Autotrader Group Plc

Good morning everyone and welcome to Autotrader's half-year results for the six months ending the 30th of September 2022. Today I am joined by our CFO Jamie and our COO Catherine who will join me for Q&A at the end of the presentation. Due to tube strikes in London we've reverted back to a virtual presentation but we hope to see you all in person for our full year results next year. Our performance for the first half of the year demonstrates the strength of our marketplace and the quality of the partnerships we have with customers. While looking forward, the economic environment is uncertain, we are well positioned to navigate the months ahead and to support our customers and car buyers to do the same. I'd like to thank our people, customers, shareholders and wider stakeholders for their continued trust in our business. And importantly, our people have not only delivered strong financial results, but have delivered products and solutions that will underpin growth for many years to come. Our partnerships across the business feel stronger than ever, and our core marketplace continues to deliver for our customers. There will no doubt be challenges ahead. However, the strength of these results during a period where industry-wide audience, stock, and transaction volumes were all down on the previous year gives us confidence in navigating the second half of the year. Starting with our strategic overview. The performance of the core auto trader marketplace has strengthened over the last six months. We've achieved double-digit year-on-year growth in revenue and operating profit for the first time since 2016. Our customer numbers and product update have exceeded expectations and our competitive position remains strong with no meaningful change in the competitor landscape. In April 2022, we delivered our annual pricing event including our AutoTrader Connect platform and its first module, Retail Essentials, which gives customers access to our most fundamental and powerful data, including our taxonomy, improving advert quality, pricing decisions, and enabling stock to be updated on AutoTrader and across other sales channels in real time. Beyond Retail Essentials, uptake of other products continues to be strong. We've seen further growth in our prominence products, including our new high-level advertising packages, market extension, and our pay-per-click product, which appears at the top of search listings. We've also seen more customers buying into our data products, using real-time pricing, demand, and supply data to ensure they're staying on top of market changes, either using our dealer portal or with our APIs and their own operational systems. Providing consumers with the confidence and ability to complete more of the car buying journey on AutoTrader remains a key focus. We've launched a small trial for our deal builder journey on AutoTrader, which combines part exchange, reservations and finance applications to form an end-to-end journey for car buyers. While it is early days, feedback so far from both retailers and car buyers has been encouraging. On the 22nd of June 2022, we completed the acquisition of Autorama, one of the UK's largest marketplaces for leasing new vehicles. We believe there is a significant structural opportunity for new car leasing driven by the growth of electric cars, new manufacturers entering the UK market, lower take up of company car schemes and the shift towards digital distribution models. Over time, By leveraging Autotrader's platform, we can create a compelling proposition for manufacturers, retailers and funders, while also reducing customer acquisition costs for Autorama. In the short term, Autorama's trading has been more challenging due to the acute supply constraints across all new vehicle types. However, we know that in time this will normalise. Given much of the integration work is currently ongoing, we don't expect performance to improve for the remainder of this financial year, but with the changes that we're making with Autorama, we expect an improved performance in FY24 and beyond. Now turning to the group financial results. Following the acquisition of Autorama, we're now reporting segmented results for Autotrader and Autorama. The auto trader segment is the same view we used to provide in results prior to the acquisition. Group revenue increased by 16%. Auto trader revenue increased by 11%, and Autorama contributed £11.6 million since acquisition. Group operating profit declined by 2%, made up of auto trader operating profit growth of 11%, a £4 million operating loss at Autorama, and central costs relating to the acquisition of £15.7 million. Group operating profit margin was 60%, with auto traders operating margin broadly flat at 71%. Basic EPS and cash from operations were both down 3%. Excluding the Autorama deferred consideration charge, group operating profit was up 7%, and basic EPS up 8%. During the period, we returned 82.3 million pounds of cash to shareholders through a combination of 51.7 million pounds in dividends and 30.6 million pounds before transaction costs in share buybacks. Today, we are also declaring an interim dividend of 2.8 pence per share. Now onto our operational results. The average number of cross-platform visits were down by 10% to 67.7 million per month, but remained 18% above pre-pandemic levels recorded in the first half of 2020. Engagement measured as the volume of cross-platform minutes was down by 14%, but up 11% on pre-pandemic levels again in the first half of 2020. We remain the UK's largest and most engaged automotive marketplace for new and used cars and continue to account for over 75% of time spent across our main competitor set. The average number of retailer forecourts advertising with us grew 2% to 14,161. And during the period, both new business and cancellations have remained reasonably balanced. Average revenue per retailer per month, or ARPA, was up by £205 to £2,404, driven by both price and product levers, with stock broadly flat. It is important to remember that stock is a much bigger driver of our financial performance than retailer numbers. Average car stock on site increased by 1% for the period, New car stock declined to an average of 22,000 and used car stock increased 5%. Finally, the average number of full-time equivalent employees increased to 1,112 during the period, with Autorama contributing an average of 122 when we prorate their 218 employees. On an underlying basis, auto trader employees increased 5% year-on-year. Finally, our cultural KPIs. We're currently working through the equivalent Autorama measures and we'll include these at the full year. So all measures below relate only to the Autotrader segment. Now most recent check-in survey in October 22, 93% of employees said they were proud to work at Autotrader. We're also making good progress on creating a diverse and inclusive workplace, which is central to the culture at Autotrader. Our board is majority women and has ethnically diverse representation. Within the organisation, women represent 40% of our workforce and women in leadership has increased also to 40%. Ethnically diverse employees represented 15% of the organisation, however, only 5% of leadership, highlighting the work we still have to do in this area. We have targets validated by the Science Based Target Initiative for CO2 emissions and have submitted our net zero target for validation. Our greenhouse gas emissions for the first half are estimated at 3,800 tonnes of carbon dioxide equivalent across scopes one, two and three. We are currently building bottom-up plans to meet our goal of net zero before 2040 and to halve carbon emissions before the end of 2030. I'll now hand over to Jamie who will take us through the financials in more detail.

Thank you, Nathan, and good morning, everyone. Starting with auto trader revenue, which includes the results of auto trader, auto convert, car zone, and the share of profit from our joint venture dealer auction. Total auto trader revenue for the first half increased 11% to $238.2 million. Trade revenue also increased by 11%, with the largest component of this being retailer revenue, which also grew by the same 11%. The year-on-year increase was largely a result of customers continuing to see value in advertising on our marketplace and taking additional products. The average number of retailers advertising with us increased to 14,161, which was up 2% compared with the same period last year. Average revenue for retailer increased by 9% year on year to £2,404 per month, with more details given on the following slide. Also within trade, we've seen an increase in home trader pay-as-you-go listings, which increased 16%, alongside small growth in other trade revenue. Consumer services increased by 4%. Within this, private revenue, which is largely generated from individual sellers who pay to advertise their vehicles on our marketplace, increased by 12%. There was also a contribution of 0.4 million within this line from our instant offer product, which allows consumers to quickly sell their car from home with a guaranteed price. Motoring services decreased 9% in the period, mainly due to a decline in insurance revenue. Revenue from manufacturing agency customers increased marginally to 5.2 million, as new car advertising continues to be impacted by supply challenges. Now on to ARPA, live car stock and retailers. As mentioned, ARPA increased by 9% year-on-year, with the average revenue per retailer generated across the period at £2,404 per month. The chart on the left shows the components that contribute to the movement in ARPA compared to the prior year. As you can see, the increase was driven by both the price and product levers, with the stock lever broadly flat. We delivered our annual pricing event on 1 April 2022, and this contributed the majority of the £72 price lever, equating to an effective increase of just over 3%. Product contributed £133 of growth year-on-year, with the breakdown as follows. half of this product growth was a result of retailers purchasing more of our three prominence products. These were increasing penetration on our high-yielding enhanced super and ultra packages, with 32% of retailer stock on one of these packages above our standard level in September 2022 versus 25% the year before. Our market extension product, allowing retailers to sell outside of their local area, had 6% of retailer stock on the product by the end of the period. And there was some contribution from our PPC product, where retailers can boost visibility of their stock in search through pay-per-click campaigns. Beyond prominence, AutoTrader Connect Retail Essentials module made up much of the remaining growth, which was included in retailer packages as part of our annual pricing event in April 2022. There was also some small contribution from growth in our data products and auto convert. Looking now at stock, the chart on the right shows the profile of live physical car stock, which increased 1% in the period. As usual, we've stripped out the impact of new cars and provide underlying used car livestock, the darker of the two lines. It's important to note that the stock lever is not driven by livestock, but by the number of paid stock units. Underlying used car livestock increased by 5% in the period. About a third of this increase was due to increased private listings, meaning underlying trade listings increased just over 3%, as we saw supply improve slightly versus the previous year. This increase, though, has led to a reduction in underutilized paid units, a trend that was unique to the market volatility created by COVID-19, meaning the stock lever was flat for the period. Total auto trader costs increased by 8% to 70.5 million. People costs increased by 5% to 36.9 million. The increase in people costs was primarily driven by an increase in the average number of full-time equivalent employees. This also increased by 5% to 990, as we continue to invest in people to support the growth of the business. Marketing spend for the period increased by 8% to 11.4 million. which was equal to 4.8% of revenue, consistent with previous years. Other costs, which include data services, property-related costs and other overheads, increased by 17%. The increase was primarily due to increased overhead costs, including the return of travel, office and people-related costs, and higher IT spend as we completed the transition of all our services and applications to the cloud. Depreciation and amortization decreased marginally to 3.3 million. Capital expenditure in the period was 1.1 million, which is a decrease against the prior period, largely due to investments in our Manchester office in H1 2022. As a reminder, our low levels of capex and depreciation are not a reflection of low levels of investment in our business. In addition to our investment in cloud-based services, we have over 350 people in products and technology, who are continuously improving our platforms and developing new products for consumers and retailers, the costs for which are taken in full through our income statement in people costs. With revenue up 11%, costs increasing 8%, and a £1.1 million contribution from our share of dealer auctions profit, operating profit was £168.8 million. This was an increase of 11% on the prior year. and our operating profit margin was broadly flat at 71%. Now on to Autorama's results. Autorama revenue was $11.6 million, with vehicle and accessory sales contributing $7.1 million, and commission and ancillary revenue contributing $4.5 million. Vehicle and accessory sales is the gross revenue for vehicles that pass through the balance sheet. Our primary focus over time is growing commission and ancillary revenues. Total deliveries were 2,747, which was made after circa 1,900 cars, 600 vans, and 200 pickups. Whilst these units were lower than anticipated, it is worth noting that vans and pickups have been particularly challenged, reflecting weak transaction volumes caused by lack of supply. Average commission and ancillary revenue per unit delivered was £1,635, which was lower than previously reported due to a significantly higher mix of cars. The Autorama business delivered 270 vehicles which were taken onto balance sheet in the period from 22 June to 30 September. This represented 10% of total vehicles delivered. The cost of these vehicles is taken through cost of goods sold with the corresponding revenue in vehicle and accessory sales. People costs of 3.7 million was through the 218 FTEs which were employed on average through the period. Marketing costs were 1.7 million, which was spent on a combination of brand and performance channels. Other costs of 2.5 million related to IT services, property, people-related costs, and other overheads. There was depreciation of fixed assets and some amortization of developed software, totaling 0.7 million. The operating loss for the period since acquisition on 22 June to the end of September was £4 million. With total group revenue up 16%, group costs increasing 56%, which includes the £13.8 million of Autorama deferred consideration and a £1.1 million contribution from our share of dealer auctions profit, total group operating profit was £149.1 million. This was a decrease of 2% on the prior year, and group operating profit margin was 60%. Cash generated from operations decreased 3% to $164.6 million. The year-on-year decrease in cash generated from operations was bigger than operating profit, mainly due to a negative movement in working capital, in part due to a lower VAT liability at the period end and an increase in debtors given higher revenues. The statutory income statement outlines areas beyond our revenue and operating costs. Net finance costs reduced by 35% to £1.1 million due to lower amortised debt issue costs. Our profit before tax was £148 million and our effective tax rate was higher than the standard UK rate of 19% due to the Autorama deferred consideration charge being non-deductible. Basic EPS decreased by 3% due to the decrease in profit after tax. Earnings per share, excluding Autorama's deferred consideration, increased by 8% to 13.7 pence. As Nathan said earlier, the directors are recommending an interim dividend of 2.8 pence per share. Moving now to net bank debt and capital structure. In the period, the group has drawn on its revolving credit facility to fund part of the initial consideration relating to the Autorama acquisition and are now in a net debt position of $57.4 million at the end of the period. The group had drawn $75 million of its $250 million unsecured revolving credit facility and had cash balances of $17.6 million. Cash generated from operations of $164.6 million was used to pay $1.1 million of CapEx and lease payments of 1.6 million. In cash terms, we paid 1.6 million of interest and 31.4 million of corporation tax. There was a 3.9 million loan facility held by Autorama, which was paid off on completion of the acquisition. Net cash outflow on acquisitions of 152.3 million was made up of 150 million consideration paid for Autorama, less cash acquired of 58.8 million, and a final £8.1 million deferred consideration payment relating to the acquisition of Autoconvert. Of the remaining free cash flow, £51.7 million was paid in dividends, and £30.8 million, inclusive of fees, was used to buy back shares at an average price of £619.5. In total, we've returned £82.3 million to shareholders in the year. The group's long-term capital allocation policy remains broadly unchanged, continuing to invest in the business, enabling it to grow, while returning around one-third of net income to shareholders in the form of dividends. Following these activities, any surplus cash, such as that received from the disposal of WebZone, will be used to continue our share buyback program and steadily reduce gross indebtedness. It is the Board's long-term intention that the group will return to a net cash position. Before closing the financial section, I wanted to make everyone aware of two post-balance sheet events. The first was the sale of one of our subsidiaries, Webzone Limited, operating under the Carzone brand in Ireland, which was sold for €30 million in October, and will create a profit on disposal of circa €19 million, which appears below operating profit. The second event involved the defined benefit pension scheme, which the company sponsors. Also in October, we purchased a bulk annuity, effectively reducing the risk and exposure of the scheme. Whilst there is circa 2 to 3 million of costs likely to be incurred in the financial year for this exercise, which is accounted for in the outlook statement, it yields longer-term savings in overhead and reduces risk that a change in asset values or increased liabilities could have left the scheme underfunded. That concludes the financials. I'll now pass over to Catherine to take you through our market and product updates.

Thank you, Jamie, and good morning, everyone. Moving on to slide 15. Demand for both new and used cars remains robust, but we continue to see supply shortages impacting new cars and segments of the used car market. New car registrations in the six months of September 2022 were circa 800,000. 11% below the first half of last year, with semiconductor shortages and supply chain challenges continuing to impact the volume of new cars available for sale in the UK. New car registrations were weaker in the fleet segment, down 17% year on year, and light commercial vehicle registrations were down 28% year on year over the same period. These constraints have also impacted used cars. Used car transactions were 16% below prior year levels in our first half, as the knock-on impact of low volumes of new car supply in 2020 and 2021 impacted used volumes. This reduced availability of younger cars has particularly impacted our franchise customer segments. Inflation is driving a rise in the cost of living for UK consumers and has the potential to impact the demand for vehicles in the short term. although we are seeing only a relatively small impact on our marketplace. As we did last financial year, we have included transactions data from financial year 2006 to highlight the relatively low levels of cyclicality, particularly in used cars through the economic cycle. For many consumers, purchasing a car is considered a necessity and not a discretionary purchase. Buyers might trade down on the price of the car or reduce usage, but typically do not forgo the transaction itself. Alter Trader's financial history is hard to analyse, as the last UK recession coincided with our shift from print to digital. That says it is our belief that our market position, the quality and scale of consumer engagement on our platform, the partnership we have with our customers and our commercial model, all means we are well placed to weather challenging times. We continue to publish a monthly price index of cars advertised by retailers on Autotrader, the results of which are shown in this chart. Our live retail data on market pricing has been adopted by the Office for National Statistics to power the UK consumer price index. This reflects the scale and accuracy of our data and is an important step towards our goal to be the data currency that powers the industry. The dark blue line on the chart shows the average price of a vehicle advertised since 2014, which you can see has grown over time and accelerated over the past two years in particular. Despite some softening in the year-on-year growth rate over the last six months, prices remain materially above where they would have been in normal market conditions, as continued robust levels of demand combined with constrained supply is supporting price stability. we see a more stable pricing backdrop as month-to-month movements in pricing levels are either in line with or ahead of historical averages. For example, the movement in prices from August into September was up by 0.2%, against an average movement of minus 0.7% over the eight-year period prior to the pandemic. By grouping cars by type, age and fuel type in the chart, we have isolated the impact of underlying like-for-like price increases. As you can see, in the last 18 months, we have seen like-for-like price increases above 20% in comparison to the prior year. Although, as we have lacked strong comparative periods, the growth rates towards the end of the half are slowing. This is a trend we expect to continue over the second half of the year as the market returns to a more normal pricing environment. As shown in the first chart, the UK car park remains broadly flat through calendar year 2021 at 35.1 million cars, with new car transactions and scrappage rates remaining fairly consistent. The second chart shows how consistently the car park has turned over the past 16 years. Over this period, on average, each car is transacting between 3.1 and 3.5 years, except in 2020, where due to the impact of enforced COVID-related showroom closures and the reduced levels of activity, frequency increased to 4.2 years. As we recovered from the pandemic in 2021, levels of activity increased, although the transaction rate remained above pre-COVID levels due to supply issues, resulting in frequency decreasing to 3.8 years. The total number of car transactions each year is shown in the third chart. In calendar year 2021, 35.1 million cars turned on average every 3.8 years and resulted in 9.1 million total transactions, of which 1.6 million were new car sales and 7.5 million were used, an increase of 10% compared to 2020. Over the six months, our audience position has remained strong in comparison to pre-COVID levels. Starting in the top left, this year we have changed the source data from Google Analytics to Snowflow, a market-leading analytics tool and key component of our data platform strategy. Prior periods have been restated for both visits and minutes to aid comparison. Cross-platform visits decreased by 10% to 67.7 million per month. but were 18% above the pre-pandemic levels recorded in H1 2020. Engagement, which we measure as the total number of minutes spent on our platform, decreased by 14% to an average of 498 million minutes, although again remains strong against pre-pandemic levels, up 11% against H1 2020. We have maintained our position as the UK's largest and most engaged automotive marketplace for new and used cars, with our share of total minutes amongst our main competitor sets, as measured by Comscore, remaining strong at over 75%. The chart on the right shows the total minutes spent across an expanded set of competitors, retailers and manufacturers. It shows that we continue to have a significant lead in terms of both volume and engagement against both our closest competitor and all other marketplace participants. Our traditional competitors have not changed significantly over the past six months, and we have not seen new entrants nor players exiting the market. We continue to be significantly larger than those retailers who are large enough to appear in Comscore and all manufacturer websites combined. Now onto our products updates. We continue to make good progress against our three strategic priorities. Our classified marketplace is at the center of our strategy. Our marketplace is still very much the core of our business and has lots of opportunities for growth. The platform layer is where we've taken the technology and data platforms that power AutoTrader and made these services available to retailers and other partners, helping them to save costs, time and improve yield. Integration work with the technology partners is well progressed for the AutoTrader Connect Retail Essentials module and is underway for valuation. Embedding our technology and data creates deeper relationships with our customers, improves the performance of our advertising products, and acts as a significant enabler for digital retailing. Our goal with digital retailing, the outer ring of our strategy, is to enable any retailer to sell their cars online. on our marketplace to support and strengthen retailers' existing forecourt experience. It is not about all to trade in retailing cars directly. We are bringing technology and automation to a process that today is driven by sales executives, manual tasks, support people, and limited technology. From a new car perspective, we have acquired Autorama to accelerate our move to reselling new cars online on behalf of leasing companies, manufacturers and retailers, all on Autotrader. We continue to invest in our electric vehicle offering on and off-site to ensure that we are the number one destination for car buyers interested in purchasing an EV, and therefore remain number one as EVs account for more and more of the car park over time. Last year, we created an electric car hub focused on helping car buyers understand the benefits of switching to EVs. This included advice on ownership and cost comparisons. Our monthly electric car giveaway continues to drive engagement and has had 1.4 million entries across the half year period. We have enhanced the information around electric vehicle charging on AutoTrader, which is included in the electric car hub. In search filters, and on each vehicle product page. Charging information on EVs is complex, with each OEM presenting the data differently. We have simplified and standardised this across makes and models, allowing consumers to easily compare. This is part of our broader strategy to provide accessible buying and owning advice, and to offer a simple buying experience by featuring range and charging time within our core search functions. This is a role that Autotrader can uniquely play, and combined with having more EV stocks than any other destination, means we are well placed to continue to both support and to benefit from the shift towards EVs. The next module of Autotrader Connect, Autotrader Connect Valuations, has been launched and will be available to all of our retailers as part of the April 2023 events next year. Some retailers already have early access where their technology partners, such as stock management and retailer website providers, have integrated the solution into their platforms, all through using our own dealer portal where we have surfaced this data. Since the launch of the first phase of Auditrader Connect Retail Essentials in November 2021, more than 90 partners have integrated the services into their platforms. This new valuations module will embed the industry's most accurate pricing data into retailers' existing processes and systems, enabling them to buy and price their stock with confidence, maximising the profit potential of every sale. It is designed to inform retailers' sourcing and pricing strategies with the most accurate and current view of the market. Our valuations are calculated from daily pricing analysis of over 1 million vehicles, which includes the roughly 440,000 listings on our marketplace, as well as retailer OEM fleet and auction data. It is the most comprehensive and accurate view of the live retail market, which when combined with AutoTrader Connect's real-time capability, means retailers can immediately respond to changes in the market, helping to drive more profitable sales and to improve stock turns. We believe this is one of the most powerful ways we can help our partners given the pace of change in the market. In August 2022, we launched a small trial of our DealBuilder journey on AutoTrader. This combines the component parts of past exchange, reservations, and finance applications, forming an end-to-end deal journey. DealBuilder addresses key pain points that both car buyers and retailers experience. Car buyers want to do more online, which DealBuilder enables. giving the buyer the control to do as much or as little online as they choose, and to switch to human support as and when they need it. For retailers, it means more qualified buyers, many with a past exchange price agreed or a finance application already approved, all resulting in a much quicker sales process. This is an important shift, moving Autotrader from a marketing channel to a sales channel, which we think over time will be transformative to our business. Over the coming months and into the next year, we plan to onboard more retailers onto this early beta trial, including larger groups to use our retailer portal system. Over time, we will also integrate with retailers directly through their dealer management systems using the AutoTrader Connect platform. Initial feedback has been positive and we continue to see more deals processed through the deal builder journey. We are working closely with the early retailers on the beta to optimize the journey and to understand and improve conversion. I'll now hand over to Nathan to take you through our second half focus areas and the outlook.