Acquisition of Musa Motors, Russia - Inchcape
Acquisition of Musa Motors, Russia - Inchcape
Acquisition of Musa Motors, Russia - Inchcape
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<strong>Acquisition</strong> <strong>of</strong> <strong>Musa</strong> <strong>Motors</strong>, <strong>Russia</strong><br />
André Lacroix<br />
Group Chief Executive<br />
Barbara Richmond<br />
Group Finance Director<br />
24 th April 2008
Important Notice<br />
The information in this document does not constitute or form any part <strong>of</strong> an <strong>of</strong>fer or invitation to sell, or issue, or any<br />
solicitation <strong>of</strong> any <strong>of</strong>fer to purchase, subscribe for or otherwise acquire any shares or other securities in <strong>Inchcape</strong> plc<br />
(“<strong>Inchcape</strong>”) in any jurisdiction, nor shall it or any part <strong>of</strong> it form the basis <strong>of</strong>, or be relied on in connection with, any<br />
contract therefor. No reliance may be placed for any purpose whatsoever on the information or opinions contained in this<br />
document or on its completeness. No representation or warranty, expressed or implied, is given on behalf <strong>of</strong> <strong>Inchcape</strong> plc<br />
or any <strong>of</strong> its subsidiaries, directors, employees, agents or advisers as to the accuracy or completeness <strong>of</strong> the information<br />
and no liability is accepted (and all such liability is hereby excluded) for any such information or opinions. Readers <strong>of</strong> this<br />
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<strong>Inchcape</strong> plc for the purposes <strong>of</strong> relevant insider dealing laws.
Highlights<br />
• <strong>Acquisition</strong> <strong>of</strong> <strong>Musa</strong> <strong>Motors</strong> Group, one <strong>of</strong> <strong>Russia</strong>’s largest car<br />
retailing groups, based in Moscow<br />
• Provides <strong>Inchcape</strong> with a significant scale position in Moscow<br />
with 16 sites with key global OEM brand partners<br />
• Earnings enhancing in 2008*<br />
• Complements existing <strong>Russia</strong>n operations and provides<br />
platform for further growth<br />
• 2009 combined <strong>Russia</strong>n revenue expected to reach £1bn.<br />
Delivering on our Emerging Markets strategy<br />
*This statement is not intended to constitute a pr<strong>of</strong>it forecast for the financial year ended 31 December 2008 or for any other period. In addition,<br />
this statement should not be interpreted to mean that earnings per share (before any one-<strong>of</strong>f costs and amortisation <strong>of</strong> intangible assets) will<br />
necessarily be greater than those for the relevant preceding financial period. 3
Transaction rationale<br />
• <strong>Russia</strong> is a core market for <strong>Inchcape</strong>:<br />
• High growth market (+ >60% in 2007, foreign brands)<br />
• Scale sites<br />
• Strong pr<strong>of</strong>it margins<br />
• Provides immediate, significant scale to existing <strong>Inchcape</strong><br />
operations<br />
• Broadens premium brand coverage<br />
• Pr<strong>of</strong>essional management team<br />
• Springboard for next stage <strong>of</strong> growth<br />
<strong>Acquisition</strong> provides scale platform in Moscow to increase<br />
Group’s exposure to continued strong <strong>Russia</strong>n growth<br />
4
<strong>Musa</strong> <strong>Motors</strong> – a scale acquisition<br />
• One <strong>of</strong> the largest, customer-focused retail groups in<br />
<strong>Russia</strong> with high quality sites<br />
• 2007 revenue US$597m, EBITDA $24.5m<br />
• Units sold 13,281* units in 2007<br />
• Q1 2008 new cars sold 3,222, +52.8% YoY<br />
• 16 retail centres<br />
• Strong pipeline <strong>of</strong> new retail developments<br />
• Represents 10 franchises, focused on premium brands:<br />
BMW, MINI, Rolls-Royce, Volvo, Jaguar, Land Rover, Chrysler, Jeep, Dodge,<br />
Renault<br />
* New and Used cars<br />
5
<strong>Acquisition</strong> consistent with strategy for<br />
<strong>Russia</strong><br />
• Build scale, multi-brand Retail operations in St<br />
Petersburg<br />
• Gain strong, multi-brand Retail presence in Moscow<br />
• Exploit regional opportunities<br />
6
New car sales volume and OEM ranking<br />
2006<br />
2007<br />
% Growth<br />
OEM ranking<br />
in <strong>Russia</strong><br />
BMW<br />
812<br />
1,187<br />
46<br />
2<br />
MINI<br />
151<br />
223<br />
48<br />
2<br />
Rolls-Royce<br />
13<br />
27<br />
108<br />
Solus<br />
Volvo<br />
1,920<br />
3,029<br />
58<br />
2<br />
Jaguar<br />
273<br />
273<br />
-<br />
1<br />
Land Rover<br />
1,142<br />
2,154<br />
89<br />
2<br />
Chrysler Jeep<br />
Dodge<br />
844<br />
968<br />
15<br />
1<br />
Renault<br />
4,062<br />
4,073<br />
-<br />
3<br />
Increased focus on premium brands<br />
7
<strong>Musa</strong> <strong>Motors</strong> – 2007 results<br />
Revenue<br />
Rolls Royce<br />
3%<br />
Other<br />
4%<br />
US$m<br />
Chrysler Jeep<br />
Dodge<br />
7%<br />
Renault<br />
10%<br />
Land Rover &<br />
Jaguar<br />
31%<br />
Sales<br />
EBIT<br />
EBITDA<br />
597.4<br />
23.1<br />
24.5<br />
ROS (%)<br />
3.9<br />
BMW&MINI<br />
20%<br />
Volvo<br />
25%<br />
Multi-brand scale retail operation with sustainable margins<br />
8
<strong>Musa</strong> <strong>Motors</strong> – strong & growing retail group<br />
• 16 retail centres, located in or around Moscow:<br />
• 13 3S centres in Moscow<br />
• 2 showrooms in Moscow<br />
• 1 showroom in St Petersburg<br />
New retail centres and significant refurbishments planned:<br />
• New BMW and Land Rover 3S retail centres opened in Moscow, March 2008<br />
• Relocation <strong>of</strong> 3S Moscow retail centres for Jaguar, Land Rover, Renault and<br />
Volvo to increase capacity in 2009. Site also has space for two additional<br />
retail centres (US$ 77m).<br />
• Two additional 3S retail centres (US$ 49m) due to open in 2009, including<br />
1 BMW<br />
• One new multi-franchise bodyshop (US$ 6m).<br />
• Planned floor space increase from current 34,011m 2 to 96,124m 2<br />
by end 2009<br />
9
Retail centres - existing and planned<br />
2006<br />
2007<br />
2008<br />
2009**<br />
BMW<br />
3S*<br />
1<br />
1<br />
2<br />
3<br />
MINI<br />
Show room<br />
1<br />
1<br />
1<br />
1<br />
Rolls-Royce<br />
Show room<br />
1<br />
2<br />
2<br />
2<br />
Volvo<br />
3S<br />
1<br />
2<br />
2<br />
2<br />
Jaguar<br />
3S<br />
2<br />
2<br />
2<br />
2<br />
Land Rover<br />
3S<br />
2<br />
3<br />
4<br />
4<br />
Chrysler Dodge<br />
Jeep<br />
3S<br />
2<br />
2<br />
2<br />
2<br />
Renault<br />
3S<br />
1<br />
1<br />
1<br />
1<br />
Additional centres<br />
3S<br />
-<br />
-<br />
-<br />
3<br />
TOTAL***<br />
11<br />
14<br />
16<br />
20<br />
* 3S = sales, service and spare parts retail centre<br />
** 2009 includes relocation <strong>of</strong> 4 sites (Volvo, Jaguar, Land Rover, Renault) to larger premises<br />
*** Excludes JV with 1 3S facility located in Nizhniy Novgorod 10
Sustainable growth momentum in <strong>Russia</strong><br />
• Foreign brands sales volume:<br />
• 1.6 million units in 2007, up over 60% YoY<br />
• Q1 2008 equivalent <strong>of</strong> 0.46 million units, +54% YoY<br />
• New foreign cars accounted for 15 per cent <strong>of</strong> total sales in 2003 but are<br />
forecast to account for 78 per cent in 2010<br />
• Car penetration less than half that <strong>of</strong> Developed markets<br />
Source: Avtostat 11
<strong>Inchcape</strong> organisation in place to integrate<br />
expansion activities in Moscow and St Pete’s<br />
<strong>Inchcape</strong> <strong>Russia</strong><br />
<strong>Musa</strong> <strong>Motors</strong><br />
<strong>Inchcape</strong><br />
Olimp<br />
<strong>Inchcape</strong><br />
Independence<br />
<strong>Inchcape</strong> resources in <strong>Russia</strong> at completion<br />
• Managing Director<br />
• Chief Financial Officer<br />
• Operations Director including delivery <strong>of</strong> <strong>Inchcape</strong> Advantage Programme<br />
• Human Resources Director<br />
• Legal Director<br />
• Business Development Head<br />
12
<strong>Inchcape</strong> Retail Model will be applied to<br />
deliver value<br />
Invest in pr<strong>of</strong>itable<br />
growth opportunities<br />
• Brands<br />
• Sites<br />
• IT Systems<br />
Empowerment<br />
Deliver the best<br />
Customer Experience<br />
• <strong>Inchcape</strong> Advantage<br />
• Vehicles<br />
• Aftersales<br />
Operational excellence<br />
to maximise<br />
pr<strong>of</strong>itability<br />
• Focus on value drivers<br />
• Process improvements<br />
Rewards<br />
Strong<br />
Team<br />
Training<br />
Quality<br />
Innovation<br />
• Product<br />
• Services including F&I<br />
• Processes<br />
13
Phase 1 <strong>of</strong> <strong>Russia</strong>n expansion now complete<br />
• St Petersburg<br />
• 2 Toyota, 2 Lexus, 1 Audi, 1 Peugeot<br />
• 1 Rolls Royce through <strong>Musa</strong><br />
• 8,850 units in 2007<br />
• Significant expansion <strong>of</strong> Toyota capacity underway<br />
• New Lexus site to be constructed<br />
• Moscow<br />
• 15 retail centres today in Moscow with plans to add 4 retail centres<br />
by 2009<br />
• 2 Toyota retail sites opening in Q4 2008/2009<br />
28 retail centres by 2009<br />
14
A scale business in a fast growing market<br />
Sites<br />
35<br />
30<br />
25<br />
20<br />
15<br />
10<br />
<strong>Musa</strong><br />
Independence<br />
Olimp<br />
5<br />
0<br />
2007 2008 2009<br />
2009 revenue in <strong>Russia</strong> expected to reach £1bn<br />
15
Transaction structure<br />
• 75.1% being acquired in 2008 with payment in two stages<br />
- Down payment <strong>of</strong> US$200m on completion<br />
- Further payment in 2009 based on 2008 EBIT less<br />
acquired debt, capped at $250m<br />
• 24.9% to be acquired early 2011<br />
- Final payment in 2011 based on 2010 EBIT, capped at<br />
US$250m<br />
• Completion subject to approval <strong>of</strong> regulatory authorities in<br />
<strong>Russia</strong><br />
16
Expected financial effects<br />
• Immediately earnings enhancing*<br />
• Satisfies Group IRR criteria<br />
• Financed from within Group’s existing debt facilities<br />
• Tangible assets as at 31 December 2007:<br />
- US$59m <strong>of</strong> property at current market value<br />
- US$23m <strong>of</strong> working capital<br />
*This statement is not intended to constitute a pr<strong>of</strong>it forecast for the financial year ended 31 December 2008 or for any other period. In addition,<br />
this statement should not be interpreted to mean that earnings per share (before any one-<strong>of</strong>f costs and amortisation <strong>of</strong> intangible assets) will<br />
necessarily be greater than those for the relevant preceding financial period. 17
<strong>Inchcape</strong> now a powerful force in <strong>Russia</strong><br />
• <strong>Acquisition</strong> increases <strong>Inchcape</strong>’s total market share<br />
in the fast growing <strong>Russia</strong>n market<br />
• Powerful bases now established in the two major<br />
cities in <strong>Russia</strong> which together account for 51%* <strong>of</strong><br />
the foreign brand car market<br />
• 2009 combined revenue in <strong>Russia</strong> expected to reach<br />
£1bn<br />
• Excellent platform from which to expand into the<br />
regional markets<br />
Delivering on our Emerging Markets strategy<br />
* Source: Avtostat 18