Autotrader Group plc (AUTO) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Auto Trader Group plc Full Year Results Conference call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Nathan Coe. Please go ahead.

Good morning, everyone, and welcome to Auto Trader's results presentation for the year ended 31st of March 2021. The past year has been challenging for everyone and certainly wasn't what I expected in my first year as CEO. Looking back, I feel incredibly privileged to have led a fantastic group of people at Auto Trader through such a difficult period. Everyone has embraced new ways of working and supported some of the hardest decisions we've had to make in our 44-year history. These included the decision to support our customers at great cost to our business when they were forced to close their physical forecourts as a result of lockdown restrictions. I want to thank everyone that has trusted and relied on Auto Trader, including car buyers, customers, shareholders, and most of all, my colleagues at Auto Trader. I'm proud of the resilience and commitment they have shown under the most difficult of circumstances, both at home and at work. I'm pleased to say that due to our collective efforts over the past 12 months, the foundations of our business are as strong as they have ever, been putting us in the best possible position to support the industry in transitioning to true multichannel retailing underpinned by technology. Starting now with our strategic overview. There is no question that the pandemic has dramatically accelerated the shift towards buying and selling vehicles online. Buyers have long wanted to complete more of the process online because of its inherent transparency and convenience. However, some retailers have been slow to embrace this. It was until they faced severe restrictions on their ability to trade in the traditional way. Out of necessity, retailers across the country adapted at pace to provide distance selling, Click & Collect services and home delivery. As a result, both car buyers, retailers and manufacturers have seen that it is not only possible but can be beneficial, and many of the supposed barriers have proven to be just that. Those of you that have followed Auto Trader in recent years know that we have been advocating for and moving towards this for some time now. However, up until now, we have been dependent on changes in consumer and retailer mindsets and behaviors, which inevitably take longer to catch up with what's possible from a technology perspective. Well, this all changed in 2020 when attitude and behaviors that would normally take years to change shifted dramatically in just a matter of months. Physical forecourts have been reopened now for almost 2 months, and it is clear that many of these behavior changes will persist. This is due, in part, to consumer expectations, but also because those running some of the largest retailers and manufacturers are determined to retain many of the benefits that they have seen through a different way of operating. As a result of our multiyear focus on buying and selling online, we are well-prepared for this shift. We have made good progress in developing important aspects of our online car-buying journey, namely the launch of Market Extension, the launch of Guaranteed Part-Exchange, the trial of reservations and the acquisition of a financing platform, AutoConvert. The shift online in automotive retailing has accelerated, and with these core components, we are well-placed to bring more of the buying process online for the benefit of buyers and sellers. However, that is not to say that we have carried on as we were. During the course of the pandemic, we very intentionally accelerated the development of these complex solutions, particularly reserving a car online, which has been one of the more pronounced and persistent behavior shifts we have seen over the past year. This journey is being built on our core marketplace model, which has been significantly strengthened by the shift to online, as seen in every retail category over the last year and particularly so in automotive. As the clear category leader, this has naturally benefited us given our established brand, our unparalleled choice and the high trust placed in us by both consumers and retailers. It is not just car buyers we are seeing at record levels, but due to our support throughout the year, we have stronger relationships and significantly more retailer forecourts advertising on Auto Trader as we exit the year compared to 12 months ago. On the 1st of April 2020, when faced with the high levels of uncertainty, we announced the placing of approximately 46 million shares, raising proceeds net of fees of GBP 183 million. This strengthened our balance sheet and enabled us to act confidently in the long-term interest of all our stakeholders. As a result, we have exited the pandemic quickly in a position of strength and are well-placed to deliver incremental growth in the years ahead as we extend into digital retailing. Turning to the financial results. Revenue was down by 29% to GBP 262.8 million, with trade revenue down 31% to GBP 225.2 million. This decline was anticipated due to our decision to provide free advertising to retailer customers in April, May, December and February and at a discounted rate in June. Operating costs reduced by 8% primarily due to a reduction in marketing spend, and our high operating leverage meant that operating profit was down by 38% to GBP 161.2 million. And operating profit margins were 61%. Basic EPS was down 40% to 13.24p per share, and cash generated from operations was down 42% to GBP 152.9 million. Net bank debt decreased by GBP 291.1 million, putting us in a 0 leverage and a net cash position of GBP 15.7 million, part of which was a result of the equity raise in April 2020. I'm pleased to announce that we are in a position to confidently reinstate our capital allocation policy, and therefore are declaring a final dividend of 5p per share, having not declared one last year due to COVID-19. Now on to our operational results. Despite an initial decline in audience early in the financial year, the average number of cross-platform visits increased by 15% to 58.3 million per month Despite lower levels of marketing, each month since June 2020 has been a new monthly record for visits. Engagement increased with cross-platform minutes up 14% to 561 million a month. And our share of minutes remained above 75% of all time spent across our competitor set, which is 7x higher than that of our nearest competitor, the combination of Gumtree, Motors and eBay. The average number of forecourts advertising with us were broadly flat at 13,336. As with audience, we saw a decline in customers through the first quarter of the year but have seen good levels of customer growth since that time. As a result of the support we provided to retailers, we retained most of our customers through December when we would ordinarily see a decline over the Christmas period. Average revenue per retailer per calendar month, or ARPR, was down by GBP 625 to GBP 1,324. GBP 712 of this decline was a result of COVID-19 discounts. Normalized underlying ARPR actually grew GBP 87 versus prior year. Average physical car stock on site was down 1% to 485,000 for the year. New car stock contributed 47,000 to that average, up from 31,000 in 2020. Used car stock saw a small decline year-on-year due to supply constraints through the summer months of 2020 due to delays in buying and preparing cars following the strong demand when forecourts reopened in June. Finally, the average number of full-time equivalent employees increased to 909. The majority of this is due to the acquisition of key resources and AutoConvert. Finally, I wanted to introduce our cultural KPIs. These are measures that we report and monitor internally but have not until now disclosed these externally. We expect to see these measures improve over time as a result of the activities and actions we're undertaking, for which we should be publicly accountable, and a number of these have also been linked to executive compensation. The progress in these areas matters a great deal to me and to our whole organization and will underpin our business success by improving our access to talent and driving both employee engagement and better decision-making. The goal is to address this systematically. Steps [indiscernible] are bound to be gradual. Prior to COVID-19, we completed our annual all-employee engagement survey. However, due to the high levels of change throughout the last year, we increased the frequency of these surveys using a shorter format to keep on top of our people's well-being, their motivation and understanding of our decisions and strategy. Assessing these surveys, we pay particular attention to how proud employees feel to work for Auto Trader, which is high at 93% and slightly up year-on-year despite the personal and work challenges faced over the past year. We believe building diverse teams and an inclusive [indiscernible] to attracting, identifying and maximizing the [indiscernible] and therefore our business. Board level, we maintained a 50/50 gender ratio but do not currently have a Board member from a BAME background as recommended in the Parker Review. We have an active search underway and are optimistic that we will improve the diversity of our Board in the not-too-distant future. Within leadership roles, as defined by the Hampton-Alexander Review, which includes our operational leadership team and their direct reports, we saw a small improvement in both the number of women and those who have disclosed their ethnicity as BAME to 34% and 6%, respectively. Within the organization more broadly, the percentage of women was consistent year-on-year at 39%, with a small improvement in the percentage of people from a BAME background at 11%. It is important to note that these percentages are based on the whole organization, not just the 79% of employees who disclose their ethnicity. Finally, our carbon emissions reported under scope 1, 2 and 3 reduced in the year by 34% to 6,673 tonnes of carbon dioxide equivalent. While this reduction is clearly positive, much of it is due to the significant reduction in overall costs, business travel and the shift from office to home working as a result of the pandemic. We have signed up to the 1.5-degree Science Based Target initiative and are developing a carbon reduction plan to achieve net-zero carbon emissions. I'll now hand over to Jamie, who will take us through the financials in more detail.

Thank you, Nathan, and good morning, everyone. Starting with revenue. Total revenue for the year reduced 29% to $262.8 million. Trade revenue was lower by 31%, with the largest component of this being retailer revenue, which reduced by 32%. As Nathan said earlier, the year-on-year reduction was largely the result of the support we gave our retailer customers, the free advertising offered in April, May, December and February, and at a 25% discount in June as customers reopened their forecourts following the first lockdown. These discounts had a material impact on average revenue per retailer for the year, which decreased by GBP 625. After an initial decline in the first quarter, the average number of retailers advertising with us increased through the remainder of the year to end with an average of 13,336, which was broadly flat with FY '20 levels. Beyond that first quarter, new business sign-ups have been consistent with previous years, but levels of churn, supported by the various months of free advertising, have been significantly lower. Also within trade, we have seen a reduction in Home Trader pay-as-you-go listings, although this reduction was offset by growth in other trade revenue, which includes a GBP 3.7 million contribution from key resources and a GBP 1.1 million contribution from AutoConvert following its acquisition in July 2020. Consumer services revenue decreased by 6%. Within this, Private revenue which is largely generated from individual sellers who pay to advertise their vehicle on our marketplace, decreased by 17%. There was a small contribution within this line of GBP 0.1 million from of our new instant offer product, which allows consumers to quickly sell a car from home using a guaranteed price, which was launched towards the end of calendar year 2020. The decline in private revenue was partially offset by an increase in Motoring services, which was up 21% year-on-year as a result of strong growth in both our insurance and finance offerings. Revenue from Manufacturer & Agency customers reduced by 33% to GBP 11 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 3.9 million to the overall reduction in this revenue line. We don't believe the issue around the supply of semiconductors has had any meaningful impact on the last financial year, but it has started to impact Manufacturer & Agency revenue as we've entered Q1 of financial year 2022. Moving now to ARPR, the main driver of total revenue. ARPR reduced by 32% year-on-year with the average revenue per retailer generated across the period at GBP 1,324 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 drop in ARPR came from the COVID-related discounts implemented to help support our customers, which impacted total ARPR by GBP 712, as shown by the pink bar. Outside of the COVID-19 discounts, there was an underlying increase of GBP 87 or 4.5% driven by both price and product. We executed our annual pricing event on the 1st of April 2020. Majority of the GBP 50 price lever, which equated to an effective increase of just under 3%, was largely delivered through this event. Product contributed GBP 89 year-on-year, with the breakdown as follows: Approximately half of this product rate was the result of embedding more of our data and insight with customers, which was done as part of the April 2020 annual pricing event. Three products were made available through our packages. These were an upgraded performance dashboard, a new market insight tool and the inclusion of our entry-level pricing tool, Retail Check. 1/3 of the product lever was due to increased uptake of our prominence products. This was growth in our Advanced and Premium packages, which saw increased uptake as some customers look to take advantage of the free advertising in December and February by upgrading their packages. Business rules stated that customers had to retain the upgrade for at least 30 days, which generally led to fully paid months in January and March. There was also some initial uptake of our new Market Extension product, which Catherine will cover later in more detail. Finally, there was also a small contribution from growth in our new car advertising product with over 2,000 paying retailers at the end of March 2021, an increase of 100% against the same period last year. Looking now at stock. 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 paid-for retailer used stock, this metric also includes new car stock, Private and Home Trader stock and the impact of stock offers. As usual, we have stripped out the impact of new cars and give underlying used car live stock, the darker of the 2 lines, which showed a reduction of 2% year-on-year. Whilst this 2% reduction is not far away from the 2.5% decline in the stock lever, which was down GBP 52, in reality, the 2 numbers have not been as closely correlated as we have seen in other years. Early in the financial year, we put a stock offer in place, allowing customers to put more live cars on Auto Trader than their contracted amount. Despite this offer, the number of paid-for units reduced as we saw some cancellations and downgrades due to initial uncertainty caused by the pandemic, which was followed by tight supply of vehicles through the summer months. In the second half of the year, supplies improved and paid-for units have recovered. In a normal year, we offer a double your stock offer in December to discourage cancellations over Christmas. However, due to the free advertising in December and then February, we did not feel an offer was required, so live stock did not see the increase that it saw in financial year 2020. Similar to penetration of Advanced and Premium packages, some customers used the free advertising months to increase their paid stock, which our business rules supported, in being held to year-end. These dynamics, whilst very nuanced, help explain the negative GBP 156 stock lever we reported in the first half against the implied positive GBP 52 stock lever in the second half. Finally, the number of retailer forecourts, having seen a reasonable drop in the first quarter, again due to the uncertainty of the pandemic, have seen consistent growth through the remainder of the year with very low levels of churn created by the free months of advertising and consistent levels of new business. [indiscernible] the reduction in revenue, we took sensible measures to control costs. Total costs reduced by 8% to GBP 104 million, with much of the saving coming through marketing which is the main discretionary cost of the business. Marketing spend for the year reduced by 43% to GBP 9.8 million, which was equal to 3.7% of revenue. People costs increased by 8% to GBP 60 million. The increase in people costs was primarily driven by an increase in the average number of full-time equivalent employees, which increased by 7% to 909. To the increase in headcount was down to the acquisition of KeeResources and AutoConvert, which contributed a combined 49 FTEs to the average for the period. Share-based payments increased year-on-year due to a release in FY '20, where awards were waived due to the start of the pandemic and its likely impact. Other costs, which includes data services, property-related costs and other overheads, decreased by 17%. The decrease was primarily due to lower overhead costs, including lower travel and staff consumable costs. Depreciation and amortization reduced by 3% to GBP 6.3 million. Capital expenditure in the period was 1.4 million, and as a reminder, our low levels of CapEx and depreciation are not a reflection of low levels of investment in our business. In addition to our investment in cloud-based services, we have over 300 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 29% and costs reducing by 8% and a GBP 2.4 million contribution from our share of dealer auctions profit, operating profit was GBP 161.2 million, a decrease of 38% on the prior year, and our operating profit margin reduced to 61%. Cash generated from operations reduced by 42% to GBP 152.9 million. The year-on-year reduction 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 2020. These VAT payments now made and with the repayment of all amounts claimed under the furlough scheme, we've repaid all government support made available as a result of the pandemic. The statutory income statement outlines areas beyond our revenue and operating costs. Net finance costs reduced by 49% to GBP 3.8 million, but the lower level of debt drawn resulted in lower interest. Profit before tax was GBP 157.4 million, and our effective tax rate was 19%, which remains in line with the standard U.K. rate. Basic EPS reduced by 40% 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 2020. Moving now to net bank debt and capital structure. Following the share placement and subsequent trading results, we held a net cash position of GBP 15.7 million at year-end. Cash generated from operations of GBP 152.9 million was used to pay GBP 1.4 million of CapEx and lease payments of GBP 2.5 million. In cash terms, we paid GBP 3 million of interest and GBP 28.2 million of corporation tax. In June 2020, we extended the term of our revolving credit facility 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, with the remaining GBP 83.5 million maturing at the original termination date of June 2023. The equity placing that was completed in April 2020 raised GBP 182.9 million after all related fees were paid. There was also a GBP 1 million cash inflow from the exercise of share-based incentives. [indiscernible] 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 with another GBP 8.1 million becoming payable in July 2022. Having suspended our capital allocation policy in March 2020 due to the impact of COVID-19, the Board has decided that now is the right time to recommence distributions to shareholders. The group's policy remains broadly unchanged, continuing to invest in the business, enabling it to grow whilst returning around 1/3 of net income to shareholders in the form of dividends. The Board are recommending a first and final dividend for the year of 5p per share, with this being slightly greater than 1/3 of net income for financial year 2021. I believe we should be able to deliver good dividend growth in the coming years. Having reduced our debt position, surplus cash following business investment and dividends will again be used for share buybacks, which are expected to start shortly. This 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. Moving on to Slide 14. Retailers have had to shut their showroom for parts of the year as a result of lockdowns during the pandemic. This has inevitably impacted their ability to sell vehicles. And new and used car transactions declined most significantly during the first lockdown in April and May 2020, but during the subsequent lockdowns, the decline in transactions have been less severe. Nathan mentioned earlier, retailers adapted their businesses quickly to support car buyers to purchase vehicles remotely. This has involved, bringing more of their forecourt experience online, adopting a Click & Collect model and facilitating home delivery. Demand for vehicles have been strong following periods of lockdown as consumers place an even higher value on having exclusive use of a vehicle to avoid public transport and for flexibility when making those all-important journeys. New car registrations declined 24.9% to 1.6 million, and used car transactions declined 15.1% to 6.5 million in the 12 months to March 2021. This has been seen in previous times of uncertainty, most recently, the global financial crisis. Used car transactions continue to be less volatile than new car registrations, a trend we've also seen reflected in our live stock numbers. Not surprisingly, with a significantly lower volume of new car registrations, the U.K. car parc has contracted for the first time since 2009. Switch rates were also lower than those seen in previous years, but cars were still being removed from the market at a higher rate than they were being registered. This is shown in the first chart. The second chart shows how consistently the car parc has turned over the past 15 years. For this period, on average, each car is transacting between 3.1 and 3.5 years, except in 2020 where, due to the pandemic and the reduced levels of activity, the frequency has increased to 4.2 years. If the car parc of 35.1 million cars have turned at a frequency of 3.5 years in 2020, we would have expected to see around 10 million transactions versus the 8.3 million that took place. We believe the consistency of turn is due to the volume of cars sold on finance, consumer preferences and lifestyle choices changing and the desire of car buyers to switch into more environmentally friendly vehicles. With this in mind, and the level of disposal income and savings many consumers now have, it seems reasonable that many of these transactions that didn't occur in 2020 will happen in 2021. This is, of course, subject to the continued easing of lockdown restrictions and available vehicle supply. As a result, we expect strong levels of consumer demand and used car transaction volumes for much, if not all, of 2021. The combination of the total U.K. car parc and consumers change cycle generates the total number of car transactions each year, as shown in the third chart. In calendar year 2020, 35.1 million cars turned on average every 4.2 years and resulted in 8.3 million transactions, a reduction of 18% compared to 2019, of which 1.6 million were new car sales and 6.7 million were used. We continue to publish a monthly price index of trade cars advertised on Auto Trader, the results of which are shown in this chart. The blue line shows the average price of a vehicle advertised, which you can see has increased steadily. Grouping cars by type, age and fuel, we have isolated the impact of underlying like-for-like price increases shown as the dark blue bars. There has been a significant mix -- a significant shift in the mix as the volume of less-than-1-year-old vehicles has declined due to lower new car transaction volumes. As you can see, for the last 12 months on the chart, like-for-like prices have increased as periods of strong demand, coupled with tight supply, has generated upward pressure on prices. This strong trend in pricing has led to good gross profit per unit levels for many of our customers, helping to compensate the lower volume of transactions in the last 12 months. We continue to exhibit clear market leadership and have grown our audience significantly over the last 12 months. Starting in the top left, cross-platform visits grew by 15% year-on-year to 58.3 million visits per month. Encouragingly, we've seen a significant increase in the number of 18- to 24-year olds visiting Auto Trader, with over 0.5 million more monthly visits from users in this age group in the second half of last year. This is supported by our consumer research, which suggests a positive sentiment shift towards car ownership as a result of the pandemic in all age groups but particularly in younger demographics. Engagement, which we measure by the total number of minutes spent on our platform, increased by 14% to 561 million minutes per month. This means that for each visit to Auto Trader, a consumer spends almost 10 minutes on our marketplace. Our share of total minutes amongst our main competitor set, as measured by comScore, has remained at over 75%. Know that comScore data has its flaws, and so we use our internal metrics to measure our performance, but it remains a useful reference point for tracking our position in the market over time. The chart in the top right looks at our sources of traffic on a paid versus nonpaid basis. The growth in our audience over the past 12 months, coupled with the reduction in our marketing spend, have seen the percentage of our traffic that comes through paid channels halved to just 4%. The chart below, this shows the total minutes spent across an expanded set of competitors, retailers and manufacturers. An average, over the 12-month period, comScore estimated that consumers spent over 7x the minutes on Auto Trader than on Gumtree, Motors and eBay combined, 10x of CarGurus and PistonHeads combined and 178x that of PayCar. [indiscernible] the other marketplace sites, including Cinch, totaled 19 million minutes, making Auto Trader 28x bigger than all of those sites combined. Aside of our competitors, we also compare our size and audience to that of retailers that are large enough to be tracked by comScore. This includes franchise groups, independent supermarkets and online retailers like Cazoo. The number of minutes spent on Auto Trader was 21x that of all these retailer sites combined. When doing the same exercise with all manufacturer sites, Auto Trader is 31x their combined scale. Now on to our product update, which we have split into advertising products and digital retailing products, starting with advertising. Following year-end, we have evolved our advertising package structure and changed the sort order for listings. Where our packages previously curated adverts based on the device that consumer was searching on, we have created a consistent cross-platform experience with adverts appearing in search based on a relevancy algorithms, which takes package level into account. As part of this change, we have discontinued our Basic package, introduced a higher level and rebranded our top 3 levels Enhanced, Super and Ultra. Jamie mentioned earlier, we saw good growth in the volume of stock on our higher-level packages, previously named Advanced and Premium, towards the end of the year as some customers took advantage of the periods of free advertising. We sold 26% of retailer stock on those 2 higher packages at the end of March 2021 versus 23% the year before. While some of these upgrades will have been short-term tactical decisions, we believe the evolution of our package staircase will continue to support steady growth in customers on these higher packages as they look to gain a greater share of consumer engagement on Auto Trader. Moving on to Slide 20. Our new car product 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 volumes. Despite ongoing uncertainty created by the pandemic, and more recently, the semiconductor-related supply issues, we have continued to grow the volume of paying franchise retailers on this product. And by March 2021, we had over 2,000 retailers paying for the product. It was a 100% increase on the same period last year. The increase in paying customers drove a 52% increase in the average volume of new cars listed on our marketplace to 47,000. This new car stock on Auto Trader generated, on average, 1.4 million unique visits each month and over 74 million advert views as we continue to build the positive network effects from this marketplace. Now moving on to the progress made on our digital retailer product. We have long held the view that more of the car-buying journey would migrate online. And whilst we could never have predicted the speed of change due to events over the last 12 months, we now have more conviction in the strategy that we set before COVID-19. A critical part of enabling retailers to sell online is allowing them to extend their reach into new regions to find new buyers. To support customers with this challenge, we have recently launched our Market Extension product, which enables retailers to target buyers outside their local area by appearing in local searches. The product presents vehicles that are available to car buyers but not currently located near them in the Auto Trader search experience. Product works for both customers who have vehicles at centrally held locations but are happy to deliver and multi-site customers who are able to move vehicles to the closest possible location for the car buyer to complete the transaction on that forecourt. Product looks at the U.K. as 10 distinct regions, giving customers the flexibility to focus on certain areas or, should they choose, selecting the whole of U.K. Research suggests that consumers are happy to consider buying from sellers at increasingly larger distances from their current location. Latest data from May 2021 indicates that 46% of buyers were willing to buy from a retailer over 50 miles away, higher than the levels we were seeing before the pandemic. As more of the buying journey moved online, the attractiveness of this product for our retailer customers is likely to grow. Many of the retailers who embrace our online selling products will increasingly want to extend their reach beyond their local market, which Market Extension will facilitate. One of the questions asked previously was how quickly buyers would adapt to completing more of the journey online. We have seen a step change in this over the past 12 months, with 55% of consumers now saying they would consider buying online. We have also seen that consumers are comfortable committing to buy the car online rather than just to finding it. Our latest research suggests 60% of consumers would now pay a deposit online to secure the car. This is one of the biggest changes in consumer behavior we've seen during the last 12 months. We know that haggling over the price of the part-exchange is a pain point for consumers, with around 1/3 of part-exchanges failing to complete because of disagreements over the part-exchange valuation, which typically happen on the forecourt. In support of this, 80% of buyers also told us they wanted a part-exchange value given to them online to reduce this friction in the current experience. Finance is another important part of the purchase and 70% of car buyers said they want to review finance options before visiting the dealer. So the final step is then the handover of the vehicle. 32% of buyers said home delivery was their preferred way to complete the transaction with a similar percentage open to collecting the car from the retailer. In summary, more car buyers are looking to complete more of the car-buying journey online because of the transparency and the convenience of this process. For much of the past few years, we have developed the components shown here, which make up some of the key steps in the online car-buying journey. During this financial year, we will take each of these to market. These products will enable retailers to support more of the buying journey online and also to realize some of the efficiencies seen by many over the past 12 months. Executing on this journey will move Auto Trader's addressable market beyond marketing and advertising spend into other parts of the cost base. This will enable us to capture a greater percentage of gross profit than the level seen today. Taking each component in turn. The opportunity in this evolution from advertising to transactions is meaningful because we're building this journey on the largest, most engaged and trusted automotive marketplace in the U.K. We are starting from a strong position with over 561 million minutes spent on our marketplace each month. In the last financial year, we generated 14.1 million leads, a combination of e-mail, text, calls and live chat messages for retailers. Before COVID-19, our research indicated that 64% of car buyers walked onto the retailer forecourt and they found the car they wanted to buy without submitting an inquiry or lead online. There was often no connection between the online journey and the forecourt experience. Buying journey often involves a sales conversation, a negotiation over the price of the part-exchange, a test drive, the sale of ancillary products, the application for those products, approval/rejection, all of which take significant time and great uncertainty for buyers. The volume of leads submitted through Auto Trader has grown significantly by over 55% in the last year as consumers have looked to complete more of the buying journey online. We have recently launched a beta trial for a reservations product, where we are looking to convert many of those inquiries into a commitment to purchase the car with a reservation. We believe this can drive significant efficiencies not just in inquiry handling, but in that first forecourt interaction as we bridge the online to off-line forecourt experience for retailers and consumers. The launch of our Guaranteed Part-Exchange product will improve conversion and increase the transparency of the part-exchange process for both consumers and retailers. Once completed accurately, the detailed appraisal journey gives the prospective buyer a guaranteed price, underwritten by Cox Automotive, providing certainty on how much they need to spend to buy their next car. Products also have 2 further advantages. Firstly, our retailer customers do not need to take any risk on a part-exchange, which they may not want to retail. In addition, the appraisal journey also supports our Auto Trader instant cash offer product, which enables the sale of a private vehicle for consumers looking to sell a car quickly and conveniently from home. Since launch, we have seen 120,000 guaranteed part-exchange valuations completed on Auto Trader. Another important part of the journey is finance. Auto Trader, in the last financial year, we've had nearly 5,000 dealers paying to advertise their representative rate finance deals. These finance prices were displayed on 225,000 cars, which when combined with non-FCA registered customers using our partner, Zuto, but we had over 300,000 cars displayed with finance. In July 2020, we acquired AutoConvert, a finance insurance and compliance software platform with integrated customer relationship management. The business helped its customers to increase finance conversion and penetration levels and to reduce costs by automating the full journey. Business' core functionality, coupled with the fact that it's integrated into over 60 lenders, has helped us to develop our finance products on Auto Trader. This will enable consumers to complete full finance application with retailers on our site. AutoConvert, via the retailer's own website and on behalf of their broker customers, have completed 1.5 million finance applications since acquisition. It's our expectation that the majority of car buyers will continue to pick up their used car from retailers' forecourts for some time to come. However, with elements of the transaction or in some cases, all of the transaction completed online, the consumer will spend less time on the retailer's forecourt and the experience should be more efficient and less stressful. In some cases, the consumer may want to have their car delivered, which we can help to arrange in a cost-effective way through our Motor Trade Delivery platform, picking up any part-exchange in the process. There is still more work to do to bring these key areas together into a seamless experience and to establish the relevant commercial models, but we are making good progress. Given the events of 2020, we have even more conviction that this is the right thing to do: To improve car buying in the U.K., to help retailers to build a more efficient online sales channel, to strengthen our core marketplace position and to unlock a multiyear growth opportunity for our own business. I will now hand over to Nathan to take you through the outlook.

Thank you, Catherine. Now to the outlook. Auto Trader has started the new financial year in a strong position as a result of the actions taken in the past year. This is reflected in our recent trading performance, a strong pipeline of product innovations and improved relationships with customers. In the longer term, we will be beneficiaries of the major changes underway in the car retailing market, where more of the buying journey is moving online. Despite unusually strong demand and tight supply, COVID-19 is currently having little impact on the financial performance of the business as we start financial year 2022. We however, as seen in other countries, we cannot yet be sure that COVID-19 will not reappear as a significant negative factor in our future performance. The following remarks assume no significant restrictions on our retailers' ability to trade going forward. In the year ahead, we expect to deliver high single-digit growth on FY '20 average revenue per retailer and operating profit margins that are in line with FY '20 levels. We successfully executed our annual pricing event in April this year, including the launch of retailer stores, which offers customers their own dedicated customizable location on Auto Trader. Retailer numbers for the year are likely to be in line with FY '20 levels and stock is still expected to be a small headwind. Consumer Services and Manufacturer & Agency revenue, which make up 14% of group revenue, will recover from FY '21 lows but are unlikely to reach FY '20 levels as sellers favor part-exchange and new car advertising is impacted by semiconductor supply issues. This concludes the presentation. We can now move to questions from analysts.

[Operator Instructions] Your first question today comes from the line of Jo Barnet-Lamb from Credit Suisse.

It's is Jo from Credit Suisse. So 3 from me. So firstly, on stock. So stock on site at present is relatively weak, but stock component of ARPR guidance sounds like it implies only minor declines. Jamie, you helped outline some of the drivers through FY '21. But can you help frame your expectations for stock in FY '22 and how you expect that disjoint factor? Secondly, it sounds like you're narrative from -- with regards to new digital auto journey products, are perhaps may be more 2021 -- FY '23 rather than FY '22 events from a financial materiality perspective. Is that fair? If so, why? And could you talk about which products you think will be most material in FY '23? And then thirdly and finally, you're reinstating the capital allocation policy, which is effectively unchanged. But now you have no leverage where you've run with leverage for the duration of your time as a listed business. Can you talk about how you view leverage on Auto Trader going forward? Could we potentially see you relever?

Jo, there's quite a fair bit in there. If I take the first one. So stock on site, I think you're absolutely right. And hopefully, you got from the fourth quarter of trading, what's happened to the stock lever in the second half that coming into the year, certainly on a paid-for stock basis, we're coming in with a reasonably good run rate. As you say, if you look at the live stock on site, particularly from the point at which dealers' forecourts have been able to reopen, you have seen some of the live stock come off. I think quite an important nuance and depending what you're comparing to, if you're looking year-on-year, obviously we had a stock offer on last year. So there's some element of unpaid units last year. And we're not doing an offer currently. There's also the dynamics in terms of live stock that franchise customers appear, particularly large franchise customers, appear to be more impacted than our independent base. So when you're thinking about the financial performance, those are units that come at a slightly lower yield. I mean I think in terms of how we see it rolling forwards, as Catherine said, we think demand is going to stay reasonably strong for a period of time. And that could mean that, that supply tightness stays for some time. And I think we think that it could impact much of certainly the summer, if not the calendar year. And I think if that continues it will weigh a little bit on the stock and actually the prominence as well. And so we come in with this strong run rate, the strong stock lever. But that's why we're guiding for that small headwind. Yes, and on the digital retailing, Jo, thank you for the question. I think your assumption is right. It's fair to say what we're focusing on at the moment is developing the partnerships, technology, software required to build to get the products to market and then embedding them into customers. I think when I rewind back to pre-COVID, because this is not a new topic, as you well know, we've been talking about this for some time, our execution of digital retailing felt like it would be quite measured and sequential. And that was partly down to something that we've often talked about, our customers' ability to be able to kind of embed and get the value from products, which notionally, we would put down to kind of one complex product a year. And anything more than that would typically or potentially bounce off the sides. I think with the acceleration that we have seen as a result of COVID-19 where retailers -- many, many retailers, particularly the progressive ones, have looked at other online retailers, have actually seen how their own operations have built and thought, actually, there's a real opportunity for us to get on to this right now. Our response to that is, well, we need to do the same thing and perhaps the measured and sequential approach we were taking isn't now the right approach given the window of opportunity that we've got. So I'd say that the opportunity feels more real, bigger and closer than it was pre-COVID. In order to capitalize on that, you really need to put together, as quickly as you can, all components of an online journey. So rather than saying, well, let's do this bit and digitize part-exchange and then we'll move on to digitizing finance, actually be able to go to retailers and to consumers and saying, you can now do everything from reserve a car to apply for your finance to get your part-exchange price, with a particular focus for us on the reservation because we believe it is a very, very good proxy for an online transaction. And that's a long way of answering your question. I think in order to make that change happen, requires a big shift in mindset and a big shift in behaviors, a lot of which is being done. But we really feel like it is more important that we get those behavioral shifts and embeddedness into consumer behavior and retailer behavior rather than rush to monetize. But embedding those products, as we go out with them, we will be very open about our intention to charge for those. But our thinking -- it's fair to say our thinking is moving quickly as our road map is moving as well. Jamie, did you want to take the capital policy question?

Yes, so on capital policy. So you remember, sort of pre-COVID, we -- you're absolutely right, we sort of made modest debt repayments, so between GBP 20 million and GBP 40 million. We closed the year with GBP 30 million debt balance. And I think it's reasonable to assume in fiscal year '22 that we pay that down, so as you say, not holding any debt. And I think it's reasonable to assume that, that's likely to be the case going forward. We obviously have done some small acquisitions over the last 3 or 4 years, and I think that's probably the only realistic angle where you'd likely see us lever up again, I think.

Just a follow-up on the last one, if it's okay, Jamie. Can you give a little bit of sort of explanation as to why that's the case, why you would run with no debt? I mean one of the differences for Auto Trader versus [indiscernible], for example, is that you have carried debt, which is a more efficient capital structure. So is that just a level of prudence or uncertainty? Could you lever up in the future? Just interested if you do have any more color on why you wouldn't, effectively.

Yes, I mean I think the debt position was a function of how we came to market. And we've been slowly paying that down. And I think we've pretty consistently said if you roll forward to the end of the debt facility in 2025, making those modest debt repayments, that we would get to that net cash position. So I think you just see that we've accelerated that process through the raise that we did at the beginning of last financial year.

And your next question comes from the line of Adam Berlin from UBS.

Three questions from me as well. Just the first question, just to follow up on the previous discussion, do you have an internal target, Nathan, for when there'll be a Reserve it Now button on the website? And can you share that with us? The second question is just focusing on the product ARPR in FY '22, can you give us a sense of whether it's going to be closer to FY '21, where it was GBP 89, or closer to an FY '20, around GBP 50, and how the product ARPR might break down? So Jamie helpfully gave us a split of the product ARPR in FY '21. Could you give us a sense of how that might break down between the events, premium products and some of the new products like GPX in FY '22? And the third question, I wondered if you had any thought about how in the OEM market, new car market, there seems to be the shift to an agency model instead of a dealer model that some of the OEMs are pioneering, how that might affect how you think about your new car proposition. And do you turn that into a more online transaction model where you have -- you offer money supermarket for new cars, people choose a new car, and it goes through the OEM in some way? And do you change your strategy from the subscription model for physical cars you have now?

Perfect, thank you, Adam. So I'll take the first one. Jamie will take the second one, and Catherine will take your third question on the OEM agency model. Mine is perhaps the easiest of the 3 to answer. The way that we develop products is highly iterative. We do over 40,000 software releases a year. So we spend more time on, rather than guessing how long it takes to do something, doing something and then kind of learning from there. That tends to mean that we waste the least amount of time building software as we possibly can to get to the right end answer. Now that sounds like I'm ducking the question, so I won't do that. I'll tell you that now we have customers on Auto Trader with a reserve button. It's currently a very small trial. So we've built the functionality, we've built the software, we've built the integration with a payment provider and have that partnership in place. So it's there today. That was probably a little bit sooner actually than -- but certainly a lot sooner than what we'd expected, had you asked me that question late last year and probably even sooner than we thought perhaps even months ago. So the team have done a very good job of that. It's very limited. It's a small number of customers because we want to test the onboarding process, the requirement or the dealers' engagement, if you like, and also test the plumbing on the payments because the cash comes from the consumer to us. And then we pass that through to the retailer. So once we do get through that, we will then make whatever changes that we need to make to the product and then look to scale up from there. So in answer to your question, the button is there and we'll iterate from this point forward. I'd expect there's probably, based on experience, there's probably a few months of us just working through the implications, starting to test it with some bigger customers, more complex customers. At the moment, they're just very simple single-site customers as we then move towards scale in terms of that product. Jamie, did you want to take the product ARPR?

Yes, sure. So I mean I think the sort of steer for fiscal year '22 is somewhere between -- I think the 2 points that you referenced were what we've reported in the last 2 years, the GBP 82, GBP 89. I think it would be a shade less than that but probably more than the GBP 57 we reported in the first half of fiscal year '21, which I think is the reference point that you gave. In terms of what makes it up, and you'll notice from the commentary I gave on fiscal year '21, where half of it was from the sort of event products, those data products, we don't have a sort of significant contributor in that respect, but we've actually got probably more individual products that are going to contribute. So we obviously -- we think we'll have some prominence contribution. We've obviously just redone the package staircase. We've launched this Market Extension product that Catherine talked to, there's a little bit of contribution from retailer stores in the event. There'll be some contribution from GPX, there'll be some contribution from new car. But they're probably all making up small amounts towards that total rather than historically, maybe in the last 2 or 3 years, we've had one big thing that's made up most of it. So there's enough product there. But I think they'll all be sort of marginal, smaller contributors, which will make up that number in that sort of range.

On new car and the move towards agency, you're right. Today, clearly, our new car product is a retailer-stock-driven model, and we have seen a number of OEMs in the last couple of months use a combination of the shift towards online and the prioritization of EV production to announce plans to move to an agency model for electric vehicles, in particular. So VW, Mercedes, Volvo have all come out with -- have stated intention to move in that direction. We definitely see it as an opportunity for us to support those OEMs on that journey to build a direct-to-consumer proposition to build ultimately transactional platforms, which they're all either looking or planning to do. Today, it's worth saying that we get, on Auto Trader, 31x the level of engagement of all of the OEM websites combined. And so I think our audience position and the digital retailing products that we're building for used car are clearly entirely applicable and very transferable to new car as well. So over the midterm, I think we have an opportunity on Auto Trader as well potentially to enable some of those transactional journeys for new cars and to build a closer relationship with the OEMs as they increasingly look to become retailers themselves.

The next question comes from the line of Giles Thorne from Jefferies.

My first question picks up much of the content from the presentation around circular migration to digital retailing. While all of that is in evidence, there is still any number of surveys out there that suggests a physical part of forecourt visit or whatever it may be is still something that a lot of consumers want to have. So I guess I just wanted to press you a bit more on how far this digitalization could really go. Is there a scenario where even that kicking of the tires aspect of the journey could succumb to, I don't know, a digital experience? Just your latest thinking there would be useful. Second question, G-Force is out there with a number of GBP 1 billion of savings for U.K. retailers from moving sales online. Is that a number you recognize? Because if it is, there's a pretty big monetization opportunity, so some comment there would be useful. And the third question was, yes, back on OEM sales agency model. I think it was Adam actually asked the question I was going to ask, so I'm going to think of another question on the matter off the top of my head, which is, yes, it would be interesting to know exactly how far along your thinking is on what exactly you could do to help OEMs retail. Is this something that's been -- your thinking is responsive to news flow from the past few weeks? Or have you been baking ideas on this for years and years?

Okay. I'll take the first question. And then Catherine can take the second and third. We agree with the research and indeed we put out our own research out there that says we don't think any time in the near term, you're going to see the forecourt falling out of the majority of people's car-buying journey. I think the reality is, whether you look at this in the U.S. or whether you look at this in the U.K. fewer full online transactions aren't probably going -- they're probably not more than 5% now. And I don't think there's many people suggesting that you will see that figure skyrocket. And I think that's where we come into it. And you've seen many of the online retailers have gone down the route of providing physical presences. So I think the world that we're optimizing for is very much a multichannel world. What we want to do is build an online sales channel so retailers have that, but that online sales channel can work you can just do a reservation then go into the dealership, you could do a reservation and potentially order delivery, you could do a reservation and your finance and your part-exchange and then go into the retailer, you could do all those things and then transact online. We're very much not betting on that small percentage of sales that go directly or completely online. If you like, our strategy is entirely built around retailers or consumers being able to do more or all of the transaction online. That being said, what we have seen through the course of the pandemic is there are -- particularly as it relates to test drive or kicking the tires, as you refer to, actually, there's -- a lot of consumers state that obviously as being an important thing for a used car but actually, if you start to say -- offer things like a 7-day no haggle -- return policy or 14-day return policy, which is effectively potentially a 7- to 14-day test drive, then actually that concern does fall away. And that's not because they're saying, well, no, I don't any longer need to check out the car physically. It's just retailers are giving them another way of doing it. And that does very much resonate with consumers. There's a minimum level of service that will get them over the hurdle to do more of it online. But we agree with you, we still think the forecourt plays a role. But perhaps rather than being 2 or 3 visits that each take 1.5 hours, we think it can probably be -- maybe not as extreme as [ Carvana ] but they do a lot of their appointments in just 15 minutes. And we think there's good reason to believe that more of the work can be done online so that visit to the retailer is, a, the enjoyable bit of the experience and, b, much, much quicker and more efficient than it is today. Catherine, did you want to talk to the GBP 1 billion savings number?

Sure. So on the GBP 1 billion number, I guess, it's not a number directly that we recognize, but similar to the thinking and the analysis that went into pulling together that piece of research, many of the assumptions and principles, we absolutely recognize and buy into. We clearly see that for most retailers, a couple of the biggest costs are people costs and property costs. And there's a whole range of assumptions you can make, depending on how aggressive you are on, as Nathan just talked to, how much of that buying journey happens online and the type of omnichannel support model that consumers need. That -- whether that's more than GBP 1 billion or less than GBP 1 billion, I think, will -- is still very much to play out. What we are getting is some really interesting learnings at the moment because clearly, we came from a period in lockdown where retailers were able to drive very significant growth in sales per salesperson through a combination of consumers completing more of the journey online and furloughing a number of the sales team. That has definitely led many of them to think differently about the types of resource that they need within their organization and the roles that they should be recruiting for. So I think we'll see not actually less people but certainly a different type of person being employed in dealership, less sales-focused, more consumer-service-focused people. And then there's an interesting debate on forecourts at the moment, very linked again to some of the products that Nathan was just talking to in that we're not seeing big site consolidation at the moment. And if anything, many of the online retailers are proving that having a local physical presence is still a very important part of that journey. What we are seeing is retailers increasingly looking for a different type of property. So more fulfillment support, handover centers rather than some of the big, very lavish forecourt experiences that we might have typically seen from some of the franchise groups. So it's a different type of cost structure. We definitely believe it will be a lower one. But the balance of that and the detail behind that, I think we're still learning about and will continue to evolve. The final question on OEM and yes, how far -- how much are we reacting to news flow versus this being part of our strategic thinking for some time. I think what has definitely been part of our strategic thinking for some time, which was part of the rationale behind building the new car retail stock-based product, is getting closer and closer to the new car transaction and improving and growing our influence over that. So we've gone from being an advertising-led new car -- or having an advertising-led new car proposition to now one based on retailer stock. And we always imagined that would evolve to us being more embedded and closer to the transaction journey. We've also, in parallel, been building much closer relationships with the manufacturers through the data products that we have access to through Kee and some of the remarketing and other opportunities that we see there. So building more strategic relationships with manufacturers and getting close to the transaction has definitely been part of our thinking. The shift to agency, I think, has been and will continue to be accelerated by some of the bigger changes we've seen in the last 12 months, that faster shift towards online and also prioritizing of EV production with the semiconductor supply shortages that we're seeing at the moment. I mean some of those things that we were already talking about, again, feel like they'll perhaps play out and happen a bit quicker than we thought.

Yes, well, I'd only add one bit to that, which is this is in one of those areas where we've seen a direct benefit of the support we have provided the industry. Every month now, we meet probably with the best part, across all our forums, the best part of 60 or so MDs of retailer groups, including those of the largest as well as the managing directors or CEOs of the manufacturers as well. And we probably, at any one of those forums, we'll have 12, 13 or more people attending those. And they are proactive dialogues about things that are going on in the market where we can obviously provide a lot of help with data, but also things that are going on in their world, which this is fast becoming the biggest topic. So actually, I think we have laid the groundwork for this. But it is fair to say, as Catherine said, I think, particularly the agency model has moved much quicker than perhaps even many of those had expected.

And your next question comes from the line of William Packer from Exane.

Three for me, too, please. So firstly, at the bottom end of your guidance, I think it implies 2% underlying year-on-year ARPR growth if we adjust for the discounting for FY '22 after the better-than-expected performance in FY '21, which seems pretty conservative if the stock ARPR only faces a small headwind. Could you talk through the puts and takes on that for stock price and product? That's the first question. Secondly, very interesting, the pricing uplift potential from online dealers that want national coverage based upon your new pricing plan. So for example, you want to be available in 10 regions versus 1. Could you talk us through what the uplift in the cost of an advert is? It seems like it could be quite important, especially as online dealers take share. And then I suppose a final, slightly wider question, we've talked about the digital retail opportunity for some time, and it sounds like you're making good progress. But there's still a pretty substantial gap versus a Cazoo or Cinch experience for the average traditional dealer, which you're trying to help shrink. Are you planning a Capital Markets Day or an update, let's say, the next results, where we'll get more details on the products, your view of the TAM and the gross profit commission? Because there's clearly investor demand.

So if I take the first one around the guidance, I mean, I think yes, where we're -- the -- 2 of the biggest drivers of fiscal year '22 are obviously stock. And as sort of talked to in the first question, yes, it seems reasonable with strong levels of demand and the issue around semiconductors, that supply could be tight for some time. And I think as we saw through the summer of 2020, when that supply is tight, it does and can weigh on the levels of paid stock that dealers pay for. So I think we don't know exactly how it will play out, but I think that's the thought process. That's how it could impact. The other point is very closely linked, I think, is around the product lever and the upsell to the new higher-level packages that we've launched and even to some degree, the Market Extension product, and you sort of referenced in your second part, that if demand is very strong and there aren't a lot of cars, and again, we saw this in the first half of fiscal year '21, there isn't necessarily as much incentive for dealers to increase their prominence because they know that they're likely to sell those cars. So I think it comes down to those market dynamics. And if the supply side constraints do persist for a period of time, I think they will weigh on those 2 levers, and that's what's steering that bottom end of the guidance.

I think the second question was on the Market Extension product. This is a product that allows retailers to sell and effectively conquest new consumers in other regions. It's worth saying firstly that we're expecting the adoption of this product to clearly be driven by retailers that are building and have -- already have an existing online retailing model, so we're not expecting rapid penetration or mass penetration of this product anytime soon. The better way to think about the current yield at the moment is that it's about double the core package structure in aggregate if you go nationally with the product.

Worth just adding of the standard. So the standard package, where we've got the majority of customers, that's -- it's about double those sorts of rates. And now on your final question, digital retail, and there were 2 things in there, one being very specific on the Capital Markets Day. On the first question, just very briefly, because I think your point was this feels like it's something that could be further explained in a more detailed session. The gap between Cazoo and Cinch is actually, we believe, less relevant to Auto Trader and more relevant to our customers because Cazoo and Cinch are retailers. At the end of the day, they're playing in a section of the market which works for that business model, which is vehicles that are under 5 years that have low mileage. Therefore, they're easier to prepare and they're a higher price with predominantly a home delivery model but increasingly looking like more of a hybrid, which is similar to our other retailers. Now that game, when played, even when you look at the forecast they provide to their market, might get -- will get them to the same size as a retailer that we have -- retailers that we would have today, roughly the same size as our big customers that would hold that level of stock. Of course, a theory is that their margins will be much, much better, which is why that gap comes down to them versus other retailers, whereas we're looking at a model where, actually, we're looking to enable choice, which is the core thing that consumers are looking for and the core thing that come to Auto Trader to do, as well as the ability to transact online. So we're trying to sell 480,000 cars and enable those from a digital retailing perspective. We do recognize and are definitely proactively thinking about, well, is there something that we need to wrap around those transactions that might happen on Auto Trader that go towards providing a high level of confidence for the consumer? But I don't think we need to have cars on balance sheet and prep because I think that is when you're playing a retailer game. And we typically see how big those models can get. As to whether -- we have no plan currently to have a Capital Markets Day, but we do definitely see that as we get these products out, particularly finance reservations on some scale and Guaranteed Part-Exchange, as we start to get some validation and learning around those, we are very open to -- it does feel that like the time would be right to provide a more fuller explanation. But we want to do that at a time where we've got some level of validation, which I know it might not be the approach of all companies but has been an approach of Auto Trader to make sure that we've got a level of confidence before we go communicating those sorts of things, particularly around the commercial model on digital retail.

Your next question comes from the line of Michael Tyndall from HSBC.

Just a couple from me, if I can. Just a couple for me. If I look at slide -- let's say, Slide 23, where we're talking about, I guess, the new elements of the digital journey, is it possible at all for you to get a sense of the revenue opportunity and maybe the timing? You think about reserve and part-exchange and finance, which of those is the biggest part and which of those do you think you can monetize most quickly? And then the second question, and maybe I've got this completely wrong, but the change to the packages, it looks to me as if it's an 11% lift at the very top end. And it's a lift all the way through. So what happens? What have you seen in, I guess, in the first 3 months? Have people slipped back? Because it feels like at every level, there is considerable inflation versus the old staircase.

Okay. I can take the first one. I don't want to appear evasive, it is -- I think the commercial model and the size of the prize around digital retailing is something that we're yet to see. I can give you some ways to think about that, which I hope are helpful. At the moment, Auto Trader takes about 6% of gross margin. And that would translate into, given gross margins about 10%, net profit margins are around 1.5%, that translates into around 7.5% to 8% of the retailer's cost base. When you compare that to models where the sales are online, you can take loads of different categories. You do need to normalize for gross margin, the percentage that sales channels take off gross margin is much, much higher than 6%. We've seen models in cars, in automotive, in new cars particularly in the U.K., where that gross margin take looks to get up towards 20% of gross margin. Now I'm not suggesting that we'll get up to those levels, but I think we see that there's some upside to the 6%. As to which element of that is -- and sorry, I should make the important point. Where we see that coming from is not the dealer's profit margin. Actually, we believe that by doing this, we should be able to either increase volume with the same level of cost and/or reduce costs so the retailer actually ends up better from a profitability perspective, certainly absolute profit than they would have been otherwise. It's about Auto Trader eating into other inefficient costs because when you -- if you take the most extreme example, someone has come toward Auto Trader, reserved a car, got a quote for a part-exchange and done their finance application, one might ask what all that -- the rest of that cost is doing to close the transaction. So the way we're thinking about it is really how that 6% of gross margin might move over time. As to where that might get to, that is something that we're not speculating about just yet because it does come down to the efficacy of the products and consumer take-up and retail take-up as well. I do think both reservation and finance, that probably the jury is out as to which one could be more valuable. Reservations does proxy very well as a sale. I mean we've spoken to many a retailer and they will talk about taking thousands and thousands of reservations and only a handful not going through to sale. So we do see that as being the equivalent, if you like, of an online transaction, so possibly the most valuable. That being said, finance penetration, finance is not transparent in the U.K. Consumers can't go online and find out what actual deal they get. They do need to go into a dealership. For that reason, only 1/3 of consumers buy that finance from retailers. And every car sold on finance probably accounts for GBP 400 up to well over GBP 1,000 of commission. So it could well end up being that. I think those are the key lessons that we're going to learn and that we're focused on learning, particularly this year as we get those products out and get take-up. In terms of your question on packages, Jamie.

Yes, so I can take that one. So if you sort of think about the package staircase and compare to the slide that we put previously in, which I think is what you've done, I mean, the bulk of customers are on the standard package. And if you look, the increase to Enhanced and the previous increase to Advanced is about the same for those customers, so a 20% increase. What we've then done with Super and Ultra is we've made the steps more manageable. So previously, for Premium, the jump was another 32%, whereas now the jump to Super's 21% and then add an extra 15% to Ultra. So it's really the customers on Premium that have the choice whether they come down slightly to Super or push up slightly to Ultra. And we're actually managing through that process at the moment and migrating customers. And it depends really whether they want that additional uplift in response or whether they're happy at the Super level. Obviously, as I said to a previous answer, with the dynamics that we've got with very strong demand, slightly tight supply, the package staircase is not often as much incentive. But I think making all the steps -- making the steps slightly smaller, certainly from what we had previously to Premium and obviously stretching slightly up to Ultra, we feel this is a change that is -- we say we sort of change our packages every 3 or 4 years. This is all those next 3 or 4 years.

Okay. We've probably got time for one more question.

Thank you. Your last question today comes from Andrew Ross from Barclays.

I've got 3. First one just to clarify the level of the buyback that you're talking about going forward. I mean you've been clear you won't gear up unless there is an M&A opportunity, and you've mentioned you're going to pay a small amount of debt back in fiscal '22. But assuming a normal year with no M&A going forward, should we basically be assuming all of free cash flow beyond the regular dividend is now coming back in, in a buyback and you're going to stay in the kind of small net cash position at the end of the year? That's the first question. The second one is on Guaranteed Part-Exchange. I think you had 1,000 dealers on trial, the last I heard. So what actually is the number now in terms of paying dealers now it's live? And where do you think that will be by the end of the year? And if you could give us anything in terms of how the pricing is working. And then the third one is about the new car product, with I think about 2,000 paying dealers. Again, can you just give us a reminder as to where you might see that getting to? I'm just trying to delve a bit more into the details of the product lever this year.

Okay. Great, I can take the first one. So I think your assumptions are all right there. Yes, after the dividend, the remainder of surplus cash will be used to buy back shares and expect to see a small net cash position at year-end. That's the easy one, yes. And Guaranteed Part-Exchange. So as you said, that has been -- we launched back in September. It's a complex product to build what are critical for an online transaction. I think it's fair to say whilst it was launched in September, most retailers have kind of been in kind of -- no, limbo state is not quite the right word, but haven't really been operating at full capacity with full staff since April. The product's worked well in terms of consumer engagement. We mentioned the stat there at 120,000 Guaranteed Part-Exchanges have been done since launch. We haven't disclosed the number that we've got moving forward. And I'm not sure it's that -- necessarily that relevant. So we did have, as you said, 1,000 customers at the end of March, and now we're stepping through -- they were kind of the legacy or first batch of customers. And we're constantly bringing batches of customers on and converting them based on the level -- based on the resource that we can put towards embedding and onboarding those customers. And your final question...

I mean just on the pricing, I think...

Oh, sorry.

I know we -- I think we talked previously about Retail Accelerator being a reasonable comp, partly from the sort of operational angle of having to be more embedded in the business, more embedded in what goes on, on the forecourt. And the pricing model is reasonably similar. So yes, it's a subscription product. The average yield is about GBP 300. And actually, I think we have disclosed -- I mean Retail Accelerator customers, we've got about 15% to 20% customers on the base after sort of 3 or 4 years or maybe slightly longer selling the product. So I think the comp for that is a reasonable one, particularly when we're selling Guaranteed Part-Exchange on its own. I think, as Nathan has already referred to, as you build out more of the digital retailing and how the components come together, that might slightly change the view. I think where we are today, that's the pricing, and that's what I would sort of be benchmarking it against.

Yes. I think that's right. We've kind of executed that in that sequential measured way, but as we get the rest of those products, I think we're quickly realizing retailers need a solution to be able to replicate online retailers quickly, which require all those elements that we're looking to launch rather than each one of the individual ones.

On new car. I think the headlines from last year obviously that we were really pleased with the growth that we delivered in retailers from around 1,000 to just around 2,000 at year-end this year. I think one of the changes we've talked about a lot during the pandemic is obviously cars during lockdowns, if they weren't online, then they were for sale. And for our new car proposition, in particular, many of the new cars that are now advertised on Auto Trader weren't visible anywhere before. So driving that transparency in the stock and transparency over pricing has been really powerful for those franchise customers and has definitely supported and helped to underpin that product growth. And we're very much looking to continue to grow the base this year, to grow certainly the retailer number and hopefully, to grow stock. The big kind of headwinds, I guess, that we'll face this year is the semiconductor issue that will, we believe, be some drag on new car supply into the market, varying slightly by brand and varying slightly by premium volume and electric vehicles. But what impact that has on how much support retailers need in retailing those vehicles and how much penetration we can drive beyond that 2,000, I think probably the one big area of uncertainty we've still got as to how quickly we can progress that product.

Thank you, Andrew, and thank you, everyone, for joining us today. That's all for now. Thank you very much.

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