Inchcape PLC

LSE:INCH

Earnings Call Transcript 2020-Q3

[Operator]

Hello, and welcome to the Inchcape Q3 Trading Update. My name is Jas, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand you over to your host, Duncan Tait, to begin today's call. Thank you.

[Duncan Tait, Group CEO & Director]

Thank you, Jas. Good morning, everyone. Thank you for joining us. As usual, I'm joined by our CFO, Gijsbert de Zoeten; and our Head of Investor Relations, Raghav Gupta. I'll begin by commenting on the group's performance and provide a brief run-through of the key highlights before handing over to Gijsbert, who will cover the regional and financial performance. We will then be happy to take your questions. As we mentioned in this morning's press release, the Q3 results were ahead of our expectations. And this is a testament both to our resilience and the efforts of everyone across the group. At the headline level, revenues fell 10% on an organic basis. Reported revenues were down 19%, the difference being largely explained by the disposal of several retail operations that took place in the second half of 2019. Performance was broad-based with sequential improvement across our revenue streams, and we continue to outperform market volumes.As of today, we are open in 32 markets with 2 markets facing restrictions following a second wave of the virus in Europe. These markets are the U.K. and Belgium. But unlike the first lockdown, our after-sales services are committed to remain open, and we're also able to offer a click-and-collect service for new and used vehicles. However, please remember, we are a geographically diverse business with operations spanning 34 markets across 6 continents. While we are operating in unusual times, we have to look beyond the impact of the pandemic. We are making good progress with our strategic priorities, and I'm excited about the opportunities to build on the foundations laid by my predecessors, accelerate our growth in distribution and to be more ambitious with our use of data and digital. For example, following the development of the digital platform in Australia, we have started to roll this out to markets in the Americas region. And we've also made good progress deploying our inventory management process and technology into all of our global distribution markets. This was developed in our APAC region, and we were already seeing the benefits in our results. I look forward to updating the market at our full year results, both on the initiatives we are taking and how these fit into our strategic priorities. In spite of the operational challenges posed by COVID-19, we have today announced another distribution acquisition. Following the JLR Poland contract win in July, we are delighted to add El Salvador to the list of markets in the Americas region where we distribute Daimler's vehicles, which has further strengthened our position with the brand. A year ago, we were not distributing Daimler's vehicles in any market. Today, we are up to 4. And we continue to explore value-accretive opportunities to further consolidate our distribution footprint with both existing and new OEMs across all geographies. When we spoke last, we had just announced a significant restructuring program targeting at least GBP 90 million of cost savings. I am pleased to say this is progressing as planned. We anticipate completion in early 2021. Our teams are focused on executing this quickly and effectively to position the business to come out stronger with a leaner platform fit for focused growth. Let me now hand over to Gijsbert who will run through the regions.

[Gijsbert de Zoeten, CFO & Executive Director]

Thank you, Duncan, and good morning, everyone. As Duncan mentioned, on an organic basis, Q3 revenues declined 10%. This adjusts for the various retail disposals and the Daimler acquisitions in the Americas. The improvement in Q3 versus June, which, as a reminder, was down 18%, has been stronger than we had expected. And this is in part owing to demands which had built up during the first half when markets were forced to shut. Looking at the segments. Distribution was held back by some of our markets still being shut, notably, in the Americas and by the known cyclical factors in Singapore. Retail has seen strong performance in both our key markets. I would like to add, we saw gross margins improve versus Q2 with a stable margin versus prior year, and profitability was also supported by our cost restructuring program. Let me now provide you some regional color. Overall, Distribution saw 21% lower organic sales in Q3. In our Asia region, in Singapore, the Q3 performance was weighed down by the availability of vehicle licenses. However, based on the government's current plans for licenses, we expect volumes will trough this year, 2020, which is earlier than we had expected before the pandemic. In Hong Kong, we saw the sales trend improving versus Q2, and we expect it to continue to do so into Q4. The final quarter will also show an uptick on the comparative period last year, which was impacted by widespread protests. In both markets, commercial vehicle sales have been held back by delayed purchasing decisions in light of the economic uncertainty. Revenue for the region was also adversely impacted by the temporary closure of Guam. In Australasia, sales were held back by ongoing local restrictions in Melbourne, Australia and short-lived restrictions in Auckland, New Zealand, which has now eased. Both markets experienced improved growth in September.In Europe, business activity continues to be above our expectations, and we have continued to take market share in key markets. The after-sales trend has also stayed strong. As Duncan mentioned, a second wave of the virus across Europe could result in further closures to our operations in Q4. And in the case of Belgium, our after-sales services will remain open, and we will also be permitted to deliver cars to customers, which is also the case, by the way, for the U.K. In the Americas, our major markets were operating without restrictions in September, and this has enabled us to deliver our best months in the Americas since Q1. As Duncan said, during the quarter, we started the rollout of our omnichannel platform. And while still early days, initial customer interactions have been [Audio Gap] and we'll continue to roll this out to other markets in the Americas in Q4. Finally, our operations in Africa posted another quarter of double-digit revenue growth supported by solid demand for Aftersales. And moving to Retail. In Retail, revenues increased by 5% in the quarter. This is a strong performance, which is, to a certain extent, explained by further demand for both Vehicles and Aftersales. The new plate month of September proved to be a record month for our U.K. operations with strong Vehicles, both new and used, and Aftersales revenue. Sales in Russia were very strong, outperforming the markets. Following this weekend's announcement that the U.K. is going into lockdown, our showrooms will have to close. We will, however, be able to continue to perform after-sales service and offer a click-and-collect service for vehicles. Now moving on to the group financial position. As we showed at the half year, our net cash position was supported by group working capital management, and this has continued in Q3. Given the cash-generative nature of this business, the group's financial position has further strengthened. Duncan mentioned the progress of our digital initiatives, and we have accelerated our investment in spite of the uncertainty caused by COVID-19. Our expectation for net CapEx, therefore, for the year is that it should be slightly below prior year. To summarize, the top line trend has been better than expected in Q3. Profitability in the quarter was strong supported by gross margins and our cost restructuring program, and our financial position was further strengthened. Following a better-than-expected third quarter, the group was on course to deliver a strong second half performance, significantly ahead of market expectations. Nevertheless, given the uncertainty in some of our markets, we feel it's prudent not to give guidance at this point in time. Duncan?

[Duncan Tait, Group CEO & Director]

Thank you, Gijsbert. In difficult circumstances, the resilience of the group has shone through as exemplified by the [ bank's ] vaccine in Q3. Needless to say, we are operating in uncertain times, and the COVID-19 situation remains very dynamic. Having joined the group in June, I have been encouraged by what I've seen. This is a good business with great people and genuinely exciting prospects. The distribution growth focus is firmly established in the DNA of this business. We are making good progress with our strategic priorities, and I look forward to updating you all at the full year results.Gijsbert and I are now happy to take your questions.

[Operator]

[Operator Instructions] So the first question comes from the line of Andrew Nussey from Peel Hunt.

[Andrew Nussey, Analyst]

A couple of questions, if I may. First of all, noting sort of potential lockdown -- well, the lockdown impacts in U.K. and Belgium, but do we assume sort of a broad continuation of those Q3 trends through Q4? Can you give us any insight to what that might mean in terms of the cash position and specifically, the working capital dynamics? And secondly, allied to that, obviously with the strengthening balance sheet, Duncan, can you just give us a little bit more insight into potential M&A and relationship expansion? I did notice your reference or note your reference to potentially new OEM relationships.

[Duncan Tait, Group CEO & Director]

Sure. Okay. Gijsbert, I think you should definitely take one, and I'll take two.

[Gijsbert de Zoeten, CFO & Executive Director]

Well, so Andrew, the impact of those lockdowns on our cash position and working capital, specifically on that, is likely going to be limited. The way our retail operation is financed in the U.K. is essentially an OEM-financed piece of business. And I think overall, the impact of Belgium is expected to be limited. So just to reiterate, we've seen very good working capital development during the quarter. We -- basically, all our extended payment schemes have unwound during Q3. Our stocks, if anything, were lower than we expected, also in view of the higher sales. So standing here at the end of October, we're doing -- as we said, no bumps in working capital in Q3 and a limited impact of those lockdowns in terms of cash position and working capital for the remaining 2 months.

[Duncan Tait, Group CEO & Director]

Thanks, Gijsbert. Andrew, so Duncan here, so just on your question around the M&A part. So we have seen via the OEM route, I would say, if anything, I think our relationships with the OEMs have strengthened during this period. So we have seen some opportunities come by the OEMs, and we have seen opportunities come from -- directly from some distributors themselves. Let me comment on those 2 first. So those opportunities we've seen, ultimately, the valuations of the distribution companies that were available were unrealistic in our regard, in our view. So we've not proceeded with them. But we're patient, and we're very, very clear about the multiples we're prepared to pay for distribution businesses. We want to do good value, accretive M&A and the opportunities that we've seen so far predominantly have not been at the valuation ranges that we thought was reasonable. In terms of new OEMs, we are actively talking to a few OEMs. Some of them, for instance, see the strength of our business and the capability of accelerating theirs in Latin America and Africa, for instance, also seeing opportunities in Asia. And we're talking to European OEMs and actually Chinese OEMs, some of which are the Chinese -- some of the Chinese OEMs would be new to our company. So we'll continue to have those conversations. We remain alert to the opportunity for M&A, without question. And as Gijsbert always reminds me, this takes 3 to tango. It takes Inchcape, it takes the OEM and of course, takes the target distribution company. So hope that works for you, Andrew.

[Operator]

The next question comes from the line of Georgios Pilakoutas from Numis.

[Georgios Alexandre Bela Pilakoutas, Analyst]

Three from me, if that's okay. The first one, Gijsbert, could you just clarify your comment on Singapore in terms of, let's say, [ the mix for ] 2020. I think you might have given that they're kind of down year-on-year and what that means for 2021. Does that mean that we've troughed in 2020 and we'll even catch up in 2021, or kind of if there's a [ T3 ], a gradual buildup? The second question was relating to -- Duncan, if you could talk a little bit more around some of those tax case studies that you gave in terms of the technology being rolled out in Australia and now being rolled out to the Americas. If you could just explain a little bit more what's going on there, how you kind of see the returns dynamic playing out, whether that's driving market share. I guess how you then go to OEMs and say to them, "Look, this is what we're doing, independent or unable to do this, and therefore you should partner with us." The third one I forgot, and it will come back to me in a second, if that's all right.

[Duncan Tait, Group CEO & Director]

Sure. Gijsbert, number one, please.

[Gijsbert de Zoeten, CFO & Executive Director]

Yes. I mean so on Singapore, I think the simple answer is some of the certificates that were not issued during the lockdowns have been phased forward, and that will benefit a little bit in '21. So take it that the trough is at the end of '21, and all things being equal, we should sort of stabilize in '21. And the one sort of nuance I want to make there is that we have a PC market and a commercial vehicle market, and the commercial vehicle market is still pretty depressed as it is. But versus earlier modeling, the trough is earlier in 2020.

[Duncan Tait, Group CEO & Director]

Thanks, Gijsbert. Okay. Georgios, so look, on question number two in regard to technology, I'll -- let me give you a couple of examples, and I'll come to answer your question around omnichannel. So I mentioned in my remarks that we've deployed some process technology particularly around inventory management, or S&OP. So that was developed -- the process development and the technology to support it was deployed -- was developed, sorry, in Asia Pacific for us. And we've taken that into all of our distribution markets. So that will help us continue with this really good working capital management and inventory management by making sure we've got the right stock on in-country versus the consumer demand as we see it.So I'm really pleased with the progress we're making there. And also, deploying these technologies globally can be difficult to get some of the markets to accept them. And I think the way we're doing it is really peer-to-peer best practice, and it's been readily accepted by the other markets. We've also been using machine learning to improve our after-sales opportunities and performance. So we've, again, worked on some of those opportunity areas in Asia Pacific. And once we've [ proven ] those, we'll deploy them into our other markets. In terms of omnichannel, what we're trying to do is give our consumers the ability to work with us either in a physical way or digital or a combination of both as they move through the purchase cycle with us. Beyond that, of course, we then want them to be able to interact with us in terms of after-sales and other services they can take from the group. So the omnichannel technology we've been building in Australia is now up and running there. You can configure your vehicle. You can select to buy the vehicle. You can see a finance quote for that. You can get a trade-in view of your existing vehicle, and then select a time to come and pick up the physical vehicle in the store.So it simplifies the process that makes it much more rich experience for our consumers. And then we're deploying modules of that in Latin America now, and the view is over time, we'll have an end-to-end digitally-driven solution to enable customers to be with us for the whole life cycle. And I would also stress, this should benefit us over time in trying to make sure that we keep extracting value from a vehicle over the whole lifetime of that vehicle, not just its inception from new and the first few years. So I hope that answers your question. And Georgios, did you -- do you recall question 3 yet?

[Georgios Alexandre Bela Pilakoutas, Analyst]

No, it's all right. I was -- that was very helpful.

[Operator]

The next question comes from the line of James Zaremba from Barclays.

[James Edward Zaremba, Research Analyst]

Two questions, please. One, just on the U.K., and I guess before COVID, there've been a drag on earnings, I guess, the mix of diesel to petrol. I was just wondering in terms of, I suppose, where we are in that kind of rebalancing and when the market [ recovers, we'll -- if ] that's still expected to be a drag. Also, how long?And then the second question, just on the cost restructuring you said. I guess some of that GBP 90 million [ support is ] earnings in Q3. If you could just help with the kind of the bridge in '20, '21, '22, I guess how much of an impact do you expect to benefit this year? Then what's the incremental next year and then, I guess, the residual for the year after?

[Duncan Tait, Group CEO & Director]

Okay. Thank you very much, James. Look, I'll take your first question, and I'll let Gijsbert answer the second. So look, in terms of the U.K. business, I should state clearly that I've been pleased with the performance of the U.K. business. In fact, we're pleased, when I joined the company in the second quarter and we opened in June, about the spirit of the team and all the work they've done to make sure they could open successfully and trade successfully. I continue to be pleased with that business in the third quarter. So we have an asset now which is generating profitability with a good set of OEMs. We've made some disposals in that business, as you know, to get us down to a core of OEMs and a geographic density that really, really works for us. So -- and I think the team is executing the [ prospectives ] across our retail business, both in car purchase -- new car purchase, used, after-sales. I think the team is executing pretty well. So we see it as a continued good asset in the third quarter. And hopefully, that performance continues into Q4.And just on your comments of diesels, et cetera, I think the OEM partners that we're working with, we're kind of through that portion of the marketplace. We know what's happening to diesel. We have a good set of OEM partners well positioned for the future trends in retail in the U.K. Gijsbert, over to you for question 2, please.

[Gijsbert de Zoeten, CFO & Executive Director]

So James and others, in terms of the cost restructuring, the GBP 90 million, we sort of benchmark it against 2019 because the bridge in 2020, as you can imagine, is complicated with all the shutdowns and everything else. So take '19 as a base, GBP 90 million against that, of which we said 50% would fall through the bottom line because it was taking out fixed costs, and we're still confirming that. And the other half would sort of vary depending on the volume development in 2021 versus 2019. I think that's the best and the simplest way to look at it.

[James Edward Zaremba, Research Analyst]

Yes. I suppose I was just wondering whether -- I guess, looking into next year, is there another simple way to look at it or saying, let's say, we've taken x of the GBP 90 million this year, therefore the incremental opportunity is only GBP 90 million minus x in 2021? Is that not really a way you can look at that?

[Gijsbert de Zoeten, CFO & Executive Director]

I think there's many bits and pieces coming in and out in '20, and I think it's probably just easier to make the comparison to '19.

[Operator]

Your next question comes from the line of Sam Bland from JPMorgan.

[Samuel James Bland, Research Analyst]

I have 2 questions, please. The first one was on -- I guess, Q3 overall was ahead of your expectations. Just wondered whether -- were both retail and distribution ahead? I mean, clearly, retail improved quite a long way. Just wondered about the distribution side. You might have been able to foresee some of the lockdowns and other impacts that were going to impact distribution. So it still ended up ahead of where you thought it would be.And the second question was on this click-and-collect model for the U.K. and Belgium. I just wondered, any sort of initial senses on how fully that can kind of replicate the sales process? So I guess, in April and May, we saw U.K. registrations down sort of 90%. Are we kind of heading back to something similar to that? Or do you think this click-and-collect model can basically reduce the size of decline to a lower level?

[Duncan Tait, Group CEO & Director]

Okay. Very good. Thanks very much, Sam. Gijsbert, do you want to do one, and I'll make some comments on 2?

[Gijsbert de Zoeten, CFO & Executive Director]

Yes. I guess at the broad level in terms of, let's say, how the bounce back was in Q3, the real question is how much was pent-up demand and how much was sustained. And I would say that also in distribution, we saw more sustained demand versus our initial expectations. And that is why in the end, the results were better than we envisaged. As you say, Sam, we had factored in some of the impacts of restrictions in Americas. And we didn't know, by the way, about Melbourne wave 2 at the time. So that was actually a negative versus expectations. And we factored in the impact of the Singapore cycle, which is significant for our distribution business and we had guided before. So I think in the main -- the underlying sustained demand, which is developing better than we had expected particularly in distribution, I think in retail, it is really down to those particular markets in the U.K. where it's been well described by all this -- the market strengths in used and new. And it was much more -- it was sustained demand throughout the quarter, in fact, and also the order bank. And October was good, so it's sustaining. And Russia was, to some extent, helped by the fact that the ruble was down, which increased the propensity of people who want to buy durables and that has helped used and new.But I think the main message for us, as you notice, as a distribution-driven business is that we saw more sustained demand than we expected during Q3, which is encouraging. And if you look, for instance, also at Latin America as it did come out of the lockdowns in some of our important markets, it's good to see that moving. And with the visibility we have in October, we see that continuing.

[Duncan Tait, Group CEO & Director]

And Sam, just to add that. I mean don't forget, some of our distribution markets in the third quarter were closed. So we started the quarter with some of the Latin American markets, including Chile, which is important for us, closed. And in the latter part of the quarter, we had Guam closed for a period completely. New Zealand, in Auckland, closed for a period. And of course, Melbourne and Victoria in Australia closed from the middle of August right to the end of October. So I thought it's well worth adding that to your commentary for that. In terms of click-and-collect in U.K. and Belgium, so if you go back to March time when the COVID crisis started, we had very limited ability, frankly, to enable customers to perform a click-and-collect service, which includes, of course, configuring your vehicle through to picking up and making a deposit for it. In -- recently, we are around approximately 20% of our car sales in a month have been through this technique. And clearly, it will become pretty important during this month.So we've increasingly deployed that technology over the last few months. I've been impressed, frankly, with the speed at which the team has been able to get that done. The technology works on new and used. And I think in terms of demand, we continue to see pretty good demand for both new and used vehicles in both of those markets, frankly. The other comment I'd add, which I think is also important for both of those markets, is that although there's some restrictions in place, our after-sales business remains open.

[Samuel James Bland, Research Analyst]

And is that good demand in those markets to kind of transact through this click-and-collect model?

[Duncan Tait, Group CEO & Director]

Well, we've seen -- certainly, our experience is we've seen increased usage of those channels to buy vehicles with and certainly reserve vehicles in showrooms in both of those countries. So certainly.

[Operator]

The next question comes from the line of Geoff Lowery from Redburn.

[Geoff Lowery, Partner of Non]

Three areas, if I may. Firstly, in terms of the gross margin performance in your retail businesses, can you talk about how you think about the sustainability or otherwise of that? I'm aware of the comments about Russia and durables. There's clearly some pent-up demand, maybe some tightness of supply. I'm just wondering whether in 12 months we'll be talking about annualizing a tough gross margin comp in retail or if you think this is a sort of sustainable turning point.Second question area. When we think about the U.K. generally, I appreciate that you're a distribution led and driven business now, but there's clearly still a very big lump of sales in the U.K. What's the path towards a meaningful level of profitability for you in the U.K.? Is it all about demand? Does the OpEx savings get you there? Is it gross margin? I'm just wondering, what leads to the U.K. asset delivering an adequate return on sales? And then third comment. Can you just talk about how you think about buying your own equity back versus acquisitions, how you think about return on capital hurdles, risk profiles and so on? I'm just trying to understand the relativity of deals and growth versus relatively riskless retirement of your own equity.

[Duncan Tait, Group CEO & Director]

Okay. Geoff, thank you very much. So a great set of questions. So Gijsbert, if you do 1 and 3 and I'll cover off U.K.

[Gijsbert de Zoeten, CFO & Executive Director]

Yes. Look, I mean, I think on your question of sustainability of gross margin, I mean, our gross margins in the U.K. and Russia have been going up, if you take a slightly longer view. Or if you take an even longer view, of course, the gross margins have been going down in the U.K. clearly, and they're sort of on the way back up. We have built a stronger business, as Duncan was saying, concentrating on sort of fewer franchises and rationalizing our cost base. So that all helps. It's been a very good quarter, let's call it that, in Q3. And I'll be a bit cautious on the sustainability of all of that into the future.

[Duncan Tait, Group CEO & Director]

Okay. Geoff, look, in terms of U.K. general path to profitability, I think you said in your question, I think we've got to execute on a number of fronts all at the same time, which frankly is what the team has done under very difficult circumstances over the last few months. So I'd call out -- let me call out several things. So one is about making sure we've got a good, strong brand portfolio of OEMs in the U.K. market, which I believe we have.The point -- you also mentioned the point in your question actually around having strong management of our overhead base, both at the dealership level and above dealership level in that business. It means we have to execute well on the processes we know that you need to execute well on in a retail business to make money. It's about us using -- exploiting all of the revenue streams that we have access to, whether it's used vehicles, new vehicles, after-sales, tire services and other value-added services for our customers in that retail business. So -- and then the other point I would make is, of course, about having the right geographic density, which we have been increasingly concentrating on that to make sure that we're in the right parts of the U.K. and we have the right density; hence, why we have disposed of some dealerships as we concentrate on particular geographies.The final point I'd make is around making use of technology. We've mentioned a little bit about click-and-collect so far in this call. But also having in place, for instance, in our used car business, the team has developed some good technology whereby we can, pretty much to the hour, value a used vehicle when it comes in. So we'll know exactly what that car is worth in the U.K. market in that geography. And of course, when we come around to sell it, know exactly what the market worth of that vehicle is, which kind of helps with more sustained margins over time by us just using data and digital to understand the value of those vehicles to optimize our margins in that business.So the team has executed so far. Let's be clear. It's a difficult business. You need to be on top of your game every day in that business. And the team, the way they've executed certainly since June and into Q3, I'm pleased with their progress. Gijsbert, onto capital, please.

[Gijsbert de Zoeten, CFO & Executive Director]

So Geoff, let me use this opportunity to just more generally respond to your question. I mean maybe, firstly, on dividends. I mean I just want to reassure you, guys, again, that we are fully aware of the importance of returns to shareholders. And as you know, this is a highly cash-generative business. That's why we have the discussion on cash in the first place.And I guess, given the way we've managed our working capital and benefited as the businesses come back, our balance sheet is as strong as we had at the beginning of the year. So we reiterated our capital allocation policy at the interims, and it is unchanged. And we said there and then that we expect to resume making shareholder distributions in accordance with the performance of the business. And that's, frankly, what I would say on that, just for starters, on dividends.I think you've heard Duncan talk about the discipline that we have around M&A, which is sort of the second strand in our capital allocation policy. And then lastly, we have a history of having returned money to shareholders via share buybacks, and that is equally unchanged. But it isn't -- it is sort of in that order that you think about this.

[Operator]

The next question comes from the line of Paul Rossington from HSBC.

[Paul Rossington, Analyst]

I've got 3 quick questions, please. Firstly, have OEM contributions helped to drive car sales in Q3? So -- in the U.K.? For example, if you go on to any one of a number of Audi distributors right now, you'll get a contribution from the OEMs to that car sale. Just wondering if that's been a kind of material driver of better trading in Q3. Secondly, can you comment on the outlook, if you have one, or view on Aussie dollar, Japanese yen? And then thirdly, with regard to Australia, that -- the margin performance of that business has deteriorated over the last few years primarily driven by that negative FX. Is there a point at which you decide that actually, Australia doesn't make a good enough return? Or what is the right return for the Australian market perhaps is a better question?

[Duncan Tait, Group CEO & Director]

Okay. Thanks very much, Paul. Let me take one and three and, Gijsbert, if you could do the second question, please. So just in terms of your first question around U.K. and deals being available, I think our experience is slightly different from that. I think by and large, we would say that demand is a little bit ahead of supply, and that's what we saw in the third quarter. And frankly, I think we have a really strong set of OEM brand partners working with us in the U.K. So I've not -- certainly, in our reviews of the U.K. business, us having to come up with a whole bunch of innovative deals to shift stock has not been part of our conversations. It's been more of one -- of demand slightly ahead of supply, and that would be the same in new and used vehicles. FX, Gijsbert?

[Gijsbert de Zoeten, CFO & Executive Director]

Yes. I mean, clearly, this is not about forecasting FX. I mean today's rate is 75 of the yen, which is slightly better than the average of 2020. But I don't think that's really the point. I mean we have a gain-and-pain sharing agreement with Subaru [indiscernible] and so on and so on. But I guess the more important question is the strategic question, and Duncan will say more about that.

[Duncan Tait, Group CEO & Director]

Yes. Thank you, Gijsbert. So Paul, in terms of the Australian marketplace, so I mean, we've been in that market for a long time. The business traditionally has made a good return on sales for us, and clearly over the last few years, have suffered somewhat. The headline, of course, has been about the Japanese yen, Aussie dollar rate. We've got a team in Australia that know that they're there to run the business. And actually, we just have to continue to run that business well, even though we face some FX headwinds.So the team are working with a plan to get us back to a decent return on sales for what is predominantly a distribution business in Australia. Of course, you have to look at our overhead costs. The team have participated well in our restructuring program that Gijsbert referred to in earlier comments and that we are on track for. You have to look at the mix of revenue streams and vehicles to optimize our gross margins. Gijsbert mentioned also about good cooperation with, particularly, Subaru in that marketplace around how we work together to make that business profitable for them and for us. And the other thing I would point out is that we are coming towards the natural end to -- the natural end of a number of Subaru models in that marketplace, and 2021 sees new model releases, which generally for us would come with slightly higher margins. So there is no silver bullet for our Australian business. The headlines from our side is, yes, we have FX to deal with, but we also have a team of people in Australia who are focused on running the business and getting their plan in place to get us back to a decent level of return. And we should plan around an FX rate not too different from what we see today as our planning rate, and we need to plan our other actions accordingly to get that business back to where we want it to be. And I'm sure we'll talk to you more about that during '21 about our progress and how the team is getting on.

[Operator]

There are currently no questions in the queue. [Operator Instructions] There are no further questions in the queue. So I'll hand back over to your host for any closing remarks.

[Duncan Tait, Group CEO & Director]

Thank you very much, Jas. And thank you, everybody, for your questions this morning and to everyone else on the line who joined us. Our next update will be on the 25th of February for the publication of our full year results when we hope to be able to meet you in person, fingers cross. As always, if you'd like to follow up on anything else, please do get in touch with Raghav. Thanks very much, everybody.

[Operator]

Thank you for joining today's call. You may now disconnect your lines. Hosts, please stay connected.