Inchcape H1 2026 Earnings Report

Inchcape EPS Results

• Actual EPS: GBX 35.50
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Inchcape Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Inchcape Announcement Details

• Quarter: H1 2026
• Date: 7/28/2026
• Time: After Market Closes
• Conference Call Date: Tuesday, July 28, 2026
• Conference Call Time: 3:30AM ET

Inchcape (LON:INCH) is the leading global automotive distributor, with operations across six continents. By combining our in-market expertise with our unique technology and advanced data analytics, we create innovative customer experiences that deliver outstanding performance for our partners – building stronger automotive brands and creating sustainable growth. Our distribution platform connects the products of mobility company partners with customers, and our responsibilities span product planning and pricing, import and logistics, brand and marketing to operating digital sales, managing physical sales and aftermarket service channels. Delivering for our partners, our customers and our people – so they can realise their ambitions in the new world of mobility. The Group is headquartered in London and employs over 16,000 people globally. www.inchcape.com

Inchcape H1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: First-half revenue rose 9% to £4.7 billion, with 5% organic growth and volumes up 9%, outperforming overall market growth of 8%. Americas and Europe & Africa delivered strong growth, partially offsetting weakness in APAC.
• Positive Sentiment: Management reaffirmed its outlook for more than 10% EPS growth in 2026 and through 2030, supported by organic volume growth at the top end of its 3%–5% target, operating margins of approximately 6%, and free-cash-flow conversion above 100%.
• Positive Sentiment: Inchcape increased its share-buyback program by £75 million to £250 million, expects completion by February 2027, and raised the interim dividend 14% to £0.108. Leverage remained low at 0.5x EBITDA, supporting continued capital returns and bolt-on acquisitions.
• Negative Sentiment: APAC operating margins fell 290 basis points to 3.5%, while regional volumes declined 16%, primarily due to a sharp shift in Australian demand toward lower-priced and new-energy vehicles, product-supply constraints, and intense competition. Management expects Australia to remain weak in the second half, with a broader APAC recovery likely to take longer than one year.
• Neutral Sentiment: The company is exiting 13 APAC distribution contracts that generated roughly £140 million of annualized revenue but were dilutive to profitability, alongside cost reductions, site exits, and inventory write-downs. These actions should improve margins and cash flow in the second half and more materially from 2027, though they resulted in £62 million of restructuring charges in the first half.

Presentation

[Duncan Tait, Group CEO at Inchcape]

Good morning, everyone. I'm Duncan Tait, Group CEO, and I'm joined by our Group CFO, Adrian Lewis. Here's today's agenda. I'll give an overview on market context. Adrian will run through our results and outlook for the full year, I'll give an update on our strategic progress and sum up. Today's presentation is available on our website, a recording of today's session will be available later today. After the presentation, we'll take your questions. Let's begin. Inchcape continued to deliver on our Accelerate+ strategy during the first half, amid an evolving market backdrop, supported by our diversified and scaled market and brand portfolio. Our growth was driven by distribution contracts won in recent years and last year's bolt-on acquisition in Iceland. We remain disciplined on capital allocation.

[Duncan Tait, Group CEO at Inchcape]

We completed the acquisition of Silver Star in Bulgaria on 1st July, underlining our ongoing focus on value-accretive M&A, we made progress with our GBP 175 million share buyback program launched in March, which we have today increased by GBP 75 million-GBP 250 million, this highlights our highly cash-generative business. Looking ahead, we expect to continue to deliver in line with our medium-term guidance of greater than 10% EPS growth. This slide shows the key developments in our industry and how Inchcape is addressing these trends through our agile approach across our scaled and diversified business. Firstly, our industry is evolving at pace, with the rise of Chinese OEMs an acceleration of the adoption of their products around the world. These OEMs, many of whom Inchcape has close relations with, are challenging the industry status quo.

[Duncan Tait, Group CEO at Inchcape]

Traditional players are now looking for new ways to enhance competitiveness, including collaborating with them in areas like manufacturing, technology, and product development. This cross-industry collaboration will remain a key theme in the coming years. We will continue to focus our investments, efforts, and resources on our OEM partners, who we believe will be the industry winners and fit with our business model. Our strategy is based on providing the best delivery for our OEM partners by collaborating with them to drive customer satisfaction. This is particularly relevant for the second trend on this slide, the transition to new energy vehicles, or NEVs. While this is a long-term story supported by infrastructure, government incentives, and consumer appetite, we see a two-speed world. Many of our markets are well behind the EV curve, while in others, like Hong Kong and Singapore, EV penetration is well over 50%.

[Duncan Tait, Group CEO at Inchcape]

With that in mind, we continue to prepare for the NEV transition by upgrading our network and ensuring our people are ready for the changes to come in areas like training and health and safety initiatives. Our role is to support our OEM partners with the optimal product mix, pricing, and positioning in a market in line with the local pace of transition to new energy vehicles. Ultimately, the NEV transition is another opportunity for Inchcape to deliver value for our partners. Finally, on this slide, partly driven by the other two trends here, manufacturers are increasingly focused on efficiencies across their cost base and supply chain to drive margins and protect cash flows. We are following suit through continued cost discipline across the business and an ongoing focus on value-added services, in particular finance and insurance, servicing, and parts.

[Duncan Tait, Group CEO at Inchcape]

This approach will help us to deliver against our medium-term targets of 6% operating margins and 100% free cash flow conversion. Our industry is evolving at pace. Inchcape will continue to be at the cutting edge of these developments by remaining agile to consistently deliver for our OEM partners and shareholders. Turning from the industry to the markets on this slide, I've set out some of the market context for our first half results. Overall, market volumes across our markets grew by 8%. Inchcape outperformed the market, growing volumes by 9%. The key overall trends across our regions are the rapid growth of Chinese OEMs and the continued adoption of new energy vehicles. These trends are connected given Chinese OEMs' specific focus on NEVs. It is worth noting that 25% of our volumes are now with Chinese OEMs, excluding BYD and Belux.

[Duncan Tait, Group CEO at Inchcape]

During the first half, our Chinese OEM volumes increased by around 40%. Moving west to east and starting in the Americas, TIV or market volumes was up 21%. Our volumes were slightly lower as 18% due to our market share weightings in certain markets like Colombia, which grew substantially, where our market share is around 10% compared to 25% in Chile. We grew market share in other markets, including Chile, which saw solid market growth. Our Americas market saw a 48% increase in Chinese OEM volumes over the last 12 months. We are benefiting from this trend as a result of our longstanding relationships with the likes of Changan and Great Wall Motors.

[Duncan Tait, Group CEO at Inchcape]

Finally, in the region, there was some short-term disruption to vehicle supply as a result of shipping delays related to the Middle East situation. In Europe and Africa, TIV was up 4%. We outperformed significantly, growing our volumes by 13%, including our Iceland acquisition, and 9% excluding that deal. Europe is seeing moderate EV adoption. Chinese OEMs have grown share from 7%-10% over the last year. We are benefiting from their entry into the market, particularly on the top line, having won multiple contracts with the likes of XPENG, BYD, Changan, and GAC AION in recent years. Southern and Eastern European markets continue to be resilient, while Africa remains robust. In APAC, TIV grew by 4%, while our volumes were down 16%. TIV growth in Asia was higher at 7%, with Australia remaining at lower levels of growth.

[Duncan Tait, Group CEO at Inchcape]

NEV adoption in the region continued to accelerate, with Chinese OEMs rapidly gaining market share. The region remains highly competitive in most markets, particularly in Australia, as I mentioned in March. NEV penetration there has grown from 20% last year to 35% at the current time. EV penetration has grown from around 8% in January this year to around 23% in June. In many of our APAC markets, we are underweight with Chinese OEMs. We do have a number of relatively new relationships with the likes of Foton, which we continue to develop. I'll come back to our management action plan for APAC later. As always, we continue to support our longstanding OEMs with their product lineups, pricing, and positioning to ensure we have the optimal mix in each of our markets.

[Duncan Tait, Group CEO at Inchcape]

Here, I've outlined why Inchcape remains the independent distributor of choice for our OEM partners across our scaled and diversified footprint. We manage the cost of complexity for our partners across the value chain with our local expertise, supported by our global capabilities. Our AI-driven sales and operational planning processes remain our key differentiator to drive market share gains for our OEMs. Our long track record performance is evidence of our leading market position, and looking ahead, you can track our future performance against a clear set of medium-term targets published last year. In summary, against an evolving market backdrop, Inchcape will continue to be a global winner in the automotive industry. That's it from me. I'll now hand over to Adrian.

[Adrian Lewis, Group CFO at Inchcape]

Thank you, Duncan, and good morning, everyone. I will take you through our results for the first half of 2026 and our outlook for the full year. We generated revenues of GBP 4.7 billion, with reported revenue growth of 9%, up 7% in constant currency, which includes organic revenue growth of 5%. Our top-line performance was primarily driven by supportive market conditions and the contribution from distribution contracts won in recent years. Adjusted operating margins were down 40 basis points to 5.3%, driven by margin contraction in APAC, but partly offset by margin expansion in the Americas and Europe and Africa. While operating profit was flat year-on-year at GBP 248 million, adjusted PBT was GBP 188 million, down 10% in constant currency due to higher net finance costs.

[Adrian Lewis, Group CFO at Inchcape]

As a result, and with a slightly higher effective tax rate in the half, offset by the impact of share buybacks, adjusted EPS was flat at GBP 0.355. Free cash flow to profit after tax conversion was higher at 65%, with free cash flow of GBP 84 million generated, and our balance sheet remains in good shape, with closing leverage of 0.5x EBITDA, slightly higher than the full year 2025 close, but down from the 0.6x in June 2025, and well within our self-mandated ceiling of 1x. In summary, at a group level, we saw progress in the first half of 2026, driven by the Americas, Europe and Africa, mostly offsetting a challenging Australia. Here is the revenue bridge with the building blocks of our 9% revenue growth. We grew 5% organically, with a further 2% related to our Iceland acquisition.

[Adrian Lewis, Group CFO at Inchcape]

In addition, we benefited from translational currency tailwinds of 2%, and at prevailing rates, we expect broadly similar currency tailwinds for the second half. Volumes grew by 9% on an organic basis as well, excluding our acquisitions and disposals last year, and we saw a small change in the average selling price due to the mix of regions and brands. As I mentioned earlier, operating profit was flat, and one of the benefits of our diversified geographic profile is that lower operating profit in APAC has been offset by the operating profit growth in the Americas and Europe and Africa, together with around GBP 6 million of translational effects.

[Adrian Lewis, Group CFO at Inchcape]

Operating margins declined by 40 basis points on a reported basis to 5.3%, with margin expansion in two regions offset by margin reduction in APAC, principally Australia, which I will cover in more detail shortly as part of my regional review, starting with the Americas on the next slide. In the Americas region, we saw continued positive momentum as conditions were overall helpful, especially so in Colombia and Peru, where we saw strong market tailwinds supporting our growth and good performance in Chile, where market growth was in the mid-single-digit territory. In the region, market volumes were up 21%, our volumes were up 18%, organic revenue growth was 13%. The variance between our volume growth and the organic revenue growth was due to a price mix across our product ranges.

[Adrian Lewis, Group CFO at Inchcape]

This highlights the benefits of our scaled and diversified brand portfolio across a broad range of leading European, Japanese, and Chinese OEMs. The latter of which now represents over 40% of our new vehicle volumes in the region and demonstrates the benefits of acquisitions and investments made in recent years, in particular Derco. Operating margins were up 50 basis points to 6.5%, reflecting resilient gross margins, operating leverage from higher volumes amid cost disciplines. It is also notable that there was some late disruption to vehicle supply across the industry in the region during the period as a result of shipping situation related to the Middle East. For the full year, we expect the environment in key markets to remain supportive, driving further momentum and profitable growth with the usual seasonal weighting towards the second half.

[Adrian Lewis, Group CFO at Inchcape]

In APAC, market volumes were up 4%, while our volumes were down 16% and our organic revenue declined 7%, reflecting some mix into higher priced markets, especially in Singapore and in Hong Kong. There was a stabilizing of our position in Asia, supported by the impact of management actions. Australia performance was weak and below our expectations at the start of the year. This was down to a unique set of factors at play during the period, directly connected to the Middle East situation. There has been significant fuel disruption, both on price and availability, which drove a rapid shift in consumer purchasing trends towards lower priced and new energy vehicles, as Duncan mentioned earlier, with NEV rapidly expanding to 35% of total sales. Our key brand partners' performance was further impacted by supply constraints affecting our product mix and competitiveness, leading to our operational underperformance.

[Adrian Lewis, Group CFO at Inchcape]

It is worth noting that our Chinese brands in Australia, Foton and Deepal, continued to ramp up during the period. As a result of lower revenues and gross margin compression, particularly in Australia, adjusted operating margins contracted by 290 basis points to 3.5%. We made good progress on management actions in the regions, including cost reduction plans and enhanced collaboration with our OEM partners. Duncan will discuss these management actions in more detail later on. Across APAC, we are exiting 13 immaterial distribution contracts, which contribute revenue of around GBP 140 million on an annualized basis. These contracts are dilutive to profitability. For the full year, we expect that management actions with further contract exits and a reduced cost base will positively impact half two margins and free cash flow, will enhance our product range across the region.

[Adrian Lewis, Group CFO at Inchcape]

Asian markets will continue to stabilize. We expect ongoing competitiveness in key markets. Australia is expected to remain weak, but our second half performance will be supported by the impact of management actions, improved product availability, and mix from our key OEM partner. On to Europe and Africa, where we again delivered underlying market outperformance supported by the growth from contracts won in recent years and the Iceland acquisition. Market volumes were up 4%. We outperformed with organic revenue growth of 7%. Our Icelandic acquisition contributed a further 7% to the top line growth in total. Our volumes grew by 13%. Our growth was broad-based across the region with another strong performance in our Southern European markets.

[Adrian Lewis, Group CFO at Inchcape]

Adjusted operating margins were up 20 basis points to 5.1%, with gross margin resilience and scale offsetting the dilution from early-stage contracts and some minor supply disruption in Africa related to the Middle East situation. For the full year, we anticipate continued operational execution and momentum with further growth from contract wins and the impact of Silver Star acquisition on Bulgaria in half two, which completed on the 1st of July. This is expected to offset the region's typical half one weighted seasonality. On to our income statement, where I wanted to touch on some of the key items. Net finance costs increased by GBP 14 million, driven by higher interest rates, increased levels of inventory financing, and the impact of currency timing in the prior year. There are adjusting items of GBP 64 million, GBP 62 million of which relates to the significant restructuring underway across the business.

[Adrian Lewis, Group CFO at Inchcape]

Included in this is GBP 28 million in relation to the derecognition of some of the value of the distribution contracts we are exiting in APAC. There was also GBP 22 million related to site exits and headcount reduction, particularly in APAC, and a further GBP 12 million in inventory write-downs. Of these restructuring costs, we expect around GBP 18 million to be cash items, of which GBP 13 million has already been spent. On to tax. Our underlying tax rate increased to 31.4%, slightly above our guidance range of 30%-31%, driven by geographic mix. Adjusted EPS was unchanged at GBP 0.355, reflecting lower profits and a higher tax rate offset by the benefits of share buybacks.

[Adrian Lewis, Group CFO at Inchcape]

This slide shows our net debt bridge over the last 12 months, which highlights our strong balance sheet, supported by consistently strong free cash flow generation and underlines the half two weighting of our cash flows. As I said earlier, cash conversion in the half was 65%. Looking back at the last 12 months to the end of June 2026, it's been 112%. On an LTM basis, we generated GBP 327 million in free cash flow and maintained our disciplined approach to capital allocation. Share buybacks amounted to GBP 167 million. Dividend payments were GBP 116 million. We invested GBP 38 million in acquisitions, mainly the Iceland transaction. After a GBP 39 million impact from FX and other items, the net of these elements saw leverage fall slightly to 0.5x net debt to EBITDA from 0.6x from the prior year. Which brings me to our disciplined capital allocation approach.

[Adrian Lewis, Group CFO at Inchcape]

We will continue to pay dividends at 40% of basic EPS, with the interim dividend representing one third of the previous year's total dividend. This means an interim dividend of GBP 0.108 up 14% from the prior year. We will continue to act with discipline to balance capital allocation between value accretion from share buybacks and bolt-on acquisitions with leverage below one times EBITDA. We are 40% of the way through our current GBP 175 million share buyback program, and we are today increasing the program by GBP 75 million-GBP 250 million. This top-up highlights our disciplined and balanced approach to capital allocation. We expect the program to be completed by the end of February 2027. On M&A, we integrated our Iceland acquisition and completed the Bulgaria deal earlier this month. We will continue to focus on value accretive M&A to support future growth.

[Adrian Lewis, Group CFO at Inchcape]

To sum up this slide, our capital allocation policy remains focused on shareholder value. Turning now to the outlook for 2026. We expect to deliver a year of strong EPS growth in line with our medium-term guidance of greater than 10% EPS growth through to the end of 2030. For this year, this will be driven by organic volume growth at the top end of our 3%-5% guidance range. We expect to deliver operating margins for the year of circa 6%, supported by scale and cost discipline. Given our strong free cash flow performance in the first half and our expectations for the rest of the year, we are now targeting free cash flow conversion of over 100%.

[Adrian Lewis, Group CFO at Inchcape]

Our performance this year will continue to be supported by our disciplined approach to capital allocation, with an increased share buyback program and the contribution of our recent value accretive acquisitions in Bulgaria and Iceland. This slide shows the regional drivers of our outlook this year and highlights the benefits of our diversified geographic portfolio. We expect a stable performance at constant currency with positive momentum in the Americas, Europe and Africa, and a stabilizing Asia offsetting a weak Australia. Growth in 2026 will include translational currency tailwinds at prevailing exchange rate and the contribution from the Silver Star acquisition. As we have mentioned previously, we continue to expect that our performance in full year 2026 will be half two-weighted.

[Adrian Lewis, Group CFO at Inchcape]

We expect to deliver an uplift in new vehicle volumes of around 20,000 vehicles in half two from the 180,000 vehicles we distributed in the first half. This is very similar to the volume uplift from half one to half two that we achieved last year. This year, the uplift will be supported by the usual half two-weighted seasonality in the Americas. In APAC, our half two volumes and margins will be supported by improved product availability and mix, with margin benefits coming through from the actions we are taking in that region. We expect a stable half two performance in Europe and Africa compared to the first half, with the region's typical first half weighting seasonality offset by the contribution of the Silver Star acquisition in half two. That's it from me. I'll hand back now to Duncan.

[Duncan Tait, Group CEO at Inchcape]

Thanks, Adrian. Here is a reminder of Accelerate+ , our strategic framework that has enabled our performance as we continue to scale and optimize our business. We will continue to deliver against our medium-term ambitions, supported by our strategic enablers outlined here. We continue to execute against our Accelerate+ strategy in the first half. Our objective is to develop our OEM portfolio and geographic footprint, thereby enhancing the resilience in our earnings profile. Starting with scale, so far this year we have won five new distribution contracts with Volvo in Ecuador, Deepal in Barbados, Subaru and XPENG in Brunei, and GAC AION in Romania. The Silver Star acquisition in Bulgaria strengthens our market position and expands our brand portfolio in that market with Mercedes-Benz, Daimler Trucks, and Buses. Our acquisition in Iceland continues to perform well.

[Duncan Tait, Group CEO at Inchcape]

We continue to optimize our business in a number of ways to drive operational execution. We are focused on commercial discipline, and let me give you three examples of this in the first half. Firstly, we significantly rationalized our brand portfolio in APAC with 13 contract exits, as well as two exits in the Americas, all agreed with our OEM partners. Our clear and decisive portfolio management enables us to focus on our priority brands and markets and will support our future financial performance. Portfolio management has been part of the Inchcape story for a while, as we continue to filter out those contracts that we do not think will provide the requisite value for us or our OEM partners. They also enable our teams to prioritize and focus on the high-value and high-potential contracts. The 15 contracts exited in H1 are immaterial to the group.

[Duncan Tait, Group CEO at Inchcape]

Last year, in aggregate, they represented around 5,000 new vehicles, equivalent to approximately 1.5% of the group's total volumes. Secondly, we further leveraged our third-party retail network, enabling broader in-market coverage in a capital efficient way by exiting or selling our own retail sites across our regions. Thirdly, we continue to drive the penetration of value-added services, in particular growing our distribution of relatively high margin OEM certified parts, as well as developing and delivering finance and insurance products by utilizing our global scale and partnerships. We also optimized our business by further collaborating with our OEM partners on product and inventory management, supported by our consistent execution and technology-based sales and operational planning processes. We have also taken decisive action on our cost base, driving efficiencies and tackling challenges in certain markets. This included a management action plan in APAC, which I will now discuss.

[Duncan Tait, Group CEO at Inchcape]

Our actions in APAC were initiated last year to address the challenges we are facing in the region. Some of these challenges relate to the increasingly competitive environment, and some are a result of our operational underperformance in certain markets. We have made excellent progress with these actions to date. We are building momentum and restructuring our business in the region as we rebuild a platform for future growth. Our plan is focused on two areas, operational execution and enhanced collaboration with our OEM partners. I want to thank Phil Jenkins, our interim APAC CEO, and his executive team in driving our actions in both of these areas and in helping position our APAC business for its next phase of development. With Phil returning to his role as our Chief M&A Officer, last week we announced the appointment of Ian Burton as our new APAC CEO.

[Duncan Tait, Group CEO at Inchcape]

Ian, who officially starts with us next week, is a highly experienced international business leader with more than three decades of leadership experience across APAC, Europe, and Africa. I'm looking forward to working with Ian in developing our APAC business. We also made a number of new management appointments across the region in H1, both at the regional headquarters and in a number of key markets. In addition, we are significantly reducing our headcount and assessing a number of non-core businesses for disposal, including the exit of some of our retail operations. These actions will help us become a leaner and more agile organization, a business that is better equipped to drive enhanced collaboration with our OEM partners. To that end, a key focus for our APAC team this year has been the orderly exit of 13 distribution contracts to help drive efficiencies, profits, and cash flows.

[Duncan Tait, Group CEO at Inchcape]

These contracts, all agreed with our OEMs, are immaterial and dilutive to profitability. They include Stellantis brands in Australia and the Philippines, LDV and KGM in New Zealand, and ORA in Hong Kong. In addition, our JLR business in Thailand has been classified as an asset held for sale in our accounts today. We expect more contract exits to come in the second half and into the future, including some of our more recently won contracts. We are also collaborating with our OEM partners on a refreshed approach to product mix across the region. We are working with our partners on the launch and repricing of models, ensuring we enhance competitiveness and agility in a fast evolving market environment. To sum up, we have made excellent progress in our management action plan for APAC, and there's more to come.

[Duncan Tait, Group CEO at Inchcape]

I expect continued challenges in the region in the short term, but I remain very confident about our long-term prospects. We have longstanding OEM relationships with the likes of Toyota and Lexus, supplemented by new partnerships in the region, including Foton in Australia and Mercedes-Benz in Indonesia and the Philippines. With that in mind, our management action plan, supported by the strength and increasing diversity of our OEM partnerships, is building a strong platform for future growth. Just to sum up today, we made good progress in the first half of the year amid an evolving market backdrop. We continue to deliver against our strategy, exercising further discipline in our approach to capital allocation. Looking ahead, we expect to continue to deliver strong EPS growth this year and beyond, in line with our medium-term guidance. Finally, here's a reminder of our medium-term targets, which we are reiterating today.

[Duncan Tait, Group CEO at Inchcape]

To the end of 2030, we expect to generate GBP 2.5 billion in free cash flow. We will deploy this free cash flow to drive shareholder value with a consistent dividend policy and more than 10% compound annual growth of EPS. That's it for the presentation. Let's take your questions, starting with questions over the line and then from the webcast via our head of IR, Rob.

[Operator]

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. We'll pause for a brief moment. Thank you. We will now take our first question from James Wheatcroft of Jefferies. Your line is open. Please go ahead.

[James Wheatcroft, Analyst at Jefferies]

Good morning to you both. Two areas I'd really wanted to explore, really just looking into the outlook a bit more. Firstly, just digging into Australia little bit better to understand the issues there and the actions being taken to improve going forward, especially in the second half. Then sort of related, just thinking about that 2H weighting. I know it's something we saw last year. Is there any sort of additional color you can add to build out the background for that second half ramp up, please?

[Duncan Tait, Group CEO at Inchcape]

Very good. Good morning, James. Look, I'll take the first question around Australia, then hand to Adrian for how we build into H2. Look, in Australia, we had a confluence of issues in the first half. The first one we flagged at full year, that we still have supply issues from our main OEM in Australia. They'll come through a bit better in the second half. The second thing was around the Iran crisis, frankly, that has changed consumer behavior in Australia, particularly related to what happened to fuel. Fuel prices rocketed, the second thing, fuel availability was also limited throughout Australia. Hundreds of fuel gasoline stations had at least one fuel type out, and that has certainly changed consumer behavior. If I give you an example, in January, EV penetration in the Australian market was just over 8%.

[Duncan Tait, Group CEO at Inchcape]

In June, it was nearly 25%. The portfolio of vehicles we'd landed was out of whack, frankly, with where the market was. We expect that to get better in the second half. Those issues caused an underperformance for us on the top line and the bottom line in Australia. Adrian, I'll hand to you for an H2.

[Adrian Lewis, Group CFO at Inchcape]

Thanks, Duncan. Thank you. Thanks for the question, James. If I think about the half one, half two building blocks, very similar to last year, we spoke about that 20,000 additional units. We've got broadly the same story for this year. We've done 180,000 units in half one. We're anticipating around 200,000 units in half two. A big component of that is the Americas seasonality. You saw it on the Americas slide, that half one, half two split. We're anticipating a similar story for this year in terms of a natural second half seasonality.

[Adrian Lewis, Group CFO at Inchcape]

As Duncan was articulating, all of the work that we've been doing in APAC, broadly across the region, both in terms of cost, in terms of contract exits, but also that Australasia story of slightly higher market share, but also a better mix of vehicles supporting an improved margin profile is the other material building block of the second half. Of course, in Europe and Africa, normally that's a half one weighted story. This year we expect to see performance more a flatter picture across half one, half two with the acquisition of Silver Star, that Bulgarian Mercedes business that we acquired, that completed on the 1st of July. We've got that benefit, which will support a stronger second half, in Europe and Africa. James, hopefully, that gives you the building blocks of how to build into second half guidance and second half weighting.

[James Wheatcroft, Analyst at Jefferies]

Okay. Thank you.

[Adrian Lewis, Group CFO at Inchcape]

Thank you.

[Duncan Tait, Group CEO at Inchcape]

Thank you, James.

[Operator]

Thank you. We will now take our next question from Abi Bell of UBS. Your line is open. Please go ahead.

[Abi Bell, Analyst at UBS]

Morning, both. Just two from me. Firstly, thank you for the color on Australia. Could you give some more detail on APAC ex-Australia? In particular, how should we think about underlying demand in Hong Kong and Singapore, given you flagged the pull forward in Hong Kong early in the year, therefore, what should we expect for volume trends and profitability in the second half? Secondly, on the contract exits, this seems a bigger step up than prior portfolio actions. Could you talk through the rationale for these exits, and particularly why now? As you have flagged further exits in H2, should we expect these to be in similar brands or markets or something else entirely? Thank you.

[Duncan Tait, Group CEO at Inchcape]

Very good. Thank you, Abi, and good morning. Adrian, do you want to cover the first point, and I'll talk about contract exits?

[Adrian Lewis, Group CFO at Inchcape]

Sure. Abi, across the broader picture in Asia, we've seen a stabilizing effect. Our businesses in Indonesia and in the Philippines have improved, in terms of their momentum. The market hasn't really changed in terms of that premium segment that you see in the market tracker. Indonesia's seen some growth, but the premium segment remains depressed. The teams that have been working in that region have been doing a super job in terms of the cost base to bring a stabilization to our performance in that area, as well as in Singapore. In Hong Kong, you're absolutely right. Some regulatory change pulled forward the market, and you can see very, very strong market growth. We'd anticipate that being a half one, half two split, and we would expect to substantially lower Hong Kong in the second half.

[Adrian Lewis, Group CFO at Inchcape]

I don't think that will materially impact underlying performance across Asia and those building blocks that I've articulated of why a second half waiting in that region still stand despite Hong Kong being slightly stronger in the first half. Duncan, over to you.

[Duncan Tait, Group CEO at Inchcape]

Thank you very much, Adrian. Abi, on contract exits, you're right, 15 exits in the first half, 13 of those related to our management plan for Asia Pacific. Essentially what you see Inchcape doing, and we've been more bold about this over recent quarters, is real bold portfolio management to make sure that we are delivering for our OEM partners and for our shareholders in each of those contracts. If I talk briefly about the performance, we are seeing great performance in my new contracts. You can see that coming through in the Americas. You can see it coming through in Europe. We look at each of these contracts about can we deliver for our OEM, can we deliver for our shareholders?

[Duncan Tait, Group CEO at Inchcape]

That's led us to conclude that some of those contracts we have, particularly in Asia Pacific, we have a market misalignment with some of those OEMs, and it's right that we take bold action on them. Being Inchcape, of course, we're going to collaborate greatly with our OEM partners to make sure those exits are smooth. We have to look after customers in that transition as well as our OEM interests. We are being bold and will continue to look at our portfolio right across our business. You should expect this to be an ongoing discipline with Inchcape.

[Duncan Tait, Group CEO at Inchcape]

Let's not forget, by the way, we've also won another five contracts in the first half, all of which we believe will deliver for us, like XPENG, which is an EV brand, into Brunei, for instance, and our other contract wins like GAC AION in Europe, which is an EV brand we'll take into Romania.

[Abi Bell, Analyst at UBS]

That's super clear. Thank you.

[Duncan Tait, Group CEO at Inchcape]

Thank you.

[Adrian Lewis, Group CFO at Inchcape]

Thanks, Abi.

[Operator]

Thank you. We will now take our next question from James Bayliss of Berenberg. Your line is open. Please go ahead.

[James Bayliss, Analyst at Berenberg]

Morning, guys. Just one from me, please, on aftersales. I see the gross profit there is up 5% constant currency year-on-year, despite issues in Africa. Can you give us a bit of color on what's driving that? Is that to do with the mix benefit from where you've exited dilutive contracts and where you've been focusing new contract wins? Is that representative of actual, I guess, new initiatives and kind of a genuine drive on your existing contracts? Thanks so much.

[Duncan Tait, Group CEO at Inchcape]

Very good. Morning, James. I think I should take that, Mr. Lewis.

[Adrian Lewis, Group CFO at Inchcape]

Fair.

[Duncan Tait, Group CEO at Inchcape]

James, first of all, let's acknowledge that our aftersales business is up. I'm super pleased to see that we're continuing to grow our aftersales business. We'll talk more about that in Q4 in an investor day for you. Aftersales in APAC is down a little bit. I don't think that'll be a big surprise based upon our narrative of recent times. We've seen good growth in Europe and Africa and in the Americas. It is a result of some group wide initiatives we are running to increase our penetration or our retention rate of customers over the first 10 years of a vehicle's life, and other initiatives we have in our aftersales business. I would hope we will continue to see momentum in our aftersales business, not just into the second half, but to subsequent years.

[Duncan Tait, Group CEO at Inchcape]

This is a result of the actions we're taking across our business. We'll tell you more about that during the fourth quarter.

[James Bayliss, Analyst at Berenberg]

Thanks.

[Duncan Tait, Group CEO at Inchcape]

Thank you, James.

[Operator]

Thanks. Thank you. We will now move on to our next question from Andy Grobler of BNP Paribas. Your line is open. Please go ahead.

[Andy Grobler, Analyst at BNP Paribas]

Hi. Good morning. A couple from me, if I may. Firstly, just on the OEMs, you talked about their focus on efficiency. To what extent is that impacting pricing and their relationship with you? Are you a potential source of cost savings for some of those OEMs that are under pressure? Secondly, just on inventory, I saw a GBP 18 million write-down. That's higher than it's been in the last couple of years. Could you just talk through what drove that and what your expectations are for the second half? Thank you.

[Duncan Tait, Group CEO at Inchcape]

Good morning, Andy. Thank you very much. I'll do question one and hand two to you, Adrian.

[Duncan Tait, Group CEO at Inchcape]

If that's okay. Look, it's clear, isn't it, Andy, which OEMs are under pressure. The Chinese OEMs, although they're taking market share, are not hugely profitable. A lot of the Western OEMs at the same time are also lowered margin guidance for the year. You can see some of the guidance from some of the European OEMs in the range of 1%-3% of the operating profit level. If I take a step back, when we set our midterm targets, we gave guidance of operating margins of 6% over the medium term. We were a little above 6% last year. We're guiding to around 6% this year. That is a reflection of two things. It's a reflection of the fact that this industry for OEMs is incredibly competitive. They're under cost pressure and margin pressure.

[Duncan Tait, Group CEO at Inchcape]

Therefore, we should expect a little bit of downward pressure from OEM partners. Then at the same time, our other initiatives inside the group around efficiencies and our cost base, the growth of our value added services businesses in finance and insurance and aftersales, will give us a little bit of upward pressure. I think this is exactly what we expected to happen in the industry. We've been flagging it for some time. We'll create some upward pressure in margin. I think we'll see a little bit of downward pressure from OEMs at the same time, hence the reason we've said 6% operating margins into the medium term. Mr. Lewis.

[Adrian Lewis, Group CFO at Inchcape]

In relation to inventory, look, the first thing to say is inventory is in excellent shape. If you look at the level of inventory in the group, just over GBP 2 billion, very consistent with where it was at the start of the year, and lower than it was at half-time last year. The business has grown its revenues by around 9%. I think absolute inventory, we look at in broad terms as being in excellent shape. The benefits of all the work we're doing around S&OP really coming to bear fruit there. You're right about the inventory write-downs. When we step into the contract exit conversation, particularly around APAC, we have seen a need to take some inventory write-downs relating to those contract exits, 13 exits in the half in the region, response to a very dynamic and changing market situation.

[Adrian Lewis, Group CFO at Inchcape]

It is slightly higher than we would normally expect to do, and it is related to those contracts that we're going to get out. This is about us making sure we've got the right portfolio, making sure we've got the right inventory on the ground. The market's shifted very dynamically across APAC, which is why we're taking the steps we're taking across the board, whether it be around contracts, inventory, and our cost base. Andy, hope that's helpful.

[Andy Grobler, Analyst at BNP Paribas]

Okay. Thank you very much.

[Adrian Lewis, Group CFO at Inchcape]

Thank you.

[Operator]

We will now move on to our next question from Arthur Truslove of Citi. Your line is open. Please go ahead.

[Arthur Truslove, Analyst at Citi]

Good morning. Thanks so much for taking my questions. Excuse me. First one, sort of big picture question. It seems like the Chinese OEMs are causing you significant problems in Asia, and yet are a key contributor to your growth in LATAM. Could you just run us through once again how this can be the case? It would be great if you could explain the key differences between your value proposition to them in LATAM versus, say, what it would be in Asia, or indeed what it wouldn't be in Asia. Second question, around Toyota. Are you able to just remind us how you're getting on with Toyota new product launches? In particular, how is the electric vehicle progressing in Hong Kong and Singapore? Also, how are we getting on with the new RAV4 launches?

[Arthur Truslove, Analyst at Citi]

Has that happened in Greece, Belgium, Romania? Indeed, Hong Kong, Singapore. How are those things influencing performance? Thank you.

[Duncan Tait, Group CEO at Inchcape]

Thank you very much, Arthur. That looks like that's two questions for me. Arthur, with these types of questions, I should be charging you money. To your point around Chinese OEMs, 25% of our group now, of our volumes from Chinese OEMs, that's grown 40% year-over-year, and that's reflective of the acquisitions we've made and the contract wins we've had. Actually, across our business, including APAC, we've seen super strong performance in the Americas, super strong performance in Europe, excluding BYD and Belux, by the way. We still have super performance in those businesses. We have seen, we don't talk about it very much, but if you look at Australia, where we're growing that Foton business, that it's not even yet a year old, but really growing quite nicely for us. Deepal gaining share as the market moves more to EV.

[Duncan Tait, Group CEO at Inchcape]

Our value proposition to Chinese OEMs is super-duper, like it is to all of our OEM partners, which is we'll help drive performance for you in small to medium size and more complex markets. That's exactly what Inchcape does. I was in China with Romeo and the rest of the group team just a few weeks ago, the Chinese EV brands, where they want to go is exactly matching with Inchcape, which is we'll run small to medium size and more complex markets for them while they get on with the super big markets. There is a difference in Asia. We were a little slower with contract wins in Asia than we would have seen previously. Over the last year or so, we've added more Chinese OEMs into that APAC business. I've mentioned Deepal, I've mentioned Foton. You've seen us announce XPENG today in Brunei.

[Duncan Tait, Group CEO at Inchcape]

I think our value proposition is absolutely intact. In some of the really, really big markets, I'll give you an example of Philippines or Thailand, these are much bigger markets. I think the Chinese are much more likely to take those directly themselves. To your point around Toyota. Look, Toyota is an incredible OEM. We've worked with them for over 60 years. What I would say as follows, in terms of product launches, we've seen very promising take-up of those EVs that Toyota is launching. BZ3X in Hong Kong has been really strong for us. We'll bring that brand into other markets for us in APAC. We're launching around mid-teens new products into Singapore, including EV brands. We've seen brands like C-HR+, which is an EV brand for Toyota launch in Europe and other places. That Toyota portfolio is moving quite nicely for us.

[Duncan Tait, Group CEO at Inchcape]

To your final point around RAV4, that is a super successful product. As you can imagine, Arthur, we are fighting to get more RAV4 in each of our Toyota markets, whether they happen to be in Asia or in Europe and Africa. That's a very successful product. If Toyota could manufacture more, we'd certainly take them. I hope that's helpful, Arthur.

[Arthur Truslove, Analyst at Citi]

Very helpful. Thank you very much, Duncan.

[Duncan Tait, Group CEO at Inchcape]

Thank you.

[Operator]

We will now take our next question from Tim Ramskill of Bank of America. Your line is open. Please go ahead.

[Tim Ramskill, Analyst at Bank of America]

Thank you. Morning, gents. I've got three, please. Two are focused on APAC and one on the Americas. On APAC, if we look this half versus two years ago, your profitability is down around about two-thirds. I guess I'm interested in your thoughts around how much of that can be recovered. To what extent are the factors that you identify, you think short-lived? Just interested in how we could potentially get back to where we once were. Secondly, you've obviously talked quite a bit, and there's been a few questions already around contract exits. Can you just help us with the phasing, partly because you've talked about more exits. How much of what you've done has already landed in the first half? How much more come second half and also then into 2027? Just some sense of the shape of that.

[Tim Ramskill, Analyst at Bank of America]

Finally, as I said, third question on the Americas. Performance is extremely strong. Just a little bit nervous that we might be here in 12 months' time talking about how tough the comps were. Just interested in your thoughts on the sustainability of that performance in the Americas. Thanks.

[Duncan Tait, Group CEO at Inchcape]

Very good, Tim. Yeah. Thank you. Thank you for the amusing point on question three. I'll hand to Adrian for the first two, and I'll pick up on the Americas.

[Adrian Lewis, Group CFO at Inchcape]

Hi, Tim. When you look at the first half performance, I think we've been very clear. Duncan used the phrase a confluence of issues in Australia impacting performance, whether it be a very rapid shift in customer demand profiles arising from a fuel crisis compounded by supply interruption of the right product set to address that market. We've seen over the last couple of years substantial changes in customer purchasing trends, particularly in premium segments in places like Indonesia, Philippines. I think that we should think about all of the things we have been doing, whether it be addressing our cost base, whether it be managing our portfolio as part of rebuilding Asia back towards where those heady days of 2024 and prior to that. I think the recovery process will not be a short-term recovery.

[Adrian Lewis, Group CFO at Inchcape]

You shouldn't pencil us in for getting back to that level either in the second half of this year or indeed next year. This is going to be a longer-term recovery because some of those shifts you'd have to think of as structural. When we think about the exits, a lot of those we've been, Duncan used the word collaboration earlier, speaking with our OEM partners, making sure we preserve those global relationships and manage those exits in an orderly fashion. Those will have been affected in the first half and will happen and will effectively operationally happen through the second half. There'll be a bit of help in the second half, but more materially so into 2027. To your question around is there more to come or sort of inference of there more to come.

[Adrian Lewis, Group CFO at Inchcape]

Look, we've been clear actually, we're continuing to discuss certain contracts with OEM partners and you'll have to forgive us. We'll update you when it's right for us to do so around those steps. In line with all of our other communications, we'll be as clear and as transparent as we possibly can be. Duncan.

[Duncan Tait, Group CEO at Inchcape]

Thanks, Adrian. Tim, onto the Americas. Look, I'll take a step back if I may, answer your question directly. In our midterm guidance, where our midterm guidance ultimately ends up in EPS growth of greater than 10%, one of the inputs to that is how fast do we think our markets can grow on our outperformance. Our guidance on unit volume growth is 3%-5%, and that reflects the fact that we have a diverse geographic portfolio of markets, and we'll always find some up, some down, and some flat. Colombia and Peru are growing like Topsy at the minute, above 40% year-over-year growth. Do I think that's sustainable into the long term? No, I don't, because they're approaching their historic highs in terms of the market size.

[Duncan Tait, Group CEO at Inchcape]

There is some supportive politics in that that we think over the medium term, they're starting to top out in terms of compared to their historic norms. At the same time, we have Chile, which is actually at the lower end of its historic norms. This year, we think it'll be somewhere between 320,000 and 330,000 TIV. New political regime in place looks set to grow a little bit faster in the medium term. Let's see. To your point, will we be saying there's tough comps in the Americas next year? Maybe. We're here to deliver a geographic portfolio globally that enables us to deliver the greater than 10% EPS growth.

[Tim Ramskill, Analyst at Bank of America]

That's great. Can I just squeeze in one very quick follow-up just around contracts?

[Duncan Tait, Group CEO at Inchcape]

Sure.

[Tim Ramskill, Analyst at Bank of America]

I think in your pre-prepared remarks, Duncan, that we've watched, you talk about how you're actually sort of considering exiting certain contracts you've only won relatively recently. Maybe I've got the wrong end of the stick there, but interested in just sort of as you think about new opportunities in light of what's been quite a lot of ins and outs, how are you thinking about assessing new opportunities? Are you thinking any differently to what you might have done a few years ago?

[Duncan Tait, Group CEO at Inchcape]

Look, I think we have learned a lot. If you go back just a few years ago, we had a very stable portfolio of contracts, and we'd not seen very many ins or outs. The last four years we've seen over, I guess it must be close now to 60 contract wins, with a higher number of exits than you've seen, as we continue to learn about how to make sure that our contracts work for us and our OEM partners. We're going to continue to do that. I think we're getting better and better at portfolio management. We're getting better and better at winning contracts and making sure they work for us and our OEM partners. We'll give you a view about that in a little bit more detail during the fourth quarter at an investor day, when we'll talk about how these contracts have performed over time.

[Duncan Tait, Group CEO at Inchcape]

We are increasingly disciplined about the way we think of contracts. You can see that in the first half with 13 exits in APAC, two in the Americas. Don't forget, let's take a step back. What you do see is very strong contract growth for us right across the business.

[Tim Ramskill, Analyst at Bank of America]

Excellent. Appreciate the answers. Thank you.

[Duncan Tait, Group CEO at Inchcape]

Thank you. Thanks very much.

[Operator]

Thank you. We have no further questions on the line. I'll now hand over to Rob for webcast questions.

[Duncan Tait, Group CEO at Inchcape]

Thank you, Laura.

[Rob Gurner, Head of IR at Inchcape]

Thanks, Laura. Good morning, everyone. We have a couple of questions. Firstly, on tax, [Adrian] from Julian Daly, one of our private investors. Why is the effective tax rate for the half year higher than the guidance range?

[Adrian Lewis, Group CFO at Inchcape]

Thank you, Julian. Tax rate 31.4% was the effective tax rate. We guide 30%-31%. It's essentially a geographic mix point. A higher profit contribution from the Americas, where tax rates are naturally higher, and we also have to consider withholding tax on dividend repatriation, that gives you the reason. 31.4%, incidentally, is exactly the same as the full year last year on an effective tax rate. Very consistent trajectory there.

[Rob Gurner, Head of IR at Inchcape]

Thanks, Adrian. A couple of questions from David Brockton at Deutsche Bank, Numis. These are for you, Duncan, I think.

[Duncan Tait, Group CEO at Inchcape]

Yeah.

[Rob Gurner, Head of IR at Inchcape]

Firstly, going back to Tim's question on brand exits, how many of the exited brands are with Chinese OEMs? What gives you the confidence that the new Chinese OEM contracts are better placed compared to the more traditional brands that we're winning business with?

[Duncan Tait, Group CEO at Inchcape]

Very good. Rob, there was a broad set of exits across our brands in APAC. You could see five or six with Stellantis brands, but there were some with Chinese brands. There was two, as I recall, with Chinese brands. Look, the way we think about our OEM partners, we're clear about who we want to build our business with globally. You'll forgive me if I don't say that on a public call. You can see us win more and more contracts with those. I was in China just a few weeks ago. You can see us winning more contracts with Changan and with Great Wall Motors. We referenced XPENG earlier on this call. We know we can build good businesses with those, and we'll continue to do that. At the same time, we've been winning contracts with European OEMs and with Japanese OEMs like Subaru.

[Duncan Tait, Group CEO at Inchcape]

We know we can make these work across our portfolio, and I'd remind us all on the call, our growth through these contracts is coming through quite nicely. You can see it in the Americas, and you can see it in Europe and Africa.

[Rob Gurner, Head of IR at Inchcape]

Thank you. Also from David, is the rapid shift in NEV products in Australia temporary or structural? Have we got the right product mix and portfolio in the second half and beyond to allow us to serve that market well?

[Duncan Tait, Group CEO at Inchcape]

I think this is a great question. When you look at how we planned the Australia market, Adrian and I were there just in January to listen to this, and he and I were there just a couple of weeks ago. That market has fast-forwarded three years in six months. If you look at EV penetration in January, at just over 8%, in June, nearly 25%, that shift we expected to happen towards back end of 2028, 2029. Do I think that shift is permanent? Yes, I do. July, you can see that tick up a little bit further. Where are we with our portfolio in Australia? We have two super Chinese brands that we've launched, with Deepal and Foton, both building up. They're in their early phases, but building up.

[Duncan Tait, Group CEO at Inchcape]

In the second half, we see more launches from Subaru in new energy vehicles and EV, which will improve our top and bottom line performance in Australia.

[Rob Gurner, Head of IR at Inchcape]

Very good. Final question is from [Ellie Zhao] at White Oak Capital. How does EV penetration influence your strategy? Are you seeing pure EV manufacturers looking for independent distribution in your markets?

[Duncan Tait, Group CEO at Inchcape]

Well, look, I'll give you a view. Let me answer the second question first, Rob. I think their view is exactly the same as ours. You should use distribution in small to medium size and more complicated markets. That's what we do, and we can really add value to OEM partners. The really big markets, U.K., Germany, they should run them themselves and integrate their value chain in those markets. Then remind me what the first question was.

[Rob Gurner, Head of IR at Inchcape]

How does EV penetration in our markets influence strategy?

[Duncan Tait, Group CEO at Inchcape]

Well, our strategy, whether you look at EV penetration or growth, it comes down to the same thing. We need a portfolio of OEMs in each of our markets that enables us to move at the pace that the market moves to a lower carbon mobility future, to use my jargon in that regard. It's important for growth and for us managing our markets that we have a good portfolio of OEMs. We like OEMs that can provide us with EV and hybrid and ICE products, and in some cases, hydrogen, to enable that move. Multi-drivetrain, multi-OEMs in markets really suits Inchcape.

[Rob Gurner, Head of IR at Inchcape]

Very good. On that note, no other questions if you wanted to sum up, Duncan. Thank you.

[Duncan Tait, Group CEO at Inchcape]

Very good. Listen, thank you very much for joining our webcast today. During the first half, Inchcape continued to deliver on strategy with really disciplined capital allocation. As we look out to this year and future years, we reaffirm our midterm guidance of growing our EPS by greater than 10% per annum. If you have any further questions, please follow up with the wonderful Rob. In the meantime, thank you for joining.

Participants

Executives

• Duncan Tait, Group CEO
• Adrian Lewis, Group CFO
• Rob Gurner, Head of IR

Analysts

• James Wheatcroft, Analyst at Jefferies
• Abi Bell, Analyst at UBS
• James Bayliss, Analyst at Berenberg
• Andy Grobler, Analyst at BNP Paribas
• Arthur Truslove, Analyst at Citi
• Tim Ramskill, Analyst at Bank of America