The success of our Vehicle Inspection business is built on innovative tailor-made solutions that enable our government customers to stay up-to-date with automotive technologies, while minimizing road accidents and air pollution. Our impartiality is of utmost importance.
Our Intelligent Vehicle Support (IVS) business provides automotive service shops with the tools and services they need to keep pace with the computerization of vehicles today and in the future. Our products provide the support technicians need to perform in-depth diagnostics and reprogramming and keep vehicles safely on the road across multiple vehicle brands.
We have built a strong platform for profitable growth and our plan is to reach annual revenue growth of 5-10 percent based on a 3-year CAGR and an EBITA margin of 15 percent. We expect to achieve this through a combination of organic growth in existing and new vehicle inspection markets (primarily low- and middle-income countries), developing innovative technologies and services for the automotive aftermarket, and strategic acquisitions that drive innovation and add value for our customers.
Favorable mega trends and market drivers
Opus benefits from several mega trends, including increasing global wealth and increasing global vehicle fleet, rising global environmental concerns, the need to significantly reduce traffic fatalities, specifically in low- and middle-income countries and rapid development of automotive technology.
The vehicle inspection market is driven primarily by legislation and regulation for both emission and safety testing. Increased global wealth has made it possible for a growing number of people to own a car. The global vehicle fleet exceeds one billion and continues to rise. This extra traffic leads to increased emissions and road accidents and is therefore a strong driving force for growth in the vehicle inspection market.
Environmental concern is growing on a global scale. The negative impact of vehicle emissions on human health and climate change is well known and has created a need to reduce emissions. Emission testing of vehicles has proven to be an effective tool for lowering emission levels, which has consequently led to a larger market for vehicle inspection programs.
In 2010, the World Health Organization (WHO) declared the Decade of Action, with a goal of cutting worldwide traffic fatalities in half by 2020. While the developed world is on track to meet the 50% reduction target, by 2018, worldwide traffic fatalities increased to 1.35 million fatalities per year. Highly populated countries such as India, Brazil and Pakistan show significant increases in traffic fatalities primarily due to rapidly increasing vehicle fleets without advancements in infrastructure. The need for safety inspections is therefore increasing, particularly in middle income countries because the condition of vehicles and roads are inadequate to protect road users. Opus sees good growth opportunities in middle income countries that may implement vehicle inspection programs in their quest to combat traffic fatalities.
Opus IVS (Intelligent Vehicle Support)
In the developed world, vehicle complexity increases as advanced driver assistance systems (ADAS) are expanding with each new model year, toward more and more self-driving vehicle technology. These intelligent vehicles are creating a growing demand for advanced technical support.
As vehicle technology has evolved during the past ten years and continues to grow, independent aftermarket service shops cannot keep up with the required training to service complex cars, in particular in multi-brand repair shops. As a result, independent technicians continue to fall behind in their ability to service vehicles on their own.
Our Intelligent Vehicle Support business develops and provides diagnostic and reprogramming tools and services backed by live remote support from our master technicians. Opus IVS products and services enables independent repair shops to provide complex repairs and reprogramming services across many brands and without in-house knowledge otherwise required.
Attractive market characteristics
The vehicle inspection market is non-cyclical and characterized by high barriers to entry and long-term contracts with high stickiness and stable demand. The market for intelligent vehicle support is characterized by aftermarket service shops’ need for support to keep pace with increasing vehicle complexity.
The barriers to enter the vehicle inspection market are high and require significant domain expertise and an initial investment in service stations, equipment and IT-systems, as well as training and certification of personnel. Therefore, many governments and local administrations issue procurements for sole providers and long-term contracts ranging from 5 to 20 years. Opus is a sole provider in several U.S. states, as well as in two provinces in Pakistan and in parts of Argentina. The significant initial investments also make it difficult to change provider, leading to high contract stickiness. The 12 largest contracts have been with Opus for an average of more than 10 years, while the 6 largest centralized programs have been with Opus for an average of 20 years. Only occasionally an incumbent loses a contract to a competitor, which primarily happens with decentralized contracts.
The non-cyclical characteristics of the vehicle inspection market can be explained by the stable underlying demand due to inspections being required by law. The number of inspections in a certain market depends on the size of the vehicle fleet and the inspection frequency, which is normally lower for newer vehicles and higher for older vehicles. The demand for vehicle inspections is therefore expected to remain stable over a business cycle and is nearly independent of economic boom or recession.
The automotive aftermarket is a very large and fragmented market, with more than 270,000 automotive service shops in the U.S. alone. Opus’ Intelligent Vehicle Support business is today the only all-encompassing diagnostic technology and remote support services solution on the market. We are growing demand among multi-brand repair shops in the U.S., Canada, EMEA and Australia, who are eager to access Opus IVS’ manufacturer-level automotive service support in order to compete with dealerships.
Strong market position
Opus has a strong position in the global vehicle inspection market. Opus is the largest vehicle inspection company in the U.S. through organic and acquisitive growth. In Sweden, Opus has a leading position with approximately 25% of the market. Opus is also well-positioned in several middle-income countries including Mexico, Argentina, Chile and Pakistan.
Opus IVS provides two strategic benefits to Opus’ vehicle inspection business. First, it provides technology and expertise that will help us stay competitive in the current trend of vehicle inspection: from mechanical inspections toward inspection of the computerized car. And second, its advanced products and services for the diagnostics, reprogramming and calibration of computerized vehicles leave us well placed to benefit from increasing vehicle complexity as we move towards autonomous vehicles in the future.
Strategy for profitable growth
Opus’ strategy is that of a growth-oriented company with significant profitability. We expect to achieve this through a combination of organic growth in existing and new vehicle inspection markets (primarily low- and middle-income countries), developing innovative technologies and services for the automotive aftermarket, and strategic acquisitions that drive innovation and add value for our customers. We expect to generate high returns for investors over the period, with a clear focus on improving return on capital employed (ROCE) in the coming years.
We will defend our market position in the U.S. and Sweden to secure strong cash flow. We will aim for an EBITA margin of over 15% in the U.S. & Asia and over 10% in Sweden. We will achieve this through low operating expenses and further productivity gains, leveraging our industry leading in-house R&D resources for competitive advantage. We will also maintain our position as a leader in advanced diagnostics, programming and remote support for the automotive service industry.
We will grow our Vehicle Inspection business, primarily in middle-income countries, where we see potential, focusing on Latin America and Asia. Growth in these markets will be driven by a growing vehicle fleet and by an increasing government desire to implement vehicle inspection programs. We will also focus on expanding our EaaS business model in those markets where it applies. Opus IVS will expand into the collision scanning market in the U.S. with our new DriveCrash product.
Our Intelligent Vehicle Support division will develop new markets in innovative technologies and services for the automotive aftermarket, including programming, diagnostics and vehicle communications. Innovative product development, driven by increasing vehicle complexity, will provide competitive advantages and generate continued growth.
Solid business model
The foundation of Opus business is based on recurring revenues. Opus generates revenues by providing vehicle inspection as well as related equipment and services in centralized, decentralized and open market programs. The underlying demand is predictable, and prices are fixed, providing Opus with stable revenue streams. The business generates solid operating cash flow that supports growth initiatives. Likewise, Opus IVS is focused on recurring revenues from subscriptions and transactions for our support services.
Strong track record of value creation
Opus has a strong history of value creation. Since 2010, the company has increased revenues and EBITA more than tenfold while improving return on capital employed. Value has been created by organically developing existing and new businesses, as well as by successfully acquiring and integrating new companies.
Experienced organization with passion for innovation
Opus and its group of businesses have a long history of developing and operating vehicle inspection programs. Throughout our history, Opus has been at the forefront of innovative product development and the introduction of new technology and solutions that increase the quality and efficiency of inspections to help drive higher standards and to improve compliance.
The passion for innovation continues to be a driving force as our vehicle inspection technology solution has continuously evolved. At Opus IVS, we are doing some of our most exciting work to date, developing the next generation of diagnostic and programming solutions to support automotive service technicians in the run-up to self-driving vehicles.