are being strengthened by our focus of being a partner of choice. This space provides the foundation to leverage our position as the only independent automotive distributor and retailer with global scale.

Ignite is a strategy that underpins our growth opportunity. It frames the strategic levers to drive operational excellence, consolidation and innovation. Through this, we have won 10 distribution deals since 2016, strengthened our product opportunities and written improved cost leverage. And at the time when our industry is changing, we're building capability and investing in skills to position Inchcape for sustainable future growth. So this frames our focus to drive long-term value creation, and I believe we have a very compelling total return proposition over the medium term.

I will now hand it over to Richard to go through the detailed financials.

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Richard Howes, Inchcape plc - CFO & Director [2]

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Thank you, Stefan, and good morning, everyone. This is my last set of results at Inchcape. So let me start by saying that I've enjoyed my time here at Inchcape and interacting with all of you. I wish Stefan and the whole team here at Inchcape every success for the future.

So let me start by reminding you that we are now reporting on the IFRS 16 accounting basis. We've done this on a fully retrospective basis, which means prior year numbers are restated, which ensures like-for-like comparability for you. The impact of IFRS 16 increases our operating profit and our interest charge, with a net reduction of 2% to PBT on a full year '18 basis compared to the prior accounting standard. The appendix of this presentation provides an illustration of the financial impact in more detail. However, importantly, there is no cash impact from this accounting change.

Turning to the results. As Stefan has mentioned, PBT declined 13% at constant currency and 12% at actual currency. EPS has declined 7% in actual currency, reflecting a lower tax rate of 22.5% and slightly fewer shares outstanding as a result of our share buyback.

Outside the trading performance, we have taken a GBP 3 million exceptional charge. This includes gains on disposal of some of the Australia site disposals but is offset by disposal-related restructuring and acquisition costs. I would like to stress that the timing of the disposals that Stefan has mentioned, only 2 in Australia completed during the period, and given the timing, there has been negligible financial benefit to the first half trading.

So turning to Distribution, with all comments here at constant currency. Distribution accounts for 53% of our group revenue and 90% of group trading profit. Revenue in our Distribution segment increased by 2%, and excluding the new Central America business prior to its annualization in March, revenue would have been flat year-on-year.

Trading profit declined 12% and 14% on a like-for-like basis, adjusting for the Central America acquisition. This was predominantly a consequence of supply constraints in Australia and yen headwind which, together, impacted profitability by GBP 19 million. In addition, we continue to experience an FX-related supply headwind in Ethiopia, and the Chilean market further weakened total Emerging Markets' performance. We benefited, however, from broad-based growth in our Asian and European markets.

Now turning to the waterfall. Australia -- Australasia distribution trading profit declined GBP 15 million over the period. Within this, the yen was a GBP 6 million headwind while supply constraints until May led to a GBP 13 million impact. Excluding this, we saw some good underlying performance, driven by cost control and parts and accessories growth.

Supply normalized in May, and since then, we have seen a much improved performance, which gives us confidence around the ex yen performance expected in the second half. We have recently select -- raised prices selectively to partially offset the headwind from the yen, which is still expected to be a drag of around GBP 35 million for the full year.

Profit for the UK and Europe segment increased GBP 2 million. Growth in the Balkans, supported by market growth and strong market share gains in Romania in; particular, whilst the Baltics benefited from a mixture of market share growth and share gains as well as the inclusion of a new Lithuanian BMW business. The Greek market was also supportive. Asia profit increased GBP 3 million over the period. The Singapore market was strong, supported by our Commercial Vehicle Scrappage scheme. In addition, we saw support in Passenger Vehicles, with continued product introductions, including the new Toyota Rav4. We continue to expect the Singapore market to decline 7% year-on-year over 2019, with the year's phasing progressing as expected.

The Hong Kong market was a little weaker, down mid-single digits over the period, but the launch of the Rav4 and new taxis supported performance. Outside of these 2 main markets, Guam, Thailand and Brunei also demonstrated strong profit growth. Overall, the good H1 performance has been delivered through a combination of market share gains and strong cost control across the region.

And finally, the Emerging Markets business saw profits decrease by GBP 13 million. Excluding the acquisition in Central America, the division represented a GBP 17 million profit decline. The largest driver of this was the continued profit contraction in Ethiopia, with more limited foreign currency restricting our ability to import goods into the country despite the very strong demand. However, as we've already mentioned, we have now secured 2 large orders and the required currency which will see this trend meaningfully reverse in the second half.

The Chilean market saw a sharp contraction in the Passenger Vehicle market, declining 8% compared with 16% growth seen in 2018. Economic weakness relating to commodity pressure has driven this, and the speed of contraction has resulted in a meaningful impact on the business. The Colombian market has also cooled, although the Passenger Vehicle market is stable and the Commercial Vehicle business continues to grow strongly. Performance in Peru was good following a challenging 2018. The Central America acquisition is performing as we expected, although the market continues to decline. We are pleased with the progress we are making with the business and the strategic advantage it provides us longer term, having greater scale with Suzuki as well as a market presence in Central America.

Revenue in our Retail segment, which accounts for 42% -- 47% of our group, grew by 3% year-on-year. Operating profit pleasingly rose 15%, albeit off a low base but against a decline of 60% in 2018. This was supported by a broadly stable UK and Australia performance, which is encouraging in the context of the continued market pressures.

And to the waterfall. In Australia, profit increased by GBP 3 million. The market in Australia declined 8% over the period, and our improvement in profit largely reflects our efforts in controlling costs over the period. In the UK and Europe, profits declined GBP 3 million. The UK market continued to be weak, with registrations down 3% and diesel down 19%. However, as with Australia, we have delivered a broadly stable year-on-year performance, with an improved opening stock position, better stock management processes and a focus on driving against all the value drivers. Poland also performed well. Our Emerging Markets Retail business, which only includes Russia, increased by GBP 3 million. Strong performance continues to be driven by the Ignite- led strategy, given that the Russian new car market has been slightly down over the period. Used cars, Aftersales and F&I all contribute to this strong growth.

Now looking at the other areas of the income statement. Central costs were GBP 2 million higher year-on-year, in line with our comments last year that we had benefited from some one-off items that we expected to reverse. Full year finance costs were broadly stable year-on-year. Note that the GBP 24 million finance charge includes GBP 10 million from the new interest components of the capitalized leases. We continue to expect the full year charge to be GBP 28 million, excluding the IFRS lease charge. On an IFRS 16 basis, we expect a GBP 48 million charge for the full year.

As mentioned, we saw a tax rate of 22.5% over the period compared to 25.7% in the prior year. We are now guiding to 23% -- to 22% to 23% for 2019 compared to 23% to 24% as previously guided. And this is due to utilization of tax assets on business units that were historically less profitable.

Moving on to cash flow. Please note that the free cash flow here has been done in such a way that the absolute figure is comparable with our historic disclosure and effectively presents our cash generated prior to dividends, acquisitions, share purchases and any exceptional items. At the operating cash flow level, we generated GBP 162 million, representing a 90% conversion rate, compared with a 117% conversion rate last year. However, the prior year benefited from a one-off inflow net of tax of GBP 11 million to the pension line, which relates to the release of a surplus of the TKM scheme. Over the first half, we saw a working capital outflow of GBP 84 million, which is higher than the outflow in the prior year, driven by timing effects, predominantly around receivables. We expect a more normalized position for the full year. We generated free cash flow of $25 million, which represents a conversion rate of 14% and compares to 34% in the prior year, or 28% excluding the one-off pension gain.

Net CapEx was lower as expected at GBP 31 million, compared to GBP 55 million last year. As a result of capital (inaudible), we now expect the full year CapEx to be up to GBP 65 million compared to our prior guidance of up to GBP 75 million. Importantly, we continue to expect full year free cash flow conversion to remain within the 60% to 70% range.

To explain the movements in net debt, given the leasing standard change, we have added a specific slide. Over the period, we have commenced a GBP 100 million buyback, of which GBP 19 million of share repurchases fell within our first half results. And of the GBP 34 million cash inflow from disposals cumulative announced GBP 10 million was included within results but were offset by acquisition investments over the period. So overall, we've ended the period with a net debt position of GBP 508 million, or GBP 77 million when we exclude the leases driven by the IFRS 16 accounting.

And finally for me, turning to capital allocation. With the GBP 100 million share buyback that we have underway and today's has announced an 8.9p dividend, we will have returned GBP 1.3 billion to shareholders since 2011. We have a track record of disciplined capital allocation, and our approach is unchanged. After investment for organic growth, working capital and dividends, we will look to deploy excess cash in value-accretive M&A or share buybacks. We maintained our dividend at 8.9p, with the dividend in the first half a mechanical 1/3 of the prior year's total dividend. And as a reminder, we have a progressive policy with a target rate of 40% for the full year, and given the cash generation of this business, our dividend is well covered.

And with that, let me hand it back to Stefan.

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Stefan Bomhard, Inchcape plc - Group CEO & Executive Director [3]

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Thank you, Richard. Let me now update you on our Ignite strategy. I'll briefly run through some of the key headlines.

Aftersales saw gross profit outperform over the period for a growth of 2%. Within this, growth in Australasia was particularly strong and more than offset the vehicle property decline seen. This shows how delivering a good Aftersales performance can support the stability of trading for the group. And a very exciting recognition for our business over the period was that Suzuki awarded our Costa Rica and Panama operations first and second place in Aftersales management worldwide, even surpassing the OEM-owned operations in countries where they are based. As you can imagine, this is a highly prestigious award that we're very proud to have achieved, in particular given we have been integrating the business over the last year. Used car momentum in Emerging Markets has continued with Russia's gross profit up 80%, as well as growth in parts of South America. But it's not just Emerging Markets that are focused on the Used car revenue stream. We've seen strong growth in Greece, where we have been able to leverage the market support and improve stock. And whilst Russia gained many of the best practices from the UK only 2 years ago, we're now seeing the Baltics benefit from better alignment refresher to leverage the learnings and opportunities around Used cars between the 2 businesses.

Finance & Insurance growth continues to be good, helped by insurance products. We're on track to hit our incremental GBP 30 million medium-term profit by the end of 2019, 18 months after launching the target.

Procurement, as part of Ignite [4], our savings there are benefiting from our global payment system which has now been rolled out in 4 large countries. Savings achieved are paying back CapEx within 1 year, and we're now on track for cumulative analyzed savings of GBP 45 million by the end of this year.

And lastly, our merchant acquisitions pipeline remains active and supported by our OEM's partner of choice's focus. I'm pleased with the progress we've made in our retail-only businesses in the UK and Australia. We've benefited from the actions taken in 2018, including improvements in our starting stock position as well as cost rationalization. In the UK, as part of our next phase in productivity plans, we've looked to optimize our portfolio of retail centers in regions where we have a less concentrated presence and are therefore less able to leverage our costs efficiently. As a result, we sold a total of 7 Volkswagen and Audi sites for a cash inflow of GBP 21 million, which represents a broadly neutral profit on disposal. These sites, in total, were loss-making over 2018 and did not contribute strategically to any global distribution relationship. I'm pleased to be able to show an ability to deliver fair value from these disposals, despite the weak UK market. Whilst there may be further opportunities to realize the value of less profitable sites, greater focus will be placed on accelerating initiatives to improve revenue and rationalizing costs in the overall UK business. Over the first half year, we saw Aftersales gross profit grow and our CapEx declined 80%, with the end of special Jaguar Land Rover projects but also reflecting an underlying CapEx reduction.

Also in line with our focus on optimal deployment of our capital, we've agreed to sell 3 retail sites in Australia, with a gain on disposal as well as a GBP 13 million cash inflow. As I mentioned in my introduction, these non-Subaru and non-Peugeot Citroën sites represented a mix of brands but did not add large scale to our global distribution partnerships. They generated a small loss last year. Going forward, we see further opportunity to rationalize our footprint as well as further improve profitability in remaining operations with continued good cost focus. As you can see, we have a clear focus on improving performance and focusing on pure retail-only business, where we can leverage them with our core distribution business.

A year ago, we talked to you about our plans to develop a new customer-centric omnichannel experience for our Distribution business. This is about creating a seamless and convenient customer journey. Over the first half, we implemented our data-driven Used car trade-in tool across our physical stores in Melbourne and Australia. Feedback has been good, with customers responding well to the price transparency the tool provides, as well as the shorter sales process. Conversion from trade-in to purchase of a new Subaru car has been very positive. We will be launching the trade-in tool online in Melbourne over the coming months.

In February, I also talked to you about our agreement within Singapore with Grab, the shared mobility market leader in Southeast Asia, to manage a portion of their fleet. We've been servicing Toyota's cars, utilizing connected car technology and processes developed to ensure that vehicles are serviced with minimal downtime and cost. Over that period, this trial has been extended to include a larger number of vehicles. We have now serviced 500 cars per day in under 30 minutes for a standard service.

In addition, we launched a partnership with ComfortDelGro, a taxi company, and EasyMile, a French OEM, to provide an autonomous shuttle bus in the campus of the National University of Singapore. This is a new partnership for us. I believe it demonstrates that we're working hard to create new relationships as well as working with existing partners around key future trends.

Now turning to the outlook for the rest of the year. Starting with Distribution. We expect to see a resilient underlying performance for 2019. In Asia, we continue to expect to see Singapore's TIV decline by 7% over the year, with a continued reduction in permit availability and with the phasing over the year so far as expected. We expect the Hong Kong market to see an improved second half, helped by Commercial Vehicles and for the market to remain broadly stable for the year as a whole. In addition, a good Toyota product lineup will continue to support the outlet for Asia as well as growth in our other Asian markets. So overall, we are confident of a solid performance for Asia, with continued growth in the second half.

Despite Subaru's supply constraints at the first 4 months of the year, we continue to expect a resilient performance in Australasia, excluding the yen headwind. We also continue to expect Europe to remain strong, with support from continued great market momentum but also continued market share gains in the Baltics and the Balkans. And whilst we are expecting a meaningful benefit from the 2 large and currency-secured Ethiopian orders in the fourth quarter, the meaningful contraction in the Chilean market drives a more challenging outlook for Emerging Markets overall.

We expect the second half to see an improvement compared to the first half but still to remain negative year-on-year. For Retail, we expect continued strength in Russia, driven by Ignite despite a slowdown in the market, and a continued broadly stable performance in the UK. Given performance year-to-date, we expect Australia Retail to be less loss-making than it was in the prior year. Note that any impact on trading from UK macro conditions, however, would be a risk to our retail performance. For the transaction currency headwind, we continue to guide to around a GBP 35 million impact.

Overall, at a group level, whilst some of our markets have weakened, we expect a resilient performance in 2019, excluding the yen. Including the yen, it is, of course, a more challenging outlook. IFRS 16 has minimal impact on our guidance for growth given our fiscal year '18 numbers and that also includes the adjustment. Our Retail asset disposals will also have negligible benefits to earnings growth over 2019, having made a combined loss of around GBP 1 million over the whole period locked in. So while we're seeing some anticipated challenges over the half, and some markets have been weaker, I'm pleased with our continued focus on medium-term drivers for the business. I believe firmly that the business will continue its long track record of delivering shareholder value. Our investment propositions remain the same, with distribution at our core and the focus on ensuring that we deploy our capital effectively towards the opportunity that exists in this attractive global market. The disposals over the half are, hopefully, a clear demonstration of this, as are the new distribution contracts we have started to operate over the same period. For Inchcape's waiting to market this great structural opportunity, our focus on optimizing performance, our consolidation activity and our solid cash generation, we are set to deliver attractive shareholder value through earnings growth and cash returns.

So thank you for listening to Richard and me. The two of us would be now more than happy to take any of your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question on the line comes in from James Wheatcroft, calling from Jefferies.

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James Christopher Corkey Wheatcroft, Jefferies LLC, Research Division - Equity Analyst [2]

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Just 3 questions from me, please. First, I just want to pick up on the Ignite strategy. Just in terms of -- it looks like you're making really good progress with procurement and F&I. When should we be thinking about the further scope beyond your current guidance? Secondly, just could you give us an update in terms of the strength and depth of your M&A pipeline? And then lastly, obviously, it's very strategically encouraging on the retail front, perhaps you could share with us how many more retail sites have limited synergy with your distribution relationships?

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Stefan Bomhard, Inchcape plc - Group CEO & Executive Director [3]

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Richard will come back to you on the first question I will get back to you on the latter two.

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Richard Howes, Inchcape plc - CFO & Director [4]

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Yes. We are making good progress in both aspects of procurement and F&I. We're coming -- as you rightly pointed out, we're coming towards the top end of the range that we've guided. Well, I think, there's definitely more to go. We're very impressed and pleased with the progress we've made. I think we'll come back to you later in the year, perhaps next year, with a sense of where we think we can get it to, but the opportunities remain progressive and I think there's more we can do.

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Stefan Bomhard, Inchcape plc - Group CEO & Executive Director [5]

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And James, on the question on M&A, we absolutely have a very active pipeline. And the proof for me is also in the first half, you will have seen that we actually also won 2 additional contracts with BMW. So that should give you confidence that it isn't just in the future, but it's also actually what we've already executed in the first 6 months of the year.

Concerning your question on retail assets optimization, I think it's very important to recognize that in the first 6 months of this year, we have not executed a single biggest reduction of exposure to retail in quite a long time for the company. And we've done this in 2 markets that clearly everybody would probably agree are difficult markets at this point in time, being the UK and Australia. So that should give you confidence that we can capture value from these retail investments for the Inchcape shareholders. Logically, these were the ones that were high on our list. It's very clear that we will continue to evaluate what level of exposure we want to have to retail overall in relationship with our OEMs. At the same time, we will constantly look about what is the right value realization from these businesses, whether we own them or do not own them.

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Operator [6]

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The next question comes in from the line of Sam Bland, calling from JPMorgan.

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Samuel James Bland, JP Morgan Chase & Co, Research Division - Research Analyst [7]

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Two questions for me, please. The first one is on Asia Distribution. Could you just talk about the impact in the first half that you've seen from Scrappage schemes across the Asian Distribution business and also, it's kind of linked to that, how those schemes are progressing and whether there will be any future impact in the future periods? And probably the second question to ask is, in the UK (inaudible) have a regulatory review. Can you just kind of definitively say whether you think there's much of a read across from that to your business? I don't think there is, but it would be helpful if you just confirm.

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Stefan Bomhard, Inchcape plc - Group CEO & Executive Director [8]

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Absolutely. On the role of Scrappage schemes in our Asian business, to provide you with some more detail, in principle, the Scrappage scheme in Singapore helped clearly in the first half year because it was meant to originally expire at the first of July, Yes? However, the government then made a choice to extend this Scrappage scheme also to mid next year, so actually it is much less of a cliff than was originally anticipated in the plan. That's number one. In Hong Kong, the deadline for one of the Scrappage schemes is the year-end of 2019. We would expect more of an impact of this in the second half because we would have observed that in Hong Kong, our commercial vehicle customers tend to do more waiting towards the end of the deadline of the Scrappage scheme to get maximum value out of their old products. So they have vehicles before they trade in these vehicles for new ones. So that hopefully gives you some perspective on the impact of Scrappage scheme. I would keep in mind that in Hong Kong, specifically, 2 things that Richard mentioned before are driving momentum. One is, clearly, the launch of the Toyota Rav4 which is our #1 selling SUV in the Hong Kong market. But also, very importantly for us, the launch of a new Toyota taxi product which, yes, you might not know, but it's the first hybrid taxi in the market. And we, as you know, command a very high share in the market. And that is something that has been very well received by our taxi customer base, and it actually is one of the drivers of market share gains in the local market, yes?

A switch from Asia over to UK, your question about a read across on the investigation by the financial authorities into (inaudible). One thing, just to reassure you, like many other industry players, we have closely worked with the FCA as the regulator in the last 24 months, and we are aware of no issues with our process, yes? We've answered and evidenced detailed questions during that period of time, and at this point in time, we have no outstanding issues with the FCA.

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Operator [9]

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The next question comes in from the line of Georgios Pilakoutas, calling from Numis.

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Georgios Pilakoutas, Numis Securities Limited, Research Division - Analyst [10]

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Firstly, on Ethiopia, a couple of big contracts coming in in the fourth quarter. Do you think that market is moving into kind of a slightly more lumpy in nature, given kind of some of the macro backdrops there? Then in Hong Kong, can you talk about any disruption you saw in the first half? Given some of the process there, do you see any element of potential catch-up in the second half of the year? And similarly related, in Australia, following the supply disruption in the first half, do you expect to benefit from any market share gains as kind of a catch-up again?

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Richard Howes, Inchcape plc - CFO & Director [11]

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Let me take the Ethiopia one. No, I think this is a lovely market for us as an importer of Toyota parts and vehicles. It's a very large country with, as we can see, no restrictions on demand for our product. The issue is really just about how we can get the right level of FX to import the vehicles in the past. So don't think of it as becoming more lumpy. Think of us as finding ways to try and offset -- creating an innovative way to offset the current currency pressures. I think the good news is we're starting to see some of those restrictions become a little less, and even though they -- they just continue to be the occasional disturbances in the country. We are hopeful, though, as we go into 2020, this hopefully can be a bit of a tailwind for us.

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Stefan Bomhard, Inchcape plc - Group CEO & Executive Director [12]

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And picking up on the other 2 questions on Hong Kong. To date, we have not seen any material disruption from the political disturbances in the country, yes? That doesn't mean there couldn't be some going forward. But it's very clear at this point in time, our results are more driven by our product lineup and our product offering as well as the Scrappage scheme that we talked about in the second half of the year.

On Australia, yes, you're absolutely right. There is an element of -- given that this was quite an unprecedented product-supply disruption in the market, we are actually carrying into the second half quite a very strong order bank. Meaning, half of those are ordered cars that we weren't able to deliver in the second -- in the first half because we didn't have the cars, yes? So that is definitely one of the things that will support the business in the back half.

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Georgios Pilakoutas, Numis Securities Limited, Research Division - Analyst [13]

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And just another one on Australia, if that's all right. Can you talk a little bit about any potential launches going on with Subaru? I know that's kind of been a big driver, historically, of demand, whether it's kind of back-end of this year or kind of more 2020 or maybe even '21?

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Stefan Bomhard, Inchcape plc - Group CEO & Executive Director [14]

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It's more a 2020 launch because it has been announced that the Outback, yes, which is the most premium product and a very big one, it's a top 3 selling product in the country, will be relaunched in 2020. So there's less of an impact of that in 2019.

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Operator [15]

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We currently have no further questions coming through. (Operator Instructions)

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Stefan Bomhard, Inchcape plc - Group CEO & Executive Director [16]

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Okay. If there are no further questions -- there's one coming.

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Operator [17]

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The caller has actually just withdrew their question. So I'll hand it back over to yourself for any closing remarks.

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Stefan Bomhard, Inchcape plc - Group CEO & Executive Director [18]

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Okay. Thank you. Well, hopefully, the call this morning gives you a good overview of the business, where we are at the half year point. As we've said, we are reiterating our outlook for the rest of the year, which I think is an important message in this market context. So thank you for your attention this morning.