Autotrader Group Plc

Good morning everyone and welcome to Autotrader's results for the six months ending 30th of September 2023. As usual I'm joined by our COO Catherine and our CFO Jamie. Our performance in the first half demonstrates the strength of our business through different economic cycles, the strong partnership we have developed with our customers and a resilient used car market. Vehicle demand remains robust and supply will continue to be impacted by low new car sales over the past few years. We've also made good progress on our key strategic initiatives across our marketplace, platform and digital retailing, providing a long runway for future profitable growth. For this reason, we have confidence in both the second half of the financial year and the years to come, particularly as many of the structural changes in the automotive industry, be that electric vehicles, agency models or direct sales, all present opportunities to extend our brand technology data and buying experience to help new and existing customers and car buyers. Let's move now to our strategic overview. Our core auto trader business grew revenue 9%, operating profit 10% and achieved operating profit margins above 70%. Revenue growth was higher at a group level and group operating profit also grew 10%. Our core retailer revenue line continues to perform well Average revenue per retailer, or ARPA, grew 12%. And while headline retailer forecourts fell, when adjusted for the web zone disposal, they actually grew 1% to record levels. ARPA growth was underpinned by both our April 2023 pricing and product event and continued uptake of our prominence products. Audience levels have continued to grow and are now at record levels that are significantly higher than pre-pandemic levels. We're scaling up and optimising our deal builder products. We now have 10 times more retailers on deal builder than we had at the end of March this year and have completed 10 times as many deals in this six-month period as we did in the whole of last year. The structural changes in the new car market present an opportunity to the business. While we're not yet realising meaningful revenue growth, there are signs that we're on the right path with the combination of advertising products for manufacturers, our existing new car product for retailers, and the integration of Autorama into the Autotrader platform. Now turning to the financial headlines. Group revenue increased by 12%, with Autotrader revenue increasing by 9%. The difference is due to Autorama, which we own for just over three months of the comparable period in financial year 23. Both Group and Autotrader operating profit increased by 10%. Autorama made an operating loss of 5.6 million pounds and non-cash central costs relating to the acquisition were 14.7 million pounds. Group operating profit margin was 59% and Autotrader's operating margin was 71%. Basic EPS was up 4%, which is lower than operating profit growth because of a higher effective tax rate due to the increase in UK corporation tax in April 2023 and the non-deductibility of some of the previously mentioned central costs. Cash generated from operations was up 12%. We returned £117.1 million of cash to shareholders through £51.3 million in dividends and £65.8 million in share buybacks. Today, we're also declaring an interim dividend of 3.2 pence per share. We'd like to flag that while the UK's digital services tax was designed for multinational digital businesses, it is beginning to come into view for auto trader. At present, we believe any impact is likely to be short-lived and one-off in nature, but Jamie will cover this more shortly. Now to our operational headlines. Our audience position is as strong as it has ever been. Gross platform visits were up 14% to 77 million per month. Cross-platform minutes were up 11% to 555 million minutes. And we continued to account for over 75% of time spent across our main competitor set. As previously mentioned, retailer forecourts decreased 3% to 13,710. However, underlying retailers were up 1%. And we now have over 900 more UK retailers working with us than before the pandemic. ARPA was up by 12% to £2,683, driven by both price and product, offset by a slight decline in the stock lever. New and used livestock were broadly flat, although new car stock declined towards the end of the half as we transitioned from an all-you-can-eat model to a slot-based charging model. This aligns more closely with our used car model. It improves the quality of new car stock on the platform and had no negative impact on new car revenue. The average number of full-time equivalent employees increased to 1,220 during the period. Finally, we have our cultural KPIs, which reflect our focus on creating a unique and great place to work so we can attract, develop and retain the very best people. To that end, to build on our strong ownership culture and to ensure every person at AutoTrader is aligned with and rewarded for creating a more valuable AutoTrader, we have introduced a new all-employee share scheme. The scheme rewards employees with an additional 10% of their salary in shares each year which vests over a three-year period. We believe we can accommodate this scheme within our long-term Autotrader margin goal of above 70%. 92% of our employees are proud to work at Autotrader, and our Glassdoor rating is 4.6 stars out of 5. We believe we have the right initiatives in place and are making progress, although most KPIs are relatively flat during this period. However, we have made good progress since first reporting these. We're aiming to be net zero across our value chain by 2040 and have amended our base year to incorporate the acquisition of Autorama. Our carbon emissions for the six-month period are across scopes one, two, and three, with 37.3 thousand tonnes. I'll now hand you over to Jamie to talk through the financials in more detail.

Thanks, Nathan, and good morning, everyone. We'll start by looking at the core auto trader financials. Total auto trader revenue increased 9% to $259.4 million. Trade revenue also increased 9%. with the largest component of this being retailer revenue, which grew by 8%. The year-on-year increase was largely a result of retailers continuing to see value in advertising on our marketplace and taking additional products. Average revenue per retailer increased by 12% to £2,683 per month, with more detail given on the following slide. The average number of retailer forecourts advertising on our platform decreased by 3% to 13,710. But after accounting for the disposal of webzones, UK retailers increased 1% year on year. Also within trade, we've seen an increase in home trader pay-as-you-go listings and growth in other trade revenue. Consumer services revenue increased by 7%. Within this, private revenue, which is largely generated from individual sellers who pay to advertise their vehicle on the AutoTrader marketplace, increased by 11%, and motoring services revenue increased 2%. Revenue from manufacturing agency customers increased 21%, which was largely from manufacturers using our advertising products to promote their new cars available for sale on AutoTrader. Now on to ARPA, live car stock, and retailers. 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 first half's ARPA growth was driven by both the price and product levers, with the stock lever seeing a small decline. It's worth noting that the disposal of web zones where retailers were lower yielding has inflated ARPA in the first half by three to four percentage points. This impact will be less at the full year, with the disposal having taken place in mid-October 2022. We delivered our annual pricing and product event for all customers on the 1st of April 2023, which included additional products and a price increase, which contributed growth of £146 per total offer through the price lever. Product growth contributed £165, with just over half of this growth coming from the second module of AutoTrader Connect, which was included in our advertising packages in April 2023. The remaining product lever growth was largely due to an increase in retailers using our prominence products, most notably our higher level enhanced super and ultra packages, where penetration increased to 37% of retailer stock by September 2023. Turning then to stock, you'll see on the chart on the right-hand side that the number of live cars advertised on AutoTrader was broadly flat, which was the case for both new and used car segments. The number of live used cars comes from retailers, home traders, and private listings, but only retail listings, which saw a small year-on-year decline, impact ARPA. Total auto trader costs increased 8% to $75.8 million. People costs increased by 7%. This increase was partially driven by an increase in the average number of full-time equivalent employees to 1,032 and an increase in underlying salary costs. Marketing spend increased by 8%. Other costs, which include data services, property-related costs, and other overheads, increased by 13%. and depreciation and amortization decreased by 15%. 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 statements. Operating profit increased by 10% to $184.9 million, and core auto trader operating profit margins remained flat at 71%. Our share of profit generated by dealer auction, the group's joint venture, increased 18% to $1.3 million. Having covered the auto trader part of the business, we'll now move on to the Autorama results. The acquisition completed on the 22nd of June 2022, and so the prior year comparator for revenue costs and operating losses represents just over three months. Here we've also included the second half of last year as a comparator, which shows a like-for-like six-month period. Autorama revenue for the first six months of this financial year was $21.1 million, with vehicle and accessory sales contributing $14 million and commission and ancillary revenue contributing $7.1 million. The Autorama business delivered 565 vehicles, which were temporarily taken on balance sheet in the period, representing just over 10% of the total vehicles delivered. The cost of these vehicles was taken through cost of goods sold, with the corresponding revenue in vehicle and accessory sales, which largely offset one another. On the cost side, we saw people costs of 6.7 million, relating to the 188 FTEs employed on average through the period. Marketing was 2.6 million, and other costs was 2.1 million. There was a 1.3 million of depreciation amortization, which was largely for developed software. Total deliveries amounted to 4,593 units, which comprised of over 1,500 cars, over 2,500 vans, and over 200 pickups. The van market has seen better levels of supply through the leasing channel compared to cars, although average commission levels were slightly lower year on year. This was due to lower volumes impacting tiered commission, which is calculated over a 12-month period. The Autorama segment made an operating loss of $5.6 million, which was some improvement on the second half of last year, mainly through cost savings brought about by the integration with the main auto trader business and platforms. Group central costs, which are non-cash items relating to the acquisition of Autorama, are expected to be $21 million for the full year. This is made up of $11.1 million of deferred consideration and $10 million of depreciation and amortization. The DNA is slightly higher than previously guided, as due to quicker integration with Autotrader, we are accelerating the amortization of the Vanorama brand. With total group revenue up 12%, group costs up 15%, and an 18% increase in our share of dealer auctions profit, we saw total group operating profit increase 10% to $164.6 million. Group operating profit margins were broadly flat at 59% and are expected to increase for the full year with no deferred consideration in the second half of this year. We continue to deliver strong cash flows consistently over time. As we grow, it's worth emphasizing the strong cash-generative nature of our business leaves us well-placed to return surplus cash to shareholders. Cash generated from operations was at $184.2 million for the six-month period. The statutory income statement outlines areas beyond our revenue and operating costs. Net finance costs increased to $1.8 million due to higher borrowing costs, Our net profit before tax was $162.8 million, 10% higher than last year, and in line with group operating profit growth. The group tax charge of $46 million was significantly higher than last year due to the UK corporation tax rate increasing to 25%. As Nathan mentioned earlier, the group is starting to fall within scope for the UK's digital services tax, with revenue now exceeding $500 million. There are certain revenue streams which we believe are exempt, which brings us below the threshold for financial year 2024. However, as we move into financial year 2025, we anticipate our in-scope revenue could exceed 500 million, in which case the tax would be incurred. DST is calculated as 2% of all in-scope revenue and is taken as an operating expense. The government gave an update in July where they updated their intended timeline to implement pillar one of a two-pillar global tax solution in calendar year 2025. At this point, DFT would be replaced by a tax with significantly higher qualifying thresholds, currently expected to be 20 billion of revenue, and at that point, the group would therefore cease to pay this tax. If this expected timeline is matched, this cost would be a one-off in financial year 2025. Basic EPS increased by 4%, which was slightly higher than the growth in net income due to fewer shares in issue following our share buyback program. Finally, the directors are recommending an interim dividend of 3.2 pence per share. Now to briefly review net bank debt and capital policy. At the end of September 2023, the group had drawn $52 million of its syndicated revolving credit facility and held cash and cash equivalents of $24.7 million. During the period, cash generated from operations was largely used to pay tax or return to shareholders through a combination of dividends and share buybacks. A total of 10.4 million shares were purchased for a consideration of $65.8 million before transaction costs of $0.3 million And a further $51.3 million was paid in dividends, giving a total of $117.1 million of cash returned to shareholders. The group's long-term capital allocation policy remains unchanged. That concludes the financials. I'll now hand over to Catherine to talk you through the market dynamics and progress against our strategic priorities.

Thank you, Jamie, and good morning, everyone. Moving on to slide 15 and looking at both new car registrations and used car transactions, it is worth looking at these in turn and separately, as the demand and supply dynamics in each have been slightly different over the past six months. From a new car perspective, as can be seen from the chart on the left, supply has continued to improve and registrations increased 21% year on year. It's worth noting, though, we are still below the level seen pre-pandemic and significantly lower than the exceptional highs of 2017. Private demand has softened slightly as we've moved through the last number of months. We have seen an increasing number of cars being pushed into the fleet channel, where corporates have seen very little volume over the past three years and are replacing what has become a much older fleet. Over the past couple of months, We have seen an increase in discounts on new cars and attractive finance offers to stimulate consumer demand, in particular on electric vehicles, where brands are investing significantly to achieve the government mandated ZEB targets. We are not yet seeing many cars pushed into other discount channels. We have also seen an increase in used car transaction volumes with growth of 5% year on year. Consumer engagement on AutoTrader has been relatively strong over the reported period, and cars have sold slightly faster than both the prior year and pre-pandemic levels. This speed of sales supports transaction volumes, but less so our stock-based business model, with retailers continuing to hold less stocks than in 2019. We expect that the greater supply of new cars will gradually feed into stronger used car volumes. particularly younger cars with a significant gap in under three-year-old cars due to recent low new car registration volumes. Over the past six months, our audience position has strengthened as both the volume and engagement of buyers has increased. Car buyers continue to prioritise the discovery and purchase of their next vehicle over spend in other retail categories. the number of cross-platform visits increased 14% year-on-year to reach a record number of 77 million visits per month. Engagement, which we measure as cross-platform minutes, also increased to 555 million minutes on average per month, an increase of 11% on the prior year. We continue to have the UK's largest and most engaged audience for new and used vehicles, with our share of total minutes amongst our main competitor sets as measured by Comscore, remaining at over 75%. The chart on the right shows the total minutes spent across an expanded set of competitors, retailers, and manufacturers. On average, over the year, Comscore estimates that consumers spent 10 times more minutes on AutoTrader than our nearest competitor, the combination of Gumtree, Motors, and eBay, and 26 times that of CarGurus and Pistonheads combined. Our app has now been downloaded over 18 million times, and around half of our visits are generated through our app. As we progress towards our digital retailing goals, we plan to make more use of more of the native features in our app to support these products. Outside of our competitors, we also compare our size of audience to that of retailers that are large enough to be tracked by Comscore and all manufacturer sites. We continue to maintain a significant lead against both, with over 35 times more minutes than manufacturers and over 42 times than the reseller group. On to slide 17, and used car pricing. We continue to publish a monthly price index of cars advertised by retailers on AutoTrader, the results of which are shown in this chart. The dark blue line on the chart shows the average price of a used vehicle advertised since April 2014. As can be seen in the chart, prices appreciated dramatically in the second half of 2021, our financial year 2022, but have at a total market level been relatively stable over the past 18 months. The average used car price over the past six months has been £17,800, a 2% like-for-like growth in prices over the prior year. September 2023 saw the first year-on-year decline in used car pricing for 41 months. However, there is significant variation by age of vehicle and by fuel type. The decline is predominantly being driven by alternatively fuelled vehicles, in particular electric cars. Part of this decline has come from price reductions on new electric cars but also from an influx of used car supply, with demand growing but not at the same pace as supply. We are seeing the same dynamic on new cars, where demand is also increasing but not keeping up with supply-side growth. Prices on cars over five years continue to grow, and petrol and diesel prices are more robust, which is insulating retailers from the more extreme impacts of some of these movements. Let's move on to consider progress against our strategic priorities, which were laid out at our investor day last year. As Nathan mentioned at the start, during the first half of this financial year, we have made good progress against each of our three strategic priorities. These priorities are closely interconnected, as our platform and our digital reselling capabilities build on the strengths of our marketplace, and deepen our relationships with customers and car buyers. Our marketplace continues to grow, and we have seen a record number of car buyers using AutoTrader over this six-month period. Retailers continue to take up more of our prominence products, with particularly strong growth in our higher-level packages, which had 5% more retailers stock on them versus the same period in the prior year. We executed a successful pricing and product event with the launch of our second AutoTrader Connect module, Valuations, in April 2023. As part of our platform strategy, this makes specification and condition adjusted valuations available within our retailer portal, where many of our retailers manage their inventory. This data can also be accessed through an API via our platform, enabling third parties and retailers to directly integrate valuations into the core systems they use to manage their businesses. We're also making progress in enabling more of the car buying journey online on AutoTrader, both through the growth of DealBuilder and the work we are doing to integrate Autorama. We'll cover a few brief highlights on both shortly. This slide shows the relationship between the AutoTrader platform and the services we've made available to retailers and partners. Our data and technology is increasingly important for our retailers and partners. We continue to make the platform that we have built and scaled to support AutoTrader available to third parties, and the level of engagement with these products and services continues to grow. We now have over 9,300 retailers benefiting from services powered by AutoTrader Connect across over 150 technology partners. The combination of our capability, platform, and unique data set presents further opportunities for future AI-related products beyond the valuations and metrics we have already launched. As part of the April 2022 event, we launched AutoTrader Connect Retail Essentials Module 1 on this chart, which enables real-time stock management and makes our vehicle taxonomy available to retailers through our own portal or via APIs. These APIs mean retailers and their technology partners can integrate the services into the systems they use to manage their businesses. As part of our April 2023 event, we launched Module 2 of AutoTrader Connect, Valuations. Our valuations benefit from over 800,000 observations we see on AutoTrader each day, and our machine learning technology continuously improves and optimizes the results. We've recently launched an additional new product, which is available in this second valuations module, along with the third module of AutoTrader Connect, which includes enhanced retail check functionality for all retailers. The first new product is Trended Valuations, which shows what a vehicle has been worth over the last six months, and how it is forecasted to change up to six months into the future. It's based on a combination of historic valuations, live market prices, seasonality, and age of the derivative within the lifecycle of its generation. We have also launched Enhanced Retail Check as the third module of AutoTrader Connect, which allows monitoring of shifts in supply and demand, a competitive analysis of price position against similar stock in the market, and estimates how fast a vehicle may sell when priced to market. Retail Check includes one of our key vehicle metrics, the retail rating. which is a unique machine learning-derived measure of how fast a car is likely to sell in a location if the vehicle is priced at the market value. This functionality will also be available for commercial vehicles, which means retailers will have the same level of confidence making retail decisions for vans as they do for cars. Combined, this powerful new layer of intelligence will help retailers confidently adapt and respond to changes in the markets. enabling them to make quicker and more profitable sourcing, advertising, and pricing decisions. The introduction of these new insights comes in response to retailer feedback on the increased complexity in the used car market, which is creating and making pricing strategies harder to manage. As part of the second valuations module of AutoTrader Connect, we launched a vehicle insight page in our retailer portal. which is shown on the slide, and has seen over 1.5 million page views each month since launch. These page surfaces are powerful data in an easy-to-use format at an individual vehicle level, helping retailers make faster, better decisions around pricing and advert quality. This has become a central hub in Portal and a key tool for retailers to drive the performance of vehicles on their forecourt. allowing them to assess data, including vehicle specification, advert quality, supply, demand, and pricing, all in one place. Over time, all of these features have been made available in our advertising packages, from market insight and individual vehicle retail rating, better performance analytics, our comprehensive vehicle taxonomy, and most recently, valuations. Moving on now to talk more about the outer ring of our strategy and the products which make up digital retailing. Our approach to digital retailing is to be car first and to enable any retailer, including manufacturers and leasing companies, to sell their vehicles online. With this goal in mind, we are initially offering two digital retailing consumer journeys on AutoTrader. A used car deal builder journey and an online retailing journey for consumers to lease a new car. Let's take them in turn. Firstly, we've made good progress on our DealBuilder product, shown on this slide. DealBuilder uses AutoTrader technology to enable car buyers to do more of their car buying online, including valuing their past exchange, applying for finance, and reserving the car. Importantly, all of these interactions can easily be carried out either online over the phone or on the retailer's forecourt. Currently these tools are available in our AutoTrader retailer portal and at small scale through early technology partners that have completed the integration work. Over time they will be made available via APIs at scale as part of our platform strategy, enabling these transactions to be picked up in retailers' existing sales systems and processes. In the second half of last year, we started a deal builder trial with 50 retailers. By the end of September 2023, we've increased the number of dealers live on the trial to 500, representing over 20,000 cars available at any one time, and we've completed over 2,000 deals in the period. In the second half of last year, we completed 200 deals in total and are now completing this many deals a week, demonstrating the progress we've made over a relatively short period of time. We are encouraged by the percentage of deals that converted into a sale and the positive feedback from both car buyers and retailers on the trial. We're seeing strong buyer engagement out of retail hours with over 50% of deals taking place outside of 9 a.m. to 6 p.m., Monday to Saturday, which supports the case that this should build sales capacity for our retailer partners. We will continue to scale the number of retailers on Deal Builder and iterate the product with the goal to monetize some retailers before the end of March 2024. Secondly, let's briefly consider our new vehicle leasing journey. As we've talked about before, there are significant structural changes impacting the new vehicle market in the UK. We are seeing growth in electric cars, new manufacturers entering the UK market, and a shift towards new digital distribution models from traditional manufacturers. These changes present us with an opportunity to play a more significant role in the new vehicle market. We've continued to integrate Autorama into the Autotrader platform and have enabled the full checkout of a leasing deal on Autotrader. By bringing Brace our scale and continued product improvements over time, we are confident that our new car leasing order take rate will grow whilst also driving efficiencies in consumer acquisition costs. I'll now hand back to Nathan to summarize our outlook for 2024.