INCHCAPE PLC

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Transcript : Inchcape plc - Special Call

24/11/2022 | 15:00

Presenter Speech
Duncan Tait (Executives)

Hello, everyone. I'm Duncan Tait, CEO of Inchcape. I am delighted to be introducing the second webinar in our In The Driving Seat series, which puts the spotlight on an area of our business with one of our senior leaders. We started the series in June 2022 with the Americas. And today, we will be focused on all things digital and data, which Mark Dearnley, our Chief Digital Officer, will take you through shortly.

As usual, you'll get an opportunity to ask questions following Mark's presentation. You can submit your questions via the Q&A functionality of the webinar. So let's get started.

Here, we show the 2 growth drivers for our business: distribution excellence and vehicle life cycle services. And you can see the opportunity in each is enormous. On the left-hand side, we show the total number of new vehicles that are sold every year across the world, around 90 million. The OEMs insource distribution in the largest markets. This includes China and the U.K. but also markets like Brazil and Mexico.

Outside of the larger markets, there are about 17 million vehicles sold in markets that are best suited to Inchcape. So a 17 million addressable market for distribution excellence, of which today, we have a little over 1% share. This excludes Derco, which will add 150,000 vehicles, taking our share to over 2%. That makes us the global leader. It also clearly demonstrates that there's a huge amount of headroom for growth.

On the right-hand side, we break down the vehicle life cycle value. The initial user phase where Inchcape is very present accounts for 25% of the total profit pool for each vehicle's life. 75% of the profit turns up from year 4 onwards, and this is a segment that is currently underserved by Inchcape. This is the focus of vehicle life cycle services growth driver. So 2 enormous opportunities where we're focused on taking a greater share and are the key growth drivers for our Accelerate strategy.

Both distribution excellence and vehicle life cycle services are supported by 3 key enablers, one of which is digital, data and analytics. It is abundantly clear that the automotive industry is already seeing and will continue to see increasing use of technology. And we made this a key area of focus when we were setting our strategy.

Given our role as the global leader in automotive distribution, we are uniquely placed to help drive this change. Accordingly, we have invested in our digital and data capability to speed up our progress, which has also given us access to additional growth opportunities that the business did not historically capture.

Today, digital and data is integral to our growth ambitions. Our focus on digital and data will support our goals of driving more customers, improved efficiencies and higher growth. And this in turn will continue to support the delivery of our medium-term targets for each of distribution excellence and vehicle life cycle services that we set out at our Capital Markets Day a year ago.

You've heard how important digital and data is for us and our growth ambitions. But let's now hear from one of our key OEM partners, Mercedes-Benz, to get their perspectives on Inchcape and how important digital and data is for them.

Presenter Speech
Matthias Lührs (Attendees)

As the first car manufacturer worldwide, it is a pleasure from Mercedes-Benz to work with Inchcape, a company whose purpose is to bring mobility to the world's communities for today, for tomorrow and for the better. Especially looking at your great work in Colombia, which used to be a Mercedes-Benz national sales company before, the importance and advantage of our cooperation becomes clear. Not only in Colombia but also in many other markets, we delegate the distribution responsibility of our vehicles and the care of our customers to you and fully trust you in this matter.

We desire to continue operating national sales companies in large markets globally, and we rely on independent professional and reliable distributors like Inchcape. Furthermore, we are immensely impressed by your digital and data analytics capabilities, running at the forefront of digitalization. I thank you for your great effort and dedication and look forward to many more years of great cooperation with Inchcape.

Presenter Speech
Duncan Tait (Executives)

It is really great to receive such positive feedback from our OEMs, specifically on our digital and data capabilities. We've come from a position of laggard in digitalization and data analytics a few years ago to a position of leadership today. Our leadership in digital and data analytics is not just our internal view, but is supported by an independent review of where we sit against our larger scale competitors on the 2 dimensions of digitalization and data analytics.

We are mindful that we occupy this position of leadership at this point in time, and we need to continue to innovate. And we will need to continue to work hard if we are going to remain ahead. We are on a journey. Therefore, our focus is about accelerating even further beyond where we are and continuing to add value to both our consumers and to our OEM partners. If we can do this, we will continue to take a greater share of the global distribution market and consistently deliver results.

With that, let me introduce Mark. I joined Inchcape in July 2020 to drive the business into the new age of automotive, following 30-plus years in various technology services roles. Mark Dearnley, our Chief Digital Officer, was my first senior hire and is a key member of the group executive team, sitting alongside our regional CEOs and other functional leaders who are responsible for driving the successful execution of our strategic priorities.

Mark is the architect of the accelerated progress that Inchcape has made in digital and data over the past 2 years. Mark's formative years were spent as an electronics engineer and in aerospace and satellite design and manufacturing. He then went on to CIO roles for global businesses, which included a number of transformational consumer digital programs. And prior to joining Inchcape, he was a partner of Bain focused on post-merger integration, enterprise technology and operational transformation.

Mark, over to you.

Presenter Speech
Mark Dearnley (Executives)

Thank you, Duncan, and hello, everyone. I'm Mark Dearnley, Chief Digital Officer for Inchcape. I joined Inchcape 2 years ago with an exciting remit to accelerate the group's digital transformation. And hopefully, today's presentation will give you a sense of our progress to date and the value it is delivering to our customers and to our business.

I stood in front of many of you at the group's Capital Markets Day in November 2021. And those of you present may recognize the 4 focus areas on the left. We've made great progress on each of these over the past year. In terms of our omnichannel, our Digital eXperience Platform, we are now live in 36 OEM markets from 18 a little over a year ago. Following the launch of our Data Analytics Platform in the first half of 2021, we now have 70% of all revenue being optimized by artificial intelligence, a fantastic achievement.

We set out to build a scalable digital architecture, and we have achieved this both with our core technology platforms and our 2 digital delivery centers, where we today employ over 900 people who are digital, data and cyber specialists. There is still plenty for us to do, but we are pleased with the progress so far and the results this is delivering.

So why are we doing it? As Duncan said, our investment in digital and data is all about driving more customers, improved efficiency and higher growth with the ultimate objective of supporting the group in delivering on its strategic growth ambitions. In our business, this starts with giving our customers what they need. Over 90% of customers start their car-buying journey online, conducting several hours of research before entering a dealership.

It follows that customers expect to have a seamless omnichannel experience with the majority today still preferring to make their final purchase at the dealership. After buying a house, this is usually the largest purchase a consumer will make.

Today, the number of visits to dealerships before purchase is a little over 1 versus 4 visits historically. We're therefore entirely focused on facilitating a rich and memorable customer experience before and during the time of vehicle purchase, and crucially, leveraging the digital platform and data infrastructure to optimize the relationship with the customer throughout their ownership cycle and the cycle of subsequent vehicle owners.

Today's presentation will be split into 3 main topic areas: firstly, our global and scalable Digital eXperience Platform; secondly, our proprietary Data Analytics Platform; and thirdly, our global tech capability. I will also share our thoughts on how we are seeing digital accelerating consolidation in the automotive distribution industry.

Before I get started, I'd like to introduce you to the Inchcape digital executive team. We are a 13-strong team based across our regions with a blend of automotive experience and fresh thinking from outside the industry. In addition to our heads of technology based in each of the regions, we have several subject matter experts who are responsible for setting the agenda and driving our digital and data platforms.

I'm really proud of the strength of the Inchcape digital team and the significant progress we've made towards our short-, medium- and long-term goals. Let's start with the Digital eXperience Platform, or DXP.

This is our digital touch point with customers. It provides a fully functional digital showroom and links with dealerships to deliver a seamless omnichannel experience, which we know our customers want. Importantly, for a business with our scale and growing footprint, it has deliberately been built to be a platform that has the ability to scale quickly into new markets and add new OEM brands. It's also a tool that enables us to capture significant customer and vehicle data.

We'll now play a short video, which will help bring this to life.

[Presentation]

Presenter Speech
Mark Dearnley (Executives)

Some of you will have seen a version of this slide at the 2021 Capital Markets Day. Here, I get to show you where we are today with the DXP rollout, and it's fantastic. Having started in 2021 with one OEM and one market, we were at 18 a year ago at the time of the Capital Markets Day. And as of today, we're covering 36 OEM markets with 13 different brands. The approach we've taken to this is that we first get it right for the OEM with a particular focus on their brand experience. Then when we've got that experience right, we're ready to roll this out around the world for that brand.

But what difference does it make? As outlined a few slides ago, our digital investment and innovation responds to what our customers want. It helps us provide an unforgettable customer experience and ensures we're ready for the future.

One of the KPIs we use to measure customer experience and satisfaction is our reputation scores. This data is collected by a third party and is therefore independent of our business. It brings together all the reviews and feedback provided by customers at a dealership level and allows us to understand sentiment and optimize leads and sales.

The chart shows the evolution of our reputation scores for Subaru, Toyota, BMW and Mercedes, drilling into markets where we have launched the brand on DXP. The time series shows the time before launch and post launch, and we have seen a significant step-up in reputation scores in all markets. This is a really pleasing result and demonstrates the value of DXP to our customers.

As well as delivering better customer experiences, as you heard from Matthias Lührs from Mercedes-Benz, our OEM partners are really impressed by the speed at which we've been able to roll out the capability and how effectively we're using the data that we're capturing.

In terms of the 3 main goals for digital and data of more customers, improved efficiencies and higher growth, following the rollout of the DXP platform, we have seen a 24% increase in marketable customers, a 15% increase in sales conversion from the leads generated by the DXP platform and are delivering consistent outperformance relative to market volumes.

In addition to the scalability of the platform and the speed of rollout, OEMs are impressed by our results, which brings us to our proprietary data analytics. This is all about predictive analytics and business intelligence. A little over 12 months ago, we built out central capability to drive better local and global decisions and are already seeing encouraging results. The combination of digital and data analytics is a significant differentiator versus the capability of our distribution competitors.

To help bring this next section to life, let's hear from 2 of our colleagues responsible for the Data Analytics Platform.

Presenter Speech
Alex Capewell (Executives)

Hi. I'm Alex, and I've had the privilege of leading Inchcape's Data Analytics Platform since its inception in April 2021. If you told me 2 years ago where we would be today before we even talked about DAP, I would not have believed you. How we've come and transformed our capability, our impact across data and analytics in the business has been truly transformational.

In 18 months, we have implemented a cutting-edge data analytics platform on the cloud. We've hired close to 150 fantastic colleagues in the data analytics team in 2 digital delivery centers: 1 in the Philippines and 1 in Colombia. And that makes us probably the biggest data analytics team of any independent distributor in the business.

By the end of this year, we'll have close to 100 machine learning models powering critical business processes across Inchcape, and we will have deployed close to 400 separate products across 30 countries and over 20 OEM partners.

We designed our strategy in the DAP across a few principles. The first is the investment strategy. We operate very much like a venture capital fund. We do many proofs of concept. We scale what works, and we close down what doesn't work.

The second is product. We focus on a small number of global products, a set menu, if you like, and scale those globally so that we have the time and the energy to continuously improve those products and keep us ahead of the competition.

The third is execution. We build on our modern cloud analytics platform, and we use advanced data analysis and modeling techniques and software that allow us to deploy at a speed and a scale that our competitors can't match.

And fourth is the system architecture. We focus on deploying products on our core technology stack of SAP, incadea, Salesforce and DXP that allows us to deploy 10 to 20x faster at a fraction of the cost of deploying on our legacy systems.

Our data analytics team has made tremendous progress and fantastic impact this year. We focused on scaling 5 data analytics products across the business, and we'll have those deployed across over 70% of Inchcape's distribution revenue by the end of the year.

We've also expanded the amount of data in our data lake sourced from every business across Inchcape. Since we introduced the DAP, we have more than doubled the amount of data sources in our data lake.

And finally, our product development strategy continues to evolve. We're moving from monthly data to daily data and from data-driven to being alert-driven to make these products even more valuable to the business leaders and to the front line.

So I'm incredibly excited about how data and analytics is driving Inchcape forward, the impact it's having on the business and the improvements we currently see every month in getting faster and having more impact. I can't wait to see the impact it will have in the future.

Presenter Speech
Ram Thilak (Executives)

Thank you, Alex. I'm Ram, and I lead data science and AI within Inchcape's Data Analytics Platform. Before joining Inchcape, I was a Senior Data Scientist at Mercedes-Benz Region Overseas, the division that's focused on driving performance in smaller and growing markets around the globe. I joined Inchcape in 2021, excited by the company's role as a global leader in automotive distribution. Our solutions are OEM-agnostic, and we have been able to scale our algorithms to 20 different OEMs globally.

On any given day, we have over 100 AI models running in production that's helping our businesses make these decisions and support their decision-making for their day-to-day work.

We have a wide spectrum of algorithms driving different areas of our businesses, and we have seen great results.

Take, for instance, our parts pricing optimization. We initially launched the use case in Romania and in Chile BMW in late 2021, and we have had meaningful improvement in gross profits since then. Inchcape's proprietary AI-based parts pricing optimization algorithm is helping them solve this problem.

Traditionally, our businesses update wholesale parts infrequently due to the fact of the size of the parts portfolio, the complexity, the relationship between volume, price, margin, exchange rates and the competitive dynamics. So Inchcape's algorithm has helped them using a combination of price elasticity factors, competitor price comparison and machine learning to provide a recommended price factor optimal for prevailing market conditions.

The solution also identifies areas where we can change our wholesale parts prices to unlock more profits. As a result of this development, our businesses have complete visibility of their pricing strategy across thousands of SKUs for the very first time. They can monitor real-time price changes in volumes and prices across the portfolio, across competitors, and even different workshops at the click of a button. This proprietary resolution was developed in-house by the DAP platform, working in partnership with our Aftersales & Pricing teams. Our vision is to be the most advanced automotive data science practice in the world, leveraging our global footprint and our global data set.

Presenter Speech
Mark Dearnley (Executives)

Alex and Ram have talked through some of the algorithms and analytics the team have developed. The aftersales churn prediction algorithm is another great example. Aftermarket is a significant driver of the group's profitability. And this algorithm identifies those customers most at risk of leaving the ownership cycle so that they can be proactively contacted by our teams.

Previously, customers would only have been contacted if their warranty was expiring. The algorithm takes into account a number of factors, including details about the vehicle service history, the customer and combines this with our rich data set about similar models, enabling us to give them a tailored offer.

As we look ahead, we will roll this out into other markets beyond the 11 it is in today. We will deploy it into our third-party network to help drive higher parts penetration with the ultimate goal of driving higher retention rates beyond the first phase. The results of the test phase show meaningful improvement in customer retention rates and have our teams really excited about getting this into all their markets.

Remember, we have 3 main goals for digital and data: more customers, improved efficiencies and higher growth. Based on the initial results from various markets, the results of the aftersales churn prediction algorithm show a 26% increase in service bookings, which is driving more customers and higher retention.

In terms of efficiencies, following the implementation of our lead scoring algorithm, our teams are spending 30% more time on genuine hot leads rather than lower-value ones. And our parts, sales and operations planning has driven a 10% uplift in parts revenue, leveraging insights from our data analytics that Alex and Ram mentioned.

Some very encouraging results from our data analytics tools that we expect will continue to drive the group's growth and impress our OEM partners. In addition to being a significant differentiator, digital and data analytics is supporting our business intelligence and decision making.

We have the global visibility of traffic to our websites, the quality of that traffic and the leads and orders that have been generated. This data is at the fingertips of our management teams in our markets and can be broken down by our brands at the dealership level. This demand-level insight is complemented by supply-side detail, which helps inform our ordering process.

Following a successful pilot in 2020, we rolled out a stock risk management tool, which enables the market to check the health of their stock by brand and model. In addition to the current stock position, the tool uses forecast data and predictive analytics to project our future stock levels up to 18 months forward. This is industry-leading capability and is supporting our business decisions. It also shows excellence to OEMs. We can adapt ordering based on customer configurations to ensure they get exactly what they want, which optimizes our working capital, ultimately driving better financial performance.

Many of you will recognize the vehicle life cycle diagram we show here. Digital and data are fundamental to the entire journey of a vehicle from before it is being imported into a market to its first and subsequent sales. And for the duration, it is reliant on aftermarket services.

Following the investments in our digital and data capabilities, this process starts from demand forecasting and supply management through to digital marketing, omnichannel fulfillment and aftersales retention. As the first user of the vehicle is approaching a change, perhaps as they are reaching the end of their 3-year financing contract, we would offer them a vehicle trade-in at a price based on our knowledge of the vehicle and the market pricing.

This vehicle would then be subsequently sold to a second user at an appropriately determined price, ideally with a financing contract and a service plan, which keeps the vehicle and the second user in our ecosystem throughout their ownership, enabling us to provide aftersales services and parts at the prices we would have optimized. Our ability to deliver such a personalized experience would not have been possible without the investment in our digital and analytics capability. It is this ability to join up the vehicle life cycle that underpins the group's confidence in the successful delivery of the Accelerate strategy.

So let's talk about the infrastructure that powers our global technology capability. There are 2 aspects to our tech capability. The first is our digital architecture. The second is our digital delivery centers. Let's start with our digital architecture.

The Inchcape core provides our market teams with a comprehensive technology solution, which underpins and links both distribution excellence and vehicle life cycle services. This globally scalable platform-based architecture creates homogeneity across our markets and OEMs. It is built on industry-leading technology solutions with consistent global code base.

The platform is nevertheless flexible to ensure our regions and markets use the aspects that are applicable to them, and it also supports any specific regulatory and legal requirements. Inchcape core supports our plug-and-play distribution platform, which enables us to onboard new OEMs in our markets quickly and efficiently and bring Inchcape's distribution excellence to their brand.

We have been investing over the past year in our technology hubs, and we have built 2 digital delivery centers: 1 in the Philippines, 1 in Colombia. We now have over 900 Inchcapers working within these centers, up from 500 a year ago. And you can see the pictures of the 1-year anniversary that they celebrated in the summer.

The DDCs enable global coverage for Inchcape with 24/7 solutions and services and provide a truly scalable platform, which helps accelerate the use of digital and data across all regions.

From a cost perspective, by insourcing capability and reducing reliance on third parties, the DDCs add significant capacity and operate within the group's cost and investment envelopes. We also have a number of fantastic initiatives in Colombia and the Philippines, partnering with local universities to provide internship programs as well as free study groups for vulnerable individuals. We are really proud of what we've built in these centers with the local teams really engaged with helping the group deliver on its ambitions.

So what does the future hold? We've made substantial progress over the past 12 months but continue to look forward to see how we can improve the customer experience and drive further efficiencies and faster growth for our business. Our goals for the future are to provide a complete omnichannel purchasing and ownership experience for both new and used vehicles; to have every action optimized by our proprietary analytics, codify our digital architecture or Inchcape core, which makes it easy to onboard OEMs in both new and existing markets; and finally, to ensure our global tech hubs continue to drive innovation and efficiencies for our businesses. At Inchcape, we're doing more, doing it better and doing it faster for the same spend.

We've talked about the future ambitions of Inchcape digital, and now we'll talk a bit about how digital is shaping the industry around us. It is our view that what OEMs require of their distribution partners has changed, particularly post COVID. Two topics consistently come up in our conversations that rarely did before: digital and data. And as such, we think that this new paradigm provides an opportunity for accelerated consolidation within the automotive distribution industry.

For example, take Geely Auto in Chile, a new OEM relationship for Inchcape since the beginning of 2022. The chart in the middle shows the exceptional performance of the brand since we took over in the Chile market for them. This was underpinned by digital being at the heart of the launch. Geely went straight on to our omnichannel and Data Analytics Platform. The large majority of marketing was spent on digital channels.

The relaunch of the brand was supported by a successful YouTube marketing campaign, and the brand has had over 250 million web impressions through our marketing. Geely are pleased with our progress and awarded us the distribution contract for Ecuador, our second market with them.

You've heard how important digital and data is for the OEMs. And this is also felt by independent distributors. It was clear in our conversations with the owners of Ditec in Chile, Derco across several LatAm markets and Simpson Motors in the Caribbean that the evolution of the industry, coupled with the growing requirements of the OEMs, significantly increased the demands of distributors, specifically with regards to digital and data.

In order to be future-ready, independent distributors feel the need to adapt and evolve their existing business. Inchcape's investment in digital, data and global tech capabilities gives us a clear competitive advantage and will enable us to drive consolidation of the automotive distribution industry.

Bringing this together, while OEMs are focused on the very largest markets, we have created a plug-and-play platform that supports a multi-market rollout, enabling us to focus on higher-growth and harder-to-reach markets in which we specialize. OEMs are also looking for fewer stronger partners given our scale both in size and breadth and our investments in digital and data, we're the logical go-to partner.

In terms of the independent distributors, it's increasingly clear that most independents lack the scale to invest in digital and are inexperienced with cybersecurity and lack access to the same level of data, whereas digital and data is central to the group's strategy, and we have a broad range of technological capability. We are focused on further enhancing our competitive advantage in order to help accelerate the group's growth ambitions and further M&A opportunities.

I hope that has given you a sense of the fantastic progress we have made with digital and data. Fundamentally, our focus on digital and data will support our goals of driving more customers by both winning new customers and holding on to our existing customers for longer; improved efficiencies by speeding us up, reducing costs and increasing the rate at which we integrate new businesses; higher growth by supporting the delivery of our strategic growth pillars of distribution excellence and vehicle life cycle services.

Thank you.

Answer
Raghav Gupta-Chaudhary (Executives)

We'll now move to the Q&A section of the webinar for which we have around 30 minutes. We've had a number of questions come in already. So for those that haven't found it, there's an Ask a Question button towards the top of the webcast page where you can submit your questions.

So the first question we've had is what is the size of the prize?

Answer
Duncan Tait (Executives)

I think I'll take this one right now. But Mark, you might want to add something to the other side. But look, fundamentally, we are the leading global independent automotive distribution company. One of the most significant reasons why we lead is the work that Mark and his digital data and analytics team have done and have been able to do so globally.

And we're getting great feedback. We're getting great feedback from OEMs like Matthias as you saw at the top of this video. We're getting great feedback from our independent retailers in the countries around the world, many of whom, by the way, have given Mark a huge hug when he's turned up in their markets. And we're getting great feedback from [ Inchcape. ]

What I can promise you is we will continue to innovate. Mark and his team will continue to drive leadership and extend our leadership. And fundamentally, that means that our company stands a greater chance of growth as we progress with our Accelerate strategy.

Mark, do you want to add something to the end of that, please?

Answer
Mark Dearnley (Executives)

Yes. Thanks, Duncan. I think we should start by the 3 main goals for digital and data, which is what keeps me and the team completely occupied, which is the more customers, improved efficiencies and higher growth.

So more customers, as we talked about on the video, is about winning new and really importantly, retaining the customers that we already have. Efficiencies is both speed and cost, and it's cost and speed both in technology and in the wider operation of the business as well. And then the growth is driving us to the overall Accelerate ambitions. So a big change program we're going through, big ambitions and ensuring those give us the higher growth rates we're looking for.

And then how -- also how we're using digital and data to help join up the whole vehicle and customer ownership life cycles, enabling us to keep our customers for life through multiple vehicles for them and also keep our vehicles in our ecosystem, so a vehicle going through multiple customers within our ecosystem. Those 2 dimensions are really important in bringing all of this together.

And when you do bring all of this together, what we see then is that huge opportunity for us to capture more of the 17 million vehicle opportunity that Duncan explained at the start of the presentation and use our distribution excellence capabilities to capture more of the profit on the way through both the customer life cycle and the vehicle life cycle.

Answer
Raghav Gupta-Chaudhary (Executives)

Thank you, Duncan and Mark. The next 2 questions seem to be on competition and where we are. Can you talk a little bit more about where you are relative to your distribution competition, both larger and smaller players?

Answer
Mark Dearnley (Executives)

Yes. We've come over the last 2 years, a very, very long way. And a huge credit to the team on that. Duncan showed you in the earlier part of the presentation an independent assessment we had done of where we were and where we are relative to the distribution competitors. I'm incredibly pleased and very proud of the work that's been done, but we are not complacent. We know that every day, customers' expectations increase, and we have to respond to those expectations.

We also know that our competitors continue to develop. We think they're a bit more fragmented than us, but we know that they're continuing to do this as well, and so we have to stay ahead. What we've built in the Inchcape core is scalable. We've proved that with the 36 markets we're already in. And it underpins the entire business.

I guess the other proof point is it is getting easier and easier to plug in new businesses, which obviously is really impressing the OEMs as we're talking to them and integrating new businesses, just like we showed you with Geely.

Answer
Raghav Gupta-Chaudhary (Executives)

And then, Mark, the follow-up is how sustainable is your leadership in digital versus your distributed peers?

Answer
Mark Dearnley (Executives)

I mean, it will remain for us the central differentiator. And that really matters for our customers, for our dealers and for our OEMs. What we've achieved so far and the scale that we have now as a group enables us to leverage that investment across the group -- across the globe. It means we can move much faster. We've already tackled the challenges of many of the markets, of many of the currency localizations, of many of the regulations that have to be done.

And then by having our in-house digital delivery capability, it means we can move very, very quickly and extremely cost effectively. But I'll bring it back to -- we're doing this to drive 3 main goals. It's about getting more customers, the existing -- the new ones and the existing ones. It's about being more efficient both from the technology that we just talked about but also for the wider organization, and it's enabling the growth.

And so I think -- we think it is sustainable. We think we can -- as I said a minute ago, we absolutely cannot be complacent, but we will just keep extending that leadership by focusing on the core platform and on the customer experience.

Answer
Raghav Gupta-Chaudhary (Executives)

Great. Mark, another one for you. You mentioned in your presentation doing it better and faster for the same spend. Can you talk a little bit more about that efficiencies bucket that you're going after?

Answer
Mark Dearnley (Executives)

Yes. I mean, I think it builds on some of the earlier questions as well because compared to where we were 2 years ago, if you remember that chart, we have more than doubled our capability and capacity within the same budget by building our own digital delivery centers. That internal capability allows us to do more for the same amount of money.

We've also significantly reduced complexity by going for a common global stack. And that means we develop something once, and we can use it in many, many markets. And we learn patterns from around the world, particularly in our data analytics and are able to leverage those much more quickly.

But it does come back to the main focus of supporting growth and getting more OEM brands on there more quickly, more customers able to use the platform in more of our markets. And then by going across the whole vehicle life cycle, both the selling and then the aftersales and then the used cars as well as the new cars, it allows us to make much more profit from the total vehicle life cycle, which, to this point, we had been underserving.

Answer
Raghav Gupta-Chaudhary (Executives)

Super. Slight change of tack here then. You mentioned 70% of all revenues are now AI-optimized. Can you help us understand this better and share more details on what this has meant for the business?

Answer
Mark Dearnley (Executives)

Yes. And hopefully, from what you saw with Alex and Ram, I mean, who are 2 absolutely superstars in our team and have really brought this alive, the 150 people they have around them just give us great ideas every day and every week. It's amazing what they've been able to do.

But what we've been doing is taking the core business processes. And I will say this is just the start of what we're going to do as well. We've been taking the core business process and saying, "What are the key points in those where if we could predict what was going on better or if we could optimize the result we create more effectively, we could start to transform both the experience for the customer and the profit that we are able to make?"

So we talked in there -- let me pick 5 of the -- so we talked in there about aftersales churn, which we now have live in 11 markets. In those 11 markets with being able to spot people who are more likely to churn, and then it -- proactively talk to those customers, we have increased bookings by 26%.

Now not only does that give us more workshop utilization, that also brings through more spare parts revenue. So it's having a huge impact. That is one, by the way, that our independent dealers are queuing up for us to roll out into them. They're very, very excited about that.

On the real-time lead scoring that we also mentioned, by being much better at spotting which are the hot leads from the customers' behaviors, we are able to focus our sales staff much more effectively on the customers who are very, very hot customers. And we're seeing a 30% increase in the time they're spending on hot leads.

If you go into the parts S&OP, so sales and operations planning for parts, by being much more effective at the way we plan parts, optimizing the way they're delivered, optimizing how many we keep, we've seen an increase of 10% in our parts revenue. Vehicle sales and ops planning, we now have visibility up to 18 months out of what is going on across the vehicles, what stock we need, what we're likely to hold, and then we can work much more closely with our OEMs to optimize deliveries and optimize the models.

And then on parts pricing, which is another one we've been running more recently, where we are optimizing the parts pricing algorithm, we're seeing anywhere between 3% and 12% gross profit uplift, which is really fantastic on top of the increase in sales by having the optimum parts available.

So this is just the beginning. We're going systematically, process by process, customer experience by customer experience and looking at everything we can do to make it better and put better information in the hands of our frontline staff and make sure they are able to serve our customers and our OEMs in the best possible way.

Answer
Raghav Gupta-Chaudhary (Executives)

Great. Another one for you, I think here, Mark. How do you know that the 1% vehicle growth outperformance shown is specifically due to the omnichannel experience?

Answer
Mark Dearnley (Executives)

I mean the 1% is part of the overall distribution excellence transformation program. And the digital and the data is part of -- they're one of the enablers in there. We also -- if you remember back to the distribution wheel we have of the different areas of process expertise, the exceptional people we have working on the frontline as well, it all comes together to enable us to outperform the market.

And I think the best proof point is that is the Geely example that we just gave. When we bring all of this together, we are able to significantly outperform both the market and the distributors we've been taking over some of these OEMs from.

Answer
Raghav Gupta-Chaudhary (Executives)

Great. We've got a couple here on the omnichannel platform. Are you able to -- and data. Are you able to leverage legacy data pools within DXP to target those vehicle life cycle services opportunities?

Answer
Mark Dearnley (Executives)

So the incredibly short answer is yes, but then let me explain. So yes, the beauty of the data analytics architecture that Alex, Ram and the team have built is that we can be streaming in real time the events that are happening today but also bringing into it legacy data, third-party data sources and anything else that we think will help with building the optimum algorithms to be able to work out what we're doing today and in the future with both customers and vehicles. So we see it as a complete collection of all the data sources we can get to brought together. And the more data we can get, the better the results are.

Answer
Raghav Gupta-Chaudhary (Executives)

And a follow-up, Mark, how much tailoring of the omnichannel platform has been necessary for either geography or OEM? And does this restrict future flexibility?

Answer
Mark Dearnley (Executives)

So the really nice part is that every time we add another market, it gets easier. So we are now well advanced in knowing how to go into a new market and deal with all of the tax implications, the currency implications, the language implications, the regulatory implications.

And as you've seen in that we're already in 13 OEM brands, we are getting increasingly good at being able to create an amazing brand experience for each one of those OEMs. But you can tell from the speed we're being able to move, that is by leveraging the same core.

So we're running a common global code base. We are now able to very quickly deploy. And the fact that we've already got it in so many markets, every time makes it easier. So we're on our way down the experience curve. That's working extremely well. And we're -- we just keep getting faster each time because the product matures every time we do it.

Answer
Raghav Gupta-Chaudhary (Executives)

So Duncan, you'd be relieved to hear that there's a question here for you. An important profit pool created by DXP/DAP is the opportunity in VLS and bravoauto. Is there any update on the profit contribution you expect from bravoauto in the near and medium term?

Answer
Duncan Tait (Executives)

So let's wind back up to the top -- to what we said at the Capital Markets Day almost a year ago today was the -- from VLS, you should expect at least GBP 50 million of incremental profit per annum towards the end of our planning period. And we were doing that through 3 areas we were looking at. That was bravoauto that we're going to increase our annual vehicle sales of used vehicles by 80,000. The second one was to look at our digital parts platform and how we could take advantage of the distribution opportunity for parts, which is enormous. And thirdly, we were looking at aggregators.

I'll give you an update now, and I've answered this question before to investors, which is I feel very confident about our ability to get to the 80,000 incremental used vehicle sales per annum. We are experimenting still in our digital parts platform. Hopefully, we'll tell you some more news about that in 2023. And we continue to look at how we can leverage aggregators both inside the company and externally.

So Raghav, I would say, we -- I am confident about the direction we're taking and about the numbers we gave you a year ago. And fundamentally, what underpins those businesses is Mark and his team, and we're using DXP on the left-hand side of our business in distribution and increasingly on the right-hand side in bravoauto.

And then underneath that, of course, is all the analytics, which Mark and his team are working on. And we're working on some things which I find very interesting in analytics for used vehicles in terms of how we buy and how we sell and more about that, I think, over the next 12 months or so.

Answer
Raghav Gupta-Chaudhary (Executives)

Another one for you here, I guess, Duncan. When thinking about either recent or future M&A, is digital and data creating more cost and revenue synergies?

Answer
Duncan Tait (Executives)

So look, a good question. Let's start at the top with M&A. So look, I think independents are realizing that their OEMs want companies who are capable of driving this digital and data agenda. And why is it? It's because it's very clear what customers want and how customers want a great experience during the buying journey and the ownership journey. And that is putting pressure on OEMs to say, "Move more to professional, very capable distribution companies like Inchcape." And to the independents, it's saying, "Wow, I'd rather have my company bought by the winner, and I think Inchcape is the winner."

Now is it giving us the ability to drive cost synergies and revenue synergies? Very simply put, yes. Yes. Now they're not simple to get at, but that's exactly what we're doing. And you can see that with Ditec, you can see that with Simpson. You can see that, and though I can't yet show you, in our integration plans for Derco where we did that analysis of all of our global distribution competition. What we recognized in Derco is, wow, they're a very capable company, but they are miles behind Inchcape in their digital and data agenda.

And we will, as one of our cost and revenue synergy opportunities, drive DXP and DAP into Derco. They'll help with consumer experience and driving top line and enabling us to drive the bottom line at the same time.

Answer
Raghav Gupta-Chaudhary (Executives)

Great. And then if we think about -- how do we think about Inchcape's capability in digital and data compared to the automotive brand or the OEM national sales companies where they do distribution themselves?

Answer
Duncan Tait (Executives)

Who are you aiming that one at, Raghav? Me or Mark?

Answer
Raghav Gupta-Chaudhary (Executives)

Whoever wants to answer it.

Answer
Mark Dearnley (Executives)

You start, Duncan. I'll join in.

Answer
Duncan Tait (Executives)

Sure. Let me give you a view. Our aim is to have the best DXP and DAP full stop. And I think what we are doing, and you can see that from companies like Mercedes, what Matthias said at the top of the call, is that in the markets we run distribution for them, they are driving their business through our platforms. Our platforms are super functional and super fast to deploy. And we're aiming for leadership.

Now will we always remain ahead in every angle? No, because the industry isn't like that. But we aim for leadership. And we do benchmark ourselves against OEMs. As I recall, we were about #4 as we analyzed that around a year ago for the Capital Markets Day. And we improved by the day, Raghav, is what I would say. But around the whole journey -- about the whole experience journey pre and post sale is what we're looking to do and have that optimized by our Digital Analytics Platform at the same time. Mark?

Answer
Mark Dearnley (Executives)

Yes. No, I agree. And yes, every day, we try and improve that #4 position. So watch out for new things coming soon. So I think the OEMs are focusing on their larger markets and rolling out even in the larger -- we know how hard it is to roll out into markets. They have just as many challenges as we do. They also are dealing with all the same things of finding talent, moving forward, listening to their customers and optimizing for their markets.

We think it's hugely complementary that they continue to develop their product for the larger markets and that we continue to develop ours to cover all of the markets that we're operating with it. And we have a very, very close working relationship on digital and on the data and particularly on the analytics with all of our OEMs.

Answer
Raghav Gupta-Chaudhary (Executives)

Mark, while you've got the mic, there's a question here about customers and what customers -- what your customers say about the platform.

Answer
Mark Dearnley (Executives)

Yes. I mean probably 3 customer groups, and it builds on the OEM piece again. So I mean, I think of customers that we worry about as the end customers, the dealers and the OEMs. We have to build something that's brilliant for all 3. But if I start with the end customer, the first bit is to remember that 90% of them start their buying journey online but still want to come into the dealership. But when they arrive in the dealership, the vast majority, so 75% to 85%, have already decided which vehicle they want to buy. So it's how we satisfy their needs across that entire journey and that way that they want to work because we need to listen to what they want.

I think there's many ways to understand how customers feel, but the more independent it can be, the better because otherwise, we start to bias the answer. And that's why we like reputation. It is an entirely independent way of getting their feedback because it's typically -- a lot of it is what they post online after they've had an experience with us.

And so we watch that and respond to that extremely carefully and extremely closely. And so it's been increasingly pleasing, not only that normally we're above the industry average in what our customers think of us, but that each time we've deployed DXP into markets, we've seen a significant uplift in those scores. And it is the combination of more than just technology. It's the process we put around it. It's the way we train our people, and it's the whole way we've done -- digitally market to them. So it's a complete package. But we're really pleased with what we see there, and that's how we judge ourselves.

I think with dealers -- and Duncan mentioned earlier that, yes, genuinely one dealer did come and hug me because of how much they love what we've been deploying to them, which was, I think, in my entire career, I've never had someone run up and want to hug me because they've got such great tech. But what we're seeing from our dealers is them running towards us. They are getting increasingly excited by what they're getting from DXP and the levels of integration they can see. And they're really pleased that we can help them optimize their operations through the use of the AI that we talked about a little bit earlier.

So dealer feedback is good. We have more rolling out to do with dealers. But it's really great to have them as part of the value chain and to have their input on the way through. And then OEMs, I mean, you've seen the recognition from some of the largest OEMs on the video today. But the ultimate proof point there is whether they give us more business.

And we've seen with the Geely example, and we're seeing with others around the world that what we're doing with digital data is attracting them towards us. So I think we see good things, and we're very pleased. But I keep going back. We are continually learning. This evolves every day. Customers evolve every day; their needs evolve every day. And so we are not at all complacent in this space. We are going to keep listening. We're going to keep developing and we're going to keep optimizing. And that's what will keep customers coming back to us across those areas.

Answer
Raghav Gupta-Chaudhary (Executives)

Super. And then another one on carmakers here. How do Inchcape's digital plans sit with the carmakers' aspirations to go direct to consumer?

Answer
Duncan Tait (Executives)

So a good question, Raghav, in fact, I was talking to one of our OEM partners on this topic this morning. Look, I think the basic way to think about this is we think OEMs have got a big job on their hands to be the leaders in the move to EV. It's taken a lot of their intellectual and financial capital to do that, and they should drive the success of that in their largest markets.

We are very much focused at those lower-volume, more complex markets. And in those lower-volume, more complex markets, it is Inchcape that is transforming the route to market on behalf of our OEM partners. We're using DXP, DAP, great people and our processes to enable that. Of course, we're driving better results for them than they would do if they ran those markets themselves. So they'll drive agency in the very large markets and go direct in the very largest markets around the world.

In the markets that we run for them, we deliver them a better return, better consumer experience, as you can see from Mark's charts before, and that's the value proposition that we deliver to OEMs. That's how, for instance, we've ended up as the largest distributor of Mercedes vehicles in Central and Latin America, going from about 0, 3 years or so to the largest today.

Answer
Raghav Gupta-Chaudhary (Executives)

Mark, 2 questions here on DDCs. The first is, what proportion of the DDC employees are working on the central global product versus the local adaptation of those products?

Answer
Mark Dearnley (Executives)

It's -- so it's the -- I'm sorry, I'm just trying to work out the right way to answer that. I think it's a single common global code base, and so I don't actually think of it in that way. We are building a product that supports all of the OEMs we work with in all of the markets.

And so the -- if I might, the only localization -- I'm just trying to think what all the teams are working on. The only real localization, and we were working through one of these earlier this week, is where we develop the individual government forms for a particular market.

So for example, in Hong Kong, the form that you have to submit to the local authorities there are specific to Hong Kong. But it really is only at that level where we're talking localization. The way a customer moves through and the way the process works and the way it integrates and the way the data is captured is common globally. The only other -- so the answer to that is it's a very, very small amount, a few percent of the people would be doing things that are really local.

What we do then have is, of course, the experience. So when you look at it, it looks completely specific for the individual brand. If it's powering Toyota, it looks in -- completely like Toyota. And if it's powering Mercedes, it looks completely like Mercedes. And that's what our local and regional teams do. They take the product, and then they build the design experience for their markets and their OEMs to be able to do that. But that is all done in configuration. None of that is bespoke development. It's all images, it's all copy, it's all configuration.

We have put a huge amount of -- because this is a scalability point. And if you think back to the slide that was the swoosh, you couldn't do that swoosh of that many at that pace if each time we were rebuilding it. And if you look at where we want to go next, that's the -- that's where the real secret sauce of this is.

Answer
Duncan Tait (Executives)

And Raghav, if I may add on the end of Mark's answer, just to give my view also from talking to the DAP team because actually the leader of -- Alex happens to be in the same office as me today is if you go back a year or so ago, it was taking us 13 weeks to deploy the lead scoring algorithm. We're now doing it in less than 2 weeks. And Mark might tell me it's even better than that.

But if you look at that speed advantage we're getting, you don't get that from customizing everything to every market. You get that from the way you think about building these products that can be deployable globally. And to Mark's point, around 70% of our algorithm -- 70% of our revenue is now optimized by AI, which is fabulous news. The even better news is that not every market yet has 70% of their revenue streams optimized by AI, which is why there's a lot more in the tank in the near term and in the future for us.

Answer
Raghav Gupta-Chaudhary (Executives)

So the other question on DDCs, were -- are there any areas you want to add to in your DDCs?

Answer
Mark Dearnley (Executives)

So we're building teams in the DDCs to cover all of the area of the Inchcape core that you saw. So -- and we continue to develop -- and one of the models, as we've talked about, is how we bring work back in. So we've done an awful lot of work around the ERP [ led ]. So we keep growing that team, and it increases in the scope and scale of what it does.

DAP, so the analytics, we keep growing the number of data scientists and data analysts we have as more algorithms, and we have more ambition. DXP, actually, I think we've got a pretty good team now. And so that area, we will just now continue to drive forward and do more with.

The other bit we've been doing quite a lot on is infrastructure and actually being able to move to a common global infrastructure, which links very closely to cybersecurity, which is one of the other areas we continue to develop. We take cyber incredibly seriously and are investing very hard in that area and have moved over the last 12 months to a consistent set of global standards to a point where I think we're [ close to this differentiates us, ] and it's certainly something that we are working with our OEMs to set a common global standard of where we want to be, recognizing the importance of the customer data that we look after and the importance of their brands as well. So really pleased.

I mean it probably gives me an opportunity just to say thank you to everybody working in the DDCs. The team are just amazing. The energy they create every day, the amazing deliveries they do and the impact they're having is just phenomenal.

Answer
Raghav Gupta-Chaudhary (Executives)

Thanks, Mark. We've probably got time for 2 more, try and squeeze 2 in. How did -- a penultimate question, how do you prioritize where to focus investment and tech efforts?

Answer
Mark Dearnley (Executives)

So we go to the markets and we go to the OEMs, and then we listen to the feedback from our customers. So coincidentally, this week, we've just finished a large prioritization process for where we're going to go next year and all the things we have planned for our road map over the next 12 months. And that was led from the frontline back.

So we built it up, we consolidated it, and then we agreed it globally so that everybody -- some markets will lead on some things. Some markets will be in the second wave of rolling things out. But we are the servants of the frontline. They are the servants of the customer, and all of us are here to support our OEMs. So it's a global, I'm going to say, almost democratic process led from the frontline.

Answer
Raghav Gupta-Chaudhary (Executives)

And then, Mark, I guess, to close off, one final question here is what does the future look like?

Answer
Mark Dearnley (Executives)

The future is really exciting. We've still got so much more to go after. We're going to continue to add features. The more data we collect, the smarter we get, and so we'll continue to add data. From DXP, just to reiterate some of the things we talked about earlier, DXP, we will complete the omnichannel purchasing and ownership experience. There are so many more places we can go to in that, that will be great for customers. And we'll include in there the full finance processes, all of your insurance and the complete life cycle.

We want to have every action optimized by some form of our proprietary analytics. We can see huge benefits for customers and our staff in that. And we want the Inchcape core, and Duncan touched on this, to be at the heart of every single M&A. We think it's a great accelerator as we do M&A.

And then we want to continue to enhance our global delivery capability. What we've been doing with the digital delivery center teams and our global teams is really fantastic. But we're 2 years into a multi, multiyear journey, and we want to keep improving that and keep giving them more and more opportunities to develop as people.

And I guess the other thing, this is not a once-and-done. This is a continual iterating process that we're in, and we want to continue to iterate, and we want to maintain the leadership position that we think we have today, win more distribution businesses and serve more customers so that they really, really enjoy being part of the Inchcape distribution network.

Answer
Raghav Gupta-Chaudhary (Executives)

Mark, thank you. Thank you very much. Duncan, leave it to you to close. Thank you very much.

Answer
Duncan Tait (Executives)

Yes. Thank you, team. So to everyone who's joined the call today, thank you very much for your questions. Mark, thank you to you for almost all of the answers. That concludes the second in our In The Driving Seat series. The video will be available later today on the Investor Relations website, inchcape.com. Thank you for all the questions. Thank you for your engagement. I hope you've enjoyed seeing how digital, data and analytics is helping drive growth in Inchcape. Thank you.

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