Auction Technology Group plc (ATG) Earnings Call Transcript & Summary

Welcome to ATG's 2023 Full Year Annual Results. For fiscal year '23, we are pleased to say that we delivered solid numbers despite the macroeconomic backdrop. And we're pleased with the progress we had against all 6 of our strategic growth levers. In so doing, ATG is continuing to increase and improve the standard of buying online at auction, which is, as you know, a key part of what we're focused on. And what we've seen is that the more we do, the more our customers trust us. This year, we saw the fruits of some of our labors coming out, especially in the value-added services domain, and we'll talk a little bit more about that. We have other areas where we're investing or have been investing, and we're going to see that coming in the future. While the macro backdrop definitely impacted our numbers in the second half, what's equally important to note is that we are in a position to invest and take control of that macro and derisk the macro as we look forward. So if you flip to Slide 4, Becky, please. So since the IPO, ATG has consistently delivered strong financial and operational results. One of the things look like is that we grew during COVID, we grew post COVID and that we've retained the vast majority of that growth, just demonstrating that structural shift from offline to online that we talk about. In fiscal year '19, if you look back even further than this GMV chart shows, it would have been GBP 1.1 billion. And so as you can see, over these last 4 years, we've grown massively and are sitting at GBP 3.3 billion, having retained the vast, vast majority of the gains we saw over that entire COVID period. With that number being reflected in our revenues as well, growing from GBP $52 million in fiscal year '20 up to GBP 135 million this year. And as you can see, EBITDA from GBP 22 million to GBP 64 million. The second column here is about the fact that when we invest, we're able to generate a return. And as we've invested, we've been able to diversify our revenue away from commission and fixed fees into the value-added services space. And then the third key point here is that, again, over this period since the IPO, we've made 2 accretive acquisitions and with the most recent one being EstateSales.NET. And then those have had both a strategic impact for us, which will be even more important in these next years. And it also contributes to the scale that allows us to continue to invest, and we believe to invest at a pace superior to our competition. So if you go to the next slide. In fiscal year '23, we continued to execute against all of our strategic objectives, and we created significantly more value for our customers while growing new revenue streams. So the first point, we delivered strong results, 13% revenue growth, 6% of that in our core marketplaces with the growth in both A&A and I&C. The marketplace growth did reflect the weaker macro factors, which Tom will go into in a little bit. The second point, though, is that since the IPO, we really had told you that we were investing in our value-added services, and that was digital marketing, shipping and payments. And as you can see, those areas have grown significantly, plus 27%, 28% in value-added services revenue year-over-year. The third point is that we've been able to do this by gradually also improving our take rate by 30 basis points. As you know, our goal over the next 3 to 4 years is to get that closer to 5% to 6%. And we have been able to raise it to 3.6% now, reflecting our increasingly diversified revenue mix driven by event fees and value-added services. Fourth point is that we've been able to expand our TAM as well by acquiring EstateSales.NET, we've added an addressable market of at least GBP 5 billion that we believe we can go after and which we know how to go after. And that business, which we acquired is performing well ahead of expectations. We've been able to do this while reducing our leverage ratio from 2.4 to 1.8. And we've done this while also investing in organic and inorganic growth, reflecting the strong cash generation of the business and the operating leverage. And the last point is that we've hit our consensus EBITDA and expanded our margins, demonstrating the control we have over our costs. And so again, we've come in at GBP 64 million of EBITDA with -- while growing our margins to 47% by 2 points. Next slide. So amidst this uncertain macro, the reason I wanted to put this slide in was to again demonstrate that amidst all of that ATG is still increasing its trust amongst auctioneers and bidders. And we were able to grow both sides of our marketplace, driving that virtuous circle by attracting both more bidders and more unique items. So auctions facilitated up 16% to 86,000, lots listed up 10% to 22 million, bidding sessions up 9% to 189 million and new account registrations up 12% to 1.6 million. So we'll cover some of that in a little bit more detail shortly. But for now, I'll turn it over to Tom for the financial performance.

Good morning, everybody. I'll start just by reiterating some of those financial highlights that John-Paul's mentioned. So revenue of GBP 135.2 million, up 13% year-over-year, 5% organic growth. Adjusted EBITDA of GBP 64 million that's up 19% year-over-year, with an adjusted EBITDA margin of 47%, 2 percentage points higher than last year. Our adjusted diluted EPS of 32.6p, up 11% year-over-year, with adjusted free cash flow of GBP 49.9 million that's 78% conversion from our adjusted EBITDA, and adjusted net debt at the end of the year of GBP 115.7 million, that's a leverage of 1.8x. Moving to the next slide. This shows our revenue by segment. You see there our total revenue of GBP 135 million on the left-hand side. You see out of that GBP 123.8 million came from marketplace revenue, up 15% year-over-year, on an organic basis, up 6%. Within that, Arts and Antiques grew 19% year-over-year. So we acquired ESN during the year. ESN gets reported in Arts and Antiques that's boosted that growth rate, taking that out and adjusted for FX, you get organic growth of 6%, similar to the level of organic growth achieved in Industrial and Commercial, which grew 7% to GBP 58.2 million. If you look at the component parts of that marketplace revenue growth on the table below, you can see there the take rate grew from 3.3% in the prior year to 3.6% in the current year, reflecting growth in both value-added services and listing fees. But GMV, GBP 3.3 billion, marginally down on prior year 3%, and that particularly reflected some softness in our end auction markets that we saw emerging in the second half of the year, which we'll talk about more in the following slides. Go to the next page. You can see our mix of revenue by product. So the GBP 135.2 million, you can see commission revenue from I&C and commission revenue from A&A comprise 35% and 20%, respectively. So 55% of the total -- of our total revenue comes from commission. That was down from the percentage last year, which was 60%. And again, that really reflects the increasing diversification of our revenue streams. Overall, in absolute terms, commission was flat, primarily driven by the GMV. I've just talked about some the previous slide. Look at listing fees, strong growth there, 16% year-over-year both reflected an increase in the number of auctions we're hosting, but also in the fee per auction. So in FY '23, for the first time for a few years, basically since before COVID, was the first time we'd introduced some meaningful price increases, which is feeding through to that listing fees number. And then you see the growth in value-added services, 27% year-over-year, comprising 18% of the total. And you get a flavor of that, how that's evolved over time on the chart on the top right-hand chart, which from FY '19, where we had GBP 4 million from value-added services, which just shy of GBP 25 million in FY '23. The growth that we've achieved in FY '23 has been across all product categories. So good performance in our digital marketing for auctioneers, which increases the penetration -- increasingly penetrating our auctioneer base. Good growth in [ LA Pay ] has been complemented in the second half of the year by the launch of atgPay in I&C. And then towards the back end of the year, the launch of atgShip has also started to contribute to that. So we exited FY '23 with good momentum in VAS, which will continue into FY '24. If we look at what that listing fees growth and value-added services growth is done to our take rates. You see on Arts and Antiques actually it's been ticking up nicely for the last 2 or 3 years. That's continued. We're now at 8.6% take rate on Arts and Antiques versus 8% last year. And then after some softening over the last 4 years in I&C, largely to do with the big volume increases we've had in I&C, you see that has now reversed back to 2.2%, which is nearly where we were in FY '21. If we go to the next slide, I talked about some softening in our end markets that we saw particularly in the second half of the year. Now the KPI that you can see that coming through is really our total hammer value. So total hammer value is the total value of items sold in any auction that we take part in, whether we provide the winning bidder or someone else provides the winning bidder, and this gives you a good proxy for overall auction activity. You can see there how that number -- that THV has grown very strongly over the past few years, started at GBP 6.1 billion in FY '20. It's GBP 10.8 billion in FY '23. That was growth on FY '22 of 3% on an organic basis, but very much a tale of 2 halves. If you look at that little table on the right-hand side, you can see after 5 half years, basically a very strong growth in THV including growth of 11% in the first half of the year. In the second half of the year, THV declined 5%. That decline we've seen both in A&A and I&C. Talk about those in turn on the next 2 slides. If we can move over starting with A&A. Just to reiterate, the revenue performance of GBP 65.6 million, up 19% year-over-year, just to cover off ESN. So ESN is within there. We had 6 in a bit months' worth of contribution from ESN. If you look at ESN on a pro forma basis, ESN grew 13% year-over-year. So very happy with that performance, partly due to some of the tweaks we made to pricing in ESN, but also, they're also enjoying good growth in their marketing revenue. But taking out ESN and FX, you get organic growth of 6%, which, as we've seen, is due to growth in take rate, VAS and event fees. GMV in A&A was down 3% year-over-year across the whole year. Actually, similar performance in the first half and second half, but the makeup of the drivers for that changed. If you look at the chart on the top right, you can see THV in the first half of '23, grew 5%. GMV fell 3% despite that growth, and that was really as lapping the final COVID comps from the prior year. You got to the second half of the year, and that COVID lapping disappeared. We're lapping a clean non-COVID comps for the first time. But the tailwind that we've had from THV in the first half turned into a headwind. We saw THV decline for the first time in a long time, 2 percentage points, which is broadly mirrored in GMV. That decline in THV reflects wider weakness in the A&A market, which really reflects the wider softer macroeconomic position and what that's -- the impact that's having on end consumer bidder demand. Underlying all that, and sometimes it's hard to see that in Arts and Antiques, but underlying conversion rates have been stable over the period, shown again how we did last time this is a like-for-like cohort of LiveAuctioneers, domestic auctioneer behavior, which is the biggest bulk of our auctioneers. As you can see there, our conversion rates in '23 were the same as '22, not quite the levels that we achieved at the peak during COVID of 26% but basically now are broadly stable. If you go over the page to I&C, you see that 10% reported growth, organic growth of 7%. As we've already said, that growth has been driven by increasing take rate because of VAS and event fees. GMV, as with A&A was down 3% over the year as a whole. Again, as with A&A, a story of 2 halves, albeit the story is slightly more complicated on the I&C side. If you look at the chart there, which shows THV growth in the first half of the year was 16% year-over-year, so very strong growth in the first half was followed by second half where it declined 7%. It's worth noting that 7% decline was off the period in the prior year, where growth was 29% year-over-year. So we had some very strong comps in the prior year that were going out in the second half of this year. Now it's a little line there that has excluded rotating volume -- rotated volume, it's not most straightforward thing. I'll just explain what happened there. We had a single auctioneer on the I&C side who, for a number of years, uniquely had been at a very discounted commission rate. The net effect of that is we're getting a lot of volume from that auctioneer, very little revenue. The business was actually unprofitable for us. It's marginally unprofitable for us. The opportunity arose for one of their consignors who expressed an interest in becoming an auctioneer, which does sometimes happen using our marketplace and basically paying a full rate card. So as a result of that, in the second half of the year, we switched some volumes out from one auctioneer to another auctioneer. We're only a subset of that volume, but that volume was at higher rates and no impact on our reported financials on our revenue, but it does distort some of these trends you can see in KPI. So what we're really doing is adjusting for that change of auction house to get a better underlying view of what's happened to THV and GMV. Once you adjust for that, you can see in the second half of the year, our THV decline was 3%. If you look beneath you see the GMV decline at a similar level of 4% year-over-year versus a 6% growth in the second half. So we had that switched as with A&A from growth in the first half to a decline in the second half. A couple of things going on there. This time last year and second half of last year was sort of peak of asset price inflation, basically, asset prices have reversed and have normalized back to levels they were before that price inflation, but that has had a drag on overall THV. And then perhaps the one that's a little bit more nuance and probably related to asset price inflation, just the overall level of activity that we saw in the second half of the year wasn't at the same level as in the equivalent period in the prior year. It is -- I&C activity is relatively lumpy. You can get a handful of big auctions do have an impact on the number. This time a year ago, there were just more big auctions amongst the same auctioneer cohort, just more big auction happening and this year, we haven't seen the same volume of activity. That is quite probably related to asset prices in that because asset prices were strong, that did attract some assets to the market that might otherwise have been sold at a different time or not sold at all, which resulted in high levels of activity in the prior year. And this year, that has normalized, which is behind the overall THV performance that you can see there. Underlying conversion as with Arts and Antiques has been stable across the period since we exited COVID. Go to the next slide. Our overall P&L. On the right-hand side, revenue growth of 13%; gross profit grew faster than that at 15%, reflecting the growth in two relatively high margin areas of event fees or listing fees and marketing revenue. Our administrative expenses increased to 10% year-over-year. A few things going on there. We've got some exceptional costs related to the acquisition of ESN. There was no equivalent in the prior year. Our share-based payments charge increased to GBP 7 million. We are now 3 years post-IPO to that annual increase, which has stopped and should stabilize going forward. A bit of FX, the ESN coming in with a little bit of offset from performance-related pay the bonuses, the targets that we set internally for our bonuses were higher than what was achieved, which means the bonus charge in FY '23 is lower than the bonus charge in FY '22. If you strip all those sort of one-off or all that noise out, our underlying overheads increased about 3% to 4% year-over-year. We've got our finance cost, GBP 15 million versus GBP 7.5 million in the prior year. Within our finance cost, there was a noncash FX loss of GBP 4 million on our intercompany balances. That's an accounting thing. Last year, we had a gain for exactly the same thing of GBP 2 million. That number bumps around with dollar, sterling exchange rates. If you strip that out to get to our underlying still increase year-over-year to about GBP 11 million, 20%. So despite the fact we had a lower average debt balance over the course of the year, just reflecting what's happened to interest rates over the last 18 months. The effective interest rate we incurred in '23 was 8% versus 4% in '22. So right at the bottom there, our adjusted diluted EPS, 32.6p, up 11% year-over-year. That reflects the growth in adjusted EBITDA, you can see above 19%, partially offset by that increased financing cost and also a higher effective tax rate, reflecting the increase in the U.K. corporation tax from 19% to 25%, which happened halfway through the year. We go to the next slide. Our cash flow and net debt. We opened the year with GBP 131.4 million of net debt, that was leveraged at 2.4x. It's reduced to GBP 115.7 million by the end of the year. You've got the adjusted EBITDA coming of GBP 64 million, CapEx of GBP 9.3 million in line with our expectations and where we guide for the year. That reflects our sort of normal BAU spend on product, in particular, quite a lot of payments and shipping incurred in this year, but also the extra spend on moving towards a single technology platform that was incurred in FY '23. We've got working capital moving to GBP 4.8 million a bit bigger than normal. Part of that is the bonus I talked about before. The bonuses are paid a year in arrears. And so whilst the charge, the saving and cost was recognized in FY '23, the cash flow benefit will happen in FY '24 with then a normal increase in debtors for the growth in the business. Interest and tax paid of GBP 18.6 million and an acquisition of ESN, GBP 24.9 million, that's primarily the $30 million initial payment on ESN. There is another $10 million final piece of deferred consideration that we made in the first half of FY '24. Then to FX movements, all of our debt and cash is in dollars, left you with GBP 115.7 million at the end of the year. That's a leverage of 1.8x.

So moving on to our outlook. As I said, in fiscal year '23, we executed against each of our 6 strategic growth levers. And while the macro moved against us, as I said, there are multiple areas that we believe that we can invest against that allow us to take control of the macro. But just kind of going through each of those 6 levers. We extended the TAM, as I said, by adding that $5 billion of -- through the acquisition of EstateSales.NET. In terms of growing our online penetration, we continue to push the Wave 1 of our cross listing, which is the Timed+ initiative. And just remind you, that's the ability to list on our Auction Mobility product and on LiveAuctioneers. And that product is actually now live and with Bonhams running, I think 3 auctions today on that platform. But on the bidder side, there are other things that we can do. So I'll talk a little bit more about this in a minute. There are the bidders of the EstateSales.NET. There's a cross-listing across our various platforms. And then there's a shipping initiative. And all of those can grow GMV via the conversion rate. The third bucket there is enhancing the network effect, and that's ensuring that we both acquire inventory, but also that we acquire those new bidders in a very cost-effective way. And again, that cross-listing initiative that we're investing against is a key component of that because it connects all the different marketplaces of ATG together. When you look at growing our take rate via the value-added services, Tom has already alluded to this, but again, whether it be through our digital marketing, payments and shipping, that's enabled us to continue to grow our take rate. And the operating leverage we've been able to maintain throughout the year while executing on a lot more. And then finally, we pursued that accretive acquisition in EstateSales.NET. It expands our TAM. There's revenue optimizing opportunities and then it obviously brings more bidders as well. And the reason why we always go back to this slide is that it shows the different ways that ATG can grow in different ways that we can create value, and the ways that we can expand our margins at the same time. And equally important is that collectively, when we invest against these areas, it's moving us closer and closer to what we believe is the tipping point for the auction industry. And we can talk about that a little later if you have questions around it. If you move to the next slide. So I mentioned this before, but ATG is increasing the value that we have to the industry. And I think this is really reflected here in the value that we've created for the auctioneers. So amidst everything going on, auctioneers continue to trust ATG more to deliver value. If you look, we added a net positive 100 auctioneers this year. We had about 12,000 additional auctions, and we are able to expand the number of lots listed. And that's a reflection of, again, auctioneers placing more trust in us and in what we're doing. You can read the comments below at the bottom. But if you want to move to the next slide. And I think equally important, we operate a 2-sided marketplace, and we created value not just for the auctioneers but also for the bidders as we increase the number of lots listed and as we do other things to remove friction from the process, we're bringing more bidders. So as you see, again, the number of bidders increasing from 172 million to 189 million, the number of new account registrations going up and also the lots sold remaining steady despite all the different changes going on in the macro environment. If you go to the next slide. So we talked about value-added services, which is where we invested our money. And this, again, is just being highlighted because where we invested our money, we were able to grow. And I think that is something you've heard me say a couple of times now, but I think it's a really important part. So again, we invested in digital marketing and what we've been able to do. You see that, that number grew 28% year-over-year with more auctioneers adopting it. So 59% of the auctioneer base is now used our digital marketing. 27% of all auctions are now using our digital marketing. And we've done that by both creating more ad units, creating more self-serve featured lots, enhancing our e-mail bidder segmentation. Those are some of the key things that we've done. And then I put it at the bottom there, the marketing subscription packages, and this is about the way we sell these digital marketing packages is trying to get earlier in the cycle to get an auctioneer to spend more with us when they still have their full marketing budgets available. Move to the next slide. So atgPay continues to grow with interest in both the A&A and I&C space and encouraging rates of usage in Q4. So on LiveAuctioneers, atgPay is now up to 91% coverage with 61% of GTV going through it. And as you know, we activated on Proxibid and are now up to 38% adoption by the auctioneers with good interest. As we've said, we're pursuing a cautious rollout here, and we're continuing to optimize product for different segments and geographies. Moving to the next slide. It's something that we're very excited about. We didn't talk about this much in May, but it was something that we were just beginning beta testing on is atgShip. And so for anyone who has bought at auction, you know that one of the big friction points is often -- actually, the fact that shipping is not integrated. It's far from Amazon auctioneers handle it in a wide variety of ways. And we know it's a key reason that people may buy at auction once, but not come back again. And so for us, this was a big initiative, something we've been working on the last year. And we launched it just in September. We already have 148 auction houses who signed up to it, and that's before we've begun really pushing it. And the key thing here is that when you're now bidding at auction, when an auctioneer takes our shipping solution, you'll have price transparency into what it will cost you to get that item delivered to you. And so again, early tests are showing that good adoption by the auctioneers but also a good reengagement rate by bidders who use our shipping solution with buying an auction. So we're very excited by this. And not only is it a new revenue stream, but it is also, we believe, going to be a driver on the A&A side of additional conversion rate growth, which should translate into GMV. So just to highlight again, this right now is only on LiveAuctioneers in North America. If you move to the next slide, the other lever that we acted on, we've talked about this in May, but just to give an update. So we acquired ESN in late February of this past year or this year, and that was our seventh acquisition. And again, it is going, as Tom said, better than expected. It continues with robust growth, bringing 150 million bidder sessions, 1.1 million new subscribers in the year -- sorry, total subscribers, 121 (sic) [ 121,000 ] new, and 4,800 estate sellers in the -- out of roughly an estimated 8,000 to 10,000 in the U.S. We also updated the rate card and pricing structure, but a key part of this was also just continuing to sell digital marketing, which is our third point. So again, putting, I guess, you'd call it, ATG best practice in for a business that had tentatively looked at this, but not done it in a structured way. And so this is an area that we again believe that we can grow meaningfully. Go to Slide 24. So when looking at what we did in 2023, it's important to put it in the broader strategic context of what's going on. And as you know, we firmly believe that this is a massive industry that's going through a structural shift from off-line to online, and that we are the company that's best positioned to lead that. And so Horizon 1 for us was really establishing that foundation for the business that could justify us being the market aggregator and really the consolidator of this industry. But right now, we're firmly in Horizon 2. And in Horizon 2, it's about the end-to-end experience. And when we talk about that, I often refer to it more as it's about raising the standard of buying at online auction to e-commerce standards. And again, when you buy an auction, it's all functional today, you can do that, but it's not the same as e-commerce, but we believe that as we do that, we bring more bidders in, as we bring more bidders, it pushes prices higher and our conversion rate higher. So a big part of what we're focused on is raising those standards to e-commerce levels. The second highlight I had over here on the right is that in coming to market and demonstrating the auctioneers that we're the place to go to deliver that experience, we've made big progress in coming to market as One ATG. And One ATG really just means in the past, we were selling each of our different services as independent products, often from different marketplaces. We now, with our product marketing, are much more clear to auctioneers that you may afford with Proxibid or LiveAuctioneers or BidSpotter. But behind that is now ATG and there by being part of the ATG family, you're getting access to a whole network that you wouldn't have gotten from that marketplace when it was independent. And so -- and then the last part was on top of the product and other improvements we've made to the digital marketing. We did consolidate and streamline our North America operations, both on the commercial product and operating team fronts, which again helped us improve those margins. If you go to the next slide, I think the key thing that we really wanted to bring across here is that in 2023 and really since the IPO, we had told you we were going to focus on driving our value-added services revenue, and we did. So that's contributing meaningful growth and has a long runway ahead of it. All 3 of those areas: digital marketing, payments and shipping all have good long runway ahead of it. But as you saw with the results that Tom talked about, we -- despite having grown massively GMV from pre-COVID levels, just kind of keep in mind that we were -- our GMV is up 247% from pre-COVID levels, and then you saw that slight drop that Tom communicated. But we're very pleased with where we are. If you told us pre-COVID that we could end up here, we would have been ecstatic. And the fact is, is that where we've invested, we've been able to grow. And now where we're focused is on growing the levers that will drive conversion rate and that conversion rate will then translate into more GMV. So what are we doing to try and drive that conversion rate? It's a few things. So first of all, we're connecting and building what I put up at the top here is differentiated customer value. So ATG today, if you include EstateSales.NET has 8 marketplaces. So 7 marketplaces plus EstateSales. And a huge part of the initiative that we've been working on this last year is what we call our cross-listing initiatives. Wave 1 was Timed+, which was allowing Auction Mobility and LiveAuctioneers. But by March, we are hoping to be launching the service that will allow all our marketplaces to connect, which means if you're on Proxibid or if you're on LiveAuctioneers or you're on BidSpotter, you can cross list on any of the marketplaces to ATG owns. And the reason why that's so key is that collectively, our marketplaces bring 330 million bidder sessions. While if you exclude EstateSales 150 million, the biggest marketplace would probably be LiveAuctioneers with around 50 million to 55 million a session. So a huge number of increase in sessions. You may ask, well, what will a Proxibid yellow or green iron auctioneer, what types of bidders will they bring that could benefit LiveAuctioneers, but what people sometimes forget is that Proxibid is actually the third biggest marketplace in North America for our antiques and collectibles. After LiveAuctioneers and Invaluable. So we do believe that there's going to be some crossover from that. So again, a big part of what we're doing is connecting up those different marketplaces and unifying those 330 million bidder sessions, which we believe will bring more bidders and drive conversion rate. The second thing we're doing is extending. So extending those value-added services. And specifically, what we're trying to do is, again, remove the friction points in the online experience relative to e-commerce. So we have digital marketing, which helps us put the right products in front of the right people. We have our payment solution, which allows us to then get into the shipping area as well. And so as I said, shipping will only be on LiveAuctioneers for this year, but it's still going to be a good proof point, we believe, for you and for us that when we remove that friction point, you can drive conversion rate higher. And the reason I put 660 million online buyers is that if you look today, there are probably single-digit millions of people who buy regularly online at auction. When you look between just the U.S. and the U.K. and Europe, there are 660 million online buyers. Today, historically, we've never offered an integrated shipping solution. As you offer an integrated shipping solution and integrated payments, we're not saying we need to go from single-digit millions to hundreds of millions. But if ATG can simply bring a few tens of millions more or even a few single-digit millions more to buy online because we now offer shipping and some of these other integrated end-to-end e-commerce components that can make a material difference to our conversion rate and our GMV. The third bucket is optimized. So this is around the fact that today, auctioneers list 22 million items with us per year. They sell those 22 million items. Now there's another 5% or 10% that they don't sell. But the 22 million that are listed and sold, we sell 7.3 million of those. So as we bring more bidders and make it easier for them to buy and then target them appropriately with our CRM, we believe that, again, we should be growing that number of lots above the 7.3 million mark. And then the last part is around consolidation. So as you know, it's our A2O initiative. We've made good progress against that in this last year. And as we do it, I've mentioned this before, but it's not about cost savings for ATG because the reality is that maintaining Proxibid or LiveAuctioneers or our original ATG platform is not hugely expensive for us. What it does do though is slow down the pace of innovation. So our real motivation is around bringing these platforms together and therefore, increasing our pace of innovation. And so if you move to the next slide, I'll just kind of read this part out. So as you know, ATG is leading the transformation of the auction industry while delivering profitable and cash-generative growth. In the short term, we expect continued impact from the underlying macro factors, which remain relatively uncertain. Our value-added services revenue is offsetting that macro, leading us to a fiscal year '24 organic revenue outlook of between 5% and 8%. Total revenue growth will be higher than that and will include EstateSales.NET. We expect to maintain our adjusted EBITDA margin and our balance sheet remains robust. So just to kind of wrap up, I think there's a few points that I'd like to raise. So first of all, as I've said a few times, despite that macroeconomic backdrop, we've been able to deliver against last year. We've made real progress against all of our strategic levers, and we think the cumulative impact of those will gradually begin to show out in our conversion rate, in our growth. Where we invested, we grew and where we are now investing is on the areas that we didn't invest in over these last 2.5 years, which is around driving conversion rate. And we really believe that, that is going to be making a difference. Those 3 investment horizons we talked about, we're firmly in number 2 right now. And I think what's really important to note is that where we're investing is in creating differentiated customer value now. There's nobody else out there who can connect up 8 different marketplaces and bring the level of bidders that we're going to bring. There's nobody else out there who is investing in a shipping solution that's integrated or that offers an in-house payment service and also offers digital marketing and a white label. The collection of those services, we believe, are going to differentiate us out in that marketplace. And therefore, we feel very confident in our ability to continue to grow and lead this shift online in a profitable way. And as you kind of look out to this year, one of the things that I thought about, the questions we've gotten is that people have always had different questions about ATG. So many of those we feel we addressed in this year. Some of those questions were, if you invest, does the market respond? Will they take your value-added services? And we said, yes, I think we've shown that this year. Can you continue to make profitable acquisitions? And I think we've shown again that we can do that. Can you actually maintain a reasonable leverage ratio while making those acquisitions? And we've again answered that due to our high cash generation. Can you also increase price? And will your customers stay with you? And the answer again has been yes. Can you expand margins? And we've done that again. Can you expand take rate? And we've done that again. And so now the question is, can you take control away from the macro factor and actually take control by driving conversion rate and growing GMV? And we really firmly believe that we can, but that's what we're going to be proving out in fiscal year '24. So with that, we will start the formal presentation and take questions. Yes, Gareth.

Gareth Davies from Numis. A couple from me. The first one, certainly, take rate came in sort of comfortably ahead of what I was expecting. And if you look at H2, I think the 2.6% is what you're doing in I&C and potentially as much as 9% on the A&A side as an exit rate. Is there any seasonality in that we need to be aware of? Or is that a sort of realistic starting base that you'd hope to grow from as we move through '24?

Yes. There's no real seasonality in the number that there's small movements in GMV, which will influence that take rate as event fees or listing fees and marketing revenues are relatively stable. But broadly, I'd say you're right. Those are good base points, which to work with for a launch into FY '24.

And then two on THV, which you've sort of touched on a little bit, just going into I&C THV in particular, you obviously changed some of the pricing models Proxibid in the first half and showed us that and you put through price rises. Are you seeing any evidence that, that's stopping people put THV into side or having any impact in terms of the way customers are acting? And then the second one really on THV. And again, it goes to your conversion point. It sort of feels that there's been a shift in terms of the way you're kind of pushing teams to focus. So it's not just go out and get THV. So we should maybe step back from focusing so much on that THV growth and it really is now about GMV. So how should we be thinking about that really in terms of mindset?

Yes. So in terms of auctioneers continuing to use us, I think it's reflected best in the number of auctions we ran last year, which was we went from 74,000 to 86,000. So I think if anything, auctioneers is putting more trust in us and it's showing that we can put through that type of change without having an impact on their usage of us. In terms of the focus, I'd say we're continuing to look at ways that we can grow THV, and there are ways that we can do that. But for us, the most controllable factor for us is conversion rate and investing against the things that we think can bring more bidders, make it easier for those bidders to bid and put the right items in front of them. And so that's really the place where we have the most control, and that's where we're focused.

I would just add, our auctioneer churn, certainly, our auctioneer revenue churn is unchanged year-on-year. There's been no impact on that in FY '23 of any changes on pricing. And as John-Paul said, the number of auctions we're hosting and the impact on the number of auctioneers we're serving from the price change that we made has been negative. I'm not saying there's 0 impact there will be some auctioneer somewhere who didn't like something, but in terms of anything you can feel in the overall numbers, then no.

It's Lara Simpson from JPMorgan. I just had a question around your midterm guidance and what we obviously haven't covered in today's release. I suppose, given the backdrop for 2024 and weaker growth outlook there, can you just say if there's been any change in your view in terms of sort of pro or countercyclical nature of the different businesses at ATG? And then I suppose moving forward, given what you've said around conversion rates and sort of driving value-added services going forward, do you think there's still enough sort of growth runway to position you as that mid- to high teens revenue growth business going forward?

Maybe I'll do the first part and then Tom can jump in as well. But I think in terms of the pro or countercyclical nature there, I think we still do believe that the I&C space is broadly countercyclical. The things that didn't happen that we probably anticipated, the U.S. had a much softer landing. And it's also an election year. And as a result, I think insolvencies and some other things that we would have anticipated coming through have been slower to come. Some have happened, but not at the pace that we probably anticipated back in May. The other part, though, around both -- I don't know, do you want to comment on that first one, then I will...

Yes, Lara. I'll just add the overlay to that that's complicated, the whole discussion about cyclicality has been asset prices, which, frankly, have moved in a very unusual way in FY '22. And if we're honest, it's difficult for us to predict exactly how that's going to pan out. And whilst you can say with a reasonable degree of confidence that the volume price offsets each other over a broader time frame, and if you look at any one particular period, and there's no doubt in the second half of '22, there was an extraordinary level of activity. As I said before, we grew 29% year-over-year in our THV that was on a year. The previous that had grown 21% year-over-year. It's hard for us to completely unpick all the drivers for that and how much of that is going to stick and how much of that is going to grow. And as we've gone through the year, yes, we've learned stuff and we're looking at things and that's sort of a lot of moving parts. But I think the fundamental balance in the business is still there. Is that, I mean, ultimately, we've grown. Our profits have grown. We're still doing well next year. We're going to grow every month, we grow and so on. But there is quite a lot of moving parts, which when you look at any one period in particular, does mean there are -- it's quite hard to say precisely exactly what's going to happen.

And the thing as well is that for us, the reason we're focused right now on bidders is because to me, it's about the different bidder pools that exist out there, where there is a segment of people on Art and Antique I believe, who, when they have a greater payment solution and integrated shipping will buy more online versus showing up in the auction house. I think when you connect all of our bidder sessions, there will be plenty of bidders for whom they're not going to go and buy a combine harvester if they're looking at a piece of art. But there are going to be others who are going to be out there who maybe were looking at it and are going to be brought into that world because EstateSales.NET isn't just garage sales and low-end items. It also sometimes is helping liquidate a farm or something like that. So there is going to be some crossover, we believe, but that's going to be what remains to be seen. But for now, the smartest thing we felt we could do is was to connect up all the bidders we do have and make sure that they're seeing every item that an auction imposed with us. And then expanding that bidder pool to people who today may be tried auctions but didn't come back or weren't willing to go that next step because they said, wait, where is my shipping quote or wherever that may be. And even if we're going to be approving it on LiveAuctioneers first, I think it's a good benchmark for the rest of the business once we do that. In terms of your point around mid-teens, the way I kind of view it if I were building it up is more you look at the value-added services, and that's 6% to 8% that we should be able to continue to deliver, right? When you look over that midterm. You look at event fees where we become ever more important to auctioneers as we bring these bidders in. So that should be worth a couple of percent as you go out. You look at THV inflation and overall inflation. Pre-COVID, we were growing THV anywhere from 2% to 4% per year. And the fact -- so the fact that, that should bring a couple of points, which basically means you have to believe that somehow across everything we're doing, we can bring 2% to 5% of growth from GMV. And so we believe that you get to take a view on whether you believe we can do it, but that's how you get to, I think, a mid-teens growth number still.

It's James Lockyer from Peel Hunt. Three from me, please. Just on the 5% to 8% organic growth that you've put in for the guidance or about 6.5%, let's say, at the midpoint. How should we think about that in terms of makeup in terms of percentage points? So for example, is it minus 1% GMV plus 7.5% as? How should we think about that? And then what would get you to the 5%? What would get you to 8%? Is that VAS, or is that GMV, for example? Second one then just on A&A and LiveAuctioneers. Obviously, when you bought it, growth rates were higher, valuations were higher at the time. Is there any risk to the goodwill that you've got on the balance sheet for that one at this point in time? And then on the circle sort of spiral you had at the end around the different points, you mentioned trying to expand the reach into other e-commerce or trying to bias from traditional e-commerce. I understand the mechanic. I think most of us understand that mechanic, but how are you going to get that message out to people that have not heard of auctions, don't think of it as something to use? I'd imagine, given you haven't spent much on marketing historically, is there a level of SEO marketing you need to do brand marketing thought leadership in order to get more of those people online.

John, I'll take the first two, you do the third one. So with regards to the makeup of the 5% to 8% or 6.5% midpoint growth. So three components to that. I mean, first is commission revenue, which is clear directly related to GMV. There isn't really much more of an intelligent approach to that in the second half of the year, commission declined 2%. So across the year, it was flat, grew 2% in the first half, was down 2% in the second half, fundamentally driven by GMV. We're basically assuming that continues for the foreseeable future. You would hope as we go through the second half of the year, that does start to moderate and things change, but as a going-in assumption, we're assuming that's flat. That is largely negated by event fees increasing, which will carry on. So we've got full year effects of the change we made last year. And really, we're in an annual cycle now of those increasing with inflation. So those 2 factors in their own right are basically neutral. So then the growth of 5% to 8% comes from VAS. And really, a lot of that is the installed base that we've already got this year that you'll get the full year effect of in next year plus the continued penetration of those products. I'd say the swing really of 5% to 8%. I mean you could pin it on either. You could have a bigger margin -- it's not very helpful for you if we've got big margin. If you get bigger take-up of VAS and ATG shipping is very exciting, and that could go in lots of different directions. You could -- that could get you to the top end of the range. But I think we were more thinking that 5% to 8% is about GMV. So if it carries on doing what we're saying and commissions sort of marginally down, you'll be around the midpoint of that range. If it's better than that, as a recovery, you get to the top end of the range. And similarly, if it dips again, which I say we're not really seeing, but never say never, you'd be more at the bottom end of the range. That's the first one. With regard to goodwill. So you're right, it was flagged in our accounts in FY '22 as a risk, and we'll go through a lot of time looking at the math of goodwill impairment and the Auction is very focused on that. And it was quite close last year, reflecting the big valuation we paid and the increase, particularly in the [ VAS ] that you're using during that calculation. Actually, this year, the headroom has increased substantially. Three factors behind that. Firstly, long-term interest rate, the [ VAS ] they use in that calculation has come down a bit. It was at sort of its peak in September '22. So it's come off a bit, which has quite a material impact on valuations, which you'll be very well aware of. We've got a year of amortization, which reduced it. And then Arts and Antiques includes ESN. ESN was bought at a very healthy valuation to its MPV, which has actually given us an extra bit of headroom. So actually, you haven't seen the accounts yet, and they're all finished and signed off, and you will see them soon, but you'll see there's been a significant deemphasizing of that goodwill impairment risk. But I should also say that we all know, whatever you do with that number, whatever happens, it's a noncash thing, it just reflects a way you do accounting. It doesn't really impact the underlying cash flow generating ability of the business going forward. John-Paul, third one.

Yes. In terms of the third one, in terms of educating people. So first of all, I think we've got these 330 million bidder sessions. So that alone we have. And so in terms of educating them, it's going to be on the website. It's visible when they're browsing lots and LiveAuctioneers. The second is that it's the CRM that we do. So we've been helping sell anywhere from 15 million to 20 million lots for several years. So there's a backlog of people who -- we know who bid or come to the site once and not come back. That's an opportunity for us to go back to. And then as you know we invested in SEO in this last year, which is raising -- going from an event schema into more of a product schema, which means when somebody searches on the web for a given product, we should start appearing more frequently. And so again, that takes us months and months to build within Google, but all of those things. But the most -- the biggest one is really there are people who are browsing and looking today and maybe were choosing another channel because they thought, well, if I'm going to have to arrange my own shipping, maybe I'll go pick it up anyway. And now through us, they're able to get a quote directly. And so again, we expect that will influence them.

Anyone else in the room? Should we...

Emily Johnson from Barclays. On your balance sheet, can you talk about a bit over the next kind of 12 months, how you think about paying down debt versus opportunistic M&A? Is that still something you're very much looking into? Or is the priority at this point focusing on profitability and paying on deleveraging?

Yes. So as we shared, we have delevered a lot over the course of the past year from 2.4 to 1.8. And in the normal course of business and in the absence of any M&A, then that deleverage will continue at a similar rate. I mean it's better fluctuations with things. But M&A has been worked very well for us, is something that's there, certainly, as John-Paul talked about, is on our -- one of our 6 growth levers. But we are also very aware the hurdle for M&A at the moment is high. The interest we are paying on our debt, if nothing else is very high. And so as we sat here today, first thing we're doing day in, day out is reducing the debt and paying down that facility is the initial stance. Never say never, but I think the hurdle rate is increasing as much higher than it has been to do any M&A.

I had two other questions. One was I take your point on you navigating and kind of executing on the elements of your business model that are within your control and the progress you've made on VAS. But I guess the fear or concern today is the underlying market and if that gets much worse, much quicker. So can you talk through how you think about what a kind of trough market looks like in both I&C and A&A. And as well what you think your kind of levers to navigate against that, how bad could it get that you wouldn't be able to offset it elsewhere? Or what kind of cost levers, et cetera? And the second question I had was when you think about your online share and conversion rates, now that we're through the pandemic kind of comps, what does good look like there in terms of you continuing to improve that?

So what would then improve, what did you said?

Conversion rates and online share, neither we're through pandemic comps?

So in terms of the trough, I think you're taking it by A&A first. I think keep in mind that we operate in that middle marketplace. And I think Tom has shared previously that it's the death, divorce, downsizing and debt that provides the vast majority of the assets that get sold through our Arts and Antiques marketplaces. And that is something that happens in Germany, the U.K. and the U.S. in good times and in bad. So what happens is that there is a movement on the price. We can't fully predict where prices will move. But we've been in a pretty interesting last year, 1.5 years, and you've seen what's happened there. And so I think broadly, the volumes will continue to stay on the A&A side, and prices will move around a bit. On the I&C side, there are probably more layers to what is going on there. But I think again, there's a certain lumpiness to what happens there. There's sometimes around big equipment cycles. There's supply chain issues. There's the rates of insolvency. And then as Tom talked about, there's a case that sometimes auctioneers will say, it's a good market. Let's clear out everything and then they may have a bit of a differed time and then they rebuild their inventory and then it comes back. So in terms of the overall strength of the business, I guess, that's the way that we look at it, and we just say this is a really good business. There is a lot of volume that's going to repeatedly come in, provided we ensure that we remain as a platform that auctioneers want to use. And I think that the fact that we grew from 74,000 to 86,000 auctions this year shows that they continue to trust us at an ever-increasing rate. As Tom talked about, we saw no change in our auctioneer churn despite the price changes that we made as well. So I don't know where else you could comment on for that Tom.

No, I'd also think it's important not to overstate what we're seeing at the moment. We've seen a few percentage points decline in THV for one half after having had an extraordinary period of growth. Even if you look at 2-year CAGRs, they're both significantly up. So we don't -- and there hasn't been any historic precedent for significant downturns in the markets we operate in. And they are very old, established businesses. You might get some ups and downs, but we certainly don't expect any very material changes in those numbers.

And in terms of your question around conversion rate, I think that's what I was talking about before, where for us, there will still be some gradual improvement, I would say, on conversion rate because we're in this post-COVID period and now there is going to be some gradual movement online. But more importantly, we are taking the actions that we believe will drive conversion rate. And so whether it be the cross-listing initiative, bringing EstateSales.NET in, or the shipping initiative. Those are really the 3 big things we're focused on this year to try and drive conversion rate.

Jonathan Bonner, Bank of Ireland. Just a sort of touch on recent trends within total hammer value. Are you seeing any sort of geographic differences? Or is it more global in terms of recent trends? And my second question would be in terms of the growth of your value-added services following what has been a very successful launch and initial uptake. Is there a view on the rate in which that further penetration will develop over the next year or so?

So in the first one, on the I&C side, look, in fact, both A&A and I&C, there's a big bias towards the U.S. Actually, the U.K. I&C business has got one of our 2 BidSpotter businesses. BidSpotter is quite biased towards insolvencies. That is doing well at the moment, where is the I&C side, whilst it does have exposure to insolvencies as the bigger yellow and green. And so that -- the U.K. probably is doing better, but I wouldn't read too much into that, given the relative size of the business. On A&A, both markets are seeing the same thing. The Saleroom and LiveAuctioneers are seeing similar patterns, no real divergence there. And Penetration of that...

Again, we're not giving an outlook on where that will go. But whether it be on digital marketing, where, as we've said before, Etsy is at 3.8% with digital market as a percent of its GMV, we're at 0.6%. So there should just continue to be penetration on that. And then with payments on LiveAuctioneers, it's going to be more about continuing to grow the actual GTV through us versus the coverage, and within Proxibid it's just again, again, continuing with this cautious rollout on the different pieces, extending it to more auctioneers and increasing usage, but we're not giving any outlook on where we'll go.

I would add, unlike GMV, which is a bit of a dark art trying to forecast what's going to happen there with it is more straightforward VAS. We've launched 2 relatively new products in atgPay and Proxibid and atgShip, and you can see a sort of a clear path to growth in the near term, which does give you a boost both the full year effect of what's happened in '23, but then the continued rollout and penetration of that say, the rate of growth in VAS will continue for the seeable future. James got one more.

So yes, a follow-up please. Just on -- you guided to, I think, maintaining margins based on the one the margin today, which was slightly higher than I had at least. As I understand it, as time goes on atgPay and atgShip margins increase over time. And I think atgPay is a slightly high margin than it might have been when you first launched it. If we say at the 5% organic growth, which is at the lower end, potentially of VAS, I think, as you described, that's a bit is in control versus the 8%. If we do hit the 8%, would you allow the margin to tick up? Or would you use the margin somewhere else? So even if you get to 8% organic, should we still think about 47% margin?

There will be a debate, I'm sure, internally. But yes, we just have to see the best use.

I'd just say, practically, most of our spend is on people. And so you might get halfway through the year and say, right, it's going to be 8% not 5%, your actual ability to turn a tap is relatively -- it's a relatively slow burn to build up resource. So in the context of FY '24, I don't think that's a huge variable, but maybe at the margin, and it would probably influence our thinking about going into '25. Gareth?

Just one very quick one. In terms of payments, we shouldn't expect you to be expanding that into other businesses in the next 12 months? And the same question on ship. I mean it's really a focus on LiveAuctioneers? And is that ship -- will it work for Proxibid, do you think? Or does it need to be quite materially...

It will have to be tweaked, but it will -- but it is -- the foundation of it is what we would imagine using for Proxibid as well.

It comes back to this consolidation of platforms. The more they are integrated, the more you only need to do it once, and there's less rework required. No questions online.

Okay. Okay. Thank you. We'll wrap up now then.