Inchcape plc (INCH) Earnings Call Transcript

Well, good morning, everyone, and welcome to the Inchcape 2019 full year results presentation. I'm Nigel Stein, Chairman of Inchcape, and I appreciate you taking the time to join us both here in the room and also online. Now before Stefan and Gijsbert take you through the presentation, just a few words from me around Stefan's departure from Inchcape to become CEO of Imperial Brands, which we confirm today will take place at the end of June. We're sorry to see Stefan leave Inchcape. He's done an excellent job in what will be 5 years as CEO and has built great momentum around the Ignite strategy in a challenging period for the automotive industry. As this is his last formal Inchcape results presentation, I'd like to thank him for his significant contribution to Inchcape's success. Thank you, Stefan. Stefan is going to be driving the business forward for the next few months whilst we run a disciplined succession process for our next CEO, considering both internal and external candidates. One of his achievements has been to build a highly capable and experienced executive team. Along with myself and the rest of the Board, we'll ensure we do not lose momentum through the transition. We will continue to drive forward with the Ignite strategy, including looking at bolt-on acquisitions and disposals such as you've seen over recent months. The Board firmly believe that this is the right strategy for Inchcape. We place high value on the strong relationships we have with our OEM partners, which Stefan has done much to enhance. That enhancement has included building strong links at every level in the organization from the executive committee down, and we determined Inchcape will continue to strengthen its position as the partner of choice for world-leading OEMs. In summary, a change of CEO is ahead, but no change to Inchcape's strategy or guiding principles or our ambition to be the most trusted independent global automotive distributor and retailer. Thank you. And now Stefan, over to you. Thank you.

Thank you, Nigel, for your kind words. And thank you to all of you joining us this morning either here in the room or on the webcast so -- as we take you through our 2019 results. In a moment, I will start with the main highlights for the year before I hand over to Gijsbert, who will take you through the financial results and provide you on the sort of the business and the outlook for 2020. And as usual, I will update you at the annual results' time on the progress we've made on the Ignite strategy and then at the end, as usual, we'll take your questions. So let me get started with the highlights. While 2019 has been a challenging year given the external headwinds that we faced, I am pleased with the performance. We succeeded in delivering a flat PBT performance, excluding the Aussie dollar-yen transactional currency headwinds. This has been achieved despite the supply constraints that impacted the business in the first half and the market contractions we've seen in some of our larger markets. Profit over the year was supported by Asia's resilience despite negative markets in Hong Kong and in Singapore. Our decision-making has been characterized by a strong focus on returns, capital deployment and productivity. 2019 was a milestone year for progress on focusing our portfolio on the attractive distribution part of the value chain. We exited a number of nonexclusive retail businesses that did not provide meaningful strategic advantage to our Distribution businesses or our OEM relationships. On a pro forma basis, retail operations now account to close to 40% of revenue and only 7% of trading profit. Our announcement of 4 Distribution acquisitions over the last 12 months means we've made a total of 12 acquisitions since we launched Ignite in 2016. Ignite has underpinned all these developments and it continues to support the business both organically and inorganically through its various pillars. And I'm pleased to say we've hit also our Finance and Insurance incremental income target within 18 months of being launched and also achieved our procurement savings target. We continue to demonstrate our commitment to disciplined capital allocation. A GBP 100 million buyback was completed in 2019 and we maintained our dividend. Today, we have announced a new buyback of GBP 150 million to be completed over the next 12 months. And so while 2019 was a year of external challenges, I'm pleased to see our strategy paying off. We've strengthened and focused our portfolio, have continued to invest behind the growth opportunity that we see for our business and provided a healthy total cash return for our shareholders. Our group revenue over the period grew 1% in constant currency, which is pleasing, and excluding disposals, it actually grew 3%. However, constant currency PBT declined 7.4% due to the large transactional FX headwind. Excluding this headwind, PBT was flat, with strong growth in Europe, resilience in Asia and solid growth in Australasia, offset by emerging markets, which has been impacted by a sharp contraction of volumes in Chile. The impact from disposals was immaterial to PBT. With a slightly positive FX translation benefit, our actual currency PBT declined 7%. EPS was down 6%, benefiting from the GBP 100 million share buyback. Our ROCE on an IFRS 16 basis was 22% and continues to demonstrate the attractiveness of our mainly Distribution business model. Now before I hand over to Gijsbert, let me summarize the changes we've made to our portfolio in 2019 to further strengthen Inchcape. Distribution is our core focus with its more attractive business model and 2019 was an important year streamlining towards it. Starting with the disposals, we selectively sold our less-strategic Retail businesses in China, Australia and the U.K. Together, they represent annualized revenue of around GBP 800 million, around 9% of the group revenue. We were able to realize significant value with combined cash proceeds of GBP 250 million on GBP 80 million trading profit. And as you will see later, this achieved a significant gain on disposal. And over the last 12 months, we've announced more than GBP 100 million in new Distribution acquisitions at attractive multiples. We are now the distributor for BMW across the Baltics following the acquisition of BMW Lithuania, and in 2019, started operating our first BMW contract in East Africa. In January 2020, we announced the acquisition of Mercedes-Benz Distribution operations in Colombia from Daimler-Benz themselves, adding to those we purchased last year in Ecuador and Colombia. We are now the preferred distribution partner for Daimler in this highly attractive part of the world. This follows 30 years of U.K.-only retail partnership. So this is a truly exciting development for Inchcape. From an Ignite strategy and overall growth perspective, it is noteworthy that this is the first time an OEM would have sold its own distribution company to Inchcape. This inch -- this indicates that Inchcape's inorganic opportunity does not need to be limited to independent distribution. So in total, new Distribution contracts that we've operated since 2016 now at around GBP 1 billion of revenue to the group, inclusive of organic growth since we acquired them. This effectively replaces -- more than replaces the Retail revenue we have sold with higher margins, high-returning and more cash-generative businesses. I will now hand over to Gijsbert, who will run through the financials in more detail.

Well, thank you, Stefan, and good morning, everyone. Good to see you. I thought before going into the numbers, it would be good to give you some of my initial views, having been in the business for 6 months now. So as I've traveled around, and I've been to 10 markets across 4 continents now, I've been really struck by the entrepreneurial mindset of the business and also the strong embedding of Ignite as it is guiding our actions. What also stood out was the drive to growth. This is despite difficult markets and the opportunities we have in that space, organic and inorganic. Consolidation, frankly, is very low. And whilst clearly we've made a start with technology, I think there's ample opportunity there to drive both efficiencies and growth. And with my CFO hat on, I was very positively surprised by the resilience of the business, driven by the diversification of our revenue streams and our geographic footprint and also by the strong balance sheet and high level of cash generation. I'll come back on these 2 points later in more detail, and let me now turn to the group's performance in 2019. Just as a reminder, we are now reporting on IFRS 16. So as Stefan mentioned, revenue increased by 1% over the year, both in constant currency and local currency. Although excluding the impact of disposals that were completed during the year, revenue grew 3% in constant currency. PBT declined 7.4% at constant currency and 6.9% on an actual currency basis. Let me take a minute to comment on the timing of disposals and the impact on the 2019 numbers. There was a revenue impact over the year of around GBP 150 million, but profits were affected minimally as the disposals of the more profitable operations completed late in December and those that completed earlier were broadly neutral on profits. Looking forward to 2020, these disposals contributed around GBP 18 million to 2019 profits. EPS declined 6.1% at actual currency despite a higher tax rate of 23.2%, given fewer shares outstanding as a result of our share buyback. And outside of trading performance, we've benefited from GBP 76 million exceptional gain, and that gain reflects the profit on disposals, partially offset by some disposal-related restructuring costs and write-downs as well as acquisition costs. So now turning to Distribution, and please note, all comments are made at constant currency. Distribution accounted for 54% of our group revenue and 91% of group trading profit. And pro forma for the disposals and acquisitions, Distribution represented 57% of revenue and 93% of trading profit. Revenue increased by 1%. However, trading profit fell 8%, mainly due to the transactional headwind into our Australia business, which impacted profitability by GBP 26 million. Excluding this ForEx impact, as Stefan mentioned, profits were resilient with a stronger second half as we saw relief from the ForEx-related supply headwind in Ethiopia and we also saw Subaru supply constraints in Australia that impacted the first half reversing. Now let's look at the regional detail on the next slide, the Distribution trading profit waterfall. Australasia Distribution trading profit declined GBP 26 million over the period. And setting aside the yen headwind, underlying profits were flat year-on-year despite the Subaru supply constraints in half 1. We experienced these until May and it negatively impacted profits by GBP 13 million in the first half. And whilst the market remained challenging, the second half benefited from good cost control and growth in parts and accessories. To mitigate the yen headwind, we started to increase prices selectively in the second half of 2019, and we expect the focus on product mix as well as price increases to be of a greater offset in 2020. Nevertheless, with a similar growth headwinds expected in 2020, we still expect a net ForEx impact of a headwind of GBP 50 million. Profits for Europe increased GBP 9 million. We saw a good acceleration of growth during the second half as we lapped some easier WLTP comparators. Growth in this region was broad-based across countries. The Eastern European business now accounts for about 40% of profits in this segment. Performance in the Balkans was supported by market growth and strong market share gains in Romania, in particular. And whilst the Baltics benefited from market growth as well, there was also the inclusion of the new Lithuanian BMW business. The Greek market continued to recover from its post-recession trough and it will support us to growth as was Belgium. Now turning to Asia where profit increased GBP 3 million over the period. Despite a strong first half which benefited from a commercial vehicle market strategy scheme, the Singapore market declined by 5% over the year, in line with our expectations. And our performance was supported by new product introductions, including Toyota Rav4, and our market share increased by 1% over the year. And this, alongside a strong focus on growth -- sorry, on cost enabled Singapore to grow profits despite a challenging market. Guam, Brunei and Thailand also saw profits grow, driven by a combination of market share gains and growth of Finance and Insurance. And these markets combined contributed as much to the absolute growth in Asia over the year as Singapore did. And it highlights the importance of our diversified portfolio. Against this, the Hong Kong market was weak from the start of the year, but civil unrest led to an even weaker second half. For the year, the Hong Kong market declined by 10%. That said, with the benefit of the launch of the Toyota Rav4, Toyota C-HR and new taxis and with the actions to manage stock and cost, profits were only slightly down year-on-year. The visibility in the Hong Kong market remained low and we plan cautiously, further clouded by the potential impact from the coronavirus. We would have normally expected easing pressure in the second half as we left -- as we lap the softer comparators. And finally, Emerging Markets, which saw profits decrease by GBP 16 million. The driver of decline was the Chilean markets, which show a sharp contraction with the vehicle market declining 11% compared to 60% growth in 2018. I'm going to give a bit more detail on Chile in a minute. Elsewhere in Latin America, the Colombian market has also cooled, although the commercial vehicle market has remained strong, which benefited our Hino business. Performance in Peru was good following a challenging 2018 and the Central American businesses are performing well with like-for-like profits broadly flat despite the markets being down 11% combined. In Africa, Ethiopia recovered in the second half to finish the year slightly down. Two large government orders were fulfilled and we had great availability of currency to import parts and better fulfill demand. I'd like to take a moment to discuss our Asia performance over the last 10 years. And this chart shows our trading profit as well as the COE cycle, which is the blue line on the chart. Given where we are in the Singapore cycle, which mechanically is approximately a 10-year cycle, I wanted to highlight the work that the team have done to drive performance in the Asian business. The Asian business has seen profit increase of 9% per annum compound over the cycle. And whilst we're declining -- whilst we are guiding to a decline in Asia profitability in 2020, we expect the situation in Singapore will begin to stabilize. And even factoring this in, we will be able to demonstrate a very strong multiyear performance. There are a few things that have helped us to achieve this in addition to a slightly reduced peak-to-trough cycle. Firstly, we've worked hard to expand the product offering through the brands that we represent. And being able to drive a brand's positioning and shape the product portfolio in the market is a key skill of being an effective distributor. Second, the investments in our Aftersales capacity in Asia has helped us to capture this important and more stable revenue stream. Our Asian business is a significant contributor to the group's Aftersales profits. And while Singapore and Hong Kong are the largest, we've made solid progress in Guam, Saipan, Brunei and Macau, and we're excited about the opportunity in these markets. Lastly, understanding the COE cycle enables us to flex our cost base. As an example, we reduced the number of management regions from 2 to 1 a few years ago and we have continued to focus on additional cost reduction opportunities since. And as Stefan has said many times, the market cyclicality is highly visible. And as demonstrated here, this has helped us to manage the profits. I would now like to provide some thoughts on 2 key markets in our Emerging Markets business, Ethiopia and Chile, both of which encountered some challenges in 2019. Firstly on Ethiopia, I'd like to highlight that after a challenging first half where we were impacted by the currency availability which hindered our ability to import the vehicles and parts, we were encouraged by the half 2 exit rate. Demand remains high, and moving into 2020, we are encouraged by a less constrained currency situation. Structurally, as you can see on the chart, Ethiopia is very attractive as a country with high GDP growth and the market in which Toyota has a 60%, 70% share. Now moving to Chile. Here, the market was meaningfully impacted by a trade war-driven decline in the copper markets, a significant contributor to the Chilean economy, and also later in the year, the civil unrest that we saw. And together, these drove a contraction in the new vehicle market after double-digit growth in both 2017 and 2018. And in the context of this contraction, the teams worked very hard to manage costs. And while political uncertainty remains, with the cost measures taken and with the focus on Aftersales, we expect to be able to better offset continued market pressures. I'd like to reiterate that whilst this is a challenging period for Chile, we continue to focus on the opportunity that the low car penetration presents for structural growth. So to summarize, while we have had a more challenging period for Emerging Markets, our portfolio effect helps to balance our group performance and the markets that we operate in have a solid long-term structural support. Now let's turn briefly to our Retail business. Revenue in our Retail segment, which now accounts for 46% of the group, grew by 1% year-on-year and 5% excluding the impact of disposals. Pleasingly, trading profit rose 12%, albeit clearly off a low base and against a decline of 60% in 2018. Our U.K. and Europe and Russia businesses were stable, while our Australian business reported lower losses, all of which was encouraging in the context of the external market pressures. Again, whilst the disposals had an impact on revenue, at the profit line, it was immaterial. Now let's look at the waterfall. In Australia, losses reduced by GBP 4 million. The market, in fact, declined by 8% over the year and our reduced losses largely reflected our efforts in controlling costs over the period ahead of disposals. In U.K. and Europe, profits were flat. The U.K. market continued to be weak with registrations down 2% and diesel down 22%. However, we delivered a broadly stable year-on-year performance with better stock management and a focus on driving against all value drivers. Our Emerging Market Retail business, which effectively only includes Russia, was also flat year-on-year. And while the benefit of the Ignite strategy continued to be visible in the first half, the impact of temporary competitor discounting over the second half impacted the year-on-year progression overall. Now looking at some other areas of the income statement. Central costs were GBP 1 million higher year-on-year as our careful management of costs was largely offset the nonrepeat of one-off benefits that we enjoyed last year. Full year finance costs were broadly flat year-on-year. And of the GBP 47 million finance charge, GBP 19 million corresponds to the interest component of capitalized leases under IFRS 16. And we expect interest of GBP 44 million in 2020 with reduced leases as a result of our retail asset disposals. We saw a tax rate of 23.2% over the year, higher than prior year. And looking ahead, we expect to revert to a group tax rate of between 24% and 25%, given profit mix and reduced tax asset utilization. Moving on to cash flow. At the operating cash level, we generated GBP 456 million, representing a conversion rate of 122% compared with 147% last year. Over the year, we saw a working capital outflow of GBP 56 million compared to an inflow in the prior year. In part, this reflects the timing of acquisitions and disposals as well as higher receivables. Those were higher following the large -- 2 large orders from the Ethiopian government later in the year. The prior year's inflow in comparison benefited from a onetime benefit extracted from the Central America acquisition. And also, there was a benefit from a one-off inflow, net of tax, of GBP 11 million to the pension line, which related to the release of a pension surplus. Net CapEx of GBP 54 million was lower in 2019 compared with GBP 99 million. And it was also lower than our guidance of GBP 65 million, reflecting selective investments during a more challenging year. Looking to 2020, we're guiding to a CapEx of GBP 75 million and return to more normalized levels for the group. This is as we look to the future and the investments that are required to support our growth ambitions. So in total, we generated a free cash flow of GBP 213 million, which represents a conversion rate of 57%, reflecting where we are in the profit cycle and which compares to 70% in the prior year. Without the negative working capital dynamics I've mentioned, free cash flow conversion would have fallen within our 60% to 70% range. And lastly, with regards our balance sheet, excluding assets -- leases, excuse me, we ended the period with a net cash position of GBP 103 million. Now turning to the outlook for 2020. We expect the challenging market conditions seen in 2019 to continue through 2020. We expect the Singapore market to be down 25%, driven by the permit cycle, and double-digit market declines in Hong Kong and Chile with persistent challenges in both markets. It was a sign that the Australian economy might have started to recover, sentiment is weak and the market continues to decline. However, against this, we expect to see strong growth in Europe and acquisition integration supporting our Emerging Markets business. Against this challenging backdrop, we are focused on driving Aftersales opportunities, particularly where new vehicle markets are challenged and targeting cost and efficiency improvements, and we will further develop our omnichannel platform with pilot launches planned in Asia and South America. And we continue searching for very accretive inorganic opportunities. Overall, we expect underlying profit to decline modestly in 2020. Alongside this, we expect a GBP 15 million net Aussie dollar-yen headwind and an GBP 18 million reduction of profits related to disposals. The coronavirus situation remains uncertain. Needless to say, health and safety of our employees is paramount and our teams are fully focused on this. And it's also worth remembering that we have now exited Mainland China. Quantifying the future impact is difficult with the level of uncertainty of today and it will depend on the effect it has on consumer demand and on any supply chain disruptions. What I can say is that we have seen a small impact on our Asia business over the past month with reduced footfall in Hong Kong, Singapore and Macau. We've not seen any supply disruptions to date. We estimate the impact on our Asia profits over February will be around GBP 2 million. I would just like to reiterate the business model's inherent resilience, and we will continue to monitor our discretionary spend in these markets until the situation is clearer. And we will, of course, keep you updated on the subject. Now before I hand back to Stefan, let me zoom out and come back on sort of the high-level thoughts on the business from my perspective as a relative newcomer. The first one is resilience. We operate a diversified portfolio across many geographies with different business drivers and a range of OEM partners. And in a year when volumes in the markets we operate have contracted circa 4% on average, we've been able to maintain our underlying profits year-on-year. And while this is in part due to the actions we've taken, for example, around cost, I believe this also demonstrates the strength of the Inchcape portfolio, which has been further strengthened over the last years through Ignite. So first, our geographic exposure with a footprint that now spans 33 markets globally, which is up from 26 5 years ago. Our acquisition strategy has enhanced our portfolio, particularly the significant growth in Latin America. And as a result, Emerging Markets now represent more than 20% of our business. And this has also reduced our reliance to our top 5 markets, which is now 60% lower than in 2016. And while Asia remains an important contributor, the Singapore market cycle is highly visible, which helps us to manage the impact as previously illustrated. And the Asian markets outside of Singapore and Hong Kong are also important contributors to the group. Second, diversification of our revenue streams with Aftersales helps stabilize business performance, generating now 39% of gross profit compared to 36% in 2015. The addressable market for Inchcape is primarily causing the 0- to 5-year age range and is therefore less reliant on trends in the new car market in any single year. And third, our OEM exposure that has been evolving. With our acquisition strategy, we've increased our exposure to Subaru and Suzuki, strengthened our presence with BMW and JLR and now importantly, as Stefan commented, with Daimler. We have a diverse exposure to a range of high-quality OEMs that have strong portfolios and are making exciting investments into R&D. So together with the inherent cost flexibility of the distribution models, these factors help to drive resilience and despite our exposure to the automotive cycle. So if you step back further and look at this series of numbers, possibly the historical performance of the business provides some interesting insights. So while selling cars is viewed generally as a highly cyclical business, our financial performance since 2007 shows our ability to weather cycles. Since 2007, group revenues have grown at a rate of 4% per annum, and since the launch of Ignite, it has been double that rate. And even during the global financial crisis, the business remained profitable with margins at their lowest still above 3%. And in addition, we have consistently delivered a double-digit ROCE. And while I'm presenting charts here from 2007 for historical context, I would like to highlight that our activities since 2016 have meaningfully strengthened the business further. Turning to my second observation of the strong balance sheet and high cash generation, in short, our capital allocation approach. Inchcape has a track record of disciplined capital allocation over many years and you can expect the same rigor going forward. Our progressive dividend policy remains unchanged. In 2019, we maintained the dividend, which remains well covered by the cash generation of the business. Better accretive M&A remains a key pillar of the capital allocation policy. And with 12 acquisitions completed since the launch of Ignite, our M&A team has been bolstered and remain on the search for potential deals. And to confirm our view on the maximum leverage ratio that we would consider appropriate for the group is unchanged at 1x EBITDA on a pre-IFRS 16 basis. And finally, we continue to return excess cash to shareholders as demonstrated by our new GBP 150 million buyback announced today. And to demonstrate the balance between these key items I highlighted, since 2016, we've returned GBP 500 million in dividends, spent GBP 550 million on acquisitions, and with the completion of the latest buyback, returned GBP 400 million of excess cash to shareholders through buybacks. Lastly, I want to reflect on this slide, which details the financial layers to Inchcape's investment story and links to our capital allocation discipline. We expect to drive organic growth, which is supported by through-the-cycle market growth, investment into the business and operational excellence initiatives. Beyond this, we look to support growth with the investment of excess cash into attractive new acquisitions and excess cash returned through buybacks. And on top of this, we continue to pay a healthy dividend. Aggregating all of this, I believe this represents a strong total return opportunity. And indeed, this is a key reason why I enjoyed this exciting business. Let me now hand back to Stefan.

Thank you, Gijsbert. Thank you for the comprehensive review of the 2019 results and your thoughts on the business. Now you know my job is about giving you an update at the annual results and our strategy on the Ignite strategy. So hopefully, most of you in the room and also on the webcast recognize this chart because it shows our Ignite wheel. And I would like to take each driver in turn. Since 2016, together, we have worked hard to enhance the foundations for future growth and sustainability of Inchcape. We've implemented industry-leading tools to start developing an omnichannel offering to our consumers. And the consumer is changing and Inchcape is moving along with them. We've also strengthened our OEM relationships very meaningfully. This is something that runs throughout the organization from global to market level as we've increased our focus on this important element and elevated the OEM relationship at the same level as our consumers behind the Ignite strategy. Through this, we've won multiple businesses over the last 4 years with 6 key strategic OEMs of Inchcape. One example is Suzuki with whom previously we had only a very small representation. Another one is Daimler-Benz, who in the past had only been a retail partner of Inchcape. And another example is Subaru where we represented them for 30 years in 2 markets, Australia and New Zealand, but never had a relationship in any other part of the world. We now do with a very strong anchor partnership in Latin America. We've spent the time developing processes and implementing product offerings to improve our revenue streams outside of new cars in order to diversify. And we've implemented an organizational structure that allows us to leverage not just through costs, but also through knowledge transfer across the group. And lastly, on Ignite 5, we have unlocked an ability to acquire new businesses. As I said earlier, about 10% of our group revenue now comes through businesses we have acquired since 2016. Now let me look in more detail at what we've specifically achieved in 2019. Let's start with the customer experience, Ignite 1. We're seeing real benefits from platforms we've put in place to make us more customer data-driven, improving the online and in-store experience. Firstly, we have introduced reputation.com across our business. This customer online review management platform provides real actionable end-to-end transparency on the in-store and online customer experience Inchcape provides. The feedback we get enables us to make tangible improvements in real-time, and this is exactly what we've done. The platform of the program reputation.com generates 10 specific key customer metrics, focusing on business -- in our business in specific areas that create value for our customers and for us. Acting on these insights has subsequently allowed us to improve our web listing accuracy, response rates, times and increases our overall performance by over 30% versus when we started 18 months ago. Globally, our listing views have increased threefold since we launched reputation.com and the number of actions undertaken from these listings has increased by 80%, actions meaning customers actually seeking to buy cars from us. Secondly, we've built a unique sales force capability across our key markets, focusing on converting growing web traffic into new customer leads. And this capability has generated real customer growth and sales conversion. The marketing automation capabilities this platform provides has increased our marketable customer base over 26% in the last 12 months. And this growth will continue to accelerate in 2020. Now from an OEM Partner of Choice perspective, 2019 was a great year with our OEM Partner of Choice delivery with the new Daimler-Benz contracts, consolidation with BMW in the Baltics and new BMW operations in Kenya, our first operation with BMW in Africa. I'm also pleased that Suzuki has awarded our Costa Rica and Panama operation first and second place in Aftersales management worldwide, even surpassing the OEM's own operations in other parts of the world. And I'm pleased with the momentum we are seeing in many aspects of our business, including our investment in our digital customer journey that we're piloting in Australia through our Subaru business, which I will talk a little more later. Now Gijsbert mentioned the diverse nature of the group and the success of Used and Aftersales businesses have definitely been a stabilizing factor and should continue to support the business at every stage in the cycle. In terms of used cars, we saw strong growth in Emerging Markets, with Russia the key driver, and we also -- and it also support our progress in Latin America, albeit off a low base. In Central America, Costa Rica was a particular highlight, which turned profitable with its used car operation in its first full year of ownership. Aftersales gross profit rose 2% worldwide, outperforming vehicle profit with strong growth in our Australia Subaru and Northern European businesses. Now turning to Ignite 4, levering our global scale. So pleasingly, our 2019 saw -- in 2019, we've achieved 2 key financial targets set out under Ignite. In Finance and Insurance, we've achieved the incremental GBP 30 million medium-term profit targeted 2 years after we launched that target. In 2019, we've benefited from continued success in expanding vehicle care insurance products through our rollout of finance retention tools in 10 markets. We've similarly achieved our revised procurement saving targets of GBP 50 million annualized savings. And you will remember that we increased that target only in 2018. Some of the key initiatives in 2019 included realizing savings from vehicle storage and logistic costs and the enabling of a global view on oil and lubricant spending that has saved us, on average, 30% in Latin America on the spend. And we continue to benefit from our global procurement system, which has now been rolled out to markets that cover 50% of our total spend. And we expect to cover 85% of our total spend by the end of 2020, which should enable to realize further savings. Now we continue to believe that meaningful cost and efficiency opportunities in the business remain, and we'll keep you updated on this. Turning now to our acquisition strategy. Inorganic growth comes in different shapes in Inchcape. It ranges from large platform deals that can step-change our momentum in a market through regional consolidation opportunities. Added to this are bolt-ons that we can plug into our existing infrastructure. And this slide here demonstrates the momentum across each of these types of forms. Now Latin America is a good example of how our deals fit together. In 2016, Inchcape presented 1 OEM in 2 countries and sold 5,000 cars. Today, revenues are 5x higher with operations in 8 countries with 6 strategic OEMs and the selection of emerging OEMs, which are primarily Chinese OEMs. This was achieved, first, through 2 platform acquisitions and then through the subsequent bolt-on acquisitions that these large-scale acquisitions enabled for Inchcape. And as I'm sure you can see from the chart, there's still lots of white spaces on it, which should give you an idea what the opportunity is for us in the future. Now turning to investments in a digital customer journey. In 2018, we started to talk to you about our plans to develop a new customer-centric omnichannel experience for Distribution. This is about creating a seamless and convenient customer journey. And we began last year with Melbourne as our pilot market. We started off by implementing a used car tool that allows you to trade in your used car online, which is data-driven and therefore differs substantially from the historic salesperson negotiation approach. We believe that this was an offering that customers desired. And in quarter 4 of 2019, this has borne fruits beyond our expectations. We've seen a 50% conversion rate on our valuations offered through this tool. This is a very high conversion rate for used cars and well above our initial projections. Now towards the end of the year, we developed additional components to enable a seamless all-in-one digital buying journey from trade-in through to vehicle purchase. We introduced online finance functions to provide specification pricing and indicative finance quotes and introduced the ability to reserve a new car online. Now these are exciting developments and really demonstrate the reality of the omnichannel experience Inchcape is building. And globally, we intend to extend this pilot in 2020 into Asia and our South American businesses. And this is a very exciting project for Inchcape and it will become a real competitive advantage in the future. Now I also wanted to turn to the focus we have as a group towards mobility. Firstly, our trial with Grab. As you know, Grab is the market leader in mobility in Southeast Asia. This has gone well and we will be soon extending the scope of this program to service a greater portion of their fleet. This great progress is a great example for us, and at the same time, it provides us globally with valuable insights into how Inchcape can provide services to fleet operators as the vehicle ownership model evolves. Secondly, turning to Hong Kong, where we, as the Toyota distributor, provide the majorities of taxis in the market. In 2019, following the introduction of a new hybrid taxi by Toyota, we have retained our market leadership position and have seen an increase in the Aftersales retention of these vehicles in our service facilities. And lastly, our autonomous vehicle project in Singapore at Singapore University in cooperation with Easymile, which is the OEM provider, and ComfortDelGro, who is the taxi provider. This is the first operation to achieve a Milestone 1 recognition in Singapore. And by this, I mean, we are the first to operate an autonomous vehicle in a mixed traffic route on private roads. In 2020, the plan is that the route begins to include public roads, so we'll drive outside the University of Singapore and it will include residential pickups, so a big step forward. So as you can see, we are very much focused on developing opportunities as we see mobility evolving. Also, that said, a key benefit of the many market that Inchcape operates in is that the penetration of vehicles remains low. Gijsbert gave you an example of Chile. So the absolute car growth opportunity in these markets would also to continue to drive Inchcape's growth. Now let me conclude with some final thoughts before we turn to your question and answers. Inchcape is well placed to continue to deliver to drive growth and cash returns for our shareholders. The investment proposition remains the same with Distribution at the core and a focus on ensuring that the business continues to deploy capital effectively towards the opportunities that exist in this attractive global market. The retail disposal of 2019 and the new Distribution contracts we've won in 2019 are clear demonstrations of this. Inchcape has shown it has a very sustainable business model. The weighting towards markets with a clear structural growth opportunity, the focus on continually optimizing our operational performance, the consolidation opportunity and the solid cash generation should enable the group to maintain its long track record of delivering attractive shareholder value. Now before I conclude, I would like to say that I have truly loved my time at Inchcape and I have felt privileged to lead and to work alongside a team that is committed and truly experienced in the industry. And it has been a real source of satisfaction to me to see how the Ignite strategy has enabled Inchcape to grow faster and be a consolidator in its industry. And as a result, I know that I will be leaving the business in good shape and in good hands. The success of Inchcape now rests on many shoulders, and the Board and our OEM partners and myself all know that the team will drive the business forward, capturing the many opportunities that still lie in front of this company, yes. So with this, thank you to all of you here in the room listening and on the webcast. And now Gijsbert and me will be more than happy to take any of your questions. Mike?

I've got a couple of them, if I may. I think just in terms of the entry and exit multiples that you paid, I think it was on Page 6 of the presentation, I'm assuming the -- that the 14x was based on the historic EBIT performance and the 8x that you've acquired is what you think you would deliver with the business, i.e., its perspective multiple?

Actually, these were based on the actuals, yes. I think the important point, Mike, is I think it should provide you all with the confidence that when we actually dispose our retail businesses, we are very -- we're very selective about extracting value for our shareholders. At the same time, it also does show you on the distribution acquisition side that there are really attractive opportunities, including entering a business relationship with Daimler for the first time, at attractive multiples.

So the multiples there, I think, should be like-for-like in terms of the bullet points so...

Yes.

And then just a couple of questions, just on Singapore. I think the TIV is showing down 25% for 2020s. I mean would you expect to -- I mean you've outperformed it in the past. Is that something you think you can outperform?

I mean, as Gijsbert's chart showed, if you look through the cycle, Inchcape has -- when we look especially behind the Ignite strategy, that has been a key contributor during that down cycle. We've definitely outperformed that. Now I don't want to make you any promises for 2020, but I think it's the internal ambition to outperform that 25% decline. Yes, it is.

And then just final one for me, just looking at Hong Kong just in terms of would we -- should we be expecting any residual taxi contract coming into 2020 that might help offset the TIV expected decline?

You will see in Hong Kong, in principle, the scrappage schemes continue to be in place for the market, not just in taxi but across any commercial vehicles. I think the only thing I would be slightly careful because of the economic outlook of Hong Kong, that clearly impacts the business sentiment of commercial vehicle owners.

Sanjay Vidyarthi from Liberum. Just a question on network consolidation and where you have a distribution relationship with the OEM but not total control over the dealership network. How much influence do you have in terms of the shape of the network? And also in terms of deploying a kind of a digital strategy, how easy is it to do that in a kind of concerted way, again, where you're not necessarily in control of the full network?