Auto Trader Group H1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 9 speakers on the call.

Operator

Good morning, and thank you for standing by. Welcome to the Autotrader Group Half Year 20 25 Results Presentation. At this time, all participants are in a listen only mode. After the presentation, there will be a question and answer session. Questions will be taken in the room only.

Operator

Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Autotrader Chief Executive Officer, Nathan Coe. Please go ahead.

Speaker 1

Good morning, everyone, and welcome to Autotrader's half year results for the 6 months to the 30th September, 2024. As usual, I'm joined by our COO, Catherine and our CFO, Jamie, who will be both presenting and joining me for Q and A later. Our financial and operational performance in the first half demonstrates both the strength of our position and the strength of the partnerships we've built with our customers. Over this 6 month period, we've had record levels of engagement and activity on our platform. There are more buyers using Autotrader, more retailers, more cars transacted than last year.

Speaker 1

While all of these dynamics are incredibly positive, the nature of these market dynamics has not necessarily benefited us in this set of results as much as you might expect. I'll come on to explain this shortly. On top of this growth in our core advertising marketplace metrics, we've made good progress with DealBuilder, with growth in the number of customers, the amount of stock, the number of deals generated, and have commenced monetizing the products. Finally, and perhaps most importantly, I would like to say thank you to our people, customers, shareholders, and wider stakeholders for their continued trust in Autotrader. Starting with some of the highlights during the year.

Speaker 1

At a group level, revenue grew 8%, operating profit grew 14%, and basic earnings per share grew 22%. In the core Autotrader business, revenue growth was 9%, and operating profit excluding the impact of digital services tax, which was recognized for the first time this year was 10%. Retailer revenue growth of 8% was in line with our expectations, although the mix was not as expected. The number of retailer forecourts increased by 2%, largely through smaller independent and non car customers. This mathematically has a dilutive impact on average revenue per retailer, which increased by 6.3% or £169 year on year.

Speaker 1

The growth in average revenue per retailer was underpinned by strong pricing and product event in April 2024, where we launched our 3rd AutoTrader Connect module. As already touched on, we continue to see very strong levels of activity on AutoTrader. We've achieved record levels of consumer engagement in the period, and our lead over our nearest marketplace competitor has increased to over 10 times. Finally, on deal builder, we've made great progress over the past 6 months, and our focus continues to be on scaling the number of customers and stock, increasing consumer engagement and conversion, and continuing to gradually monetize the products. Whilst we reported a good set of first half results, certain market dynamics have created some headwinds on revenue, which has resulted in a lower stock levered guidance for the full year.

Speaker 1

Today, we want to give everyone a clear understanding of what has driven that trend. The chart in the top left shows the increase in number of visits on Autotrader, which have reached record levels as mentioned earlier. Seeing a further increase over this 6 month period on an already strong prior year is testament to the strength of our market position and how many people are in market considering a change of vehicle. Demand has gradually outstripped supply, which has meant cars are selling faster this year than they did last, which is shown in the chart on the top right. While the move from average days to sell of 31 to 29 sounds small, it has meant that in this 6 month period, 5% more vehicles have transacted on Autotrader, but there has been no increase in average live listings shown in the bottom left chart.

Speaker 1

Generally, live trade listings correlate to paid for slots, which is what drives the stock component of ARPA. As a result, for the purposes of guidance, we have assumed that these conditions continue, which given a stronger second half comparator drives the negative stock lever expectation for the full year. Finally, for completeness, we have shown used car prices in the bottom right hand chart. Generally, used car prices have been stable for much of this financial year, having declined through last year. Stable pricing is, of course, generally more supportive of retailer margins, although we continue to monitor all these trends very closely.

Speaker 1

Now turning to the group financial results. Group revenue increased by 8% with Autotrader revenue increasing by 9%. Group operating profit increased 14%. The core Autotrader business increased operating profit by 7% and Autorama made an operating loss of £2,800,000 Central costs relating to the acquisition of Autorama was £6,300,000 £8,400,000 less than in the prior year. Group operating profit margin was 62% with Autotrader's operating margin contracting slightly to 70% due to the impact of digital services tax, as previously mentioned and flagged.

Speaker 1

Basic earnings per share was up 22% and cash generated from operations was up 9%. During the year, we returned £122,200,000 of cash to shareholders through £64,900,000 in share buybacks and £57,300,000 in dividends. Today, we are declaring an interim dividend of 3.5p per share. Now on to operational results. The average number of cross platform visits were up 7% to 82,600,000 per month, and engagement measured as cross platform minutes were 560,000,000 minutes per month.

Speaker 1

We are the UK's largest and most engaged automotive marketplace for new and used vehicles and continue to account for over 75% of all time spent across our main competitor set. The average number of retailer 4 courts advertising with us increased 2% to 13,986. Average revenue per retailer was up £169 to £2,852 largely driven by the price and product levers with a smaller positive contribution from stock. Live car stock was up 2% to 448,000 Within this new car listings declined slightly to 20,000 with the growth in stock largely driven by an increase in private listings. Finally, the average number of full time equivalent employees increased to 1252 during the period.

Speaker 1

And finally to our cultural KPIs, we report this subset of our cultural KPIs given the importance of them to our strategy, our people and our ability to deliver. 91% of employees are proud to work at Autotrader and our Glassdoor rating is 4.5 stars out of 5, which is a large credit to the hard work of all our people. As of the 30th September, 6 out of 9 board members were women and 2 were ethnically diverse. Within the organization, the percentage of female employees remained at 44%. The proportion of ethnically diverse employees increased to 18%, and ethnically diverse leaders was consistent at 6%.

Speaker 1

We aim to have net zero carbon emissions across our value chain by 2,040 and to halve emissions by 2,030. Our carbon emissions for the 6 month period across Scopes 1, 23 were 45,400 tonnes, most of which relate to Scope 3. I'll now hand you over to Jamie to talk us through the financials in more detail.

Speaker 2

Thanks, Nathan, and good morning, everyone. I'll start by focusing on the core Autotrader financials. Starting with revenue. Total Autotrader revenue increased 9% to $283,500,000 Trade revenue also increased by 9%, with the largest component of this being retailer revenue, which grew 8%. The average number of retailer forecourts on our platform increased to 13,986, a 2% year on year increase, and average revenue per retailer increased 6.3% to £2,852 per month, with more detail given on the following slide.

Speaker 2

Also within trade revenue, we've seen an increase in home trader pay as you go listings and growth in other trade revenue. Consumer services revenue increased by 14%. Within this, private revenue, which is largely generated from individual sellers who pay to advertise their vehicle on the Autotrader marketplace, increased by 12% due to a higher volume of adverts being placed. And motoring services increased by 20%. Revenue from manufacturing agency customers increased just 2% year on year.

Speaker 2

We spent much of the past 12 months working with manufacturers to enable them to advertise new cars on Autotrader and have made good progress with 8 brands using this product at the end of September. However, there's still work required to ensure the product works as well as it does for our retailer customers. This work will continue before turning our focus to increased monetization. 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.

Speaker 2

Whilst the changes in ARPA growth look dramatic, on an underlying basis, which excludes the impact from the changing mix of retailers, growth was 8% last year and also 8% this year. In H1 2024, we had the removal of 550 lower yielding Ireland retailers, which inflated ARPA by 4 percentage points. This financial year, the retailer growth has come from lower yielding independent and non car customers, and we've had the loss of 1 very high yielding online retailer. This change in mix has had a dilutive impact of about 1.5 percentage points, giving underlying ARPA growth for this year of 8%. The impact of that dilution is prorated across the 3 ARPA levers.

Speaker 2

As you can see in the first half, the majority of ARPA growth was driven by the price and product levers with a smaller positive contribution from stock. Taking each of the levers in turn, we delivered our annual pricing event for all customers on the 1st April 2024, which included additional products and a like for like price increase. Product contributed £80 to ARPA growth. Just over half of this growth was products which were included in retailer advertising packages in April 2024 being trended valuations and enhanced retail check. The remaining product lever growth was largely due to new car, where we increased the number of paying customers over the period.

Speaker 2

Turning now to stock. You'll see on the right hand side of the chart that the number of live cars advertised on Autotrader increased slightly. Within this, used car stock increased by 3% year on year, although this growth was driven by an increase in the number of private listings, which do not impact ARPA. The volume of slots retailers paid for in the half was close to flat, which is broadly reflected in the stock lever. Total auto trader costs increased 16% to 87,800,000 However, dollars 5,100,000 of this relates to the digital services tax, which was recognized for the first time.

Speaker 2

Excluding the impact of the digital services tax, costs increased 9%. Within this, people costs increased by 19%. This increase was partly driven by an increase in the average number of full time equivalent employees to 11.22, an increase in underlying salary costs and share based payments, which largely increased due to the introduction of our new all employee share scheme in November 2023. Marketing spend decreased to $11,200,000 whilst other costs, which include data services, property related costs and other overheads, increased by 1%. Depreciation and amortization increased by 14%.

Speaker 2

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 around 400 people in products and technology who are continuously improving our platform and developing new products for consumers and retailers, the costs for which are taken in people costs through the income statement. Operating profit increased 7% to 197,500,000 dollars Excluding the impact from digital services tax, operating profit increased 10% and operating profit margins remained consistent at 71%. Our share of profit generated by dealer auction, the group's joint venture, increased to 1,800,000 dollars Having covered Autotrader, the main part of the group, we'll now move on to the Autorama results. Autorama revenue for the period was 19,000,000 dollars with vehicle and accessory sales contributing $13,600,000 and commission and ancillary revenue contributing $5,400,000 The Autorama business delivered about 430 vehicles, which were temporarily taken on balance sheet as a pass through in the period.

Speaker 2

The cost of these vehicles was taken through cost of goods sold with the corresponding revenue in vehicle and accessory sales. On the cost side, we saw people cost of $3,900,000 a year on year decrease of 42%, relating to the 130 FTEs employed on average through the first half. Marketing was $1,900,000 and other costs were $1,700,000 There was $800,000 of depreciation and amortization, which was largely for developed software capitalized in prior years. Excluding cost of goods sold, costs of $8,300,000 represent a 35% year on year reduction. Total deliveries amounted to 3,180 units.

Speaker 2

The leasing market for brokers has been impacted for the last 2 years by supply challenges. We expect that this will gradually improve and believe we position the business to scale profitably over time. The Autorama segment made an operating loss of $2,800,000 This is an improvement year on year and half on half, largely through the cost savings already mentioned, which have resulted from the integration with the main Autotrader business and platform. With group revenue up 8%, reduced group central costs and a reduced Autorama loss, we saw total group operating profit increase 14% to $188,400,000 and group operating profit margins increased to 62%. We continue to deliver strong cash flows.

Speaker 2

As we grow, the strong cash generation of our business leaves us well placed to return surplus cash to shareholders. Cash generated from operations was at 201,600,000 dollars The statutory income statement outlines areas beyond our revenue and operating costs. Net finance costs decreased to $900,000 largely due to reducing our gross debt to nil. Our profit before tax was $187,500,000 15% higher than last year. The group tax charge of $47,900,000 represents an effective tax rate of 25.5%, marginally higher than the average standard UK rate due to nondeductible expenses.

Speaker 2

For clarity, digital services tax being a tax on revenue is reported as an operating expense in the autotrader segment and is not included in this calculation. In respect to DST, whilst we understand that the UK government continues to work towards implementing a global 2 pillar tax solution, addressing the tax challenges arising from the digitalization of the economy, the time line for finalizing this multilateral convention is still not certain and no recent updates have been received. Basic EPS increased by 22%, which was slightly higher than the growth in net income due to there being fewer shares in issue following our share buyback program. The directors are recommending an interim dividend of 3.5p per share. Now to briefly review net bank debt and capital policy.

Speaker 2

During the period, the group repaid all of the $30,000,000 drawn of its revolving credit facility and held cash and cash equivalents of 15,100,000 dollars 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. The group's long term capital allocation policy remains unchanged, continuing to invest in the business, enabling it to grow, whilst returning around onethree of net income to shareholders in the form of dividends. Following these activities, any surplus cash will be used to continue our share buyback program. That concludes the financials. I'll now hand over to Catherine to talk through the market dynamics and progress against our strategic priorities.

Speaker 3

Thank you, Jamie, and good morning, everyone. So moving on to Slide 16 and looking at both new car registrations and used car transactions. In the new car market, supply had improved gradually following the impact of the pandemic on production levels in 2020 2021, but has been broadly flat over the last 12 months. This can be seen on the left hand chart. The market remains slightly below the level seen pre pandemic and significantly lower than the highs of 2017.

Speaker 3

Over the past 12 months, manufacturers have attempted to stimulate private demand with increasing levels of discounts and finance offers available. This has been particularly prevalent with electric vehicles, where the zero emission vehicle mandate is now in place. This requires a minimum percentage of registrations to be electric, with significant penalties for failing to achieve these targets. Despite these higher levels of discounts, private sales were down year on year, with some of the registration offset coming through fleet volumes. The fleet channel saw little volume before 2020 2022 as manufacturers prioritized higher margin retail volumes.

Speaker 3

As a result, these players have been replacing what has become a much older fleet. That said, we do expect this trend to ease over the coming months as the replacement cycle is returning closer to historical norms. As seen in the chart on the right hand side, demand for used cars has remained strong and transaction volumes have continued to increase with a 6% increase in comparison to the same period last year. Now the market news that has dominated the headlines in the last 2 weeks has been the Court of Appeal judgment against automotive finance lenders. All Automotive Finance Lenders are now back in market after some temporarily pausing new business, and we have not seen a notable impact on either consumer engagement on Autotrader or in our retail sales data.

Speaker 3

Over the past 12 months, our audience position has strengthened as both the volume and engagement of buyers has increased. The number of cross platform visits increased 7% year on year to reach a record number of 82,600,000 per month. Engagement, which we measure as cross platform minutes, also increased to 560,300,000 on average per month. The difference between the growth in visits and minutes was due to increasing use of our app, which has seen total downloads of over 21,000,000 since launch. Sessions on our app are typically shorter than those seen on a desktop or mobile device, but we see more repeat visits.

Speaker 3

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 estimated that consumers spend 11 times more minutes on Autostrader than our nearest marketplace competitor, the combination of Gumtree, Motors, eBay and Kazoo, and 16 times that of CarGurus and PistonHeads combined. Let's move on to consider progress against our strategic priorities. We have made good progress against each of our 3 strategic focus areas. These areas are all closely interconnected.

Speaker 3

Our platform and our digital retailing capabilities build on the strengths of our marketplace and deepen our relationships with both retailers and with car buyers. Our marketplace continues to grow, and we have seen a record number of car buyers and retailers using Autotrader. We have executed our annual pricing and product events successfully, which included the 3rd module of Autotrader Connect, trended valuations and enhanced retail check. We have also invested in our new car experience, introducing a multiyear partnership with What Car, a significant multichannel marketing campaign and further investment into our successful monthly EV giveaway. As part of our platform strategy, we continue to make the technology and data that we have built and scaled to support Autotrader available to our partners.

Speaker 3

This is a key differentiator and connects our data and services into key business processes for our customers. In addition to launching and monetizing the 3rd module of Autotrader Connect in April, we have seen strong and growing engagement from retailers with an average of 86,000,000 API requests per month. We are also leveraging our data capabilities to build and launch CoDriver, a suite of AI powered solutions to significantly improve both the retailer and consumer experience. We continue to scale our deal builder trial, enabling consumers to do more of the car buying journey online. We'll cover each of these key areas in more detail in the coming slides.

Speaker 3

We are well placed to support ongoing structural changes in the new car market and have continued to invest in our new car experience on Autotrader. We have products to enable franchise retailers, manufacturers and leasing companies to sell new cars directly to consumers. Firstly, our new multi year partnership with What Car. All 20,000 new cars on Autostrade are now displayed and accessible on What Car, creating a seamless journey for consumers to research, find and buy their next new car. This partnership enables retailers and manufacturers to engage and influence a highly qualified audience at the beginning of their new car buying journey.

Speaker 3

We have also launched a significant new car marketing campaign across multiple channels to run over the next 6 months. The campaign is expected to reach 96% of U. K. Adults at least 35 times and has been designed to support our partners to meet the ongoing changes and challenges of the new car market. Finally, we've continued our EV giveaway investment.

Speaker 3

With an electric vehicle to be won every month, consumer engagement has been strong with over 2,000,000 entries in the 6 months of September and over 13,000,000 in total since launch. This slide references many of the data points that we have made available to retailer customers through our Autotrader Connect strategy. Our valuations are driven by Autotrader's unique scale and depth of data that customers can trust to help them source, price, dispose and retail their vehicles to drive performance. Over recent years, the market has seen higher levels of average price movements and big differences in pricing trends between different segments of stock. With this in mind, we launched a trended valuations product last year.

Speaker 3

This product uses machine learning models of current and historical data to look forward and provide a view on where we expect a specific vehicle valuation to trend in future periods. This supports customers to set prices of vehicles with more confidence, to maximize their margin and to fine tune their pricing strategy over time, driven by data. In addition to trended valuations, enhanced retail check was launched for our independent retailers. This includes additional metrics previously only available to our retail accelerator product. It supports customers with sourcing and provides both predicted days to sell and retail rating metrics.

Speaker 3

As we've mentioned previously, Autotrader's data science capabilities, platform and unique data presents new opportunities to create AI powered products. We are already utilizing these capabilities across the platform of products and services to benefit both buyers and sellers on our platform. The next step in this journey is the launch of CoDriver, a suite of AI powered tools. This first wave of CoDriver feature launches includes 3 key components. The first, smart image management, categorizes and reorders vehicle imagery based on consumer insights.

Speaker 3

In addition to identifying missing imagery needed to improve the advert performance. The second, AI generated descriptions automatically portrays the vehicle and the features most important to consumers to generate accurate, thorough and compelling vehicle descriptions instantly. And finally, key selling points that promote the vehicle's key characteristics that the buyers value most. These products will significantly reduce the time and effort required to create detailed, highly compelling and high performing used car and van listings, shortening the average time taken from around 28 minutes to just the click of a button for our retailer partners. We expect these products to significantly improve both the consumer and the retailer experience on Autotrader.

Speaker 3

Moving on now to talk more to the outer ring of our strategy and our deal builder product trial. Our approach to digital retailing is to enable omnichannel retailing for all of our partners. We've made good progress with our deal builder product with around 1500 retailers and 56,000 cars on the trial at the end of September. Of the 1500 or so retailers, around 20% are now paying as we have started the gradual monetization of this product. In addition to scaling retailers and stock, the number of deals increased to 23,000 in the period, 10 times the number in the same period last year.

Speaker 3

We continue to evolve deal builder, enabling more retailers and consumers to benefit from the product. We recently launched our finance estimates journey, which enables the consumer to engage with monthly prices without having to go all the way through to a full application, as shown on the slide. Over time, we expect to build out the stages of the finance journey, focusing on consumer transparency and allowing buyers to do as much or as little of the journey online as they choose. This will improve the quality of the inquiry and yield efficiencies when these buyers then visit the forecourt. We do not believe that Autotrader products will be directly impacted by the recent finance court judgment, but we are making the relevant changes in our leasing journey to disclose and capture consent for commissions.

Speaker 3

We do not expect further product changes to be required to deal builder, but we continue to monitor the situation closely. Over 50% of U. K. Car buyers fund the purchase of their next vehicle using automotive finance, and we expect these market developments to strengthen the role for us to play as an independent aggregator of automotive finance products. Consumer feedback on DealBuilder has continued to be positive and deals are converting at roughly double the rate of any other inquiry type.

Speaker 3

Over half of deals take place outside of 9 am to 6 pm, Monday to Saturday, validating that car buyers want to complete more of the car buying journey online at the time that is convenient for them. As Nathan mentioned, our focus on deal builder continues to be scaling the number of customers in stock, increasing consumer engagement and conversion and continuing gradual monetization. I'll now hand back to Nathan to summarize our outlook for 2025.

Speaker 1

Thank you, Catherine. The new financial year has started well with strong growth in retailer forecourts, a good product and pricing event and growing sales volumes for our customers. However, we have seen a 5% increase in unique cars sold through Autotrader, which due to the acceleration in speed of sale has not translated into a meaningful increase in either livestock or the ARPA stock lever. With this trend likely to continue, we now expect the stock lever to be negative for the full year. Retailer 4 quarter likely to remain strong and be broadly consistent with the number we've reported in the first half.

Speaker 1

As seen in the first half though, this is likely to dilute the contribution from both the price and product levers. Previous guidance on other revenue lines, Autorama losses, Autotrader and Group operating profit margins and capital allocation policy remain unchanged. That concludes the presentation. We'll now move to Q and A in the room with analysts, which will be managed by Jamie.

Speaker 4

It's Giles Thorne from Jefferies here. First question was on CoDriver. First phase is live. 1st module within the first phase is live, and it's all free for dealers, anyone taking an advertising package. So is it fair to say that this is going to be the product that goes into the packages to support your pricing event for April next year?

Speaker 4

And if that's right, then a bit of commentary around how you see the value of CoDrive on the initial phase of modules relative to the modules you put from Autotrader Connect in April this year. Hopefully that makes sense. 2nd question was on all the activity around new car, the record marketing campaign, the What Car partnership, which was actually an extension of an existing partnership to cover new car. Should we see this as laying the ground for a deal builder product for OEMs? And lastly, yes, deal builder monetization, just the latest commentary there please.

Speaker 4

A little bit more color than what's given on

Speaker 5

the slides, if that's okay.

Speaker 3

So CoDriver, you're right. The AutoTrader comparison is a good one and that we see this as sort of an umbrella for a number of features and products that hopefully we can launch over a relatively long period of time. We see good run rate for growth from the CoDriver suite of products. We've got 3 features that we're talking about at the moment. The first one of which is about to go live.

Speaker 3

The other 2 will go live early in the New Year. We are thinking about this product being a product that we want all retailers to have and one that we do want to capture as part of advertising packages. Few reasons really. Firstly, where we find products that we know really improve the consumer experience, really deliver value for retailers and where we can capture value as well, they are brilliant package products. And we've seen from image work, the descriptions work, how much better this experience can make all of the product pages that we have on Autosrader.

Speaker 3

So we want all retailers to be creating, generating assets on our platform in this way. And we've seen from the time we spent with relistrators, the significant effort reduction that they see from being able to use the tool. So for both consumer and retailer reasons, it feels like a really good product to make available to all retailers. We've talked about before it does and it will raise the bar again for retailers because we have a huge breadth of some retailers that are really, really good at creating a really good product page and others that are not so good. So we are raising the bar again for all retailers.

Speaker 3

And for those that are really good advertisers today, they're going to need to keep pushing on and finding new ways to differentiate. In terms of the product and the value of the product, I think we're confident from all of the testing and work we've done with retailers that it's a good product that will deliver real and meaningful value. I think we're still in the process of figuring out exactly how and where we pitch like this wave of product versus what we hope will come next. But we're certainly hoping that the product is as valuable as the products we've seen in the last couple of years. In terms of new car, the What Car partnership, it was an extension of we've been working with them for a couple of years on used car.

Speaker 3

That partnership has been in terms of source of traffic, unique visitors has been a good partnership for us on the used car side. The new car partnership was a bit of a different moment for them because it was obviously much closer to their heritage and their core. But again, early days so far, it only went live in October. We're seeing good consumer engagement, good unique visitor engagement transfer from What Car into Autistrader. And we're confident that the commercial model we've done there will work well for us.

Speaker 3

In terms of what it means for our new car intent, I think between the investment in marketing, the investment in the partnership, the continued product work, new car absolutely remains a really important priority. We've still got work to do, I think, to get the advertising proposition as compelling as it should be and needs to be. But we absolutely want then to go on an equivalent deal builder journey on Nucar over time as we've been on used. But we're just a few steps behind that at the moment.

Speaker 1

I can take the deal builder. I think the headline would be we're happy with the progress that we've made on deal builder. And you know that we're normally pre open when we're not happy with certain things. But deal builder, we feel pretty good about. And if you split it into 2 sides, from a retailer perspective, we've been adding 500 retailers pretty consistently for a few halves now.

Speaker 1

And the number this half is a little bit lower than that. The reason why it's lower is because we are progressively monetizing now. And when we do move to monetizing in cohorts, there are customers that will not come on the journey. If you get 100% conversion on any digital product, you're probably not charged the right amount of money for the product. And even if we went free, I'm not sure we'd get 100% conversion.

Speaker 1

So you do have some of those customers that are starting to now net off. And as the number gets bigger and bigger, you will see that impacting the overall net number that we had during the year. But we're still doing well at adding people on the trial. There is a fixed period now that then moves to monetization. The conversion to paid, we're actually pretty happy with.

Speaker 1

So that's the retailer side of things. On the consumer side of things, as we've increased as you've seen, there's 10 times more deals. So as we've increased customer numbers, we are seeing consumers engaging with those and conversion rates are holding up reasonably well. Now as you'd expect, we tend to add better customers early in the process for any product because they help us learn the most. And as you go on, you can see more variation in the performance of those customers.

Speaker 1

So the fact that we've broadly kind of held feels pretty good. But I wouldn't say conversions increased yet, and I wouldn't say attachment rates, which we've spoken about previously in terms of finance and part exchange. They're still there a bit better than what they were, but have not really come into focus for our attention from an engineering perspective. And I guess that leads to, well, what are the things that you haven't yet done that you can still yet do? We'll carry on adding customers.

Speaker 1

We'll carry on monetizing. We'll carry on making sure that we're looking to increase the conversion to deals. But we've not really marketed or pushed deal builder yet heavily on the side, and that's partly because not all customers are able to come on to it. And our customers are very happy to share their views with us when we push products that they're not able to get on to because they might not have a particular lender. They might be ready from a finance perspective.

Speaker 1

So we're still looking to open up and make sure everyone can come on the deal builder journey, but we are increasingly starting to turn our minds to how do we increase the top of funnel and make it a bit more obvious to consumers that there's a new way to buy cars in the U. K. That they might not be able to that they might not otherwise find. And now over 1 in 10 cars on Autotrader do have deal builder on it. So it does feel like if we push it to consumers, they will find cars with that level of functionality on it.

Speaker 1

I mentioned attachment rates and opening it up to more and more customers, so larger customers where they want deeper integration into their system. So at the moment, deal build is very easy to use if you're using our portal every day. That's true for the vast majority of our customers. But if you're running a big complex group, the last thing you want to say to 10,000 employees is, oh, and for these deals that come in, can you log into rather than doing what you normally do, can you log into dealer portal and do those over there? Because even if you told them to do that, they're not going to do it.

Speaker 1

So they need much deeper integration into their lead management systems and stock management systems. And that's taken us a bit longer than what we would like, but that's mostly not down to the tech on our side. It's down to the working with partners and working with customers and their tech capability on their side. But that all still feels like that's yet to come.

Speaker 2

I think just to quantify that on the deal builder monetization, I think we're pretty clear, at a minimum, within a 6 to 12 month period, we want to have everyone either monetized or on try before you buy. So there is some focus in second half of this year, then obviously got the pricing event and probably early next year. And to Nathan's point around the conversion rate, even if you're converting 80%, that's still probably a it could be a 200 or 300 retailer headwind. So I think just knowing that we're going through this process through much of the second half, but once we're there, then everyone coming on board is hopefully if you come on trial before you buy, I think that will have a higher conversion rate. And when you come on trial, not knowing what the monetization looks like.

Speaker 1

And just a follow-up

Speaker 4

on a comment from Nathan. Can we expect in the next 12 months a marketing campaign, advertising the ability to reserve online?

Speaker 1

Yes. I think the way that we go well, actually, I should let Catherine because she runs marketing. But But I think that's something that we've talked about is how do we make

Speaker 2

sure I think marketing campaign is one aspect

Speaker 6

of it. But probably

Speaker 1

more importantly is how do you bring it right up the funnel on Autotrader. At the moment, we've got no lack of human beings looking at Autotrader to buy cars and how we can direct them to think about using Autotrader differently is probably where our biggest upside is. But we've always been open to going out with a campaign around how you buy online. I think the interesting question, one for the team to solve, is going to be, well, do you just do that on your own? Or do you mix that in with EVs, with new car or with some other element?

Speaker 1

Because just saying you can reserve a car now is only part of what you can really do. There's visibility about finance, which is now obviously very topical for consumers. So I think we've it's definitely on the list of things to push at the right time in the next year or so.

Speaker 2

One more color on the front.

Speaker 7

It's Andrew from Barclays. I've got 2, if that's okay. First one is to ask about the Prominent products, which I think nudged down slightly to 34%. Just want to make sure I understand the puts and takes as to why. I kind of understand the stock turn is fast.

Speaker 7

Therefore, maybe incentive to take a Prominence product is less. But is it just a cycle thing? Or is there anything more structural that needs to be addressed there as we kind of think about how much that could contribute over the next couple of years? And then the second one is to come back on the motor finance disclosure. It sounds from what you're saying like the market is continuing to turn in spite of all of the noise, just to clarify that.

Speaker 7

But there's quite a few potential impacts here in terms of are consumers able to access credits? Are dealers getting the referral fees? What does that mean for their margins? What does it mean for the pricing of cars? Dealer health stock on your side is quite complex in terms of how this could feed through.

Speaker 7

Appreciate there's no right answer, but curious on your take as to how to think about that. That's the

Speaker 6

first one. Kashif, you got

Speaker 2

the second. So I think on the provenance products, we do see it as part of that kind of cyclicality, very fast speed of sale. Taking in the last 3 months of this half, we saw supply starting to tighten up. Demand has consistently been very, very strong. And what those products do is where it's solving a customer problem is where someone comes and says, I'm not selling cars as often as I'd like.

Speaker 2

I've got buildup on the forecourt. And that's where you say, well, we've got these high level packages. We've got the kind of the experience within our customer portal shows you exactly the amount of uplift in response you get for the additional amount that you pay and how that turns into leads and incremental sales. Yes, and it's just not the conversation that we're having with customers at the moment because of that demand and supply imbalance that those customers those cars are selling very, very fast. We don't feel like the products are highly penetrated.

Speaker 2

So I think in a slightly more competitive market, we certainly feel like there's further to go from an upsell perspective. You obviously know as well, we've probably had 2 or 3 iterations of that kind of prominent staircase. And we've had to think about it. Is it a point where it needs some iteration? But I think we just think wait until the market dynamics change in the belief that they're not that highly penetrated and that may be something that then comes 1 or 2 years down the line.

Speaker 2

The last time we did it was in 2021. Typically, we'd look at it every 3 or 4 years.

Speaker 3

On mid finance, I think there were 3 different parts to your question, Andrew. If I start with the first part, in terms of direct market impacts and what we're seeing at the moment, your headline was right in that we saw a few days of dislocation immediately after 25th when some lenders had paused new business. But we've seen the market recover incredibly quickly. And we're now in a situation where all the lenders that had paused or switched off are now back on and trading. And many retailers in that period where lenders did pause switched, switched lenders.

Speaker 3

So many of our bigger retailers in particular will work with a handful of lenders. And so most of them were not directly impacted and still had finance that they could offer to consumers. So when we look across our market metrics, when we look at what we're seeing through our retail sales data, what we're hearing from retailers, when we look at the auction volumes, importantly, the number of cars that retailers are buying, all of those metrics held up really strongly that week. And importantly, whilst the consumer credit side was impacted, there was no impact on any of the stocking loan facilities that our retailers use to buy cars. So the odd day that looks a bit odd in the data, but actually already now kind of 10 days to nearly 2 weeks on, we're seeing most metrics sort of trending broadly where they were before that 25th October date.

Speaker 3

So a market now that is back functioning broadly normally as we would see it. In terms of consumers and access to credit, we haven't seen any lenders, I guess, close to those or maybe the closest or the most likely to perhaps, but we haven't seen any lenders exit the market. We haven't seen any lenders pause and not come back. We've seen some significantly adjust either digital or manual processes to capture consent, sometimes through a bit of paper, sometimes through a slightly more sophisticated digital journey. And we've seen a handful of lenders change the commission structure that they're paying to retailers.

Speaker 3

So one lender has paused paying any commission and a couple of others have moved to a flat fixed fee. But the vast majority have left the commission structures in place that were there and have adapted the process to disclose that commission and then to capture consent. So we're not seeing any reduction in the availability of credit to consumers. If anything, actually in the last couple of days, we've seen the average APR on Autotrader tick down slightly, so the cost of that credit has actually got a bit cheaper for consumers, a combination of expected interest rate reductions maybe today or later this week. And also some lenders, the lenders that have cut commission have often then made the APRs more competitive.

Speaker 3

So actually, we're not we don't see any sign that nearly 50 odd percent of transactions car transactions that are funded by finance, we don't see any lack of availability or any consumer credit issues there. Finally, when it comes to retailers then and the impact on their margin pool, we haven't seen some were predicting in the early days a big when we saw a couple of lenders move towards fixed fees or removing commission, some were expecting a bit of a wave of restructuring of how these fees work. That may still come, but we haven't seen the market, I would say, the market fully move in that direction yet. To the extent that the market does move in that direction, and we've had lots of conversations with retailers who have been looking at price and thinking about if commission does become a flat fit fee, how they might try and make up some of that lost margin through price. We've also today, we have about 12% of stock on Autotrader that has an admin fee attached.

Speaker 3

Retailers have talked about the processing of the finance transaction becoming an admin fee type payment, transparent, disclosable fee amount rather than commissions that in the past have been slightly hidden to the consumer through the process. So retailers already been very, very quick to adapt through the switching lenders or changing processes. And I think in the next 9 to 12 months when we get through the Supreme Court judgment and hopefully we get FCA and a clearer regulatory backdrop, we'll understand exactly what it might mean for the retailer commission pool. But I think we feel comfortable that retailers have enough other levers that if there was an industry wide compression of finance margins that they would look to make that up to other channels and means.

Speaker 5

Thank you.

Speaker 6

It's Will Packer from BNP Pariburg. Three for me, please. Firstly, in terms of the outlook, it feels like the most significant changes are more caution on the stock ARPA, reflecting market dynamics. Could you help us think a bit more about the medium term stock ARPA dynamics? Periodically, in the last decade, you've sort of pointed to significant inflections and trends, your 1st Investor Day, etcetera.

Speaker 6

I mean, my sense would be things look optimistic from a medium term perspective of mild support from it because of normalization after a period of headwinds, but that could be too sanguine. So any color there would be helpful. Secondly, thanks for the detail on motor finance. If we were to think of the opportunities for Autotrader from this upheaval, is there a way that you could become more integral via being the proponent of transparency here and get more connected to deals? Or is that a little bit too far away for us to be thinking about currently?

Speaker 6

And then finally, on the 2025 pricing event, is it fair to think that co driver is going to be the key new thing for us to think about in the way that we've had other aspects in recent history? Or is it one of a number of different things? I'm sure you're starting to think about it as it's relatively close.

Speaker 2

So I'll take the first and

Speaker 6

the last. And do you want to take the one on Main Finance?

Speaker 2

So yes, I think you've obviously got the stock dynamics that are sort of being hit by 2 things actually. One is, clearly in 2020, there were there's a significant production gap from a new car perspective. Those vehicles are now sat at the kind of 3 to 4 year category, which is the which a lot of our customers would classify as the best quality used car stock. So you've got a kind of supply tightness in that area that they really want to source out. Obviously, people have slightly widened their stocking policy, but I still think that's the kind of inventory that you want to get hold of.

Speaker 2

And then you've had this we would have said, I'm sure we did say in May, that speed of sales very fast by historic standards wouldn't have expected it to get quicker and such are the dynamics that it has got quicker. Clearly, we don't know how those how particularly the speed of sale is going to trend over the next 6, 12 months. I'd love to sit here and say it's going to slow down and that would be good for us, but it's not impossible that it gets quicker again. We just don't have that visibility. The bit that we do have visibility of is registration data is back up closer to 2,000,000, so an extra 400,000 to 500,000 cars being produced, being sold into the U.

Speaker 2

K. Obviously, a lot is going through the fleet channel currently, but that does hopefully bode well for it might take longer than 6, 12 months. But in time, we will see more supply of 3 4 year old cars than we've got right here today. And hopefully, that's supportive of that stock component. And like you said, over a 3 to 5 year period, is speed of sale going to be this quick for that long?

Speaker 2

Again, there's no visibility, but it seems hard to believe that all of these dynamics that have played out over this short window continue for a very long period of time.

Speaker 3

In terms of motor finance, I'm trying to predict some of the longer term structural impacts from this and how that could create more of an opportunity for us. I think the things that feel like they're here to stay from the court judgment the other week, I think the transparent disclosure of commissions is now can't imagine any Supreme Court decision reversing that decision and similarly the consent journey. Within that shift and move, both of those two things and the case talks very much to the sense that the seller of the assets and the seller of the finance product that because you've got one person, a broker selling both of those two things, This need for transparency and clarity in these two products, not the incentives for these two products to be sold together not being distorted has become even more important. So there is a potential increase towards decoupling the lender relationship from the retailer relationship. Today, those relationships are very tight, very embedded with clear incentives.

Speaker 3

There is a structural trend that we might see more of where more retailers will work with more lenders to provide more choice for consumers. Importantly for us and the role we play, there is a lot of choice. There's an awful lot of automotive finance lenders operating in this market. We are an aggregator of both the inventory, the stock and all of these automotive finance products. So the role that we can play if we are moving to a world where there's more choice for each consumer on every car, arguably our role in how you aggregate that choice, how you enable comparison becomes more important.

Speaker 3

And we've got work to do. We've got finance integrations live. We've got a tech platform, but how we surface that and how we do that in a way that is supportive of the journey that lenders are going on and retailers are going on without hugely disrupting what is already quite a changeable market backdrop. We just need to be responsible in how we go about doing that. But some of those bigger trends towards transparency, choice and a fragmented fundamentally a fragmented end market should lend themselves well to the aggregation type of role that we can play.

Speaker 2

And then just on the pricing event that will take effect from the 1st April 2025. Obviously, Catherine spoke to CoDriver. There are sort of 3 components within it. And I think we believe that's a strong enough product on its own to be making as part of the packages. And everyone will be trying to think about there's obviously a pricing element and a product element to that event.

Speaker 2

If you think about the price lever that we've reported in the first half, ex the kind of dilution from retailers, it's about 3.5% on an underlying basis. It's close to £100 when you revert out the dilution. That's pretty consistent with what we've done for a number of years, and I would expect that similar sort of level for 2025. We've then got the hard thing is how much is the product component going to be from CoDriver. We haven't landed, as Catherine said, on exactly how much that is.

Speaker 2

We're quite excited about, I think. But you always wait and see how it's we've only just gone out with the Trade Coms, like see how it's landing with customers, really validate that it's generating some of the savings and that's what drives the communication that then goes to customers in January on that event. So it's a little bit early, say how much product lever contribution, but I'm sure there will be some.

Speaker 1

I think the only thing that's worth adding is that a bit like AT Connect, Co Driver becomes a category of products that we can then use for the event or outside of the event a bit like AT AT Connect has done. So when we look at event products, we can look at consumer the consumer aspect of things. We can look at the advertising aspect of things, the basics of classifieds. We've had quite a few years where we've done data and to enable retailers to run more efficiently. Now we have got this category of products based around AI, particularly the LLM side of AI.

Speaker 1

We can help make their operations more efficient. So I think you shouldn't think that, well, from now on, now we've got to just guess what the next co driver product is, but there's a lot more we can do on that umbrella. But it does give us a big meaningful stream where we're just getting started off with, as Jamie and Kaspern have said, some pretty meaningful functionality that will save real time for retailers in what they have to do every day.

Speaker 2

I'll just go to Gareth and then Rahul.

Speaker 6

Yes. 2 quite specific ones. Nathan, you mentioned some of the deal builder integrations on larger customers have been a bit tougher than you'd hoped. I just wondered if you could expand a little bit there. And are there any milestones coming in terms of those integrations completed through H2?

Speaker 6

And how should we be thinking of those as we go forward? Because presumably, they could be quite meaningful when they do come. And then the second one was just did I get it right that Water Armor headcount you've cut quite meaningfully in the short is that a short term? Was there something specific? Or is there a sort of change in the trajectory you see there in terms of how you expect that business to expand from here?

Speaker 1

So on the integrations, and that's the question. Yes, there's regularly milestones on large customer integrations. They just tend to slip sometimes because the nature of those integrations is difficult. I wouldn't say there's anything that I would flag. I mean, I think you are right.

Speaker 1

If you get a big customer on, it can move those customer numbers quite a bit because these groups quite often will have over 100 retailers. And when you look at the net growth, that is meaningful. I don't think we commit to saying there's any coming on any that we see coming in this quarter by this quarter because it is something that is largely out of our control. I would say that where we've had really good success in terms of integration is there's probably about 100 tech partners that we work with to that are providing a lot of those systems for our retailers. And I think we're really pleased with how that integration has gone.

Speaker 1

We've already done stock with them. We've had to do trended valuations. We want to do deal build and we now also need them to do co driver as well. So there is a bit of a it's a good thing because they're very keen to integrate that functionality. It makes their products much, much better on the back of auto trader technology.

Speaker 1

But there is only so much that they can digest. But I'd say we have had good success with those and we've got a good number of those that are integrated and able to build deals into the systems that their retailers are using. We have got large customers on, so we know it is technically feasible and operationally feasible as well. But I think it is something that it is going to be lumpy. And I think the reality is in some results, it might be we've had a particularly large customer that's come on and that's why the number is higher.

Speaker 1

I think there's not really been those lumps, if I'm honest, in the results that we've had so far. That has been really grinding out the independent customers, portal users and groups that aren't that are still meaningful, but not necessarily significant enough for them to stand out in the numbers.

Speaker 2

Yes. And on I mean on Autorama, obviously, with the kind of supply challenges that we've been up against, we've integrated into Autodrader probably quicker than we'd originally anticipated. And with that integration has come a level of efficiency. So any kind of shared services have been integrated, so marketing, tech, finance, deep operations. There's also a level of leadership that comes out of that process as well.

Speaker 2

I wouldn't expect people to come down further than what we've reported in the first half. And I think we believe that with that level of headcount, we can probably do double the number of deals and deliveries that we are today. So there's some operating leverage in there at the point at which supply does return. Yes. And then beyond that point, then we'll have to see.

Speaker 2

I mean, hopefully, we're continually digitizing the journey that it doesn't there will be some growth if you're going beyond that level, but hopefully not doesn't restrain the business from scaling profitably.

Speaker 5

Thanks a lot. Alastair Reid from Investec. A couple of questions, please. Firstly, on DealBuilder. For dealers that are using it, what proportion of their total transactions are being sold through DealBuilder?

Speaker 5

And hence, have you seen any examples of dealers actually being able to take out cost by using it thus far? And then sort of related to that on a kind of broader longer term perspective, if you've got a dealer using DealBuilder, using CoDriver to sort of do all those sort of tasks that you talked about, how are you thinking about the amount of potential cost that a dealer could save in terms of that, I guess, sort of share of value you can target longer term?

Speaker 1

So on the first question, I think I kind of flagged that the conversion has been relatively steady. I think it's fair to say like all things in auto trader, the average is very, very deceptive because the spread around it is typically quite wide. But I think on average, 5% to 10% of their sales will be going through deal builders. Some retailers will be doing twice as well as that and some retailers will be achieving absolutely nothing in terms of deals that are going through. Interestingly, we tend to see what we're seeing is a very high well, which is perhaps unsurprising, but there's a very high correlation between your performance as an advertising customer and how you do on deal builder in terms of how you price the quality of your adverts.

Speaker 1

Those things all do tend to make people more comfortable to transact online. Because it's only 10%, I think the reality is at the moment there wouldn't be any retailers that I'm really aware of that would say that I've taken out costs that I wouldn't otherwise have because of DealBuilder. Although what they would say is half or 40% to half of my deals are coming out of hours, and I don't want to work out of ours, and I don't want to pay someone to work out of ours. So I think it is a cost saving of sorts, but I would think of it as it's a bit of an extra sales resource that they're not having to well, they're having to pay us for it if they're monetized, but they're not having to pay for. So in that sense, it's almost opportunity cost avoided.

Speaker 1

I think that is over time as we move forward and this probably moves into your second question around, well, we put together deal builder, you put together co driver, you put together the fact that we make pricing a vehicle, you can do that in 1 minute rather than in 30 minutes scouring through Autotrader. I think that is very much the opportunity that we are going for. And the way that we think about it, I will not I can't give you an exact answer to this, but the way that we think about is a retailer will sell a car for, let's say, £100. They keep £90 or £10 of that, that's about their gross margin that they're working with. They spend about 85% of that gross margin, which you end up at about 1.5% down at the kind of net line.

Speaker 1

We're 6% of that 85%. Now other marketing is another 6%, so we can push into that, I guess if we have to. And that's probably what we've done historically. But there is an awful lot of cost outside of auto trader that goes to the of selling of cars that we think technology, our brand consumers trust, all the stuff that Catherine has spoken about in terms of co driver, but finance as well. It feels like there's an awful lot of that we can go for there.

Speaker 1

So the way that we think about our addressable market is, what are all these things that are costing retailers money, that are taking up time, that are consuming labor? And how might we address those? Short of we can't help with logistics as it turns out, but we're not going to get involved in the prepper vehicle. We don't want to provide labor services to them, but we do think technology can help. Half of those costs are probably labor costs doing jobs like administration, sales, sales commissions.

Speaker 1

So we see those as all areas where we'd love to be able to help retailers to save 10 if FortoTrader can take one of those, which is kind of massive as it works out on the advertising side. And that feels like a very big opportunity for the business over the long term.

Speaker 2

Thanks, Rahul. Hello, Rahul.

Speaker 8

A couple of questions. In terms of deal builder, I appreciate it's quite early in the journey, but have you seen any evidence from retailers thinking, okay, we can have probably reducing their level of marketing spend in terms of product spend itself, given they are indeed better marketing spend and better efficiency in deal builder? Just one there. Secondly, question in terms of the given the stock lever is probably you're talking about down this year. How you're thinking in terms of pricing events next year in terms of offsetting factors with product and price lever, probably early stage, but just want to get some thoughts around that.

Speaker 8

And finally, in terms of deal builder monetization, you did I think previously talked about 0.25% of the card transaction sale. Wanted to get a bit more clarity in terms of how you're monetizing the finance part of that. And with the recent changes, how you think you can build the change in terms of why would they are you going to find basically are you going to monetize retailer? Are you going to monetize the lender? Just want to understand the dynamics around that, please.

Speaker 1

Do you want to take

Speaker 6

the first one? I'll take the second and you do the third.

Speaker 8

Michel?

Speaker 6

Yes.

Speaker 1

In terms of is deal builder efficient enough, we're not really seeing actually. If anything, we see that there's and this was our strategy in a way. The reason why we show the circles as we do, we see deal builder as very much a build on the core marketplace. And I think in all honesty, that is very much what we're seeing in terms of you can't kind of trade between the two products. You won't do well on deal builder unless you're already good at advertising.

Speaker 1

And that's for better or worse in a way. So we're not seeing any cannibalization, if you like, of our own advertising products as a result of deal builder. We're not really, I wouldn't say, seeing retailers saying I can reduce marketing elsewhere because of deal builder yet. I think we do have retailers that will have that conversation with us in terms of working with our core advertising products and saying, could I buy a prominent product? Could I spend more here and I might reduce some of my other marketing spend because the audience overlaps so big on advertising.

Speaker 1

But it's really much more of a core advertising proposition. So no real I don't think that's where they're looking for the

Speaker 2

efficiency, nor is it where we're

Speaker 1

necessarily looking for it. It's very much a we don't pitch the deal builder proposition as saying that you will sell more cars. We deliberately don't do that. We talk about you'll get leads that are twice as effective, so you can or you'll get sales that you can work half as hard to get basically is the pitch as opposed to selling more cars.

Speaker 2

Yes. I mean on the stock lever and looking pricing product for next year, I think it's probably a little bit early to say whether you feel like you have to do something different just on the basis of the dynamics that we're seeing right now. Like the kind of starting assumption is that sort of 3.5 on price, you've got co driver from a product leaver perspective. Obviously, if speed of sales still very fast, like prominence, maybe the starting assumption isn't quite as strong, but the steel builder contribution in there, there's new car contribution, which I think we believe should continue to grow. Obviously, if the stock leave or the market dynamics persist for a long period of time, then it's possible we do think differently.

Speaker 2

As we mentioned in the presentation, there's a huge amount growing levels of activity on Autotrade as the marketplace is in great health. So we could think differently. But I think starting assumption is, let's see how the next 3 to 4 months play out before making any of those decisions.

Speaker 3

On deal builder and monetization, so you're right, we charge a flat, 0.25 percent on any deal, which is we've just been talking about is effectively a very highly qualified lead that will probably convert through to a sale. And we've deliberately charged 0.25 percent monetizing, A, to keep it simple, a simple message for our retailer partners and a simple message for our partnership team to go to market with. And those bundles of deals that we're sending through sometimes include a past exchange attachment, sometimes includes a finance attachment, but we're not separately monetizing those. We're monetizing the moment of the deal at the moment. How and when we monetize finance has been something we've talked about a lot over the last few years.

Speaker 3

And I do think the events the last few weeks might change that. We've talked quite a bit for some time about the opportunity to monetize lenders and to become a distribution channel for lenders, with the retailers acting more as an agent with us providing the tech and the connectivity between lenders and the end party fulfilling the transaction. I think we will continue to monetize deal builder in the way we've set up for now. But I think there are probably more and different options to us now about how we think about that monetization of finance. I think we'll probably want to wait until 9, 12 months' time before we lock down any commercial model to make sure we're doing that with full information about how the market structure will evolve under, I think, what will be an evolved regulatory regime.

Speaker 5

Thank you very much. 3 for me if I can. So firstly on the What Car partnership, I was wondering if you could talk a little bit about how you see that as a source of traffic. I think you mentioned it. But obviously, if What Car is sort of a top of funnel tool for you guys, I was wondering how you see the value of that particularly with respect to the new car proposition.

Speaker 5

And do they pay you for access to the inventory? Do you pay them for traffic? I'm interested in the commercials there as well. Secondly, with some lenders having ceased paying commission, I think Lloyd's one of them, Stellantis or another, so some fairly large lenders there. Any idea if that is temporary, like it should be over a longer period of time?

Speaker 5

And should we be pricing any sort of impact on retailers from cessation of commission payments there? And then just thirdly on OEM advertising, you said that you haven't got the proposition quite right. And I think revenues were only up slightly on first half twenty twenty four. I think I'm right in remembering that you were intending to transition from an all you can eat to a stock based model. I'm just wondering given some of the pressures on the OEMs to sell more cars, particularly more EVs at the moment, what is it you think needs to change there?

Speaker 6

I'm going to take those 2.

Speaker 3

So on Watqart, you're right. We do see it as a source of traffic. So they get about 1,000,000 or so unique visitors each month. And a good number of those are not visitors that we would see on Australia. There is some audience overlap, but we are paying them effectively for the traffic and the visits that are coming through from the stock journey on Watkar through to Autoshrader.

Speaker 3

They are I think their brand over many, many years have been associated very much with top of the funnel discovery content journey quite at the beginning often as the consideration part of the process for buyers. We do have buyers that engage with our content that will use our very structured search experience to do that job, but their depth and richness of content is a differentiator and their brand association with that is a differentiator. So we are seeing incremental unique uses to our new car stock and platform through that partnership, and we are paying them for the traffic that we're guessing. It's a long term partnership that's performed well for us on used. It's literally a few weeks in on used.

Speaker 3

And I think we'll keep iterating, excuse me, the experience to make sure that it's performing well for us and for them.

Speaker 5

Quickly. Would you look to potentially make an acquisition?

Speaker 3

What car or anyone in general?

Speaker 5

What car?

Speaker 3

I mean, we've structured it as a long term partnership for lots of good reasons actually. And I think it works best for us and for them that way. And the second question on lenders. Excuse me. So both of the ones you referred to, we understand they're going to be back paying commissions very quickly, potentially not in the same structure and mechanism as they were before, but both are very much.

Speaker 3

So I think one this week, probably tomorrow. So we're not expecting either of the lenders that are paying no commission for that to be a permanent lease.

Speaker 2

I'll just make one just clarifying comment on the commercial model for new car. And then Nathan, you can take the OEM product. So we have a new car product for franchise retailers and for OEMs. It's actually the franchise product that we launched in 2019 as an all you can eat model that we've moved from all you can eat to a slot based model. And that transition has gone okay.

Speaker 2

New cars contributed about a quarter of the product lever this year. So that part of new car gone quite well. And we put in the release that the number of franchise customers buying the product has also grown. The OEM product has always been slot based. And you can talk on the product.

Speaker 1

That was the positive part of the answer, which I was hoping to give you in the two sides. So anyway, so yes, retailers is doing good. And we feel like we know what makes that product is working very well for consumers, working very well for retailers. It's monetized and it's growing and it's been a meaningful contributor to the product growth that we've seen. The OEM side and our reference to it not quite working is right, where essentially we started with a very similar product because we know it works and we know consumers like that.

Speaker 1

What we've there are 2 things that have happened. It was built mainly for OEMs that are looking to sell direct, which is mainly OEMs that are looking to go down the agency route. So the first thing that's happened is quite a number of OEMs have decided to wheel back a little bit or push back the move towards agency because it's not been the most straightforward process and they can all see the market share numbers, they can all read profit numbers. So some of them have been a little more hesitant or thinking about moderating their approach to agency. So there were just less at one stage, we would have said at our results announcement that we expect a good half of OEMs to go to agency.

Speaker 1

And that's not really certainly in a volume respect that's not happened at all. So there's a little bit of a slowing in that respect. I think the second thing, which is more about our reference on we need to get the product working better is that and you can see this on Autotrader, if you look at certain new car manufacturers, the quality of those adverts is not able to compete with our other new cars that other brands are putting on, particularly through the retailer product that I spoke about. And you'd say, well, why is that? Well, retailers are really, really good coming back to the co driver point at describing vehicles, pricing vehicles and taking photographs of real cars that people can really have today like with instant availability.

Speaker 1

An OEM that has thousands of cars potentially in a port in Wales or wherever it might be, they're not as good at taking real photographs of real cars and describing them really well and then having those offers appended to them. So it's just not performed as well on the marketplace because our buyers come and they just say, well, I like the look of that and I don't like the look of that and that comes through in the conversion to lead. So that's the thing that we're trying to address. Now I make it sound like it's because the OEMs can't do stuff. We as Autotrader need to change some things as well.

Speaker 1

So our integration with their stock management hasn't been as good as it could be. At the moment, we show you exactly the same price on an OEM's new car as we do on a franchise's new car as we do on a used car. The problem is that is a cash price. OEMs, when they're selling new cars, any of you that have done this, will realize that all the discount or all the offer sits in the finance offer. It's a deposit contribution for potentially 1,000 of pounds.

Speaker 1

We're not showing that on Autotrader. We're not showing 0% APR. So we need to we can do all those things, but we need to build that integration and work with OEMs to make sure that we can show those new cars at the price they are actually available. Even if the images aren't great, you at least want the offer to be the offer that you might be able to get to make it as attractive as everything else that's competing with an auto trader. And there are a few other bits and pieces as well, but that's kind of the bulk of it.

Speaker 1

So we're working to get those things right. We did kind of launch the product. These cars, because they are available nationally, go straight on market extension, which is our most expensive advertising product that we have. But we've kind of paused and said, do you know what, making money out of this isn't the most important thing at the moment. Getting this to work for an OEM that wants to sell direct is the most important thing.

Speaker 1

And thankfully, we're going all right from a we're doing well from a franchise retailer perspective. So we've kind of paused that. That largely, to be honest, explains the performance of the M and A line. It's because we've made a more dramatic monetization decision around that, that we will come back to once we've got the product working because it feels like it's a big opportunity, not necessarily a quick one. And to be honest, we thought it might be big and a bit quick as well because we can get these cars working from a franchise retailer perspective, but it's not quite turned out like that.

Speaker 1

Back to the start, Charles.

Speaker 2

Yes. Sorry.

Speaker 4

We can all go in a minute. It's a brief follow-up. What would have happened to the stock level guidance if the sales lead times have been unchanged?

Speaker 2

So it's a good question. So we said in the release that 5% we saw 5% more vehicles on-site effectively turning through 5% to 6% quicker. I think it's probably a little bit strong to say that's a 5% headwind and revenue have been 5% better because, again, people know as well, know there's always a bit of a mix effect. And it probably has been the kind of supply tightness, fast speed of sale has been seen more in the franchise segment than independent or that smaller independent end. So that 5% is probably slightly moderated.

Speaker 2

But it certainly would have been positive. I would hope that at least within our original guidance of 20 to 40.

Speaker 1

Thank you, everyone. We'll conclude things there. Thanks for joining us.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Auto Trader Group H1 2025
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