Autotrader Group plc (AUTO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Auto Trader Group plc Half Year Results. [Operator Instructions] I must advise you the call is being recorded today, Thursday, the 5th of November 2020. I would now like to hand the conference over to your first speaker today, Nathan Coe, CEO of Auto Trader. Please go ahead.

Thank you, and good morning, everyone, and welcome to Auto Trader's Half Year Results for the period ended September 2020. The last 8 months have been challenging for everyone, and it's apparent that further challenges may lie ahead. I wanted to start today by thanking our incredible employees for their hard work and dedication through such a difficult period. They've supported our customers as they navigated the crisis and supported each other, as our ways of working have changed radically. I feel both privileged and proud to lead an organization of such committed and talented people. I also wanted to recognize our customers who operate in an incredibly competitive marketplace on very tight margins. Throughout the lockdown, we did not see an abnormal level of business closures, which in itself is no small feat, but to then see the speed with which our customers resume trading, with many achieving record-breaking results it is all the more impressive. Everything that we have seen would suggest that Auto Trader's relationship with its customers is in as good a place as it has ever been, which bodes well for the exciting opportunities that lay ahead of us. Before we start talking about our results for the first half, I wanted to touch on the current restrictions that have come into force today and outline what we are doing to support our customers through this period. The U.K. government announced on Saturday, the 31st of October that car retailers in England would be forced to close their showrooms for at least 4 weeks, joining Welsh retailers who are currently closed and for 9 of November. Following the last lockdown we saw demand for cars bounce back strongly with our audience levels consistently being 20% or more above prior year levels. This step change is due to concerns with public transport and has driven more and more people to the private vehicle ownership, which regardless of lockdown restriction is a dynamic that is likely to be with us for some time to come. Even retailers can operate both home delivery and click & collect services, we expect that recent consumer activity will sustain a level of sales throughout November. However, there is no question that our customers will be impacted by these restrictions, particularly our smaller customers that represent a very significant portion of our customer base. We're more cautious of December where the combination of restrictions and a seasonal decline in car sales could place even greater pressure on retailers. For this reason, we have decided to support our retailer customers by making our advertising packages free for the month of December and extending credit terms for their November invoice by a month. This builds on our learnings early in the crisis when we saw that as a result of our simple, clear and supportive actions, we were able to keep our customers, keep their stock and return very quickly to normal charging. There's no question this approach worked well for our customers as well, demonstrated by some of the most positive feedback that I have seen in my 13 years with the company. As shown in our full year financial results presented in June, the impact of going free for our customers is a GBP 5 million to GBP 7 million operating loss for each full month when we are free. It is expected that during this period, we will reduce marketing spend, but we have no intention to furlough staff or make use of government support. Now on to our results. The contrast between how we started the period and how we ended it is such that we've split the summary of first half trading into two distinct quarters. The first quarter from April to June through which strict measures were in place to combat the pandemic and the second quarter from July to September when restrictions were relaxed and car market bounced back strongly. Starting with Q1, as we all know, the COVID pandemic really started to take effect in March when the U.K. went into lockdown. As these restrictions were implemented, our first thought was to protect our employees. All of our people transitioned to working from home at the end of March and we've done all that we can to support their mental and physical well-being since that time. Our next priority was to support our retailers. Retailers were forced to close their forecourts, which dramatically reduced sales. During this time, we decided not to charge for an advertising service from which our customers could not immediately benefit. So we went free for all retailers through April and May. We then offered a 25% discount in June as retailers reopened and extended credit terms for the March invoices by 60 days. On top of this financial support, 1 week before lockdown, we implemented a stock offer so that retailers could advertise more of their vehicles on our platform at no additional cost. This stock offer combined with almost no cars being sold during April and May resulted in 7% more cars on-site through the first quarter compared to the same period last year. We took all of these decisions early and ahead of government announcements because it was simple, clear and appropriate, given our intention to support our customers, many of whom operate small family-owned businesses. The customer reaction to these measures was overwhelmingly positive. Despite retailers facing the worst period of trading ever, the average number of retailers advertising with us through Q1 was down just 2% year-on-year. As was expected, these measures had a material impact on our financial results for the first quarter. Average revenue per retailer reduced by 76% in Q1 compared to the prior year, and the decline in retail revenue was the main contributor to a 72% decline in total revenue for the quarter. With less revenue being generated we took the decisions to reduce discretionary spend which was primarily marketing. In addition to this the executive director forwent 50 % of their salary and their cash bonuses for the year ended March 2020, although the latter obviously doesn't impact the results for this half year. The remainder of the Board waived their fees by 50% or more during Q1. We furloughed around 25% of our staff for a short amount of time during April and May when we were loss-making and our customers were required to close their showrooms, many of whom closed their entire businesses. As we returned to profitability, we repaid all amounts claimed under the furlough scheme resulting in no impact on our income statement. Our other costs are mostly fixed, which meant that the reduced amount of revenue generated dropped through to operating profit, which was down 97% year-on-year in the Q1. We've been able to act so boldly to support our customers and our people through the crisis due to our strong balance sheet position. On the 1st of April 2020, we announced the placing of approximately 46 million shares, raising proceeds net of all fees of GBP 183 million. Equity raise did and will continue to enable us to act with a long-term mindset, considering the best interest of all our stakeholders. The second quarter was in stark contrast to the first. As lockdown restrictions eased and retailers reopened, consumer demand for vehicles increased dramatically. We've seen consistently high levels of site traffic and audience, which has solidified our competitive position and provided the best possible marketing exposure for our retailers. Across Q2, we averaged 65 million cross-platform visits every month, which represents a 27% increase year-on-year. This demand enabled retailers to sell cars and generate cash quickly. However, they were unable to restock at the same rate due to supply challenges. This coupled with the end of our additional stock offer resulted in live cast stock being down 8% year-on-year for the second quarter. We returned to fully charging at the beginning of July and did so at new rates following our pricing event in April 2020. Average revenue per retailer or ARPR for Q2 therefore increased to GBP 1,930 and was just 1% behind that of the prior year. All the number of retailers advertising with us increased steadily throughout the second quarter. Total revenue for the quarter was down just 1% year-on-year, and we generated operating profit of GBP 66.8 million, which was the same as the prior year. The impact of the pandemic has given us even stronger conviction that our strategy of bringing more of the car buying journey online is the right one. We've made significant progress towards this goal with the acquisition of AutoConvert and the development of our guaranteed part-exchange product, both of which Catherine will speak about later. The aggregation of the 2 contrasting quarters resulted within the following financial performance for the half year. Revenue was down 37% to GBP 118.2 million. Trade revenue was down 38% to GBP 100.2 million. Operating costs reduced by 11%, primarily due to a reduction in marketing spend with our high operating leverage resulted in operating profit declining 48% to GBP 68.5 million. Operating profit margin reduced to 58%. Basic earnings per share was down 50% to 5.6p per share. Whilst our intention to return to our long-term capital allocation policy as early as possible while in the recent government announcements, we will not be declaring an interim dividend. Cash generated from operations was down 50% to GBP 66.1 million. Net bank debt decreased by GBP 217.3 million to a GBP 58.1 million, part of which was a result of the equity raise in April. Leverage reduced to 0.3x. Now on to our operational metrics. Despite an initial decline in audience, the average number of cross-platform visits increased by 12% to 57 million visits per month. Based on our internal measures, this is the highest level of audience growth we have seen since our IPO. Engagement also increased with cross-platform minutes up 12% to 557 million minutes a month. Our share of cross-platform minutes remained strong at over 75% of all-time spent across our competitor set, which is 7x that of our nearest competitor, Gumtree. The average number of forecourt advertising with us decreased by 2% to 13,056. Average revenue per retailer, or ARPR, was down by GBP 745 to GBP 1,206 on average per calendar month, of which the COVID-19 discounts in Q1 accounted for GBP 695 of that decline. Physical car stock on the site was down 1% to 478,000 on average across the half. New car stock contributed 46,000 to that average. And finally, the average number of full-time equivalent employees increased to 893, the majority of this being due to the acquisitions of KeeResources and AutoConvert, both of which occurred in the last 12 months. I'll now pass over to Jamie, who would take you through the first half financials in detail.

Thank you, Nathan, and good morning, everyone. Starting with revenue. Total revenue for the first half declined 37% to GBP 118.2 million. Trade revenues declined by 38% with the largest component of this being retailer revenue, which declined by 39%. As Nathan said earlier, much of the year-on-year decline came in the first quarter, where we supported our retailer customers. During April and May, retailers could advertise their stock for free while their showroom were closed. And we've given a 25% discount in June as they reopened. These discounts had a material impact on ARPR, which decreased by 38%. Despite the unprecedented crisis caused by COVID-19, the average number of retailers advertising with us over the first half, declined by just 2% when compared with the same period last year. Retailer numbers decreased through April and May. As through these months, we saw some retailer cancellations, albeit lower than prior year. However, we had almost no new business customers to replace those lost. Since May, this has not been the case, and we've seen a steady increase in the number of retailers advertising on our platform. Also within trade, we've seen a decline in Home Trader pay-as-you-go listings, although this decline was offset by growth in other trade revenue, which includes a GBP 2.2 million contribution in the half from KeeResources following its acquisition in October 2019. Consumer services revenue decreased by 19%. Private revenue, which is generated from individual sellers who pay to advertise their vehicle on our marketplace, decreased by 30%. This was partially offset by an increase in motoring services revenue, which is up 12% as a result of strong growth in both our insurance and finance offerings. Revenue from manufacturing agency customers declined by 43% to GBP 5.1 million. In addition to the impact that the pandemic had on this revenue line, we also removed standard format display advertising, thereby improving our consumer experience. This removal contributed GBP 1.9 million to the overall reduction in manufacturer and agency revenue. Now on to ARPR, live car stock and retailers. ARPR declined by 38% year-on-year. The average revenue per retailer generated across the period GBP 1,206 per month. The chart on the left shows the components that contribute to the movement in ARPR compared to the prior year, as you can see the majority of the decline in ARPR came from the COVID related discounts implemented to help support our customers. The effects of those discounts on ARPR for the first half was GBP 695, shown by the red bar. Moving now to the stock lever, which declined by GBP 156. Revenue generated from stock was impacted by a lower run rate coming into the year as franchise customers were holding lower volumes. This was then compounded as we entered the first half with some cancellations and downgrades occurring due to the uncertainty caused by the pandemic, which was followed by tight supply of vehicles. The additional stock offer we ran for much at the half also reduced the opportunity for stock upgrades, although we did see some towards the end of the half as we converted that offer. The chart on the right shows the profile of live physical car stock. As a reminder, live physical car stock includes all cars advertised on Auto Trader. This means that in addition to pay for retailer stock, this metric also includes new car stock, private and Home Trader stock and the impact of stock offers. Live physical car stock is shown by the lines on the chart. Stock increased through Q1 as fewer sales were made by retailers when their forecourts were closed. And our additional stock offer allowed increasing levels of inventory to be advertised on our site. Retailers reopened their showrooms in June, which was met with high consumer demand but during this time, customers have had challenges with the supply of stock. This saw the number of cars advertised reduce as sales were made through Q2, and our stock offer promotion ended. Offsetting these ARPR headwinds were positive contributions from both price and product. We executed our annual pricing event on the 1st of April, with those rates coming into effect once we return to charging in June. Price contributed GBP 49 of growth, which equates to a 2.5% increase. For the benefit of doubt, the price lever shows a full 6-month impact of that price increase, with the impact of retailers not being charged shown through COVID related discounts. Product contributed an additional GBP 57 year-on-year. Much of this product growth was a result of embedding more of our data and insight with customers, which was done as part of our annual pricing event. 3 products were made available through our packages. These were an upgraded performance dashboard, the inclusion of our entry-level pricing tool Retail Check and a new market insight tool. Catherine will talk more about these products later on. There was also growth in our new car advertising product, with over 1,500 paying retailers at the end of September 2020, an increase of 50% since March. The penetration of our high-yielding advanced and premium packages was stable at 22% of retailer stock. However, revenue generated from our pay-per-click prominence products reduced the impact of which was predominantly in Q1. With the decline in revenue, we took sensible measures to control costs in the first half. Total costs reduced by 11% to GBP 50.8 million, without saving predominantly coming through marketing, which is the main discretionary cost of the business. Marketing spend for the half reduced by 65% to GBP 3.5 million, which was equal to 3% of revenue. People costs increased by 7% to GBP 30.2 million. The increase in people costs was primarily driven by an increase in the average number of full-time equivalent employees, which increased by 12% to 893. Much of the increase in headcount was down to the acquisition of KeeResources and AutoConvert, which contributed a combined 74 FTEs to the average for the period. The average cost per employee decreased by 4% due to a reduction in performance-related pay and as a result of the executive directors and the Board for going 50% or more of their salary and fees from April to June. Underlying salary costs continue to increase as we invest in the best digital talent. Other costs, which include data services, property-related costs and other overheads, decreased by 10%. The decrease was primarily due to lower overhead costs, including lower travel and staff consumables. Depreciation and amortization reduced by 6% to GBP 3.1 million. Capital expenditure in the period was GBP 0.2 million. As a reminder, our low levels of CapEx and depreciation are not a reflection of low levels of investments in our business. In addition to our investment in cloud-based services, we have over 320 people in product and technology who are continuously improving our platforms and developing new products for customers. The costs for which are taken in full through our income statement in people costs. With revenue down 37%, costs reducing by 11% and a GBP 1.1 million contribution from our share of dealer auctions profit, operating profit was GBP 68.5 million. A decrease of 48% from the prior year, and our operating profit margin reduced to 58%. Cash generated from operations reduced by 50% to GBP 66.1 million. The year-on-year decline in cash generated from operations was marginally bigger than that of operating profit due to a negative movement in working capital. Part of this movement resulted from the unwind of VAT payments that were deferred in March. With these VAT payments now made and with the repayment of all amounts claimed under the furlough scheme, we have repaid all governments support made available as the result of the pandemic. The statutory income statement outlined the areas beyond our revenues and operating costs. Net finance costs reduced by 38% to GBP 2.3 million, and the lower level of debt drawn resulted in lower interest. Our profit before tax was GBP 66.2 million, and our effective tax rate was 19%, which remains in line with the standard U.K. rate. Basic EPS declined by 50% as a result of the decrease in profit after tax and an increase in the number of shares in issue following the equity placing in April. Moving now to net bank debt and capital structure. Net bank debt reduced to GBP 58.1 million at the end of the period and leverage reduced to 0.3x. Cash generated from operations of GBP 66.1 million that we used to pay GBP 0.2 million of CapEx and lease payments of GBP 1.2 million. In cash terms, we paid GBP 1.7 million of interest and GBP 18 million of corporation tax. In June, we extended the term of our RCF for an additional year, incurring fees of GBP 0.5 million in the process. With this extension, GBP 316.5 million now matures in June 2025. And the remaining GBP 83.5 million maturing at the original termination date of June 2023. The equity placing that was completed in April, raised GBP 182.9 million after all related fees were paid. Finally, the acquisition of AutoConvert in July resulted in an initial net cash outflow of GBP 10 million. There is an element of deferred consideration for this acquisition as another GBP 8.1 million become payable in 2 years' time. It is the groups intention to return to our long-term capital allocation policy as early as possible. However, following the recent government announcement, we have decided not to declare an interim dividend at this time. That concludes the financials. I'll now pass over to Catherine to take you through the current market and to give an overview of our product development.

Thank you, Jamie, and good morning, everyone. I'll give a brief overview of the current market before providing an update on product development. We continue to exhibit clear market leadership, and we have grown our volume substantially in what has been a buoyant market. Starting in the top left. Cross-platform visits grew by 12% year-on-year to 57.3 million visits per month. Engagement, which we measure by the total number of minutes spent on our platforms, also increased by 12% to 557 million minutes per month. That means for each visit to Auto Trader, a consumer spends around 10 minutes on our marketplace. Our share of total minutes amongst our main competitor, as measured by comScore, remained at over 75%. We know that comScore data has its flaws and so we use our internal matrix to measure our performance but it remains a useful reference point for tacking our position in the market over time. The chart on the right-hand side of the page, shows the total minute spent across an expanded set of competitors, retailers and manufacturers. On average, over the 6-month period, comScore estimated that consumers spent 578 million minutes on Auto Trader per month, which was over 7x that of Gumtree, 20x that of CarGuru, 22x that of PistonHeads and 30x that of motors.co.uk. All of the other classified sites, including Cinch, PayCar and RAC Cars totaled 23 million minutes, making Auto Trader 25x bigger with all of those sites combined. Outside of our competitors, we also compared our size of audience to that of retailers that are large enough to be tracked by comScore. This includes franchise groups and independent supermarkets, which would include Cazoo. The number of minutes spent on Auto Trader was 24x that of all of these retailer sites combined. When doing the same exercise with all manufacturer sites, Auto Trader is 35x their scale. As Nathan described earlier, there was certainly a contrast between the first and second quarters when it comes to performance. The chart on the left shows the year-on-year performance of cross-platform visits and the number of cars advertised on Auto Trader. To explain this chart it's easier to divide it into two sections. The first [indiscernible] is between the stock in March when the pandemic started to take effect towards 31st of May. Cross-platform visits declined through March and reached a low point around the time when the U.K. was sent into national lockdown. From that point on, a level of cross-platform visits steadily increased and returned back to prior year levels at the point lockdown restrictions were eased. The number of cars advertised on-site through this period initially grew rapidly as we implemented our additional stock offer. The second period to look at is what happened after retailers reopened on the 1st of June. Demand increased almost immediately and cross-platform visits have been tracking up over 20% year-on-year since this time. Our consumer research have consistently shown that around 30% of consumers believe owning a car is more important now than before the pandemic and that 12% are currently in market specifically to avoid traveling on public transport. There was also a pent-up demand as we had 2 months with low transaction volumes. Overall, consumer confidence remains strong, as many consumers have not been able to spend money on holidays, eating out and other leisure activities. As a result of this demand, retailers were able to start selling cars quickly and at good margins. The chart on the right-hand side shows Auto Trader's retail price index, which tracks the like-for-like price for the used car being sold in our marketplace. Used car prices have increased consistently since May. And in September, on a like-for-like basis, the average price of a car was 7.6% higher than September last year. The supply side of the market was less quick to recover once restrictions eased. Auction centers struggled to get back up to normal volumes, logistics provider still had a number of people on furlough as they couldn't move enough cars and retailers themselves found it more difficult to prepare cars in a socially distance way. Demand outpacing supply, the number of cars on Auto Trader reduced from the 1st of June until around mid-August when the demand supply dynamic began to rebalance. As the supply side has continues to recover we have seen an increase in the number of cars advertised in our site. I will now give an overview of some of our key product developments. We successfully executed our annual pricing events, with new rates being effective from the 1st of April. In addition to the like-for-like price increase, we made a number of data products available to customers. The first of these was an upgraded performance dashboard that was made available to all retailers as part of their advertising package. This allows retailers to measure, track and improve their advert performance to optimize the car buying journey. We also released a new market insight tool, which provides all of our retailers access to up-to-date market intelligence so that they can identify key market trends, understand how they may impact performance and adapt accordingly. Over the last 6 months, this insight has been more important than ever for retailers and has driven much of the content for our retailer's webinars and update. Finally we made a change to our package structure to make our retail checks safety products more redly available for independent customers. Retail checks helps retailers make better and faster pricing decisions on cars they are considering buying and on stock, that's already on their forecourt. Over 8,000 retailers are now using one of our managing data products. Our new car listings products continues to grow and is delivering more value for our franchise customers. We believe we have now built the leading new car marketplace in the U.K. based on audience performance and stock listing volumes. After starting to monetize this product in the last financial year, we continue to grow the franchise retailer base. And by September, we had over 1,500 retailers paying for this product. In the 6-month period from April to September, we saw a 39% increase in the volume of new cars listed on our marketplace to 46,000. This new car stock on Auto Trader generated on average 1.3 million unique visits each month and over 35 million advert views, and we continue to expand the positive network effects from this model. During the summer, we launched our instant offer service in partnership with Cox Automotive. This new service is an incredibly convenient way for consumers to sell their cars. This allows a private seller to obtain an accurate condition adjusted valuation for their vehicle, which will be guaranteed for 7 days. Cox Automotive will then collect the vehicle from the seller and transfer the funds quickly. This instant offer product includes an appraisal process, which will be a vital part of our part exchange product. This product made guaranteed part-exchange will allow consumers who are interested in purchasing a vehicle to obtain a condition adjusted valuation for their part exchange through Auto Trader. These details will then be sent to the retailer who will honor that price for the part exchange as part of that transaction. If the retailer does not want to keep that car then Cox Automotive will collect the car and repay the retailer. This process allows retailers a hassle-free disposal channel for cars they do not want to retail. It also gives retailers access to more stocks at accurate valuations and allows them to remove any risk on taking a part exchange vehicle. For consumers, it makes the buying process easier. We have recently started a beta trial with around 100 retailers and are excited to develop this product further over the coming months for monetization in the next financial year. On the 31st of July, we acquired AutoConvert, a finance, insurance and compliance software platform with integrated customer relationship management solutions. The business is based in Manchester and employees 28 people. The business helps its customers to make increased finance penetration and to reduce costs by automating the full finance journey. AutoConvert customers include automotive retailers, retailer networks and financial brokers. The business' core functionality, coupled with the fact it is integrated into over 50 lenders will help us to deliver our future finance products on Auto Trader. This will enable finance agreements to be completed entirely online. I'll now hand over to Nathan to cover strategy and outlook.

Thank you, Catherine. I'd like to take some time to talk through how some of our recent product launches, along with recent acquisitions will fit together to enable our retailers to sell cars online. There are a number of key stages in the car buying journey that we can help digitize. The first of these steps is to find the right car, something we already do a comprehensive job of. A marketplace has the largest choice of trusted stock, all of which is accurately described in detail using the data provided through KeeResources. Our search functionality allows consumers to narrow their search through mechanisms like search by monthly payment, so they can find the right car quickly. Once the consumer has found a car they like, our price indicator flags help consumers gain trust in the price of that vehicle. We then help consumers gain trust in the retailer through more than 1 million dealer reviews. And finally, our vehicle check product launched last financial year provides trust in the car they are buying. The next stage of the journey requires the consumer to know how they will dispose of their current car. We've always enabled private consumers to sell their cars on Auto Trader and we'll add to this with our Instabt offer and guaranteed part-exchange products. Part exchange in often the most convenient way to depose off a vehicle but requires negotiations and very often leaves the consumer feeling uncertain as to whether they've received a fair value or not for their car. By bringing this process online, we can increase transparency, confidence and trust in the part exchange process. Financing and paying for the car comes next. Currently arranging finance at the point-of-sale can be a daunting and drawn out process for consumers with little transparency. With AutoConvert, we can develop an online application journey to improve this process. That application journey will allow consumers to apply and be approved for finance offered by the retailer. They can do this from the safe environment of their own home, increasing transparency and reducing pressure. For those retailers who don't have their own finance arrangements, will use a partner to provide those finance options for car buyers. Once a finance is arranged, a deposit is often taken, which is an area we still have some more work to do in order to provide on our platform. The only step left then is the handover of the vehicle. It's our expectation that the majority of car buyers will continue to pick up their used car from the dealership for some time to come. However, the transaction already done online, the consumer will spend less time at the retailer and the experience should be more exciting and perhaps less stressful. In some cases, however, the consumer may want to have their car delivered which we can help arrange in a cost-effective way through our motor trade delivery platform, picking up any part exchange in the process. So there's still a lot to do to bring these areas together to provide a seamless experience. We're making good progress. And given the events of 2020 so far, we have even more conviction that this is the right thing to do to improve car buying in the U.K. Now on to the outlook. Given the continued uncertainties surrounding COVID-19 and further customer support in December, it is difficult to provide sensible revenue guidance for the balance of the year. Looking at the past month, we have started the second half well. Audience volumes remained substantially above prior year levels. Livestock numbers have improved throughout October and both retailer forecourts and average revenue per retailer were consistent with the prior year level. Total group costs for the full year are likely to decline at a rate of low to mid-single digits due to cost-saving measures taken in response to COVID-19. During December, we will again reduce marketing spend, and we have no intention of using the government's furlough program. Following the recent government announcement we have decided not to reinstate our long-term capital allocation policy, however we have every intention of doing so at the appropriate time. The Board believes the actions taken by the company have strengthen its foundations and positioned it well to enable car buying to shift online, which has only been accelerated as a result of the COVID-19 pandemic. The Board, therefore, remains confident in Auto Trader's long-term growth prospects. That concludes the presentation session. We'll now move over to analyst Q&A. And if I could just ask due to be considered of one another, and please limit the number of questions you ask to 1 or 2.

[Operator Instructions] The first question we have today comes from the line of William Packer from BNP Paribas.

Will Packer from Exane BNP Paribas. I'll limit to 2, maybe get back in the queue if needed. So firstly, could you talk a little bit about the product outlook heading into the March '21 pricing event? I suppose for context, it feels like it's was a huge opportunity for Auto Trader with the consumers pushing the digital route, new pressure from online car dealers. But arguably, you need to move now in, in order to make the exposed opportunity most significantly. On the other hand, monetizing that opportunity could be quite difficult in the sort of operational backdrop. So how should we think about price -- the product event for next year? And the second question is, I suppose online car dealers are the hot new topic in the subsector, raising lots of money with aggressive expansion plans. How are your relationships with the key players in online car dealing in the U.K.? And could you update us on how monetization is progressing with those counterparties?

Okay. Thanks, Will. Nathan here, I'll take both those questions. I think in terms of the product outlook, as it relates specifically to our April event, I think we're thinking about that really in 2 ways. There's a bucket of products that we've spoken a bit about today, which are the online retailing products. We've talked about finance, we talk about GPX. There's also a bucket of products we have in our core advertising business, if you like, that we're also developing. So I think as it relates to products to support the event that we do in April, we feel reasonably positive about those. We've got good options of products that will be developed by that time. So it's not all the dependent on doing a really, really quick job of financing guaranteed part-exchange. I would say some of the online retailing products that we are looking at, I suspect over time may not be the sorts of products that lend themselves to events for exactly the reason that you've highlighted, these will involve some level of operational change. They'll take time to embed into retailers. So I don't think we're hinging the event certainly not next year or on having those online retailing products ready to go for that. I think we're kind of looking at them as 2 different product groups, 1 set of products, which is operationally complexed, but it stands to make a big difference to retailers, it's likely to be taken up, not necessarily by all of our customers or 75% of our customers at one time. And then there's the advertising products where actually you can achieve those kinds of penetrations. On your second question, on online car dealers, there's certainly been a lot of news and a number of launches. Obviously, Cazoo being the best-known one with their very successful fundraisings. I would say our relationship with those customers is naturally pretty good. They're definitely progressive. They definitely wanting to make a difference, and they're definitely wanting to move fast. So they can be demanding customers in the best of ways, but I'd say we're an obvious important partner for a business like that, given the level of audience that we've got on our site. So I'd say our relationship with those kind of retailers is in a good place. And in terms of monetization, I mean, it's no different really to any other retailer. They -- do have a certain number of cars. By no means more cars than our biggest customers, and we just engage with them on a normal basis. We tend to work very closely with them actually in areas around data to support their pricing decisions and some of those operational aspects of their business. But I'd say we do feel quite good about our relationships with them.

And just a follow-up on the product point. I suppose in the last 18 months or so, product growth has been in the region of 3% to 4% year-on-year. Is it fair to use a similar assumption for FY '21?

Yes. I mean, I think from -- for the year as a whole versus what we've done in the first half, I think we'd say it's probably likely to be slightly lower. The reason being, you start to lap in the second half, the new car monetization. And it's difficult to predict what the remaining 6 months looks like. As I think we said in June, we were probably a little bit cautious on package upsell. And I think that's probably still the case for the second half. So I would expect product to still be positive, but just slightly lower than what we've done in H1.

And Will, I will just follow-up on the point of online car retailer because I suspect if I don't answer it now, we'll just be asked the question later. I think we do see a very collaborative relationship with those kind of retailers. They're not only a good customer of ours as we've spoken about. But I think they've provided a good level of impetus for the whole industry actually to look further at how they might do more of the selling of cars online. And that's really the opportunity that we see is ours. And both with those retailers, but actually, with our many more much smaller, highly fragmented customer base that don't have the wherewithal to capital to be able to build that sort of technology. That's really the opportunities there for us to help them sell more cars online as well.

The next question we have today comes from the line of Michael Tyndall from HSBC.

Mike Tyndall from HSBC. A couple for me. I wonder, the first one is kind of theoretical. I mean you've got a dealer body at the moment that's got a shortage of cars and very high levels of consumer interest. So can we talk about their appetite to actually advertise, their appetite to hold stock. Is that changing at all because in theory, they've got more customers than they have cars? And then the second one, more specifically on the guaranteed part-exchange product. I know it's very early days, but could you walk us through a little bit the revenue stream for you from that product? I'd be very interested to know how that kind of plays out going forward?

Should I take that -- I'll take the first question on appetite for advertising. I mean, we benefit from being in an industry that's highly, highly fragmented and highly competitive. And so for our retailer customers, arguably, there's never been a more important time to ensure that all of their stock is visible and all of it is online. And in particular, in the climate we find ourselves in, if the cars are not advertised on Auto Trader, then effectively, they're not for sale at the moment. So we've certainly seen no emission in the appetite for our customers to put their stock on Auto Trader. What we have seen and one of the dynamics, I think we talked about at the full year results as well was a significant increase in the leads that we're delivering to those customers. And there's no doubt, as more of the car buying journey that moves online and particularly during this pandemic, that we're seeing more and more consumer interactions happening on Auto Trader. So I think when Jamie talked about our prominence penetration staying broadly flat. One of the factors that has been driving that is a very strong level of consumer demand that retailers have seen, which has meant that they haven't felt the need or the [indiscernible] to invest in those prominence products in the way that we would have expected had the market been more normal.

And then just on the part exchange product, and it's definitely worth sort of adding the caveat that we're at early stages with a relatively small trial live at the moment. I think the way we're thinking about it, though, is a little bit more like our retail accelerator or i-Control product in terms of it's a piece of software that needs to be embedded in how the dealer operates because the consumer is doing the appraisal online, but then it's still a process at the forecourt that needs to be completed. And so with that in minds and making the comparison with that product, we're looking at subscription. It's more likely to be at a higher yield -- yielding product, higher-yielding than something like dealer finance. Then you probably see slightly lower volumes of penetration. And then we're optimistic we'll grow that over time. So there's lots to learn through the trial period. And for the rest of this financial year and into next, and it will be next year that we'll be looking to monetize and that's the sort of initial thought process on how we might monetize. There is a small cost associated. Obviously, we've got Cox providing the disposal channel if the retailer doesn't want it. So there's also that to consider as well.

The next question today comes from the line of Miriam Adisa from Morgan Stanley.

Just 2 for me. Firstly, could you talk a bit more about dealer health, what that looks like at the moment and what it might look like by the end of the year, sort of post this lockdown? I think you mentioned that you think some of your smaller customers may be impacted a bit more. So could you talk a bit about what you expect to see in terms of forecourt closures, post the lockdown. I think you had sort of a 2% decline during April or during Q1. So is that sort of the same level that we should expect for this lockdown? And then secondly, just longer term, just from your conversations with dealers over the last 6 months, it would be great to hear how you're thinking about how dealers emerge from this current environment in terms of their willingness to spend on products, but then also perhaps some structural changes in their model. Do you think we could, for example, see a permanent reduction in headcount? Just yes, will be interested to hear your thoughts on that?

On dealer Health, I think we've seen since the -- since forecourts were allowed to reopen on the 1st of June, we've seen an incredibly strong period of trading for most of our customers. We're still waiting for the used car transection data to be published for Q3. But from what we've seen in our proxy sold data, it looks like that Q3 performance will be robust. All of the listed players that have reported and those private customers that have put out numbers have all been reporting sales levels up north of 10%. That's also been underpinned by a very strong and healthy margins and profitability levels. We've seen from our own retail price index that we published, very strong pricing trends, which has meant that not only have retailers been selling good volume of cars, they've been typically selling them at good margin as well. So there's no doubt that entering into this latest lockdown and retailer health is in a much stronger position than it was in March. In terms of behavior that we're expecting over the next few months and what the impact on our retailer number might be? At the moment, we're seeing retailers sort of fall into 2 camps. There are some that are very positive -- looking to enter this period very positively and are promoting very strongly click & collect and home delivery options. And we're helping them to promote those on Auto Trader as through the online hub that we've launched. We are seeing some that are looking to shut up almost completely again and to then takes advantage of the government furlough scheme that's been extended. So we're seeing a bit of a segmentation in the base at the moment. So overall, I think the fact that market recovered strongly. And we -- most of our customers entered this period strongly. It means, I think we're pretty confident about where we expect retailer number to trend when we come out the other side of the latest lockdown. In particular, because I think all of us have taken a lot of confidence from how out quickly, the market rebounded last time. And most retailers had good reasons to feel positive and confident about that again.

And Miriam, on your second question, the long term -- how dealers might emerge and what they might look like on the other side of the lockdown. I'll actually answer the 2 questions the other way around and start with how their model might change and then talk about what that might mean for their willingness to engage with our products. I think there's no question that as a combination of perhaps players like Cazoo are coming in and launching online home delivery only models or actually, probably more importantly, their experience during the lockdown periods where they've seen that with many, many of their staff, certainly in the first lockdown almost all of their staff on furlough, they still sold a significant percentage of cars. I think the kind of writing is on the wall, if you like, or the evidence is there for retailers to see that perhaps they don't need the same approach to business and operation, as what they've had historically and maybe digital can play a much larger part of that. So I do think and they will look to evolve certainly dealerships when it is such a fragmented customer base, this won't -- will never be true of 100% of them, but there is going to be the progressive retailers that are going to look to change their model, bring more of the selling online, look at things like taking deposits online. And look at things like allowing finance to be done online. All of these are things that historically, they've told themselves, you need to do that in the dealership because then we might want to get the add-on sale or we want to make sure that the consumer completely understands the products, but all of that can be -- well done online. I think what that translates into, whether it's a lower headcount, it's probably not how a progressive retailer would describe it. But they would say that we should be able to get more sales per salesperson. So today, I mean, it's difficult to know exactly what the number is across the entire industry, but it's probably something like 11 to 12 cars sold. Per salesperson per month. We see examples of online retailers or more online retailers in the U.S. that can get up to 18% to 25%. And so I think that opportunity is there. It's all about moving some of the selling online. It's all about shifting the store experience to be more about supporting the consumer and ensuring that, that visit that the consumer needs to make is less long than it is today. So rather than spending 2, 3-hour parts of the weekend in a dealership, perhaps it's just 0.5-hour handover the vehicle. Now all of those things are the areas that we're looking to develop over the years to come. So I'd like to think that the fact that we've got products or we're looking to build the products that will allow retailers to do some of these things because we are a technology business at the end of the day, and their specialty is retailing. When you combine that with the positive sentiment that we've built, certainly with the announcement today based on the early read of it, but definitely with what we did throughout April and May. I'd like to think that dealers as they shift towards digital will naturally shift hopefully towards Auto Trader and those solutions that we've got to offer, including our advertising, actually, but above and beyond that as well.

The next question today comes from the line of Joe Barnet-Lamb from Crédit Suisse.

A couple of obvious, but important ones left from me, please, guys. So given you bought back in the fee holiday, should we assume that holidays will last the duration of any lockdown? Given Click & Collect has done what Catherine said are retailers health, I wonder if your views might be different this time? And then secondly, with regards to the impact of the second lockdown, can you briefly discuss what you think it means the stock and supply going forward? Clearly, it obviously had a major disruption, as you spoke about earlier previously. Would you expect similar sorts of impacts going forward or do you view it differently?

Joe, thanks for the question, Nathan here. On the fee holiday, I think the short answer is we're definitely not applying a blanket rule. If you look at what we did during April and May, dealerships were actually required to close, towards the end of March, we decided to go free for April and May, whilst they were closed and then reintroduced charging when they opened. We've come to this period -- ran -- and whilst the lockdown is similar and the dealerships are required to close, this time, we've made the decision to continue charging for November, but actually do the fee holiday in December because we think that works best both actually for us and our customers because the most important thing is how we enter the strong January period. So I don't think there's any rule around the way that we apply the fee holidays. We obviously pay attention. There could well be a lockdown in which retailers are considered essential. In that situation, we'd obviously probably come up with some form of support or what we would do would be different to what we would do, where they're required to close the showrooms. And as you said, they still are able to provide Click & Collect and home delivery services. That being said, something we'll probably learn during this lockdown actually is exactly how many cars do retailers sell having been set up now for those 2 services. What happened in the first lockdown is they sort of assumed they weren't going to sell any cars, they found that they did. Now they're set up for it. We're going to learn again, and we'll apply all those learnings to make sure that we're doing a fair thing both for Auto Trader and our customers if there are further lockdown. So unfortunately, there's no rule. The big thing that we do pay attention to is whether their showrooms are required to close. So to what extent are they restricted in their ability to trade? And you've got to remember, too, a lot of our customers are smaller. So it's not always helpful to imagine the large groups because whilst they are an important -- very important part of our customer base, we do need to think equally about our average customer, which is much, much smaller than that.

And on the supply stock, I mean, I think it is very difficult to know for certain. I think I'd make 2 observations. And I think supply will still be tight, but not as challenging as we've seen it through some of this first half. And the reason being, I don't think the supply chain will be as heavily disrupted this time around as it was last time. And just with the restrictions being not as severe and lots of those involved in the supply chain are involved in prep that are prepared this time around. Why I still say though that I think it could be tight. And I think it comes down to what we think will happen for new car sales into the new year. I think if you think about manufacturing, the time period that it was disrupted, what might happen around Brexit. I think we're more cautious around what happens for new car. And obviously, that has implications for trade-ins and the used car supply coming in that sort of 3 to 4-year bracket. So not as tight, but I think there are still some challenges there to overcome.