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Edited Transcript of NTG.L earnings conference call or presentation 6-Dec-16 10:30am GMT

Half Year 2016/2017 Northgate PLC Earnings Presentation

London Oct 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Northgate PLC earnings conference call or presentation Tuesday, December 6, 2016 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Page

* Patrick Gallagher

* Robert Contreras

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Conference Call Participants

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* Andrew Nussey

Peel Hunt LLP, Research Division - Analyst

* Jane Linsdey Sparrow

Barclays Bank PLC, Research Division - Director

* Julian Charles Cater

Numis Securities Limited, Research Division - Analyst

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Presentation

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Andrew Page, [1]

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Good morning, everybody, and welcome to Northgate's half year results presentation, and a warm welcome for those who are listening on the webcast. The format today, I'm going to give a very short introduction. Paddy and Bob will then come up and talk about the financials, operations and the direction of travel. And when we've done all that, there'll be a Q&A session, and we will do our best to answer your questions.

Just before I give the intro, you will have seen that Bob is going to be standing down as our CEO in January after 8 years with the business, 6 of those as our Chief Executive. And he steered the business through some really quite tricky times. I just wanted to say both personally, Bob, and on behalf of the Board, our gratitude, appreciation, and we wish you well. Bob's successor is Kevin Bradshaw. Kevin was, until very recently, CEO of the Wyevale Garden Centre Group, 153 sites, 0.5 billion turnover. And prior to that, he was the U.K. MD for Avis car rental, and he will be joining in mid-January.

So turning to the first 6 months. As you might expect, there are a number of moving parts. The U.K. started off with one foot backwards, a significant reduction in VOH compared to the start point last year. But I'm pleased to say the outlook is now much brighter. There's a lot more momentum. The key initiatives in the U.K. really have been around people, building a strong, ambitious, skilled and experienced team, feels much more professional than it did 1 year, 1.5 years ago; improving operational execution and more focus on building the right quality of customers. It's not just about the VOH. It's the quality of the business. And I should also add that we've had very good progress with Van Monster.

Spain, decent first half against a very tricky political backdrop, which caused a number of businesses and government entities to hold fire on project. Very successful introduction of our new fixed-term offer, and Bob will talk about that in some detail. Improving operational efficiency. We appointed from within a new operations director, and that -- a lady director has made a real impact in our Spanish business. It's a great business under the command of Fernando Cogollos who is a real class act. He's done a fantastic job with his team. And that business, I think, is set for an absolutely cracking second half. I should just also mention Ireland, a small part of our group but a very important one, growing, profitable business under the direction of Peter Millen, and we expect to put a bit more capital behind that probably with 1 or 2 new Irish branches in the not-too-distant future.

So a lot of good work's gone on. It's not quite yet being reflected in the numbers, but I'm very confident that, that will come. We have made good progress. If you look at our finances, they are strong, good cash flow, sensible leverage in the balance sheet, plenty of capacity there for organic growth. And of course, we've increased our dividend, up by 12% to 5.7p. And that really should be seen very much as a sign, a symbol of our confidence in the ongoing capability of this group to generate improving cash flow and profit.

A key factor in all of this is the people, those are the boys and girls that make all the difference at Northgate. From the people in the workshop to the frontline, sales team and the customer service people, they are the ones that are really helping us to drive the business forward. I think there's still a lot to be done, but this is a business with real potential. So our job, the job of the Northgate team, is to harness that potential and to make sure we drive consistently growing profits, cash flow and, of course, return on investment. Thank you. I'll hand over to Paddy.

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Patrick Gallagher, [2]

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Thanks, Andrew. Good morning, everybody. As a reminder, we said at the prelims that for this year, second half earnings will make up a higher proportion of the annual profit than has historically been the case. Overall half 1 results are in line with our expectations, with an improving result for vehicles on hire in Spain and Ireland offset by some expected weakness in the U.K. vehicles on hire. The U.K., however, has been stabilized.

In terms of vehicles on hire, last year, we lost 900 vehicles in the 6 months from the start of the year compared with a gain of 900 vehicles this year, with gains coming in all 3 countries. While this is encouraging, most of the gains occurred later in the period with little half 1 financial benefit but clearly a plus for half 2. Year-on-year closing on rent was 1,100 vehicles behind last year compared with 2,800 lower at the start of the year.

Profit before tax was down GBP 5.5 million, largely reflecting a GBP 2.5 million adverse impact from depreciation rate changes and a weak opening vehicle-on-hire position in the U.K. offset by currency gains of GBP 2.9 million year-on-year. Overall group disposal profits at GBP 16.1 million reduced by GBP 3 million, slightly above the depreciation adjustment. We expected a better number as residual market prices were good, but we couldn't de-fleet enough older vehicles. The numbers were also helped by GBP 1.1 million lower interest charge following the settlement of a tax case in Spain, a lower tax charge of 15% as a result of the closure of a potentially disputed Spanish tax year. As Andrew mentioned, an interim dividend of 5.7p will be paid in line with both our progressive policy and policy of dividend covering a range between 2.5 and 3.75x earnings.

The group continues to be cash generative with free cash flow in the first half of GBP 8 million, which was similar to the prior year. However, with 81% of our debt denominated in euros, which is a natural hedge over our euro assets, the weakness of sterling generated an adverse FX variance in our debt of GBP 38 million, causing our leverage to rise to 1.49x net debt to EBITDA. This is still comfortably below our covenant of 2x, and we can -- we will continue to maintain the balance sheet structure within the target leverage range of 1.25 to 1.85x net debt to EBITDA.

The strength of vehicles on hire since start of the year is very different to last year in that we are now growing VOH. And as a result of that, we have been spending more in the fleet. In terms of utilization, we are still looking at marginal improvements in Spain but significant improvements in the U.K., and it should be borne in mind that the new fixed-term contracts, by their nature, improve utilization. Purchase costs per vehicle were relatively flat year-on-year, though these are set to rave about 5% from now on due to the introduction of Euro 6 emission vehicles. These cost increases will gradually spread through the fleet in the next 3.5 years or so.

The U.K. has gone through a period of stabilization, with a closing vehicle on hire 2,000 below last year compared with an opening position of 3,400 below last year. In half 1 last year, the closing vehicles on hire fell by 1,300 vehicles from the May opening position whereas this year, there has been some, albeit fairly small, growth in the same period. This is encouraging, and we go into the second half expecting further vehicle-on-hire gains. However, the large majority of this progress came late in the second quarter, leaving higher income somewhat lighter than we had wanted.

Of the GBP 8 million year-on-year profit decline, approximately GBP 3 million was due to depreciation rate changes; GBP 4 million due to the vehicle-on-hire start points; and GBP 1 million due to not de-fleeting enough vehicles of the right age and model to Van Monster. Although much progress has been made by the new management team, the main issue starting the year, aside from the disappointing opening vehicles on hire, has been in demand generation and sales conversion, which was flagged to the prelims. However, we are now seeing a number of encouraging new account wins, such as our first significant national account win for a number of years. On this account, which is a mix of both flexible and fixed-term products, we expect our vehicles on hire to grow by 500 over the course of next year.

Our Spanish business had a mixed half, and it also had a EUR 1 million headwind from depreciation changes. In euros, Spain was approximately EUR 3 million lower than last year partly due to lower disposal profits of -- half of which is the depreciation change and half is just the timing of disposals. There was also increased spend of approximately EUR 1 million on direct staff due to the increasing churn of SME customers. With a shift to more fixed-term contracts, together with shorter flexible-term higher prices, we should be able to alleviate some of the churn. That said, we expect a stronger second half largely due to the success of the term hire product and to improving government-related work.

Government-related business has suffered from the difficulties in forming a coalition over the last year, which we estimate cost us an additional 700 vehicles on hire. But we know that since the end of October, a minority government has been formed, and we would expect an increase in business as new budgets are approved. Despite this, and despite the planned expiry of 900 vehicle legacy contracts, overall closing vehicles on hire grew a little over 500 since the start of the year. This compares to a growth of 100 for the same period last year. Much, but not all of the growth, has come from the fixed-term product, about which Bob will provide fuller details.

Early in the fiscal, we took the decision in Spain to de-prioritize Van Monster for older vehicles. The main reason was that strong trade pricing on older vehicles currently erodes the benefit of retail sales given the refurbishment cost we bear if selling through retail. We expect this to persist over the next year or so and anticipate that this aspect of retail will only grow when the market normalizes. In the meantime, we will shortly pilot selling younger vehicles through Van Monster as this is where we see the biggest gap between retail and trade pricing.

Ireland's had a strong half, growing closing on vehicles on hire by 10%. However, this translated into a fairly flat rental operating profit as we invest in both the size of the fleet and in some overhead. Currently, as our depots do not generally have a workshop, most maintenance, service and repair needs to be outsourced or we bear the additional cost of transporting vehicles from south of the country to and from our Dublin depot.

In order to scale a business and ensure top line growth falls adequately to the bottom line, we need to invest in depots with workshops over the next few years. In January, we are relocating our small core depot to larger premises, which will include workshops, and our future depot opening plans will also incorporate workshops. This will accelerate the fall-through of increased revenues to the bottom line.

Thanks. I will now hand over to Bob.

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Robert Contreras, [3]

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Good morning, everybody. As you just heard, Paddy has covered trading in the first half, and I'm now going to provide an update on our medium-term strategy, which I set out at our June presentation. Now to remind you, it has 3 key elements: optimizing our core business, expanding into other addressable markets and developing the Van Monster business with a particular focus on the U.K.

So dealing with the first of these, optimizing our core business. And with a particular focus on the U.K., as you know, we appointed a new team at the beginning of 2016: new MD, new Sales, new Marketing Director. And as the priority that Paddy said is sales and marketing, let's review what they've achieved in less than a year. They have completely refreshed and brought greater clarity to the 3 key questions you should ask: what do we sell, how do we sell it and who do we sell it to.

Now in terms of what we sell, we have totally revitalized our core Northgate flexible rental proposition supported by a wide range of marketing collateral, which clearly articulates for the customer our financial proposition, our product range, our service offering in a very professional way. And we've -- for the purposes of those people in the room, we've left some handouts to illustrate some of those materials. Retraining the sales force, we're ensuring that -- those messages are consistently communicated to market. And all of this has been supported initially by a new marketing campaign. You may have heard some of the radio adverts and across service stations, et cetera.

Now in terms of who we sell to, we're now clearer on how we approach the different-sized customer. Historically, it's fair to say we have grown strongly in smaller customers that have gone backwards in middle and larger companies. However, when all costs are taken into account, there's a limited difference in profitability between these 3 segments. And I'll cover in more detail how the sales force has been organized in a moment. However, we're also evolving in tailoring our messages to different sectors, specifically construction, transportation and manufacturing. One size does not fit all.

In terms of how we sell, we have actually in the U.K. implemented some very significant changes, splitting, as I said, our target customer market into 3 elements. Firstly, SMEs with less than 5 vehicles, the micro SME, from August, this customer has been transferred from a regional sales force responsibility to a central telesales team. And early signs support our belief that it's not only more efficient but it will grow our business further in this segment, and we have marketing specifically targeted SME to drive inbound leads.

Secondly, larger SMEs, regional businesses. Our field sales teams are now entirely focused on pursuing these larger opportunities rather than the micro SMEs I've just covered. A marketing has been produced to provide further leads in that area. And from these businesses, we're starting to see new customer wins to vindicate this approach, winning new accounts of 80 to 100 vehicles -- 150 vehicles each is starting to happen more regularly in the U.K. business and is undoubtedly due to the revised focus that the new team have brought.

Thirdly, large national customers. And I just want to reiterate this really is a profitable opportunity for us, and we're responding now for the need for a bespoke offering with recruitment of a more consultative senior sales force. And the expansion of our product range, which Andrew covered earlier, will also benefit us in this area as we're able to provide all their needs. And again, we've seen an increasing pipeline and a significant win in the last month or so, which Paddy mentioned.

We've made progress in improving our operational efficiency, as Andrew also mentioned, particularly in our workshops, and have maintained utilization levels. And progress has been made in upgrading our digital capability with revamped websites, particularly supporting Van Monster, and an increasing number of customers accessing a wide range of information across the U.K. and Spain via the customer-specific portals.

Now the most important element of our strategy is significantly expanding our addressable markets. As a reminder, the slide shows that over 88% of all vehicles are purchased. That's 7 million vehicles across our 3 territories, 7% are contract hire and 5% are flexible rental. And it's fair to say that over the past 10 years, the flexible element has been stable. And we actually believe contract hire partly has grown. And just to remind you, in Ireland and Spain, we have over 70% of the flexible market share; and in U.K., 25% market share. And we will continue to focus on growing the flexible market and our share of this market.

However, Northgate has been pigeonholed as only being able to provide this flexible need for customer. And this, in itself, has been a limiter to growth. So what we want to do now is expand our product offering in stages to potentially address a number of the customer needs because we are a van specialist and can meet a number of those needs.

So the first step in challenging the purchase and contract hire models is our fixed-term offering. Its aim is to provide a range of fixed terms from 12 to 48 months to meet customer requirements. And there are some compelling advantages for the customer. Firstly, our service proposition. Contract hire companies are mostly owned by banks. They entered into the area because of an extension of their car leasing. However, for commercial vehicles, they've outsourced the service provision to third parties who don't always see this referred customer as their priority, thus affecting the quality of the service they provide. We, however, have our own workshop and branch infrastructure and provide a superior service to keep the customer on the road focusing on their business. Our Net Promoter Score, which we refer to, underpins the evidence of this service quality. And we also have a variety of rental terms: 12, 18, 24, 36, 48 months, absolutely tailored to meet the customer needs.

Contract hire companies, in contrast, struggle with 36 months or less and so don't have a second customer for the early return and are forced to dispose of the vehicle. And in reality, a contract hire company pushes for 48-month contract terms. And just to reassure you, financially, this product will not reduce our returns. The extended rental period increases our utilization and reduces our costs as we don't have the multiple on-and-off hires. Compared to a contract hire company, we've got far more opportunity to extract value and increase our return on capital. We almost certainly buy better than them. We get bigger discounts. We've got the lower cost of in-house maintenance compared to a third-party network. And of course, we have Van Monster for higher disposal values. And I also hear people saying, well, what's the risk of cannibalization? Well, balanced against this, we'll increase our customers' base. And for our existing customers, we will also have a mixture of contract hire and rental vehicles, and we can become a one-stop shop providing one higher level of consistent service. Right, so that's the theory.

What's our experience been so far? We commenced a pilot in Spain in July, and we trained 25% of the sales force. And based on the early months, we expanded this to train approximately 50% by September, and the rest were trained during October. Now by the 31st of October, new fixed contracts signed covered almost 500 SME customers and 1,500 vehicles. 2/3 of these vehicles were on hire at the period end, and the average rental for these fixed contracts is 24 months. And that compares to our flexible SME customer in Spain where the average rental period for new SME customers is below 6 months. So up to 24 months, as you can see from the product materials you've got in front of you, the vehicle is supply for stock. And competitor contract hire companies are reluctant to offer this 24-month term. Okay, so if you go outside and ask the contract hire companies, they say they provide them, but their pricing means that very little of their van fleet as opposed to car fleet are for 24 months.

Pricing from the pilot, absolutely in line with our original assumptions and such that the monthly net -- because Paddy talked about legacy contracts coming off and there's still a progression of those over the next couple of years but much, much less than previously, the net number of new contracts is gathering momentum. In October, the net number was 310. Now if you step forward and say the past is a guide to the future, that gives us an annualized run rate of over 3,500 which, given the extended contract period of 24 months against 6, is equivalent to circa 15,000 flexible rental products. And that gives us growing confidence in this extended product strategy.

Now as a result of the success in Spain and what we've learned there, we've now launched the fixed term in the U.K. and Ireland only in November and initially amongst the senior sales managers. So too early days, but those early signs are that it will be successful in expanding our customer offering in the U.K. as well.

Briefly dealing with the product range, one of the things we've done in the period is to look hard at the refrigeration market in Spain initially. And we've concluded we've got an opportunity to access the market and have initially dipped our toe in, we have something like 250 refrigerated and isotherm vehicles. That will give us good experience how best to take it forward. Because this is an area where there's likely to be increasing legislation around food, pharmaceutical transportation, et cetera, and the experience we gained in the U.K., we can look at how it's -- sorry, in Spain, we'll look at how it's applicable in the U.K. And it's an example of a profitable niche market that matches our current supply chain. And we'll be examining other specialist markets, I'm sure, as we go forward. We currently have 70 electric vehicles in the group and about 1,900 utility vehicles.

In terms of geographical coverage, the U.K. we know has built a London branch infrastructure, but we placed the extended program on hold until we demonstrate consistently the sales transformation is coming through. But as we know, there are still 10-plus opportunities that we plan to develop, hopefully restarting when this has been achieved. Spain opened a new branch in Vigo in November 2015. And currently, that has provided an incremental 270 vehicles, with a potential for reaching over 1,500 in 4 to 5 years. They plan 2 further branch openings in 2017. Ireland, we had a branch expansion program of 3 additional sites over the years, and that's been largely responsible for the growth we've seen since 2013 where we've had 33% annual compound growth. We're focusing on putting the Spanish IT system in Ireland to support their growth from the 1st of May. And therefore, we will explore further 3 opportunities, as Andrew referred to, later in 2017 when the IT system is bedded in.

Van Monster. As we said earlier, it is a really key part of our model, the ability to maximize end-of-life vehicles through Van Monster. Now focusing on the U.K., it is the largest LCV used vehicle retailer, albeit in a fragmented market with 6% market share. We have 20 retail sites across the U.K. Our retail penetration in this interim period has increased to 41% compared to 31% in the comparable period. An interesting fact is that 45% of our customers are repeat customers.

So initial focus has been increasing retail penetration to a level of 45% to 50%, which we're making good progress towards, as you can see. We've also been focusing on selling ancillary services to enhance margin and third-party financing sold where vehicles over the period has increased from 20% to 25%. We mentioned the trialing of the sale of third party-sourced vehicles through our current infrastructure, and that commenced at the -- in the second quarter. We sold something like 250 vehicles at a margin, including this financing income, of approximately GBP 900 a unit. We purposely sought out vehicles of different ages, greater specification than the standard white Northgate vehicle, really to inform us how we can maximize the asset life cycle of the Northgate fleet and increase footfall as we have a wider range of products for people to come and see.

So we have taken -- undertaken quite a detailed market research exercise, and currently are reviewing in detail the business. And we're exploring how we can expand this to exploit the opportunity for a very well-run business in a fragmented market. And I'm sure you'll hear more about that as the years go forward.

So to summarize, in the U.K., as my colleagues have said, we've seen the U.K. business stabilize in the first half and have a growing and increasing confidence that the steps we've taken to strengthen management and develop ourselves in marketing will greatly benefit not only the business in the second half but also on into the medium term. Spain continues to develop well and is, like Ireland, growing its VOH steadily in 2017. Hopefully, a more stable, recent political environment in Spain will provide a further impetus of growth amongst our larger accounts.

Our fundamental strategy of expanding our addressable markets is progressing well. And the key is using our existing strengths to provide a compelling proposition, which I believe we have in fixed-term products. As indicated in our full year announcement, we expected this year to be more weighted to the second half as the changes implemented gain momentum, and we remain comfortable with market expectations for the full year.

Now we'll move on to questions for the people in attendance here. And for the benefit of those online, could I ask that you please give your name and company before asking a question.

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Questions and Answers

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Andrew Nussey, Peel Hunt LLP, Research Division - Analyst [1]

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Andrew Nussey from Peel Hunt. A couple of questions around the new product, please. How would the pricing on the fixed term compare to a more normal sort of flexible rental product?

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Robert Contreras, [2]

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I'll cover that. Over the years, you've known that I could only cope with one at a time, Andrew. So I'll take that one. If you look at a headline level, the price is approximately 10% below the flexible rental price. How we bridge that difference is a flexible rental product is typically we get 88% utilization. On a fixed product -- and don't forget, we historically had a variation of this in Spain, we get 98% utilization. So we bridge sort of 10 points or so. The other thing is, as I said earlier, the average rental period for new SME business is 6 months. So in a 24-month time, you've got 4 on-and-off hires, collections, deliveries, bringing them in the workshops, servicing them and, therefore, the cost to serve are much less for a fixed term. So we believe we bridge that, so that what we're saying is, over the life of the product, the profitability of the fixed product is equivalent to the flexible product.

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Andrew Nussey, Peel Hunt LLP, Research Division - Analyst [3]

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And I guess from a competitor perspective, how would that compare to a traditional contract hire company? And can you differentiate yourselves on service? Or will you have to use price in the early days to win that share?

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Robert Contreras, [4]

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Yes, really good question, Andrew. What we're seeing today is that we've not had to match price, honestly. But the differentiation is our service because if you took our typical customer, and there is no typical customer, let's say, a customer has got 50 vehicles in their fleet. 10, they currently source from us, which are flexible, which they -- and the rest, the 40, they've either bought or contract hire. But they've had our flexible service, which is better than the contract hire service, so this is an opportunity not to necessarily win new customers, for existing customers where that balance is there, also so we can cover all your needs because they much prefer the service we provide in terms of we're a dedicated specialist van rental company with an in-house workshop than they get through a third-party network. It's not like a company car. You do need that support.

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Julian Charles Cater, Numis Securities Limited, Research Division - Analyst [5]

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It's Julian Cater from Numis. A couple of questions from me, please, as well, I'll do them one at a time. If I look at the early adoption of your term rental within Spain, it implies around 3 vehicles per customer, obviously, catering to the sort of SME customers. But over the medium term, you're clearly focused on larger customers there, the consultative sale, and I wonder whether you could give an idea of how long you think that sort of process is going to take. Yes, sorry, the part B of that is, do you have salesman within the U.K. who've been there long enough given the churn that you've had that they will be able to -- they are skilled to undertake that sort of...

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Robert Contreras, [6]

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Yes, really good question. I mean the focus, if you look at the marketplace in Spain, it's dominated by SMEs. You either get SMEs or big nationals, okay? So we have focused this product in Spain particularly on the SME sector. There are less of the sort of middle-sized companies. So now when we come to the U.K., you're absolutely right, the sales processes are far more, even for the regional, a consultative process where we have to not sell a product but understand their needs. There will be some who will cope really well with that and some less so. And that's why we've done a soft launch in the U.K. Basically, it's been launched through all the sales managers across the U.K., of which there are 11 who are our most experienced salespeople so they can coach their teams through this and very much focused on which accounts, existing accounts, to target, so we don't cannibalize, and where we've got the biggest opportunity because they'll know those accounts that match the 10:40 ratio that I've talked about. So yes, there has been -- and that's partly why we've said there'll be a soft launch in the U.K. so we can make sure that it's really well understood.

The one piece of collateral that we -- that explains it is the no flex, no fixed product. And you can see that you can see the progression, and it's a very simple tool for our salespeople to use in front of the customer. You get the same level of service, all you're giving us is commitment to the fixed-term product. So that's why it will be soft. And that's why we're very confident with the progression in Spain, and we're seeing early signs in the U.K.

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Andrew Page, [7]

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Jane?

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Jane Linsdey Sparrow, Barclays Bank PLC, Research Division - Director [8]

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Jane Sparrow from Barclays. Just again on the fixed-term product, obviously, you've just done a big refresh of the marketing in the U.K. I know you're doing a soft launch. But is there any risk here of sort of confusing the messaging? We've had various initiatives in the U.K. And I know working for an employee that has a lot of initiatives itself, sometimes you get a little bit fatigued by a new rollout. Within the business, is there any risk that they go, "Hang on, we got something different to what we've just been told to roll out."

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Robert Contreras, [9]

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I think you're absolutely right to be concerned. That's why we've done a soft launch because we could have got carried away with the success in Spain and rushed to -- because we've just put the whole of the U.K. sales force through extra selling courses, focused on flexible. So now we're gently looking at that as an expansion of the sales process. So it will be gently in the U.K. for the very real reason that you've identified, they can have a fatigue, "Oh dear, I've got more products to sell." I have to say, meeting a number of the salespeople, the actual reaction is far more positive, that they feel that they've got more armory to go to a customer with and very positive.

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Jane Linsdey Sparrow, Barclays Bank PLC, Research Division - Director [10]

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And do you think contract hire might try and respond by offering some sort of rental product that they're just not geared up to do?

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Robert Contreras, [11]

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Well, I think that the real issue is that they don't have the infrastructure. So the biggest thing is the service delivery, they don't have the infrastructure. I mean if we're being really honest, who could match us in the U.K.? Enterprise could. That's fine. They don't have a big of an infrastructure. It's always good to have competitors but not in -- the contract hire people really are financing the vehicle, so they outsource everything. So it's that real service that you go to a Northgate workshop. 50% of the vehicles that come in, we turn around in under 2 hours. That means that the guy keeps the vehicle on the road, he doesn't have to unload these vehicles and it's just not an inconvenience. Whereas if you go into a dealership, yes, you might book it in, you get to the back of the queue, you'll get a replacement Ford Fiesta for your Sprinter, so that's not great news. So I think we've got a very compelling proposition and especially for customers who have sampled us, excellent service on flexible.

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Jane Linsdey Sparrow, Barclays Bank PLC, Research Division - Director [12]

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And then just one for Paddy on the legacy contracts in Spain. Can you just remind us of what the headwind is of those vehicles coming back over the next couple of years?

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Patrick Gallagher, [13]

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Not off the top of my head, and we haven't published that. Well, I might disclose that at the prelims. It's sort of declining. But by nature, you get your bubble because it's usually a larger account where they've all expired.

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Jane Linsdey Sparrow, Barclays Bank PLC, Research Division - Director [14]

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Well, what's the proportion of fleet with those larger customers still?

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Patrick Gallagher, [15]

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It's under 8%.

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Robert Contreras, [16]

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Yes. I can cover that. So I've been around too many years really, but it's just under 2,200. And actually, a number of those, about 900 already expired, and they're not rushing to bring them back, so against the headwind where we're 8,000 or 9,000. But as Paddy's absolutely said, there always is the odd one that we've had them in this period that are 300 or 400 and a bit lumpy but really is on the way out. Against, as I said, net new wins of 310 a month will soon erode those.

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Andrew Page, [17]

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Any more questions? [Hector]?

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Unidentified Analyst, [18]

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A modest clarification. You mentioned in terms of U.K. fleet disposals that you didn't have quite the right vehicles to sell into the market. Can you just put a bit more flesh on that.

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Patrick Gallagher, [19]

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It's just that it can be difficult operationally for customers -- for us to swap a vehicle out with a customer. So we might identify a vehicle we'd love to sell off the right age that the customer doesn't want to spend half a day off the road. So it's just operationally sometimes quite difficult to go in a range of swap, even though you're providing a new or nearly new replacement, which will generally do more miles per the gallon and have less issues with it. But it's just that whole process is not always in our sole control.

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Robert Contreras, [20]

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Yes. And I don't think that the underlying message -- Paddy's point is good -- is we've sold a few younger vehicles. They're less depreciated, so you get a lot less of a profit. But the key message on the U.K. residuals is the residual market sales price has been strong and is still maintained at strong. You're always -- over the years, you're always going to have -- it's not perfect what you plan and what the customer wants to do, as Paddy says, and you get -- that's not a big issue. The key issue is this residual value that we're achieving is strong and had been consistent.

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Andrew Page, [21]

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Any more questions? No? Well, thank you very much indeed for joining us this morning. We will be around for another 15, 20 minutes. So if people want to catch up informally, we'd be happy to do that.