Q1 2023 Trading Update
Continued strong business momentum
- The Group has made an excellent start to the year; with full year results expected to be in line with published market consensus1
- Group revenue £2.7bn: up 50% on a reported basis, reflecting the benefit of M&A, including Derco, and organic growth of +13%, with growth across all regions
- Derco’s revenue and profit contribution was in line with our expectations; delivery of the integration plan is progressing well (including synergy targets), we prioritised aligning inventory management practices with those employed across Inchcape. Reiterate our operating margin expectation: towards the top-end of a typical distribution business (5-7%; pre-synergies).
- Expanding our APAC distribution footprint: agreed the purchase of Mercedes-Benz’s distribution operations in Indonesia (c.£200m annualised revenue) and CATS in the Philippines (c.£120m annualised revenue) – with completion anticipated in 2H23.Appointed distributor of Tata commercial vehicles in Thailand.
Duncan Tait, Group CEO, commented:
“Inchcape has made an excellent start to 2023. Our first quarter results show a continuation of the trends we experienced at the end of last year, with organic growth underpinned by the improvement in vehicle supply. Growth in the Distribution segment was further accelerated by the significant contribution from new businesses in the Americas – with Derco, Simpson Motors and Ditec all contributing positively. I am especially pleased with our progress in integrating Derco, and we remain firmly on track with our plans.
During the quarter we continued to shift the Group’s portfolio towards Distribution, expanding our footprint in APAC. This included Mercedes-Benz’s operations in Indonesia and an agreement to acquire CATS, the leading distributor of luxury vehicles in the Philippines – another new and exciting high growth market for the Group. The combination of our broad market footprint, strong OEM relationships, our digital and data capabilities and our robust financial position continues to make Inchcape the natural consolidator in a highly fragmented industry.
Inchcape is a business with great momentum and an exciting future. With a clear and proven strategy, we are well-positioned to capitalise on further opportunities for organic growth and market consolidation, and I am confident we will continue to deliver sustainable growth and long-term value for all our stakeholders.”
Following an excellent start to 2023, and based on prevailing market conditions, we expect to make strategic, operational and financial progress, underpinned by the integration of Derco, with full year results expected to be in line with published market consensus1.
|Q1 revenue YoY%||Reported||Constant FX||Organic2|
1: 2023 Adjusted PBT analysts’ consensus: £487m (as published on 11 April 2023)
2: Organic growth is defined as sales growth in operations that have been open for at least a year at constant foreign exchange rates
Update on Derco
- Derco’s revenue and profit contribution was in line with our expectations (with strong performance for certain brands offset by normalising market share elsewhere; Aftermarket performance was resilient)
- Integration is progressing well; we prioritised aligning inventory management practices with those employed across Inchcape and have made good progress in Q1. As previously outlined, before the end of 2023 we anticipate a £200m working capital inflow from reducing Derco’s inventories will be partially offset by a working capital outflow across the rest of the Group.
- Reiterating our expectation of delivering an operating margin towards the top-end of a typical distribution business (5-7%; pre-synergies), confidence on the delivery of recurring synergies (of at least £40m; 30% realised in 2023) and EPS accretion of >15% in 2023 and >20% in 2024.
The commentary that follows covers the period from 1 January to 31 March 2023. Unless otherwise stated, all figures are quoted on an organic basis.
During the quarter, Group revenue increased 50% on a reported basis, reflecting the benefit of M&A, including Derco, and organic growth of +13%, with growth across all regions.
In Distribution, revenue increased 70% on a reported basis, reflecting the consolidation of Derco and the benefit from Simpson Motors and Ditec, both acquired in 2Q22. Organic growth increased 15%, supported by improving new vehicle supply and Aftermarket growth.
In Retail, revenue grew 8%, a robust performance in the context of the switch to Agency (for certain brands) at the start of the year. The underlying performance was stronger as supply improved.
|Distribution||Q1 organic revenue YoY%: +15%|
- Good performance despite several markets lapping challenging comparators; market share gains for brands that were supply constrained during 2022
- Continued growth of Aftermarket and bravoauto roll-out supported growth in Used revenue
- Performance in Singapore and Hong Kong in line with our plan (expect improvement from late-2023); reopening of border with China has increased order books in Hong Kong
- Rest of Asia saw a continuation of its growth trend
- In Australasia, continued strong momentum underpinned by improving vehicle supply and a long order book. bravoauto gaining traction.
Europe & Africa
- Double-digit growth in Europe in vehicles (new and used) supported by better vehicle supply; with a particularly strong performance in Romania, Greece and Bulgaria. Still early days for bravoauto, but business progressing well.
- Africa performance underpinned by robust growth of Aftermarket
|Retail3||Q1 organic revenue YoY%: +8%|
- Underlying volume growth in new vehicles. Significant improvement in used vehicle revenue supported by a more established bravoauto business.
- Revenue growth was adversely impacted by the shift towards Agency for certain brands
3. UK and Poland