Autotrader Group plc (AUTO) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Auto Trader's full year results for the year ended 31st of March 2022. It's great to once again be -- to be presenting to you in person as we move beyond COVID-19, which I'm pleased to say has not impacted our financial performance as it did last year. There are still challenges in the car market with significant supply constraints, initially driven by semiconductor shortages, compounded by supply chain disruptions from the war in Ukraine, lockdowns in China, and commodity shortages. I would like to thank our people, our customers and stakeholders for their continued trust in our business. We've worked hard to do the right thing, such as working with or for Auto Trader. It feels like a genuine partnership, which is reflected in our culture, our relationship with customers and the strength of these financial results. Starting with our strategic overview. This year, we have achieved our highest ever revenue and profits, signaling a return to more normal trading, following periods of discounts to support customers when their ability to trade was restricted. Consumer engagement and customer numbers also hit new highs during the year, strengthening our position as the U.K.'s largest automotive marketplace for new and used cars. Despite challenges around supply, paid stock grew year-on-year for the first time in 4 years, which is both significant and a huge credit to our teams that work with our customers. In April 2021, we successfully delivered our annual pricing event, including a new product, Retailer Stores, offering retailers their own dedicated, customizable destination on Auto Trader, which have generated over 58 million visits in the year. Product uptake has been strong through the year, supported by significant changes to how we work with our retailers, partnering with them to focus on achieving their stated business goals. In May 2021, we evolved our advertising package staircase, adding higher-level packages and a consistent cross-platform search experience. We also launched our Market Extension product, allowing retailers to reach car buyers outside of their local area. These 2 products were key drivers behind the record levels of spending by our customers. We launched Auto Trader Connect into our retailer packages as part our April 2022 pricing and product event, which has gone well. Auto Trader Connect gives customers access to our most fundamental and powerful data, which improves advert quality, pricing decisions, and introduces real-time updates between our systems and those of our customers, which is a key enabler of digital retailing as without accurate or real-time view of stock, vehicles cannot be transacted online. With car buyers looking to complete more of the car-buying journey online, making this a reality remains our focus. We've made good progress in the year, developing the component parts, including Guaranteed Part-Exchange, reservations, finance applications, all of which have been trialed independently. Our focus now is to bring these together to create an integrated platform for retailers and an end-to-end deal builder journey for consumers, connecting the online and off-line buying journey so that consumers can complete different parts of the process in any channel seamlessly with the retailer. We've also excellent progress on the key enablers for digital retailing. Market Extension, Auto Trader Connect, our pricing and data products, and our logistic marketplace, AT Moves, are all launched, commercialized and ready to be incorporated into a broader digital retailing offering alongside deal builder when it's launched. We're pursuing this opportunity with our usual disciplined organic approach and see it very much as an extension of our marketplace, strengthening our core while providing a multiyear growth opportunity. We are not seeking to become a retailer but instead a provider of a highly scalable technology platform, enabling car buyers and retailers to complete the transaction between themselves, online or on the forecourt. This approach has meant that there has been no erosion in our operating profit margin as we invest in future growth. In March 2022, we announced that we have agreed to acquire Autorama (UK) Limited, subject to regulatory approvals. The acquisition is core to our strategy as it enables digital retailing on new cars, as they have the capability to transact vehicles from order through to delivery by a retailer, providing manufacturers and leasing companies a direct channel to consumers. Autorama has existing partnerships with OEMs, funders and retailers, which we have an opportunity to strengthen and expand with Auto Trader's brand and scale. The acquisition moves us into a transactional model on new cars quicker than we would achieve organically. The business has and is expected to experience subdued levels of sales while new car supply remains tight. However, as and when new car production returns, it will become increasingly attractive to manufacturers and leasing companies, while also benefiting from structural tailwinds, including direct-to-consumer sales, the move to electric vehicles, digital retailing and the continued growth in personal leasing. We have not yet received all regulatory approvals and we'll provide more detail on completion. We plan to cover this and our digital retailing ambitions more broadly at an investor day, which we are proposing to hold on the 6th of September. Now turning to the financial results. As you may remember, during much the financial year 2021, we chose to offer our retailer customers free advertising when they were required to close their physical forecourts. This included April, May and December 2020 and February 2021 as well as the discounted rate in June 2020. For this reason, we see financial year 2020 as a more meaningful comparison through which to view our performance. Using that comparator, revenue increased by 17% to GBP 432.7 million, with trade revenue up 20% to GBP 388.3 million. Operating profit also increased by 17% to GBP 303.6 million, with operating profit margin returning to 70%, consistent with 2020 levels. Compared to the financial year 2020, basic EPS was up 15% to 25.61p per share, and cash generated from operations was up 24% to GBP 328.1 million. Having reinstated our capital policy, we returned GBP 237.1 million of cash to shareholders through a combination of dividends and share buybacks. GBP 73.6 million was paid in dividends, and GBP 163.5 million before transaction costs was used to buy back shares during the year. Today, we are also declaring a final dividend of 5.5p per share, resulting in total dividends for the year of 8.2p per share. Now on to our operational results, where prior year remains a useful comparator. The average number of cross-platform visits increased by 9% to 63.8 million per month. Engagement, measured as the volume of cross-platform minutes, was up 5% to 588 million a month. We remain U.K.'s largest and most engaged automotive marketplace for new and used cars, with over 75% of all time spent across our main competitor set spent on Auto Trader. We're now 8x larger than our nearest competitor, the combination of Gumtree, Motors and eBay, which has increased on last year. The average number of retailer forecourt advertising with us grew 5% to 13,964, the highest level we have seen for some time. It was due to low levels of cancellation and consistent levels of new business, which we believe is due to the combination of favorable market conditions, the partnership we have built with customers through the pandemic, and the demonstrable value delivered by our platform. Average revenue per retailer per calendar month, or ARPR, was up GBP 886 to GBP 2,210. GBP 639 of this increase was a result of COVID-19 discounts in the prior period. When normalized, ARPR grew by GBP 247 per month versus prior year, with good contribution across product, stock and price. When compared to 2020, ARPR was up 13%. Average physical car stock on site decreased by 11% to 430,000 for the year. This was partially driven by a decline of 18,000 new cars in Auto Trader due to the very well-documented new car supply shortages. It was also due to an offer allowing customers to double their stock for free from late March to mid-July 2020, which was not repeated this year. And finally, the average number of full-time equivalent employees increased to 960 as we continue to invest to support growth across the business. Finally, our cultural KPIs, which are important to us and the rest of our business as are our financial and operational KPIs, as they underpin our culture and purpose to drive change together responsibly. Achieving systemic progress on these KPIs will take considerable time and effort, but we're fully committed to doing the right thing in the right way, which we expect to show up in these measures over time, but there will be volatility along the way due to the nature of those measures. We carry out check-in surveys with our people at regular intervals throughout the year, the most recent being in April 2022. This includes a number of engagement questions, one of which is how proud employees are to work at Auto Trader, which has remained high at 95%. We believe creating inclusive culture and building greater levels of diversity within our organization improves both individual and team performance. During the year, we now have a slightly higher percentage of women than men on our Board following the appointment of Jasvinder or Jas Gakhal in January 2022. At year-end, women represented 40% of our organization, and women in leadership saw a meaningful improvement to 38%. Ethnically diverse employees currently represent 14% of the organization, with 12% of employees not disclosing their ethnicity. The percentage of ethnically diverse employees in leadership roles remained at 6%, which highlights the work we still have to do in that area. Finally, we will continue to report our Scope 1, 2 and 3 emissions at year-end. We've committed to achieving net zero by 2040 and to reduce our emissions by 50% by the end of 2030. Our emissions during the year increased against the base year of 2020 due to an increase in our cost base and higher capital expenditure. We're now working to better understand our suppliers' plans, given that the vast majority of our carbon emissions are within our supply chain and not with us directly. Finally, we were carbon-neutral for the year, having offset 11,700 tonnes of carbon dioxide equivalent, using an accredited scheme, and for the first time, the reduction in emissions will form part of our executive remuneration policy. 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 increased 65% to GBP 432.7 million. As Nathan mentioned, this was up 17% versus 2020. Trade revenue increased by 72%, with the largest component of this being retailer revenue, which increased by 75%. The year-on-year increase was largely the result of the support we provided to our retailer customers in the previous financial year. Excluding these discounts, we saw good growth in average revenue per retailer as customers opted to spend more with us across the year. The average number of retailers advertising with us also increased, averaging 13,964, which was up 5% compared with the prior year. This increase in the number of forecourts was due mainly to lower cancellations in the period, with levels of acquisition remaining broadly flat. Also within trade, we've seen an increase in Home Trader pay-as-you-go listings as well as growth in other trade revenue. Consumer Services revenue increased by 25%. Within this, Private revenue, which is largely generated from individual sellers who pay to advertise their vehicles on our marketplace, increased by 16%. There was a contribution of GBP 0.9 million within this line from our Instant Offer product, which allows consumers to sell their car quickly from home for a guaranteed price. Motoring Services was up 32% year-on-year as a result of strong growth in both our insurance and finance offerings. And finally, revenue from Manufacturer and Agency customers was flat at GBP 11.1 million. The pandemic has had a significant impact on this revenue line in both financial year 2021 and 2022, as manufacturers have lowered their marketing spend due to the significant reduction in new car supply and uncertainty as to when this will return. Now on to ARPR, live car stock and retailers. ARPR increased by 67% year-on-year, with the average revenue per retailer generated across the period at GBP 2,210 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, much of the increase came from COVID-related discounts, which were offered to customers in the prior year, which, by their absence in 2022, contributed GBP 639 of growth. Ignoring these COVID-19 discounts, underlying ARPR increased year-on-year by GBP 247 per month, which was spread across our price stock and product levers. We delivered our annual pricing event on the first of April 2021, and this contributed the majority of the GBP 74 price lever, which equated to an effective increase of just under 4%. Products contributed GBP 121 of growth year-on-year with the breakdown as follows. About 2/3 of this product growth was a result of retailers purchasing more prominent products on Auto Trader. This is made up of increasing penetration of our high-yielding Enhanced, Super and Ultra packages, with 31% of retailer stock on one of these packages above our standard level in March 2022 versus 26% the year before. In addition to packages, retailers saw prominence through greater use of our Pay Per Click product. And our Market Extension product, which was launched in May 2020, had over 6% of retailer stock on it by the end of the year. Our retailer stores product, which is included as part of our annual pricing event in April 2021, also made some contribution to the product lever. And finally, there were a collection of other smaller products, such as new car data and finance, which also made a small contribution. Looking now at stock. The chart on the right shows the profile of live physical car stock, which declined 11% in the year. As a reminder, live physical car stock includes all cars advertised on Auto Trader. This means that in addition to paid for retailer use stock, it also includes new cars, Private and Home Trader adverts and the impact of stock offers. As usual, we've stripped out the impact of new cars and provided underlying used car livestock, the darker of the 2 lines. It is important to note that the stock lever is not driven by live stock, but by the number of paid for retailer use stock units. We provided a slide in the appendix, which shows a chart for both live and paid stock. As you can see, live stock has consistently been lower in financial year 2022 than the level seen in 2021. In H1, the difference was mainly driven by a stock offer in the previous financial year, which was not repeated in 2022. In H2, we've seen the impact of supply shortages, which have gradually fed into used cars. Despite seeing less volatility in paid stock, partly due to our subscription charging model, 2021 was more variable than 2022. Early in the prior year, we saw some impact due to the first COVID lockdown but recovered well through the year, supported by the free periods of advertising. In 2022, we saw declining levels of paid stock through the first half but did see some recovery in the last 5 months, particularly from our smaller customers. Last year, the group made the decision to reduce costs mainly through discretionary marketing spend. With a return to more normal levels of spend in 2022, total cost increased by 27% to GBP 132 million. This was a 17% increase versus 2020, with most of this -- with this being due to an increase in people costs, with 107 more full-time equivalent employees across the 2 years being the main driver. Marketing spend for the period increased by 109% to GBP 20.5 million, which was equal to 4.7% of revenue, consistent with 2020 levels. People costs increased by 16% to GBP 69.8 million. The increase in people costs was primarily driven by an increase in the average number of full-time equivalent employees. This increased by 6% to 960, as we invested in more people to support new growth areas. There was also an underlying increase in the average cost per employee partially as a result of the executive directors and the Board forgoing 50% or more of their salary and fees in the first quarter of the prior year but was also impacted by our annual pay review, which resumed in July 2021, having not occurred in the previous financial year. Other costs, which include data services, property-related costs and other overheads, increased by 24%. The increase was primarily due to higher overhead costs, which included the return of travel, office and people-related costs, as well as higher IT spend through increased software and data services. Depreciation and amortization increased to GBP 7.2 million, mainly driven by office improvements and an additional lease for increased office space. Capital expenditure in the period was GBP 2.8 million, largely due to investment in our Manchester office with refurbishment to support our new connected working approach. As a reminder, 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 350 people in product and technology, who are continuously improving our platforms and developing new products for consumers and retailers, the costs for which are taken in full through our income statement in people costs. With revenue up 65%, costs increasing 27%, and a GBP 2.9 million contribution from our share of Dealer Auction's profit, operating profit was GBP 303.6 million. This is an increase of 88% on the prior year, and our operating profit margin returned to 70%. Cash generated from operations increased by 115% to GBP 328.1 million. The year-on-year increase in cash generated from operations was bigger than operating profit mainly due to a positive movement in working capital. Part of this movement was due to the free period in December 2020 and February 2021, impacting our VAT liability at our 2021 year-end. The statutory income statement outlined there is beyond our revenue and operating costs. Net finance costs reduced by 32% to GBP 2.6 million, as the lower level of debt drawn resulted in lower interest. Our profit before tax of GBP 301 million and our effective tax rate was 19%, which remains in line with the standard U.K. rate. Basic EPS increased by 93% as a result of the increase in profit after tax. As Nathan said earlier, the directors are recommending a final dividend of 5.5p per share, resulting in a total dividend for the year being 8.2p per share. Moving now to our net cash position and capital structure. Our net cash position increased to GBP 51.3 million at the end of the period as a result of slightly decreased activity in share buyback due to the acquisition of Autorama. Cash generated from operations of GBP 328.1 million was used to pay GBP 2.8 million of CapEx and lease payments of GBP 3.2 million. In cash terms, we paid GBP 1.5 million of interest and GBP 56.2 million of corporation tax. Dividends of GBP 7.8 million were received from our joint venture, Dealer Auction. Of the remaining free cash flow, GBP 73.6 million was paid in dividends, being last year's final dividend and this year's interim. And GBP 164.3 million, inclusive of fees, was used buy back shares. In total, we've returned GBP 237.1 million to shareholders in the year. With effect from 24th of September 2021, the company reduced the total commitment of its syndicated revolving credit facility by GBP 150 million from GBP 400 million to GBP 250 million. The group continues to be highly cash-generative and remains in a net cash position, such as the size of the original GBP 400 million facility was no longer required. The facility will terminate in 2 tranches. GBP 52.2 million will mature in June 2023, and GBP 197.8 million will mature in June 2025. In the coming year, it is expected that the group will draw on its revolving credit facility to fund part of the initial consideration relating to the Autorama acquisition, which will move us into a small net debt position. The group's long-term capital allocation 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. Any surplus cash following these activities will be used to continue our share buyback program and steadily reduce gross indebtedness. It is the Board's long-term intention that over time, the group will return to a net cash position. That concludes the financials. I'll now pass over to Catherine, who will take you through our market and product update.

Thank you, Jamie, and good morning, everyone. Moving on to Slide 14. As the U.K. emerged from the most recent national lockdown in June 2021, demand for both new and used cars has been strong for much of the financial year. This demand has been fueled by a catch-up in transactions that didn't happen in 2020 due to COVID-related lockdown, increased consumer interest in car ownership, and good levels of consumer confidence overall. New car registrations in the year were at around 1.6 million. Although there was year-on-year growth of 4% versus 2021, registrations were 22% below 2020 levels as supply shortages have impacted new car volumes. We expect a similar number of new car transactions in this financial year. These constraints have impacted used cars, in particular for our larger customers, as lower new car sales have meant fewer part exchanges and a lower volume of cars sent to auctions from wholesalers. The first 6 months of used car transactions was strong year-on-year with 31% growth as Q1 lapped the first pandemic lockdown. In the second half of the year, growth was only 1%, which was impacted by supply shortages. The combination of these meant that there was a 15% increase year-on-year in 2022 overall. It has been widely reported that inflation is resulting in a sharp rise in the cost of living for U.K. consumers. This rise in the cost of living has the potential to impact the short-term demand for vehicles. We have included transactions data from financial year 2006 to highlight the relatively low levels of cyclicality particularly in used car demand through various periods of the economic cycle. For many consumers, purchasing a car is considered a priority and not discretionary spend. They may trade down on the price of the vehicle or reduce usage but will commit to the transaction itself. Auto Trader's financial history is harder to analyze as the last U.K. recession coincided with our shift from print to digital. That said, it is our belief that between our market position, the partnership we have with our customers, our business model and the quality and volume of consumers engaging on our platforms all means that we are well placed to weather challenging times. We continue to publish a monthly price index of trade cars advertised on Auto Trader, the result of which are shown in this chart. Our live, real-time data on market pricing has recently been adopted by the ONS as a source of data to power the U.K. consumer prices index. This reflects the scale and accuracy of our data and is also another important step in our strategy for our data to become the currency that powers the industry. The blue line on the chart shows the average price of a vehicle advertised, which you can see has increased significantly over the financial year. By grouping cars by type, age and fuel type, we have isolated the impact of underlying like-for-like price increases, shown as the dark blue bars. As you can see on the chart, for the last 12 months, like-for-like prices have increased significantly, with high levels of demand combined with constrained supply generating upward pressure on prices. This has resulted in a like-for-like price increase of 22% versus the prior year and over 30% growth in March, compared to the same period last year. We do expect pricing growth to slow in the coming months as we increasingly lap a very strong prior year comparator period and as consumer demand continues to soften from previous high levels. This strong pricing trend in financial year 2022 flowed through to very good trading conditions for many of our customers. This resulted in them generating significantly more profit per vehicle while also selling vehicles faster despite overall volumes remaining down for some retailers. Over the year, our audience position has strengthened as overall consumer demand was strong and we continue to exhibit clear market leadership. Starting in the top left, cross-platform visits grew by 9% year-on-year to 63.8 million visits per month. Engagement, which we measure as the total number of minutes spent on our platform, increased by 5% to 588 million minutes per month. We have maintained our position as the U.K.'s largest and most engaged automotive marketplace for new and used cars, with our share of total minutes amongst our main competitor set, as measured by Comscore, remaining strong at over 75%. As our spend on marketing returned to more normal levels, the percentage of our traffic that comes from paid channels increased slightly, but we're still only 5% in the year. The chart on the right shows the total minutes spent across an expanded set of competitive retailers and manufacturers. On average, over the year, Comscore estimated that consumers spend over 8x more minutes on Auto Trader than our nearest competitor, the combination of Gumtree, Motors and eBay, and over 12x that of CarGurus and PistonHeads combined. Our relative position has strengthened against both players over the last 12 months. It is likely with the announcement that Gumtree and Motors have been sold that in the next reporting period, we will split out our largest competitor. In March 2022, we were 13x larger than the combination of Motors and Gumtree and 16x larger than eBay. Now on to our product update. We continue to evolve and improve our marketplace to create the best search experience for buyers. We have grown the volume of electric content that we service and share, in line with our commitment to help consumers make more environmentally friendly vehicle choices. In the year, we also created an electric car hub, which provides advice on ownership, cost comparison, and charging infrastructure. We have also run a monthly electric car giveaway, which has had 2.1 million entries across the year and driven awareness of EVs for sale on Auto Trader. We evolved our advertising package structure and changed the sort order for listings at the beginning of this financial year. Where our packages previously promoted adverts based on the device that a consumer was searching on, we have created a consistent cross-platform experience with adverts appearing in search based on a relevancy algorithm, taking package level into account. As part of this change, we discontinued our basic package, introduced a higher level and rebranded our top 3 levels, Enhanced, Super and Ultra. As Jamie mentioned earlier, we saw good uptake for our high-level packages with 31% of retailer stock on a package higher than standard at the end of the year versus 26% the year before. We have seen customers continue to invest further in our suite of prominent products to drive competitive advantage and to maximize the opportunity while the market has been strong. In April 2021, we successfully executed our annual pricing event, including the launch of Retailer Stores, which offers retailers their own, dedicated, customizable location on Auto Trader. This allows retailers to bring their brand to life, building consumer confidence and differentiation to buyers. Over the past year, we have seen over 58 million visits to these pages. The number of customers paying for our new car product has been robust despite the challenges for retailers in sourcing stock. We ended the year with over 1,800 retailers paying to advertise new cars on our site. For much of the past 2 years, we have developed key enablers and tested the individual components shown here, which make up the key steps in the online car-buying journey. We believe that the physical showroom will continue to play an important role in the car-buying process for many years to come. But there are also several components which can be brought online. This will drive sales, margin growth and efficiencies for our retailer customers, provide a better consumer experience, and create significant long-term growth opportunities for our business. We believe executing on this journey will move Auto Trader's addressable market beyond marketing and advertising into more directly driving profit per car and also other parts of the cost base that currently support the sales, thereby enabling both our retailers and us to capture a greater percentage of gross profit. Talking firstly to some of the key enablers of digital retailing for our retailer partners on Auto Trader. With the launch of Market Extension, retailers who have vehicles in centrally held locations where they offer home delivery or multisite customers who are able to move vehicles to a location closer to car buyer can advertise those cars within local searches on Auto Trader. This digital retailing product is driving incremental sales for retailers, enabling them to sell beyond the physical constraints of their forecourt. The product has been launched and commercialized. Initial uptake has been strong, with over 6% of retailer stock on this product at year-end. We can also facilitate, in a cost-effective way, consumers that want to have their cars delivered through our Auto Trader Moves platform. We continue to evolve this logistics marketplace to support an increasing volume of vehicle moves direct to consumers. Over the year, we facilitated around 122,000 moves, of which around 15% were delivered direct to consumers. Auto Trader Connect was launched in April 2022 as part of our annual pricing event. Auto Trader Connect allows real-time integration with our customer systems and improved data quality, making it a critical foundation for digital retailing. As well as building the enablers for digital retailing on Auto Trader, we have also been building out the components of the end-to-end consumer journey. We have continued to evolve our trial for vehicle reservations during the year with the introduction of Auto Trader Seller Promise offered by a subset of trial customers. Seller Promise is designed to give buyers greater peace of mind when completing more of their buying journey online. The promise includes agreed features offered by a retailer, such as warranties and money-back guarantee, and MOT and service commitment. In the year, we have seen over 400 reservations convert into a transaction, which gives us confidence as we incorporate this into our full deal builder journey. Two main challenges remain. Firstly, it will take time to change retailer behavior and processes. Secondly, we need to do everything we can to ensure real-time stock availability and pricing on Auto Trader, which Auto Trader Connect supports. We have also connected our Guaranteed Part-Exchange and Instant Offer products, improving our offering for consumers who want to conveniently sell their car for cash. These products enable consumers to get an accurate and guaranteed price for their existing vehicle while shopping on Auto Trader, eliminating either the need to haggle over a part exchange or to look for other disposal routes. Consumer engagement with these products has grown over the past year. We have completed over 1.2 million guaranteed valuations and purchased over 10,000 cars through Instant Offer using our partner, Cox Automotive. These products are integrated with our B2B auction platform, Dealer Auction, so that cars acquired through Instant Offer or Guaranteed Part-Exchange can be purchased by retailers, allowing access to stock they would otherwise not be able to source. Finally, in July 2020, we acquired AutoConvert to provide a finance platform to help retailers process finance applications seamlessly between online and forecourt sales channels. We have recently launched a small trial enabling the application and approval of finance proposals on Auto Trader. This product is expected to drive greater transparency for buyers, providing an upfront view of their finance options, including a soft-check step and full application, thereby driving efficiencies on the forecourt. While enabling each retailer to use their choice of lender dramatically increases the complexity of the product and onboarding, we believe it will ultimately result in much greater take-up and engagement from our customers, thereby giving us the best chance of seamlessly bridging the online to off-line journey. There is still a lot work to do to bring these key components together to create an end-to-end deal builder on Auto Trader for consumers and in portal and via APIs for our retailers. At this point, we will look to scale up the trial and then move towards commercialization. Given the complexity of what we are undertaking to build a platform for all retailers and finance providers to transact seamlessly online and on the forecourt, we are pleased with our progress. Our approach will leverage and enhance the strength of our marketplace and ultimately mean we can offer more cars for consumers to buy online, while enabling any retailer to become a multichannel retailer. As mentioned previously, we launched Auto Trader Connect as part of retailer packages in April 2022. Auto Trader Connect gives customers access to our taxonomy, which improves advert quality and specification accuracy, which flows through to valuations and pricing decisions for retailers. It also enables real-time updates between our systems and those of our customers. Customers will have the ability to create and manage adverts from their existing stock management system powered by our advanced vehicle data and shared in real time across their network. This removes the inefficiencies of daily data feeds and dual keying by retailers into multiple sales systems, maximizing margins and ensuring consistency and accuracy for consumers. We currently have integrations with over 40 third-party providers to retailers, which is about 40% of all stock management providers. We see this product as a key foundation and enabler for digital retailing on Auto Trader. Without an accurate or real-time view of stock across retailer sales channels, vehicles cannot be transacted online. I'll now pass you back to Nathan to talk through the outlook for the next financial year.

Thank you, Catherine. Well, the new financial year has started well. In April this year, we successfully executed our annual pricing and packaging event, which included the launch of Auto Trader Connect. We're anticipating another good year of ARPR growth, underpinned by our product lever. We expect growth in the product lever to be greater than 2021 but less than the exceptional levels we achieved in 2022. We expect the price lever to be broadly consistent with the last year and the stock lever to be flat. We anticipate average retailer forecourts to be marginally down year-on-year as we expect market conditions to return to more normal levels. Consumer Services is expected to increase at low to mid-single digits year-on-year, while manufacturers and agencies remain unclear due to the well-documented new car supply chain issues. Combined, these only represent 10% of group revenues. Despite cost pressures, we expect operating profit margins to be consistent year-on-year at around 70%. This outlook doesn't include the acquisition of Autorama, which we will update on completion. The completion date is not yet known as not all regulatory approvals have yet been received. Despite growing economic uncertainty, the Board is confident in its growth expectations for the year. That concludes the presentation, and we'll now move to Q&A, taking questions from the room. And as always, if you can start with your name and your company. I would ask you to keep to one question but you won't. So I'll just try and keep it as brief as you can. Jamie?

Let's start down the front and work our way back. Let's start with Will.

It's Will Packer from BNP Paribas Exane. Three questions, please. Firstly, I suppose there's a context among the wider peer group around the transition to transactional, which has led to some disappointment on earnings driven by cost surprise. So just digging into your guidance a little bit, could you just help us think through what you're baking in for the digital retailing opportunity in 2023? My interpretation, please correct me if I'm wrong, is that you're assuming no revenue but we are -- with the costs embedded in the product rollout already in there. Is that a fair summary? or should we be worried that in September at the CMD, we get some kind of a cost surprise? Secondly, looking at the stock ARPR outlook, is it fair to think of it as relatively conservative, reflecting the economic environment? If we scrape, it's clear that, both among you and your peers, the level of inventory is bouncing because of probably weakening demand. So is that the right way to consider that stock ARPR guidance? And then finally, to help us think about the Capital Markets Day, could you just sort of set out what we should expect to receive? I'm sure we'll get a TAM and sort of product rollout plan. But will we have details on the monetization strategy? Will there be financial targets?

I'll take a shot at the first two and, Nathan, you take the last one. So I think from the guidance and the margin perspective, I think you -- what you said around an assumption is correct. So we're working on building out the end-to-end journey. We've had trials live for reservations, finance and guaranteed part-exchange, which come together in that transaction journey. It's largely software developers, people working on the data. And there are some small associated costs with delivery, some of those products, but they are very small. So I think it's certainly to build and roll out to a trial level. And even up until the point at which you'd find monetization, I think we believe that we can absorb those costs within the guidance that we've given. You'll know much more than me about the [ piece ]. It's probably worth just emphasizing, we're trying to bring more of the transaction online. We're not -- we still think the forecourt will play an important role and the person will ultimately transact there. So it is reserving the car, applying for finance, getting those approvals, understanding the price of the part exchange. I think if you get into logistics and fulfillment, they're high costs and not where we're currently going. Then in terms of the stock ARPR, I mean I think if you look at that slide in the appendix, you'll notice that we did have a very strong first half last year, and we're not on a paid basis, or a light basis, above that prior year level. So you've definitely got a first half headwind. I think you're right. If you see the market slow down a little bit, the inventory levels, you would expect to improve, albeit I think you'd also see possibly lower volume of retailer forecourts. So I think we're trying to balance this tougher first half comp with some uncertainty around the future kind of macro view, and that's why we've landed at flat.

So on the Capital Markets Day, I mean, obviously, we're still, I think, a bit relatively fast at the moment in terms of our software build. What we're currently planning uncovering is what are some of the base assumptions you should make about Auto Trader's business as we look forward. And that's kind of not necessarily related specific with the digital retail and just about our core business, what do we think about stock? What do we think about how the car park evolves? Some of those much more longer-term assumptions and whether we see them as being supportive drags or likewise, because we think that's the right context, because I think we're very comfortable with our core business, and we think others should feel exactly the same. It also does play into digital retailing as well. Then I think we want to hone into how we're approaching of what are the dos and don'ts that we've got, which we have spoken about a lot in Qs and As, but obviously, probably more important than ever. But none of those things have changed, but we want to be very explicit about that. Then we're hoping to show what we've built. So we have got lots of these products in trial, but we're big believers that actions speak rather than words. So we'd like to take people through that and so you can see -- you'll understand about the strategy, if you like, if you see what we've actually built and also some substance behind the words and PowerPoint slides, which we're more interested in. In terms of -- we're not one to put out unvalidated plans, guide, targets. So if we think your guess is as good as ours, what we're going to try and do at this stage, because hopefully, we've got customers using some of the journey, but I don't think we're going to have statistically significant understanding of conversion rates and the like. What we want to set out is the frame -- the TAM, we'll definitely do. And then the framework for how we're thinking about monetizing -- what the metrics will be to get to a vehicle transaction and then how we're thinking about monetizing that transaction. Then what I think we will do moving forward, and this might now be the case, given Jamie, that may answer the question, I think we'll then report on that basis. So as we start to get numbers, you can start to fill in the blanks and get a feeling for what in 5 years' time, because I'm willing to bet there are a lot more consumers who will transact online in 5 years' time. I'm probably more confident about that number than I am whatever will be the end of -- the results of our trials that we're doing right at the minute. So we want to give you basically the same information we've got. And so it will be subject to what we learn between now and then, because we are -- things are changing by the week in a positive way.

It's Adam Berlin from UBS. First question just on the market. If we go back to 2019 when consumer demand was a bit weak, what we saw was that the auction clearance rates were a bit low, dealers were not sure what cars to purchase. As car prices come off their peaks, is there any evidence that's happening right now? Or are dealers still trying to get a hold of any car they possibly can? And how do you think that's going to evolve in the next few months? I know you can't talk about -- second question. I know you can't talk about Autorama guidance specifically, but can you give any comments on the leasing market in terms of, again, given the supply issues with new car, and are leasing companies getting any stock right now, and how challenging is that for that market right now? Or is it improving? And then thirdly, just on your product ARPR guidance, can you just give us the breakdown like you did for FY 2022, what are the main components of product ARPR in FY '23?

In terms of the market today and how it compares to 2019, 2019 is actually the baseline that we've been using a lot in the last few months to try and kind of renormalize what we're seeing today. We're still seeing -- we've definitely seen some softening in consumer demand over the last few months. But overall, performance on Auto Trader, engagement, audience levels is still ahead of the levels that we saw prior the pandemic. That softening you've seen reflected through in our pricing data and that was the year-on-year growth rates remain up about 30%. The actual absolute price of the used car has been at about GBP 18,000 in February. And a combination of that softening in demand playing through into pricing does mean that we were seeing very high conversions in auctions when supply was very scarce, and that has normalized that level toward -- closer to the data points we would have seen back in 2019. In terms of where that trends and how that flows through over the coming months, I think we're expecting continued softening in consumer demand, but from a very high level. We're hopeful it will remain above 2019 levels. Everything we see in our consumer data and consumer behavior, we're still seeing 3 and 4 people telling us they're in markets by the next 6 months. We're seeing very few consumers tell us that they're looking to trade down or adjust the budget that they have. All of the sentiment trackers that we have on the car buying journey remains strong. So we're expecting some softening, but not dramatic corrections, and for that to play through into retailer sourcing and how they're thinking about stock.

Yes. And on the leasing marketplace, so it's best thought of as the half of new cars that aren't bought by consumers. It's obviously a bit less than that. The situation is still tied, they're not getting any cars. But I think it's worth -- you need to split it into 2 sides. The leasing marketplace is made up of think of company cars, BT vans, all those sorts of things. And then personal contract hire. Now you can get this data for yourself if you want to look at the BVRLA website, there's a lot more data around the leasing marketplace. I would just say that some of it is samples and collected from customers. So it's not necessarily independently validated, but it's helpful and directional. What you'll see is even over the past few years, personal contract hire, which is where Autorama has been focused, has continued to grow despite tight supply. And that's because the business channel has been coming off, because companies don't want to administer those schemes and they're not that tax effective for consumers, and actually, PCH turns out to be a very good value for an electric vehicle. But I think it is fair to say as a group, they would be seen to be dealers will get the cars first, if you like, because you want to get retail margin, then you're moving to leasing companies, and below that, you have some other channels like rental and the like. So at the moment, it is still relatively tight, but there are cars coming through. It's not like 0. The good news is, I think, is it almost swings the other way. As more and more cars come in, those channels should disproportionately benefit, because at the moment, it is so tight. It's almost the inverse of that.

Yes. And then the product lever breakdown. So about half of that guidance is again the prominence products that we obviously spoke about fiscal year '22, moving up packages, Market Extension. There's about 1/3 contribution from the Auto Trader Connect product, it was part of the April 2022 event, is a stronger product than what we had for Retailer Stores. And then the balance is just made up of smaller products, so data, a little bit of finance. New car is very likely to be a headwind in '23, for obvious reasons. Slightly oddly perhaps, it was actually a small contributor in '22, but that's more of the quirk around the averages in us giving exit rates. So hopefully, that gives you the broad component part.

It's Ciaran Donnelly from Liberum, 2 for me, please. Catherine talked about key drivers of retailers looking to upgrade their package. Could you characterize how much of the gain is from the desire to get a competitive advantage versus the market backdrop? And if we do see a significant deterioration in the market backdrop, that means for the product lever going forward maybe beyond '23? And two, just in terms of delivering the digital retailing journey, you highlighted 2 of the key remaining key challenges. The one I wanted to touch on was the changing of the retail behavior. I agree, I think more people will transact online, but obviously change on retail behavior is important. How difficult do you think that's going to be? And what's your confidence in delivering that change?

So on the first one, on prominence and what we've seen in the last year or so with that very strong prominence growth. And so from -- I think most of our customers has been looking at the market, looking at the exceptional levels of consumer demand that we saw during 2021. And when we weren't in periods of COVID lockdown restrictions, they were trying to make the absolute best of the good market. So it was a combination of competitors, particularly some of the digital retailers and others buying our Market Extension product and potentially becoming more visible in their local area. And so there was some competitive dynamics. But also, there was importantly just a sense that, well, I'm a retailer, I'm in this business to trade as effectively as I can. And if the market's really strong, then I'm going to put my absolutely best foot forward and try and capture as much of that market as I possibly can. And as the market softened slightly from those very high levels, I think some of the kind of counter competitive dynamics start to play out. It is much more of a case of, well, if the market's there, there are segments in the market that actually are still performing very well, other segments that are softening. We're seeing resellers increasingly looking to be more on the defensive rather than the offensive and say, well, actually, if the market in this region or for this segment of vehicles is contracting slightly, then I need to say on prominence why I need to invest in prominence, if they haven't already been on it, to make sure that I'm capturing my share, and to make sure I'm making that the transactions that are there and capturing them. So it's different psychology, but actually, both markets, I think, can play well to our prominence proposition. Do you want to do the next one?

Yes. I think -- I mean, Catherine did say changing retailers behavior is something which we've been trying to do for 40 years takes a while. The print to online transition took 15 -- best part of 15 to 16 years, and we still had some very unhappy people today that we closed the magazines. That being said, I still think it will be hard. But I think what's slightly different this time is there is more pressure on our retailers for a bunch of different reasons, which I think is pushing them down that route. Inflation is an obvious one. So stuff costs more, you need to find a way to ensure that you limit the impact of that cost on your cost base and your profitability. Now they have very, very low levels of automation and digital retailing can very quickly reduce the amount of time, whether you need to have pay sales commissions, whether you need a business manager to be compliant around finance applications, because we can bring that online. Actually, there are some very pragmatic ways that you can not only increase sales but say, well, you should question that cost, you should question that cost as well. If you overlay on top of that, you've got competition not just from online retailers, they're the ones that people speak a lot, but the very best retailers. So some of it -- well, our best customers are very, very large groups. They are well and truly going down this path, and they know they will get consumers. They will take consumers from other retailers if they can offer an online journey, because there's not a small proportion of consumers, sort of 70%, that when we show them the journey, they say, yes, I want to buy that way. Now if you've got -- used cars aren't a commodity, but there's kind of -- they are a bit of a commodity in new cars perhaps, and you will start to see share impacted. And then if you're a franchise group, you've got OEMs moving towards agency agreements at all different speeds, but what that really means is for what you used to make on new cars, 16% margin, might be half that, might even be less than that, might even be 1/3 of that. So there's all these things that are coming together that are saying we might not be able to resist change this time, whereas previously, you've kind of been able to duck and weave and change a little bit, change during COVID, but then revert back. So I think we'll see quite a split, and it will be particularly at the time we're at now when the market's moving from crazy, everyone can make money, or attributing it to their own kind of skill and business processes to normal. Actually, that will be very, very difficult. And we're already seeing signs of performance splitting on just basic processes. So I think digital retail is another version of that. That being said, it still won't be easy, because even for the willing, their ability to change process, change technology, integrate with APIs, having to think about that, Auto Connect and working with third parties is a good example where actually we don't change what's happening on the retailer side, we change with the third party that they use.

I mean that is a great example where we can make it easy, and Auto Trader Connect is a great example where we've made what used to be, if a retailer's got a car in their forecourt, they're selling it through Auto Trader. They're advertising it on their forecourt. It will be on their website and OEM's website potentially and multiple channels. Before Auto Trader Connect, those cars would often be -- sometimes you need to manually input the detail of those cars, update the price of those cars in different systems, and you'd have the same car advertised on those platforms at different prices, depending on when the stock feed went. Sometimes, they'd have different descriptions. Sometimes, the car advertised would be based on a different underlying taxonomy, so the car itself might appear to be different. By connecting, and you can see from -- we think we're 40% of the way there, or we're already integrated with over 40 providers, how complicated the retailer technology landscape is. And if we can through APIs and integrating with their system to simplify processes for retailers, actually, the complexity that exists today should help us to get traction, and we've seen that early signs are very positive to Auto Trader Connect.

It's Harry from Goldman Sachs. Just 1 for me, just touching on your forecourt guidance. How do you build these forecasts and what the economic assumptions are you making? And is there a risk to this forecast if we do enter a recessionary environment towards the end of this year and next year?

Yes, I can take that. So look, I mean, I think -- I mean I'm quite conscious that possibly, when we gave the guidance in November, the market stayed stronger than we might have thought, stronger for longer and retailer numbers have, as I say, reasonably well through the second half. I think in November, we had some concern that if you see the market slow down and particularly pricing start to soften, that, that puts pressure on margin and that is what could put pressure on the retailer forecourt number. And look, pre-COVID, we've pretty consistently traded GBP 13,300, GBP 13,400, and we're running considerably above that. So I think, clearly, the macro outlook is less favorable. The pricing growth feels like it is flattened off. And so I think the guidance is that those trends do just start to play into seeing a little bit of pressure on that customer number. I think you're right, if there was a significant correction, then the number could potentially come up more, but yes, that's our sort of best guess assumption at the moment for the next 12 months. And probably worth saying that what we're seeing right here today, 2 months into the financial year, is that customer numbers are pretty robust.

I think it's worth probably adding as well that at the risk of stating the obvious, the cars can't disappear, even -- regardless of how that economic conditions are. And in fact, actually more and more cars might appear, because people start trading down and the like. So whilst retailers can reduce and disappear, the cars, if it happens through a liquidation, the cars straight to the finance providers, straight to an auction house, straight to another retailer. So you do have these buffers in our business. Every time you kind of think of the negative, especially in a downside scenario, it is worth just thinking through what does that mean for the stock lever, because the stock lever is done on an average per retailer. So I think there are a few -- and arguably also, is competing to sell cars becomes more important in a tougher market than you might see an impact on prominence. So it's just -- it's not a kind of, well, that would go down and nothing else would change.

Giles Thorne here from Jefferies. I wanted to come back first on the stock lever. Guidance is very clear. The commentary around the first half tough comp and a difficult macro backdrop is also very clear. I suppose the missing piece of the jigsaw then is, what level of spin up, if that's the right word, what level of phone calls are you fielding from dealers wanting today to increase their contracted number of slots? Are you getting those phone calls today? Second thing -- I think I'm back. Second thing is on the product level, it feels like the implication or the characterization is that pricing sensitivity of dealers in a softening market is trumping any new product launches that you may have. While simultaneously, Catherine, your commentary is that during a softening market, there might be the demand for prominence products or other products to increase competitive edge. So I wanted to push you, is there upside risk to the product guidance -- product-level guidance? And then finally, on Auto Convert, without going into trial and financing a big foundational stern of online car buying. Could you remind us, please, what inertia, if any, you could face from retailers who are staring down the barrel of cannibalization of a very high-margin revenue stream for them, if at all?

Okay. I want to take the first. Catherine, take the second, and Nathan, third. So on the stock lever, so I think it's probably worth just reemphasizing a little bit around the kind of slot subscription model that we have. But -- and you could see versus livestock, there's less variations of dealers are selling some cars, you sometimes see a few underutilized slots, and they saw some and they're back. So very unusual, I think, for us to suddenly get a large increase. Actually either way, it's sort of a much more gradual process. So I would say, you can see through the second half in that slide in the appendix, we are gradually seeing those upgrades in terms of those contracted levels. But I would say it's only very gradual. And we're certainly not back to where we were this time last year in terms of the amount of paid stock. So it's pretty marginal.

In terms of prominence, just in terms of context, and you will have seen this from the results from all of our customers and retailers. But we are still seeing in the current market, retailers making very good margins. They've come from making exceptional margins, where we had a period of 12 months where prices and cars became an appreciating asset. So for the nature of they were typically buying them, taking time to prep them, get them advertised, selling them later, the rate of pricing growth we were seeing meant that for most retailers, that we're getting an extra boost to margin because cars became an appreciating asset, which we haven't seen before. So we're entering this period with the help of our retailer base probably in a stronger position than it's been in for a very long time. As cost pressure bites and as potentially our customers become more price sensitive in the coming months. The behaviors that we've seen from them in the past when margins have been more under pressure is we typically see -- we do see rationalization of marketing, but we see consolidation to the channels that typically work. So some of the sponsorship above the line activity that our customers were doing, we would -- like we wouldn't have seen that in a normal market. And we've often seen that whilst marketing budgets are cut, our share of their marketing budget goes up because we can demonstrate very clearly the influence we have over their transactions and how we drive sales volumes for them. So we'll be the most defensive of their marketing spend. In terms of prominence and the risk of prominence, we are -- we've got real momentum in the sales team today. We've had a great year on prominence, and we're hopeful, early signs are good, that we'll be able to keep that momentum into this climate in the next few months. Clearly, the sales pitch is shifting, shifting away from make the best of the market while it's really good, it's shifted over the last few months to be much more about gain share, win the market, focus on the segments that are there where you feel like have the biggest impact and use a combination of our packaged products to make that work for you. It's worth also saying PPC, the product that Jamie mentioned, is a really effective product, shifting tactically cars quickly. And we've already seen some retailers, as phase to sell have started to nudge up again, we've seen some retailers using that product very tactically to help move specific vehicles faster. So again, we see the sort of slightly conflicting trends in how retailers are using prominence. So I think, overall, we feel as confident as we can at this stage that the guidance is good.

And I think on the finance question, we might have an ownership from retailers, but not for the reason that you're saying. And I think this is where we certainly haven't laid out the complexity of what we're doing, but the way that we're tackling retailer finance is using the core integration that we got along with Auto Convert, which is think of them as bidirectional pipes into automotive lenders. What we've built around that is a finance platform that works within our own portal or you can use Auto Convert that allows you to put on Auto Trader, the ability for a consumer to apply for your finance. So the implications of that, we are building for 13,945 different combinations of lenders. So we've got just over 40 integrations in place with lenders today, including OEM captives, including Santander and the like, and we've got to probably build -- we've got to keep building that out. But the proposition to a retailer, aside from the fact that we intend to charge for the product, actually, we're going to give you a system that allows you to bring all your lenders into 1 place and process applications, even if they're not coming from Auto Trader. In the forecourt, you can do it digitally as well. So I think it's a pretty good proposition depending on the price we charge to a retailer, because believe it or not, they don't have that today. Most of them will be, well, I'll do a Santander while I'm here, I'll log into the OEM's captive here, we're literally bringing that all together and enabling it to be done online. So it's very much not cannibalizing. It just makes it really hard for us. And that's one of the things that has taken longer. That's -- the comment on inertia, that was you still may have some levels around that because it's one of the most closely guarded. Anyone who's bought a car more recently and gone in to speak of the special F&I person or the business manager, it's one of those closely guarded, very embedded processes within dealerships. And the bigger the dealer gets, the more complex it is to change those business processes. But we're not getting great levels of pushback. I think it's one of the more interesting things that we're doing, but it's also right at the heart of certainly big dealer groups. And with all that agency and digital retailing and profitability that I spoke about, this is critical for anyone selling cars under 5 years as they might be the difference between profit and loss.

Understood. And forgive me, a quick follow-up. Jamie, any comment on level of current underutilized contracted slots?

It's pretty much back to historical norms. It's something more through the first half of the year when you saw a very tough drop off in stock.

It's Saim Saeed from Berenberg. Just one on what we can expect in terms of wage inflation over the coming year. And I guess a second one in terms of pricing. You mentioned about consumer demand softening a couple of times now. So in terms of the price points of cars, where are you seeing this demand softening the most? And could you maybe just give us an indication in terms of dealers. Would you say your smaller dealers are skewed towards slightly lower price points, slightly higher ones? Any indication of that would also be quite helpful.

Yes, I can take the first one, Catherine second. So I think there is -- we're not immune for -- every company is seeing some level of wage inflation. I think more of our challenge is probably around high demand as well, sort of developers, data scientists. As much as everyone across the organization, these are high demand roles, and those salaries are appreciating as well as the kind of inflationary pressure. I don't think we're immune to any of those. But I think we believe, certainly for this next 12-month period that we're guiding for, that we can manage that process through the guidance that we've given.

In terms of the price position of cars, I think how we best describe it is that we've seen stabilization since February. So we saw rapid growth in average price of the used car of around GBP 13,000-odd , which is it's been gradually incrementing up to about GBP 18,000 in a relatively short period of time. Since around February time, it's been somewhere between GBP 17,500 and GBP 18,000. The biggest change has actually been the relative mix of vehicles that we see making up at used car price points, because we're now in our third year of relatively low new car transaction volumes at the kind of 1.6 million level, whereas historically, we would always have been north of 2 million. We're seeing fewer younger cars making up that mix, which is what you see in the negative mix factor on the pricing chart. It's just purely a factor of the volume of cars we're seeing in each of the age cohorts. We haven't seen huge variations in fuel type because of supply and demand for different fuel types tends to normalize. So the demand clearly has dropped quite significantly, but actually supplies dropped because OEMs have, naturally for the semiconductor and the supply that has been there, have been focusing on EV. So we haven't seen a significant segment shift. It's mostly the variation we've seen has been in age profile of cars. In terms of what that meant for our retailers and different size of customers, I think the biggest change we've seen there is our bigger franchise customers typically shifting more into stocking slightly older vehicles. So part exchange cars that are coming in that might have been 4 or 5 years old that they historically would have put through auction or B2B channels. They've -- slightly opportunistically without the new cars there and with supply more challenged, they've been looking to retail those cars more directly themselves and build out their used car business.

Yes, I think it's worth coming on the retailers that you mentioned. I think the stereotype is that these are the more vulnerable businesses that are small corner shops and the big supermarkets are moving in. But actually, it is not uncommon for us to look at our smaller customers and independent customers as a group and see them to be outperforming other segments of the market. And as you think about the environment we're coming into, don't need to be sophisticated, they need to be doing all the basics right, as Catherine spoke about. But if they do that, they tend to have older cars, those older cars tend to be cheaper, which throughout the whole of the COVID pandemic and likely into whatever we're going into, cheaper cars are going to remain in pretty strong demand, and there's a little bit more supply there, because unlike the under 5-year-old cars, if you kind of rewind back, some of these older vehicles will be coming back to market, so the supply dynamics are okay. So I don't think we're here worried about fragmentation, and anyone that is really worried about consolidation does continually get proved wrong as these kind of small entrepreneurial businesses with very low cost bases kind of adapt and find cars that people want and provide a decent service around it.

It's Silvia Cuneo from Deutsche Bank. I have a question on user engagement. If there is anything more that you can share beyond the cost platform, pluses and minus, against your competitors given the evolution of different models in online commerce, just to get a sense of how strong your role remains per unit basis. And just to get some of the assurance about marketing as percentage of revenue can remain at these levels? And maybe just secondly on the performance during the financial crisis. Obviously, you mentioned it was early days in your digital transition back then, but is there any KPI you can point to perhaps stock levels, how that performed during that time, that can help us think about a potential recession there. And yes, I still stop to 2.

So in terms of marketing, I think it's worth starting from how we think about what we're trying to do with marketing. So we're in the very fortunate position of brands that 95% of our traffic is -- comes from unpaid channels. The majority of that comes directly to us through our app. So apps are about 45% of our visits. So in terms of kind of Google exposure or marketing exposure, that traffic is there and very strong and performed very well for us. The next biggest kind of category of audience and visits to us come through organic channels, so from organic social, our e-mail activity from our user base and also from our SEO positions. So actually, most of us -- we see our job as a marketing team is to continue to build our kind of owned media assets, which is why you see and hopefully continue to see really strong app performance. We've now got 16 million app download. It's why you see the growth in our social and YouTube channels are now over 800,000 social followers, 700,000 YouTube subscribers. Building the brand in those owned assets and how we use our apps, websites is always going to be like the most impactful and the best marketing that we can do. So in terms of the budget and how we then spend the money on, I guess, on performance and that brand activity, we're comfortable that we can maintain that marketing spend as a consistent percentage of revenue. And we're confident because we start from that very strong position, but also, we're confident that despite the significant media inflation we're seeing and others have seen over the last 12 months, but we can continue to drive efficiencies in how we're spending that money. The more we do, the more we learn, particularly when we're moving more towards kind of more performance measures, historically, we've been kind of aggregated, anonymized audience on Auto Trader. And increasingly, as we're getting consumers to do more on our platform, we're learning more about how to then remarket to them, how to engage them, how to keep them on our platforms. So we're confident that we can invest in those core assets and continue to drive growth with the marketing budget that we've got outlined.

And the last recession, so sort of '08, '09, so there were some third-party research that was done. So in 2009, total market volume of retailer forecourt dropped 8% in '09 and 3% in 2010. Obviously, the nature of the crisis around credit meant that there are a number of businesses that just had credit withdrawn and so you couldn't finance the inventory on the forecourts, that may have driven some of that dramatic decline, particularly in '09. I think, in terms of Auto Trader, and we have put some data in previous presentations, we did see some impact in terms of inventory. So we showed the kind of livestock on site. As you held up okay through '08, '09, it did drop in 2010. So I think it was down about 10%. And again, that's flowing through from those retailer forecourts, and then recovered in 2011 and beyond. From a financial perspective, it's very difficult to dissect because we were going through the kind of real core of print to digital transition. So actually, revenues held up well then, as did profits. I think one other thing to note is that back in that time period, we probably didn't have a stronger competitive position as we have now. And there have been periods more recently where maybe the market has been a little bit tougher. And I think people know that there is audience and eyeballs on Auto Trader, and that's where you want to compete in a tough market.

Andrew Ross from Barclays. I've just got 2, if that's okay. First one is on the pricing lever in ARPR. So until FY '22, it used to grow about 3%, and this last year was closer to 4%. And you're kind of saying the same for the year upcoming. Are we now kind of thinking that 3.5% to 4% is the new normal in terms of price? And then the second question is on manufacturing and agency. I'm just kind of curious what the OEMs are saying to you and how those conversations are going? And are we thinking that, that spend starts to come back whenever new cars supply gets better, whatever that may be? Or could there be something structural going on here and that spend is never coming back? Just kind of curious how you're thinking about that.

Shall I take the first, and Catherine, you can take the second one. So I think -- I mean that is the guidance that we did the GBP 74 just under 4%, we're guiding to similar absolute level in fiscal year '23. Probably worth remembering that, that guidance was executed on the 1st of April this year, and actually we communicated it in January. So we weren't running the kind of -- the inflationary rates weren't as high as they are now at that point. Obviously, you're always trying to balance many things with it. We tried to keep a reasonably open mind and collect the information as we build up towards the end of calendar year '22, we'll start thinking about what the right quantum is. I think where we sit right here today, as you said, does that feel like the new kind of normal, that 3% to 4%? I'd say, yes. But there's clearly a lot that can happen between now and the end of the year, and we keep reviewing it.

In terms of manufacturing and agency, I think, certainly, with the current context and the supply, I guess the new round of supply challenges driven by lockdowns in Shanghai, another big import and manufacturing market, and the impact on why I'm missing another component part with the Russian-Ukraine conflict, we're not hearing anything more positive about supply from OEMs in this. Certainly not in this calendar year. In terms of how we make money from manufacturers more broadly, we've got the advertising products that fit within our manufacturing agency line. And if you remember a couple of years ago, we took the decision to remove standard format to consolidate those products back to native advertising positions. I think hopeful when the market returns to see some growth in those advertising products. I think more strategically, the work we're doing with the manufacturers is much more around how we can sell our commercial data products to them, how they can share their data with us, but also that we have the retailer new car stock products, which has also been impacted by the supply shortages. And through that product and through manufacturers increasingly looking to sell directly cars to consumers themselves, we think there's interesting opportunities there and how we evolve that product in line with some of our digital retailing ambitions as well to become a bigger and more important partner to manufactures in the future.

And the only thing I'd add to that, a very small addition, but consistent with everything Catherine said, and hence, Autorama, which can offer one of the things that's been difficult with manufacturers historically is when they're not on the hook for selling the car, how do we convince them to work with Auto Trader, whereas anyone that is on the hook for selling a car -- well, not anyone, but the vast majority of people that are taking a car on the balance sheet and need to sell them do work with Auto Trader, but that's changing because of agency. Everything that Catherine said, we're also now got a channel where we can say, if you need help selling cars online, we've got a very direct solution. The OEMs are working with today spending considerable amounts of money, even though it's a small number of cars.

Jessica Pok from Peel Hunt. I've just got 1 final question, please. For Auto Trader Connect, I think you mentioned that you're integrated to about 40% of third-party software providers. What percentage of stock does that actually cover? And is the potential for that percentage to be higher? And are there challenges to achieving a higher percentage?

Okay. In terms of -- we've got about 45 providers that we've connected with. It's worth saying, for the segment of customers that Auto Trader Connect product is most applicable to is all of our customers that don't use our retailer portal product. So it's typically bigger customers that are working with multiple technology providers. So for our smaller customers, whether you see the portal to manage and upload stock, the product is not as relevant to them. So firstly, Auto Trader Connect, all of it is not directly relevant for all of our customers. For the customers, it is relevant for typically franchises and the bigger independents. Those 45 providers do get this slightly more than 40% of stock coverage, but we've got over 100 third parties that have agreed in principle to integrate with us. We think that's pretty much all of the markets that we need and we are progressively working through integrating with all of those parties. The efforts and the commitment is not really on our side, it's all about how quickly those third parties can move. It's a very relatively simple and can be a relatively simple and fast process from our perspective.

Pete from Morgan Stanley. On 2 products, Guaranteed Part Exchange and then the finance application journey. Can you give an update on the adoption of these products? And maybe like what are the pain points or hurdles that you kind of still need to crack or get right in order for adoption to grow?

I can take that. I think the -- so how we were going about it 12 months ago was building each of these in isolation. So it's building blocks, if you like. And then that way, we could get our retailers to kind of pick a mix, if you like, what works for them. When we went live, GPX has completed a product. It works well. It trialed really, really well. When we came to kind of commercialize it and move from the free trial, you will have seen this in the results, actually, the numbers were less than what we would have liked. And what we realized was there was nothing wrong with the product, because all conversions kind of all looked good. I mean I was a product person by background. I thought this one is an absolute cheering. Retailers -- didn't necessarily make sense to retailers just having 1 leg of the stool of digital retailing, if you like. So we pretty quickly pivoted, stopped focusing on individual products and then focused on, well, let's just -- let's put the bet on a full end-to-end journey, and that's the conversation we'll have with the retailer, and Guaranteed Part Exchange has to be part of that. Like it just doesn't work without it. So it's there and ready to go and build into the end-to-end journey. We'll have that end-to-end journey from a dealer and consumer perspective live, well, certainly this year, and I'd like to think in the first half of this year as well. Finance applications, it's the same story, but it's slightly different, because it is one that I think does have stand-alone value to the retailer, for all the reasons that I outlined to Giles. It is complex, too -- well, it's not very complex, but some things that might seem simple to financial institutions and us aren't always easy, like finding your FCA number and getting the directors to set up a Stripe integration and sign a bank account mandate. So it's tricky to get it in. We've probably got, I don't know, the number is about 8 to 10 retailers that are using that. So there are online applications happening today on Auto Trader with that smaller number of retailers that's really for us just to test the pipes and test the integration with the lenders, test the attribution and the like. Then it will also become part of that end-to-end journey. But finance generally is an area that I think could be valuable in and of itself to a lot of retailers, because it's an important part of the business. It's not well automated.

That's great. That's all we have time for this morning. So thank you very much everyone for joining.

Thank you.