Motorpoint Plc Ord

Good morning, everybody, and welcome to MotorPoint's full year results presentation for the year ending 31st of March 2024. I'm joined today by Chris Morgan, our Chief Financial Officer, and I'm Mark Carpenter, our Chief Executive Officer. We'll take you through the results. We've got a presentation that will cover the financial performance of last year and explain in detail the year that we just had and also the outlook for the current financial year. I'm going to hand you straight over to Chris for our financial highlights and the ESG update.

Good morning, everybody. taken last year as a whole to start with. So if we turn to slide four, you can see. So I think, as we've been saying for quite some time, a very challenging year driven by predominantly macroeconomic headwinds. And that did lead to an overall loss, as you can see. But a very strong improvement driven mainly by our self-help in Q4. We'll see some of the numbers around that shortly. so it's a year very much marked by some deflation and a targeted move by us to a more affordable stock mix which paid dividends ultimately so we worked hard to improve metal margins and that helped offset lower finance commissions which we experienced for much of the year the business is right sized and variable costs you know such as light and heat for example and capex were very closely managed fts reduced by 10 percent and also supported by automation improvements and our right size programme. Marketing costs were closely managed and were down year on year with a strong focus on material investment. As you can see, customer acquisition costs improved year on year. So as well as impacting finance attachment rates and hence commissions, high interest rates, which throughout the year resulted in a high finance expense. So if we look at Q4 on its own, you can see strong profitable recovery in Q4, delivered profit before tax of 3.3 million. And that was really the culmination of our efforts for much of FY24. So for an example, retail units were down over 18% in half one, but up roughly 9% in the final quarter. So a big turnaround. And we also, which we're pleased to say, returned to market share growth. experienced the benefit of amongst other things the plan moved to more affordable vehicles data driven pricing which uplifted metal margins and a cost base more aligned to the market conditions we experienced turn to the balance sheet remains in good health no structural debt debt We can see a strong inventory drop, which reflects the mix and also deflation, supply of vehicles, but also a faster stock turn. Stock days improved from 51 to 45 days for the year as a whole. Due to the available headroom, both the stock facility and the RCF renegotiated with lenders with no adverse effects, still have plenty of headroom in both channels, and certain covenants were also renegotiated during that. We look predominantly at cash. You can see that cash started the year at 5.6 million, ended the year at 9.2. And that's despite the loss that we made during the year. So working capital was a strong focus, obviously. An efficient use of the working stock finance facility was important to drive the cash improvement. And the thing really to take away from this slide is that this provides us with confidence, not only to have undertaken the current share buyback, but also that we have firepower available as needs arise in the future. And then finally turning to ESG, really pleased with progress. We're especially proud of the Financial Times European Climate Leader recognition we received earlier in the year. We managed to markedly reduce controllable scope one and two emissions, as well as waste, and we also made some good progress on our people front. And to end on a strong positive, based on a recent survey, 95% of our team are proud to work for MotorPoint. Okay, thank you. I'll hand you back to Mark.

Thanks, Chris. So we're going now into a lot more detail on the performance in the financial year and the outlook. And I think just to summarise, you'll have seen my comment in the R&S that it was our Most difficult year in our entire history and probably my most difficult year in over 20 years in the car industry. So it's been very challenging, but I think like always, MotorPoint's agility to respond to whatever the market conditions are has come through and come shining through in the final quarter and obviously into the first quarter of this year as well, which we'll touch on a bit more. So we've been focused on driving that operational excellence. I think you can look at the macro environment, but you have to respond internally as well as trying to work out what's going to happen externally with the macro environment. And our response to that was brilliant basics. And in essence, it's making sure that we are doing what we feel makes a difference. So we cannot affect the macro environment, but we can affect our own business internally and the think Once you realize that you've got to take action based on what's happening externally, then you become very laser focused on making sure that we lower our cost base and then increase our stock to lower our stock levels, but still maintain sales to reduce the interest cost. But fundamentally also, when the consumer is having a very challenging time themselves with higher interest rates, high inflation, we need to lower prices. And we took action to do that with... the mix of vehicles that we sold, which we come to, but also with the prices that we charge for similar vehicles as well. So we'll cover those areas off in more detail shortly. So in terms of our KPIs, so the macro headwinds we talked about, it's good to make progress on those KPIs, and particularly in the final quarter, as Chris has already alluded to. And our market share in the final quarter actually grew, having shrunk a little bit during that first nine-month period. And I think I would describe FY24 is not a game of two halves, but a game of three quarters and a quarter, because the three quarters were dominated by macro events such as supply issues in our own industry, but also high inflation and rising interest rates. And I think when interest rates are going up every single month, then there is a real feeling amongst consumers that it's just getting worse and worse and worse. And I think that the peaking of those It is really helpful for people to point out that they probably have peaked at this point and are likely now the next movement is going to be down. Obviously, inflation coming down as well. It does change the sentiment in consumers' minds that we are over the mountain and we're coming down the other side now, having climbed very steeply here in 2024. So good to grow market share in that final quarter. As you can see, our revenue is very impacted by the mix of what we sell, but also our volumes coming down as well. So volumes down. around 11,000 to 78,000. And although you can see our stock turn improving from 51 to 45, that was very much dominated by the performance in the final quarter as we took real actions and our brilliant basics program to move cars faster and to price more aggressively to lower our overall stock levels took action. And that's something that's been long overdue, frankly, in terms of how we have managed to reduce that. It's been bothering me for a few, well, probably the whole of last year that our stock wasn't moving fast enough, which obviously then you suffer more depreciation on that vehicle. Chris mentioned the overall loss, and it's a pretty big loss for us as MotorPoint, but we did take action through the year. And as Chris has already mentioned, the final quarter was much stronger and that performance level has continued to be stronger in Q1 of this year as well. In terms of the actions we took, we did reduce our marketing costs through the year. So we focused much more on our direct marketing costs. So the online spend to acquire customers, so brand build still ongoing to an extent, but certainly not spending as much as we were. And then as a consequence, the acquisition cost per customer comes down. from 244 to 190, but good also to see our digital enablement of our consumers, consumer facing offerings really coming through as well. So increasing as a percentage of orders and a percentage of sales. And that's really pleasing because one of the areas where we felt we should still invest was in the digital offering of the business. So around the search engine optimization, around the website, look and feel, the speed of the website and the underlying infrastructure. And really still kept focusing on that and also on content generation, which will be long term winners for us as a business. And you can see those still paying dividends in terms of the amount of leads coming through digital channels increasing. Chris already mentioned the cash. However, you know, it is important to point out that this is a cash generative business. And, you know, we have never really required cash to to expand the business. And I don't think that will change going forward. So the business cash that sorry, the cash the business generates will be used to to invest in the business and also return to shareholders as we are doing currently with the buyback. NPS took a slight dip from 84 to 82, nothing to be concerned about there, but I think as long as we're around 80, then we're happy with that level of NPS. mentioned earlier the measures that we've taken so around around this brilliant basics and call to action that we had with our whole team that focusing on what matters um is really is going to be really important in a challenging market i would describe it as focusing on productive roles and eliminating non-productive roles in the business but also really focusing on what what are we actually measuring what are we looking at and how do they impact the business performance so One of the headwinds we had, which we all know, is that the market is smaller. So the zero to full market continues to shrink, but it looks like it's bottomed now at around one and a half million sales per annum. But there remains a shortage of good quality, nearly new vehicles. And through COVID with vehicles that were sold and used during that time, we're finding issues with service history. various quality issues and quality of vehicles generally is lower i feel since covid um as manufacturers probably rushed to use new supply chains to build up production um but also then vehicles being serviced due to capacity constraints has taken a hit as well so getting good quality vehicles that we believe are suitable for our customers is much harder we expect that to improve now going forward but in terms of our reaction last year It was to increase our criteria vehicles up to five years old at 50,000 miles. So it wouldn't dominate our stock to have four to five year old cars and 40 to 50,000 mile cars. But certainly they helped with the affordability challenge that we talked about earlier, providing customers with a cheaper means to get from A to B. In terms of our operating expenditure, we talked already about lowering marketing costs, but headcount as well. So from a peak of around 950 roles, we lowered our headcount down to 700. The peak being in the previous financial year, but still shows the amount of action that we've taken to become more efficient, to use the technology to enable our team to be more efficient and to focus on what really matters, which is producing and selling and handing over vehicles. We talked about cash already, but we did continue with that high ROI investment, mainly on the technology area that we talked about, particularly around the website and our own internal technology tools to make us more efficient. Another headwind was higher interest rates. So obviously that leads to higher APRs when customers are borrowing money to buy a vehicle. That lowers the attachment rate for customers. Some customers will choose to just pay cash or not use our financing provider when the APRs have risen from 8.9 to 12.9. We also then get lower commission as the cost of money continued to increase. So that's come down a little bit, but it hasn't come down much. So we still don't get as much commission per unit as we used to. Obviously, also the lower selling price on average, lowering from around 20,000 in the past couple of years to 14,000 in the average for last year, also had means that the balance financed by customers is lower. On top of that, then you've got going the other way, the increased cost of borrowing money to finance our stock. And on roughly 150 million of stock, then through the year ending at 100, you've got a pretty significant increase in the interest cost in the business as well. In terms of action, we increased our APR in order to try and protect commission, but it was still lower, as I mentioned. But also we did focus on really driving that stock turn, as I mentioned earlier. The use of data to get that selling price correct, whether that's external or internal data. We use a mix of both. But fundamentally, it's about if the car's not selling, it is not the right price or it's not in the right location. We need to take action and take an action a lot earlier than we have historically was certainly something we did towards the end of the year. We also improved our warranty product. And that was partly due to go and add in a three-year product for customers, which is based on feedback we felt was something we should do. And that also compensated slightly for the loss of the asset protection product, which is the sort of return to invoiced insurance that customers could buy, which has been withdrawn on instruction of the FCA across the industry. In terms of customer affordability, again, customers not feeling very flush during last year with the macro challenges we mentioned. Obviously, vehicles were sitting quite high relative to long-term averages as well due to the new car shortages, so used cars sitting a bit higher than normal. So affordability really negatively impacted. As we mentioned, we extended our criteria for customers to improve the range of vehicles. So at one point, we didn't really have many cars under £15,000. We've now got cars under £10,000 on our forecourts, which really help customers to have as wide a choice as possible. And we also reduced our exposure around affordability. We felt that the more lumpy product was the more expensive cars, sort of 40, 50, 60,000 pounds were really sticking. And we couldn't really find a good market for that product. And the same with electric vehicles. And obviously the more expensive the vehicle, it doesn't take much for that vehicle to now start losing thousands of pounds unless you've moved it quite quickly. So we took action to reduce our exposure to both of those as well. I think this slide on page 12 really helps to explain some of the actions we took last year. So remember coming into FY24, April last year, everybody expected interest rates were going up, but I don't think anybody expected them to be going up in quite the rapid pace they did to the high level that they did. So when we realized that that was actually happening and it was going to get worse and worse through the year, we took action to try and recover gross margin. So one of the only things we can do If we don't feel we can sell more cars is to try and put prices up and try and pass that increased cost of operating the business to consumers. As you can see, that didn't really work. The market is still very competitive and we probably became a little bit more expensive than we have historically. And I think it shows also that it is an ultra competitive market. And if you put your prices up, even 50 or a hundred pounds on average, you feel it in terms of the volumes that you sell. The top graph showing unit sales growth year-on-year, you can see between June and July and August, we were suffering pretty big declines on the previous year in terms of retail sales growth. So down around 20%, 25% in those periods. Clearly, that has a massive impact on our gross profit generation. And obviously, being a highly operating leveraged company, that wasn't a good thing for us. So although the margin, the blue line on the graph underneath the metal margin, was increased, you can see that it really had a negative impact on sales. So we realized quite quickly that that wasn't going to work and we needed to focus far more on stock turn and moving cars quickly through the system. We took pricing action to try and drive that then, as you can see, peaking in October, basically clearing out a car that had sat since maybe April, May and took the pain on those vehicles. That coincided with the correction in used car values around October, November as well. So you can see why that happened. And that's around the time that we introduced an administration fee for customers of £149, which nets us about £125 with XBAT. And that actually supplemented our margin a little bit, which helped us to cover those losses on vehicles that we were selling at a loss because they'd become overage. The correction in the market was pretty painful for everybody. Around a 10% reduction on our nearest 120 million of stock at the time was a pretty difficult thing to stomach, but we managed to get through it. I think since then, you can see the real impact of the days in stock. As you can see, the days in stock on the right-hand side coming right down. from December. It normally sits high in December because the market goes quieter, but you can see the rapid decline in days in stock from December onwards coinciding with the increase in margin as well on the graph next to it. Retail sales growth Higher metal margin, mainly caused by a much faster days in stock and focusing on price. So selling for as low a price as we can to create that volume growth actually results in a better margin because you're not suffering depreciation and obviously then reduces days in stock. So a story of three quarters and a quarter, as I mentioned. In terms of Q4, and we're talking a lot about Q4 because come December last year when we were really at a pretty low ebb in terms of financial performance, Chris would probably attest that I was probably a bit... like a zealot with the new message of this year was going to be much different and much better. And that's proven to be the case because once we know that the stock is lined up and we're seeing a good level of competitiveness in the market from our stock, then you can actually quite comfortably predict where we're going to be for the rest of the year because the market does tend to reset every December post-Christmas. So we were in good position. We had plenty of stock with good margin. And we knew that if the customer sentiment improved slightly, which it did, then we would be in a very good position going forward. So you can see the growth in the used car market up 6%. We outperformed that. We had much better visits to our website, up 27% in March versus the previous year. Our affordable vehicles, so the mix of vehicles that we had was improved to basically play into a wider audience. And also I mentioned many times the increased stock and reducing depreciation. So that caused the improvement in metal margin, but the marketing spend also. So we're spending lower amounts on marketing and selling more vehicles. So the direct channels of marketing are proven to be quite responsive. Obviously, brand is a more long-term play, and we're not investing as much in that at the moment, but we will return to that at some point. And our ancillary income, so around the extras that we sell, so the guarantee and the paint protection has more than offset the withdrawal of the asset protection product. Our team are leaner and more engaged, you know, with, I think, a Stronger together is the mantra that we've used with having unfortunately lost some members of the team last year. I think the way we've explained that to our team has gone down very well. We are protecting the overall company and the 700 roles that remain. So to lose some team members is disappointing, but we are protecting the company and protecting the team that are remaining. So that message has gone down very well with the team. And I think for 95% to be proud working for the company, I mean, just being through the macroeconomic events that we have and the difficult trading events that we have speaks volume for our culture and our retention levels have improved. As I mentioned, the cash generation continues. So to lose money and grow cash is pleasing, of course. And we will be buying back those shares. As we said, I think we're about a third of the way through that program as we sit here today. The value that we offer has always been there, as many of you will know, but making sure that we maintain that has been very important to us. There's a couple of examples there across a cross section of main dealers. And as you can see that we are usually the leading company in the sector. We launched a double the difference price promise to customers. We felt that we were very confident that we could actually double the difference if you find a car cheaper. and what we are selling. We haven't paid out once on that. I like that because it tells me that we are competitive. And when I get one of those across my desk, then I'll be very interested to be asking my team why we're not the most competitive offering in the market because we should be. And that's what our business model is. So, you know, from our perspective, it makes it very difficult for the competition to live with us. And, you know, moving that car quickly, preparing it quickly, buying it aggressively, pricing aggressively, going back to market quickly and spending the money on another car at a compelling price. really does work and it works the most effectively in a market where the depreciation is in the market rather than the last couple of years where we've had static prices or even increasing prices. That's not as good an environment for us to demonstrate our value. Just a quick update on our strategic developments. So we put out four key pillars and we continue to work to these. Our ambitions haven't particularly changed. They may take us a lot longer than we thought, given the market decline in 40% from when we launched these. But, you know, they are still pillars that we work through. And the omni-channel capability is probably the one where we've continued to progress most. As I said, we continue to invest in that area and upgrades to our website and our product landing page and product detail pages. I think we've got the best of those now in the industry. Gives the customers great imagery, recommendations. You can wishlist cars. You can compare cars. You can reserve cars. You can do anything on our website that you can do on any other website. We launched stock alerts for cars where we've not got in stock. Customers can request alerts that when those vehicles of a certain model come into stock, they get email alerts. That's incrementally added sales to our business where we probably would have lost those customers in the past. We've improved our filters on the vehicles to give customers more sort of dynamic filters that they can use. And that's dramatically increased the uptake of that facility from customers. And most pleasing for me, being an accountant of the past, the organic traffic, which is our free traffic, dramatically increased. So our improvements in the speed of our site, which is very important for Google rankings, from an organic nature, improved. And therefore, our organic levels of traffic continue to improve, which means we can not pay as much going forward to acquire traffic in a competitive environment. In terms of wholesale, our auction for cars business can tinker well. That business is selling less vehicles at the moment because we are using more of those part exchanges to turn to retail vehicles. And so there is an element there where that business has got a few less vehicles to sell. But we have increased our purchasing fees. We're still very competitive in the market. But even though we've increased our purchase fees, the average fees dropped due to the fall in the average selling price of the vehicles on there. So they are the fees based on the price of the vehicle that the trade customer buys. We've done more on the development of that, again, technology driving this, integrated with funding partners to make it very easy for trade customers to buy vehicles and automatically finance the vehicle with their stock line, credit line that they have with a funder. And then again, automation around triggering collection alerts to customers to say your payment's received, your vehicle's ready for collection. That used to be a manually issued process and is now fully automated, again, making us more efficient. In terms of customer acquisition retention, we opened our 20th store in Ipswich last year. We do plan more stores. There's been a lot of capacity withdrawal in the industry with Sittner closing down Car Shop, which was 14 locations, and Pendragon, now part of Lithia, closing down Car Store. Again, multiple locations, and also with Kazoo. going into administration and leaving the retail market. Three big players leaving the market, suggesting that there will be opportunity for us to open new stores and take more market share going forward as that capacity withdrawal is put into action. We continue to push our customer database, very low subscribe rates, which is important that we're not reducing our database, but we do email customers more than we used to. and making sure that we then use our data to target customers and really push the prices based on what our data is telling us around the run rate on those vehicles and what we think those vehicles could sell for in an open market. In terms of efficiency, We have a new transport provider. We've always outsourced that part, but we're dramatically more efficient with that now in terms of the visibility of transport. We can communicate better with customers on an automated basis. We've moved to open banking, so customers now don't pay using the PDI terminals. They can pay with a link and it deep links into their bank account to reduce the card fees to us, so that can save us hundreds of thousands of pounds going forward, which is very important. And various other projects that we've got there, as you can see, continue to build and integrate APIs into our providers, whether that's the finance company or the product company, or even a supplier to us for services that we use from them. Just quickly, and I mentioned earlier, I think these are the best landing pages in the industry. So this is the product landing page on the left. And then when you click on one of those vehicles at the bottom, it takes them into the more, what we call a product detail page on the right-hand side. So you can see there's multiple options there, very good clarity of offering to the customer. We do lots of different things around this to test it with customers in terms of watching the infrared, where the customer's eyes are looking and seeing where they click in, where are they hovering, where are they not converting. And that team has done a great job. It's a big part of what we invested in two years ago with our technology team and recruited a whole group of people into that team. And they are constantly working to improve this based on customer feedback. And I think the key thing here is that we don't use our opinion here. This is based on the customer data. So whether we think it looks good or not, if customers don't like it, we change it and make sure that we get that feedback on board and improve the business going forward. I think one of the key things to talk about in terms of outlook is what's going to happen in the next couple of years. So, you know, the market is going to increase. We know that new cars have been built. They've been built in bigger numbers than they were in previous years. And therefore, that will ultimately feed through into the used car. So if we do nothing, we don't grow our share, the market's going to get bigger. We have no reason to believe that we'll do anything other than grow our share, given the capacity withdrawal we've already mentioned. And as you can see that that improvement in metal margins that we're already experiencing, if we can maintain that supply pressures ease, which grows the market and interest rates fall, all of these things will really drive our profit going forward. And that's what it's all about in terms of us. We want to be here to make a good return for our shareholders and then invest that capital if we think the right time to do that is with a compelling investment or return the money to shareholders. We're doing currently with the buyback. but a really compelling opportunity going forward. And you can see here in terms of how we arrive at that number, you can see the market prediction based on new car volumes and based on what then therefore should happen to the zero to four market. It shows our volume. The black line is that our volume was just going to increase back up to where it was and beyond previously. Now, bearing in mind the operational gearing of the business with a relatively high percentage of gross profit being utilised to cover the costs, you can see that that volume falling through into the gross profit line, lots and lots and lots of that gross profit falls straight through to the profitable tax line and therefore generates the cash in the business. So we're very excited about that. In addition to that, the lower interest rates is a real cost to the business and it's almost a dead cost. Interest rates go up and we just have to pay more money without really improving the business. And a drop in that, you will see there that even that falling down to predicted level puts another one and a half million into the profit before tax line as interest cost falls based on the interest rates falling. In terms of current trading, as I mentioned already, April and May both profitable and June looks pretty similar. So we're very happy with that double digit growth in retail volumes and our metal margin remains strong. Used car prices at the moment are stable. The only real difference is that petrol and diesel vehicles are pretty buoyant actually and quite robust. And obviously there's some challenges certainly in recent months around electric vehicles, and that 22% target for new cars on electric vehicles is disrupting the market in an unhelpful way. So we don't particularly have many electric vehicles in stock. They are a lot more expensive, as you will know, and therefore there is quite a bit of volatility around those. But we will ultimately be in that market in a big way when those used car values come down more akin to the petrol and diesel prices. In terms of Outlook, I think Brilliant Basics has been an excellent thing for us. It's really reset the business. It's reset expectations. And it ranges from things like communication to our team, being in stores and understanding what challenges they're facing. Internally at the head office, making sure that people are aware that they're there to support the business and making sure that, you know, everybody understands the business. So one of the examples is we've got all of our sort of head office, heads of department and directors working They're all partnered with the store and they have to be in that store each month and understand what those stores are facing. And so we're passing our communication from head office into stores on a more personal level, but also we're passing the store feedback into the senior management team and the heads of departments on a more personal level as well. And that has proved to be very successful. at really engaging the relationship between the teams in the field and the head office. I've already mentioned our leaner cost base, our data-driven focus on improving margin. Our faster stock return is a big part of that, of course. But those enhanced digital capabilities that we've invested a lot in in the last three years really coming to the fore, and I think that stands us in good stead going forward. I think it's important to distinguish between a tech business and a tech-enabled business. We are tech enabled. We do not force our customers to buy a certain way because we're calling ourselves a tech business. We are enabling our customers to a better experience, whether it be researching or reserving or buying a vehicle. then we want the customer to have the best combination in the way that they choose. We will not force customers to buy a certain way using a certain channel. We would always put ourselves in the customer's shoes and make sure that however the customer wants to deal with it, we will make it happen because that's what good customer service is about. Ensuring customer affordability continues to be a priority for us is important because, as I said, we noticed last year when prices had risen that we were becoming more difficult to satisfy the market that we had. So a lot of our new customers are created below the £12,000 price point. And if you haven't got any £12,000 cars in stock, then that's a problem. So hence the move to go to older vehicles. Since October, November, that's become less of an issue as the value of all cars has fallen by around 10%, so therefore making the market more competitive, making our stock more accessible to more customers, which is obviously very helpful. We should see an expansion in the used car market, as I mentioned, with new car registrations growing. That's on that earlier slide, but that should continue. We expect to see new cars continuing to grow, and that will obviously help our market going forward. And, you know, we plan to reset and re-energize our strategic goals. As I said, they've not particularly changed. We want to grow the company, we want to be profitable, and we want to dominate the used car market as the best operator in the field, giving the best customer service with the most engaged team. So that concludes our presentation. I'll hand you back to Alex now.

Many thanks, Mark. To those in the audience, if you'd like to ask Mark and Chris a question, if you can please raise your virtual hand and we will make that happen. Our first question comes from Darren Shirley at Shore Capital. Darren, if you take yourself off mute, please go ahead.

Yes. Morning, gents. And great to see the current trading momentum. Just a couple for me, if you don't mind. First of all, in terms of sort of group profitability, if I look at the business in sort of the five years pre-COVID, maybe the last sort of five normal years we've had, it was pretty consistently delivering sort of high teens, low 20 million of PBT. when you look at the structure of Motorpoint now and the marketplace that you're operating in, do you think that's an achievable sort of level of profitability again over the medium term? And then the second one would be, You've signalled that, I mean, you've obviously still got growth ambitions, significant growth ambitions, and that you're going to get back on the front foot with new sites in the current year. Could you just give us an idea in terms of what you're looking for in sites now? I know there was a move to smaller sites post-COVID, but in a sort of what may be a more omni-channel world than you were anticipating, are you looking for bigger sites than you were? And what do you think is the right number of sites across the UK?

um over the medium term again thanks yeah thanks darren i think in terms of profitability there's there's absolutely no reason that we cannot uh return to those values in the medium term of those levels of profit as i mentioned the operating leverage of the business is um is very high and therefore you know as you do those additional units Another 1,000 cars puts something like 1.5 million on gross profit, and it certainly doesn't cost us 1.5 million to facilitate those extra 1,000 cars. So that definitely drops through to the bottom line. I think the question obviously is when, and that's the more difficult point, given that the market size continues to grow. but what we don't really know is how this capacity withdrawal will affect the market going forward. So, you know, will we, how much of that capacity release will we pick up? We're certainly looking to pick that up. We've got to be in those markets, but obviously it reduces the competitiveness for supply as well, which is important. So hopefully we'll see an expansion of supply with lower competition levels, given that the withdrawal has happened and that shouldn't speed up our, our return to those previous profitability levels. But yeah, absolutely no reason to consider that we would not return to those profitability levels at all. I think from the second point, you are right that we did move more to the smaller stores. I think we've discussed that a lot internally as part of our Brilliant Basics programme, that those smaller stores are probably too small for what we want. I don't think we ever need a thousand car store because Omnichannel has probably made that a thing of the past. But for sure, we believe we need stores stocking around 200 to 300 vehicle spaces on the store. So that gives people enough of a choice. when they come. And I don't think we can really showcase our model with 50 cars on display as an example. I think that proves to be very difficult. And even though there are lower costs from a rent and a people perspective, you know, they do still take up time in terms of management time and various other things. So I think we are looking for 200 to 300 capacity stores. And we will probably look to relocate some of those smaller stores over time Once we've established the brand to a level that we believe we've now got the remit to go into that market in a bigger way.

Thanks for that Mark. Just to follow up then, just sort of a read across from that exit of that capacity reduction and particularly one noisy sort of chunk of capacity. I mean, you look at your cost of recruitment or cost of sales was down to sort of, I think it was 190 per vehicle and you reduced your market and cost in the year. Looking forward, would you expect marketing to build again or with sort of maybe less noise around the industry? Can you maintain sort of a cost of recruitment of less than 200 and say rather than going back to where it was previously?

Yeah, I think we've got to be very careful not to spend too much on the marketing. I think that you can you can potentially build a brand quicker. But, you know, I think the best market you can ever do is investing in price because, you know, it is a big ticket item. Customers do care about the cost of the vehicle. It can make a big difference to their personal budget. So I think I don't see it particularly going much over 200 per unit. I mean, it's difficult to predict because clearly, you know, if the volumes move one way or the other, it could go up or down from there. But I think around 200 would be our sort of upper limit. And obviously we'd look to make it more efficient from there. Well, thanks, Mark.

Just a couple of things. Two other points. One is we're back on TV advertising this weekend, so let's look out for that. But also on the marketing side as well, one of the things we do need to look at quite carefully when we start laying out new stores and starting that rollout again is we need to make sure that we market those new stores properly. So we'll manage that as it happens, but that will be important.

Okay, all very clear. I'll give someone else a go. Thank you.

Thanks, Darren. Our next question comes from Alison Ligo at Deutsche Numis. Please take yourself off mute, Alison, and go ahead.

Hi there. Good morning. Thanks for taking my questions. I was also going to ask about site growth. So I guess kind of following up on that, wondering if you could add any colour on sort of where within the country you're looking, perhaps where you're seeing kind of any particular real opportunities in terms of capacity. And then I guess tied to that, any regions you'd call out as really underpinning that return to volume growth, others lagging, or has it been kind of pretty broad based across the country? Second one is around, do you want me to go one at a time or?

No, go on.

Okay. Second one then around expectations for stock turn and holding for the year. Obviously, a big step change there in Q4. Should we be expecting that sort of level of stock holding to continue across the year ahead? I guess that's kind of tied to how we think about interest costs trending for the year if we put any changes in interest rates to one side. And then final one would just be around, I guess, midterm thinking about the OPEC space. So clearly you've taken some really decisive action in terms of right-sizing the cost base. Are there any areas where you might like to put some more investment back in where you've had to kind of pull a bit harder than you might have liked on a midterm view? Or are you just happy with how lean the OPEC space is at this stage? Thank you.

um so in terms of markets we wouldn't normally talk about which markets we're in but there are you know if you plot our stores you can see that there are gaps in some pretty big cities and regionally the southwest the southeast and the southeast obviously been a lot harder than the southwest to um to get into as a market due to cost and various other constraints but there are still pretty big cities that we're that we we don't have any pres uh representation and so we'd be looking uh to that those areas um in terms of the second It's pretty flat across the country. We do tend to perform relatively consistently across the country, so we're not seeing any regional variations. We're not growing massively in this region and not in others. The newer stores obviously grow faster than the more established stores. That's to be expected. But no, there's a pretty flat structure across that. In terms of stock turn... And stock levels, I think we do need a bit more stock, but we obviously want to do it responsibly and not jeopardize that stock turn. So I think the stock turn levels at 43 days is about right. It doesn't really need to be dramatically faster than that, but we wouldn't want it to get dramatically worse than that. It does fluctuate a little bit across the year, obviously, with some seasonality, but around that level. But I would expect a little bit more stock, but obviously that needs to be covered by increased sales. Otherwise, that affects the stock turn adversely. And in terms of cost, I mean, that is, sorry, the people, that is linked in terms of OPEX. I'd say the only area is people. Maybe a bit more marketing, but again, needs to be linked to volume growth. The people is also linked to volume growth. So, you know, we don't have a gaping hole in the organization where, you know, we haven't got a certain department or a certain capability. Maybe, you know, more customer-facing people in stores as volumes increase would be the only area. So I think we're...

we're in pretty good shape in that regard yeah and just on that final point person we I know it's relatively minor, but we did increase our headcount in stores in that January to March period in response to the demand. So, you know, we actually were 690 something was our sort of low point from FTEs and it went up, you know, sort of 15 heads, whatever. So, but we'll continue to monitor that closely because the one thing we don't want to do is damage the customer experience because we're too lean. So we do need to be quite reactive. And so far this year, we've done just that.

Great. That's really clear. Thanks, guys.

Thanks, Alison. Our next question comes from Clive Black at Shaw Capital. Clive, please take yourself off mute and go ahead.

Thank you. Thank you, gentlemen, for your time and also well done navigating, obviously, a tough year. Again, two or three questions if I may. Firstly, interested in your comments, Mark, about the online elements of the business. Do you sense that there's been a fundamental rebalancing or repositioning of where online sits within your business model? um as darren said there's there's been a lot of uh noisy uh participants particularly in the pure play arena um do you think we're now in a sort of steady state market and you understand where online is in the in the motor point business model yeah for sure i think um you know we could have easily gone and spent tens of millions of pounds on technology um you know and actually potentially not sell any more cars so i think you know there was a

There was a precipice there that we could have stepped into and believed we needed to spend vast amounts of money like some of our competitors. But I think we've actually taken a very pragmatic view of, well, how does it sell us more cars? How does it improve the customer experience? How does it make us more efficient? And part of the Brilliant Basics project was if it doesn't sell us any more volume and doesn't make us leaner, we're not doing it from a technology perspective. And that was very much driven from necessity, but also then, you know, once you start implementing it, you realize that it's working and you sort of double down on it more. So I think technology is clearly, it's actually always been pretty important with us. You know, we've got no back of office staff in any of our stores, you know, and I don't think any other retailers can say that. So I think we've always been very efficient, very lean. We've automated systems, using systems, automated manual processes away from the stores and And that's been obviously very helpful. And I think being technology enabled means we use technology where we see that it adds value to the business, whether it makes us more efficient or improves the customer experience or sells us more. So I think there is a rebalancing back to a common sense approach around technology where we are using it where we think it benefits the company, but we're not going to use it at any cost. And we're certainly not going to use technology or call ourselves technology-led when actually we're technology-enabled. We use it a lot. We're very open to new systems, new processes, and we've used it to our advantage, I think.

And in that respect, just to be, I guess, just a point of detail, do the vast majority of sales start online?

Yes. The vast majority, I'd say over 90% of customers begin their journey online. Even customers, they walk into store and we may not have had any interaction with them prior to that. When we survey them, they have been on the website and typically they've been on our website and not many other websites, which is good for brand loyalty. But, you know, not many of them have been on AutoTrader as an example, which was a surprise to me after being in the industry a long time. And so customers, you know, they will they will search retailers as well as aggregators. But a lot of our customers have not used any of the aggregator platforms and have just come straight to our website like the choice we've got and have come into store.

And then just building on your presentation and one or two of the questions, just maybe characterise a little bit more how you see the competitive environment. And I presume you're confident about gaining market share here on, maybe even more quickly than you have in the past. Is that fair?

Yeah, I think it's surprising that so many bigger names that have been staples of the industry over the last five or ten years, including Kazoo, have disappeared or decided not to open. What we don't know is we've obviously pushed into their space, so we wouldn't have been in the three to five year old space in the past. I've no doubt we make it very hard for people when we go into the older market because of the way our model works, which is that faster stocked in low price. It makes it pretty hard to compete against. So I don't know whether we've contributed to that decision. Clearly, you know, everybody's fishing in the same pond for stock and stock is going to get a lot harder in that three to six period. group now because of the COVID shortages are feeding into that market. So it may be that consequence as well that that three to six market is going to get smaller, but obviously we expect the nought to three to get bigger, which is our heartland.

So we're excited for that as well. And in terms of that supply, when you first came to market, the rental market and fleet were especially important for you. Maybe could you characterize how you see the buckets of supply going forward?

Well, I can't say that it's non-existent, but it's not far off non-existent. For a company that was probably 60% fleet, ex-fleet product in the past, for us to be much, much smaller than that now, a fraction of that, and having to source the vehicles ourselves through customers or buy them in open auctions, which is obviously a more expensive channel for us than the direct-to-market, we are starting to see some direct supply come back. in terms of whether it's a fleet company or a manufacturer offloading some bulk deals. So cars, you know, 300 here, 300 there. That's very welcome. But we expect to see more of that going forward. And obviously that should play to our strengths as well.

And of course, you've got the cash to be able to quickly on that front, I guess.

Yeah, yeah, absolutely. And we obviously got the facilities behind us to allow us to do that as well if we need to go even deeper. But we'll do it responsibly. We'll do it profitably. And, you know, I think the past financial year is, It's given us more confidence in everyone where we should be focusing and how we can be successful.

Yeah, and having that cash, I'm sorry, Clive, having that cash is important because, you know, if the fleet companies, the rentals, whoever, manufacturers, whoever it might be, you know, they know that we pay, they know we've got the cash available. So, you know, they will look to us rather than somebody else in any event. So, you know, we should be first in the queue in that respect. So, yeah, fingers crossed that we're optimistic about that.

And just a final one is, do you think there's anything happening with customer replacement cycles for cars? Are they lengthening? Are they shortening? Do you think there's anything happening out there that's conditioning your market?

Yeah, it's definitely lengthened since COVID because it got shorter in COVID. I think it's probably gone back to a more long-term number now where it was, which is about three and a half years. So it's shortened a bit. in that period but um there's definitely gone back out a little bit and i expect it'll shorten again um as interest rates start coming down and people have not decided not to change i mean if you think about what we do we're effectively traders buying and selling cars um and for people to not be in the market just because they think it's too expensive it's not a good time electric technology is changing and you know i'm going to wait for the next electric vehicle to be good enough um then people don't trade which is probably the worst possible scenario for us um so you know you can't see that getting any worse coming forward should improve hence the sentiment is um you know we're very confident over the next couple of years we'll be dramatically more successful well good luck to end and thank you thank you thanks five um mark chris we are done with questions so over to you for any closing comments uh well not too much from us but um thank you very much for listening everybody um as i just said the you know we are very confident about where we go from here it's been a very challenging financial year um but you know since the turn of the year so the final quarter and certainly this quarter we're profitable um that's where we like to be we're here to to make a return for our shareholders. And the market withdrawals of other competitors should be good news for us. The supply increasing should be good news for us. And the macro environment improving should be good news for us. So I see only positives going forward after the most challenging year. We should now be on a very good trajectory for success going forward. But thank you for listening, everybody. We'll see you soon. Many thanks. Bye. Thank you.