CAR Group Limited (CAR) Earnings Call Transcript & Summary

Thanks, Harmony. Good morning, everyone, and welcome to the call this morning. Also on the call this morning, you've got Will Elliott, our CFO; Ajay Bhatia, our Managing Director of carsales Australia; Paul Barlow is on the call, too. He's our Managing Director in carsales International; Mark Cripsey, our Chief Product & Data Officer. And also joining us from Seoul in Korea, we have the CEO of Encar, SB Kim. As usual, I'll try and move through the slide deck as quickly as I possibly can, leaving as much time for questions as possible. And I'll just call out the slide numbers as we're sort of stepping through. So maybe if we turn to Slide 5, and the highlights. I guess we're really happy with the year. We've had with the team managing significant disruption and volatility all caused by COVID-19 as well as staying absolutely focused on driving our strategy with great outcomes in product development as well as the trader Interactive acquisition, which gives us a really strong position in another large and attractive international market. We said this in Feb, but once again, we've seen the resilience we have trading through economic cycles and the important role that diversification is playing in driving our growth. Just looking at some of the highlights on the slide, as you can see, our adjusted revenue, EBITDA and NPAT, have all come in at the top of our market guidance in mid-May, with adjusted revenue up 4%, adjusted EBITDA up 10%, and adjusted NPAT up 11%. Earnings growth was good across our international and our domestic businesses despite the impacts of COVID restrictions. EBITDA margins expanding at 58% was good, and we continued investing in areas of growth throughout the year as well. In fact, just in terms of growth in adjusted NPAT, this was actually the fastest rate of growth the business has seen since FY '14 and reflects the capability we have in challenging market conditions. Cash flow generation, as you'll see, has also been excellent and support to $0.225 dividend per share we're paying, which represents an 80% payout of NPAT. Now on to Slide 6. As we've all observed, the automotive markets continue to trade really strongly with used car prices rising significantly over the year. This has largely been driven by moving of people back into car ownership and new car supply shortages. And the trends have all played out well for us over the past 12 months, and the metrics on the slide reflect the ongoing development of our market-leading position and the strength in demand conditions around the world. Some clear examples of that being the 35% increase in global lead volumes, the 17% growth in global traffic and the 28% reduction in it takes to sell a car here in Australia at the moment. On to Slide 8, and just looking at our group financial performance, and it is really pleasing to see the healthy growth in adjusted revenue and earnings that we've achieved over the past 12 months. As you said, we go through the deck, the business clearly focused on operational performance, but we're also benefiting from the evolution and the execution of our business strategy, which is continuing to deliver good excellent long-term shareholder value creation. On to Slide 9. And again, we're really pleased to see the steady growth and significant contribution to the group our offshore businesses are making for us, now accounting for 24% of our look-through revenue and 19% of our look-through EBITDA. And with the growth rates of 18% and 20% across revenue and EBITDA for the year was an excellent outcome in a COVID environment. We have got a lot to look forward to when it comes to our international investments, and they're an important part of our business growth strategy. As you know, with the acquisition of the 49% of Trader Interactive about to complete, this economic view in earnings and revenue will be even more important to us as we step forward as we won't be consolidating Trader Interactive from an accounting perspective. If Trader Interactive was part of the group throughout the year, we'd probably be looking at revenue of around 35% contributing from international. On to Slide 10. Overall, this slide reflects the diversity and the resilience of the business as we've cycled highly variable increases and decreases in performance in different business segments since March last year. Starting with our revenue segments. Overall, we're pleased with the growth we achieved, up 4% or 10% in the second half. We'll go into more detail on each segment later in the slide deck. But just a few things just to call out here. So Dealer revenue overall was solid for the year, noting the H2 comps were challenging given the COVID's snapback that we saw towards the back end of H2 FY '20. Core private, which we think of as private seller advertising and Instant Offer was exceptionally strong to end up with full year growth of 26%. Media down 5% on PCP. But like private sellers showed really strong growth in H2, and it was up 13% for the half, with improving media marketing conditions and, obviously, lower prior period comps as well. Our larger international operations all provided strong revenue growth, Asia driven by South Korea, performed consistently throughout the year, while Latin America returned to good double-digit growth in half 2, up 12% on a constant currency basis, all of which was really pleasing. A 10% adjusted EBITDA growth to $254 million was a good overall outcome and at the top of our guidance and the 9% growth in online advertising our EBITDA reflects the resilience of our revenue performance throughout the year and the strong cost disciplines that we have in the business, along with the operating leverage that we have. Our international businesses in Asia and Latin America have both made excellent contribution to earnings growth as well. On to Slide 11. And as we saw last year, we have continued to see very good overall EBITDA margin performance, with nearly all parts of the business showing good EBITDA margin expansion. The nearly 1% growth in domestic margins to 66% reflects our ability to maintain that strong cost discipline that we have and to exercise the operating leverage and by good growth from some of our high-margin products such as private seller as we just mentioned. In other domestic investments, RedBook Inspect and Tyresales, overall impact was also positive, up 2.1%, which was again, through good cost management and continued focus on profitable performances in Tyresales. In Asia, our margins were lower, close to 1% as we invested in our Dealer Direct product in South Korea, which is our C2B business, and we talked about that at the half year call in February. And we've obviously continued to roll out new branches throughout Korea as well. And without the one-off marketing spend for Dealer Direct margins would have increased by 1%. In Latin America, the focus was on reducing costs, while the countries were locked down, particularly over the last 6 months, which has been -- had another positive impact on overall margin, too, as well. Onto Slide 12, and just looking at adjusted NPAT and major movements below EBITDA. D&A increased by 13% on PCP, which reflects the ongoing investments that we're making in further developing our global platform and leveraging value across all the markets where applicable and supporting our growth, generating initiatives, some of which we'll talk about a little bit later on. Net finance costs down slightly for the full year and down 16% in half 2, and that really reflected the reduction in interest rates and some debt reduction achieved in the half. Profit from associates was down 7%, and that really reflected the unfavorable exchange rate impact of the Brazilian real at Webmotors, but we saw very strong local currency growth in Brazil. And finally, as mentioned, that the Board has declared a $0.225 dividend reflects an 82% payout for the year and incorporates additional shares on issue for the recent entitlement offer that we completed a couple of months ago. On to Slide 13. So look, the data on this slide excludes Trader -- the acquisition of Trader Interactive and the impact of that and the capital raise, too, which we will complete over the next several weeks. But starting at the top left of the slide, and we know we have a highly cash-generative business, but it's great to see that the cash conversion continue to step up again this year to 105% of reported EBITDA. The team has done an excellent job over the last 12 months in managing cash flow and working capital, and that's really reflected in that chart there. The 11% increase in CapEx reflects the continued investment in tech and our ability to support our markets, both domestic and international and product development. Our leverage has continued improving, dropping to 1.4x debt-to-EBITDA. And at these levels, that's the lowest that it's been since FY '17. In relation to Trader Interactive and in conjunction with our new partners there, we've renegotiated a new debt facility and anticipate our pro forma net debt to adjusted EBITDA leverage to be around 2.1x. That's post completion of the transaction, which is, as I said, in several weeks. On to Slide 15 and just looking at our domestic revenue. And just a reminder, the difference between adjusted and reported revenue in these charts reflects the rebates provided to dealers in half 1 by the $11 million customer support package that we had in play. So with Dealer and Media revenue like most of our domestic business living through various lockdowns, it's been a year of 2 halves. Dealer revenue growth of 6% was solid in what's continued to be a good car market, with demand for new and used cars remaining robust throughout the second half, but cycling exceptionally strong lead volumes, particularly in June last year. The revenue growth of 6% came from good growth in traffic to car sales and our nonautomotive sites, which flowed through to new and used car and nonautomotive lead volumes and represented 3% of the 6% growth that we saw. We did do a price rise in Feb as you all remember, and that flowed through into the second half, which represented around 3% of the 6% we achieved, too. And while depart was in line with last year, which reflected the decent result given the buoyancy of the consumer demand and the reduced time to sell that we've been seeing over the second half in particular. Looking at the right-hand part of the slide and Media performance, and it was also a year 2 half for Media, where half 1, we saw weaker new car sales conditions and reductions in OEM spend while, in the second half, revenue was up 13% on PCP, with growth in new car sales, improving media advertising conditions and pushing harder in nonautomotive finance and insurance, all making really positive contributions. Slide 16. Private has had an excellent finish to the year. H2 has been particularly strong, and the market shifted significantly as sellers were attracted by high used car prices and Instant Offer continue to perform well, which is all supported the confidence we had in pushing through a price rise recently. The 26% Core Private revenue growth ex tyresales and RedBook Inspect was the strongest growth that we've seen here in many years. With tyresales, that we've also continued focusing on profitability, as I mentioned earlier, while RedBook Inspect was impacted by COVID lockdowns, particularly in Victoria in half 1, but we did see things improving in half 2 with flat revenue growth on PCP for the year for RBI. Just looking at Data on the right-hand side, Data, Research & Services revenue, And that was similar to last year, both in half 1 and half 2. We see selling low-margin warranty product. So that was flowing through the comps. So underlying growth there was closer to 2%. We also continue to see good demand for our proprietary data and research products, particularly RedBook. Slide 17, just the market observations in terms of overall and a few things just to call out. So inventory still remains tight, but published inventory has been growing, and it's up around 16% or so since the start of the year, which is driven by higher sales. Sale prices attracting private sellers into the market, improving new car sales volumes, supporting trade-ins and stabilizing time for sale, which is still at very low levels, but not continuing to decline further at the moment. As mentioned, we're seeing new car sales volumes improve, which is the free tax data suggests was up 28% in half 2. We've also seen strong demand from consumers with our new car listing products. The other upside in this has been the impact on media advertising, which, as I've just mentioned, has also been positive in half 2 as well. Tighter Inventory and good consumer demand, and this is flowing through to our Dealer customers and reflected in the average gross margins that they've managed to enjoy over the last period of time. Slide 18. And over the past 12 months, we've once again continued to build our audience and engagement, and that's really reflected well here in what you see on this slide with our market leadership in Australia. Sessions and unique audience is a reflection of the size of our audience coming to car sales, and that growing 21% and 15%, respectively, on PCP was great. The output of this growth, though, in traffic is a huge gap ultimately between ourselves and our -- and others in terms of sessions and page views and ultimately leads to more inquiries customers buying and selling more cars in a shorter space of time than anyone else can achieve. On to Slide 19 and turning to just the broader domestic strategy, and how we've gone against our focus areas? So probably the first thing to acknowledge is that we've achieved a lot in the last year, particularly given the need to work remotely, and I don't think we've really missed a beat as a result of that. I won't talk through all the ticks, but there are a few things we aren't finished with. So our home delivery is going really well for us in South Korea as a platform to build our digital retailing capability. However, here in Australia, we want to work harder in providing dealers with an ability to deliver an online car buying experience for consumers in Australia. And this is an ongoing area of focus for us, but we'll talk a little bit later on that in the slide deck. Private seller and dynamic pricing, we're only turning that on now and we're happy with how it's going, but we're really just scratching the surface on the potential it has, and there's a slide on that coming up as well. I also don't think we'd probably achieved the feature experience that we're looking for yet with logged on members, and we'll be working on that over the course of the next coming financial year, too. On to Slide 21, and thought we'd give you a bit of an update on Trader, which should be completed in a matter of weeks. But in the meantime, I wanted to discuss how things are going. But before I do that, I just wanted to remind you all of our investment thesis around Trader Interactive. So as you might recall, Trader operates in a really attractive market in the United States, which some 16x larger than the Australian nonautomotive advertising market. It's a high-quality business with a strong market position and strong future growth potential. It exposes us as a company to favorable structural trends in the U.S. nonautomotive market, which is less mature in digital advertising than the automotive market is. We do, as a company, have a proven track record of being able to leverage our leading technology and product capability into international markets, which we expect to do Trader. And it increases the international scale and diversification of the car sales business and has a strong strategic fit with us. And finally, in terms of financial outcomes for shareholders over time, we're -- and what we're achieving with our major international businesses, we think it's got some really great upside to it. So if you look at the last 6 months of the calendar year, the company has performed very well with both financially and in terms of operational performance, revenue growth of 12%, EBITDA growth of 25% and an increase in EBITDA margin to 55%. It reflects the favorable market conditions in the United States and the ability of the business to exercise operating leverage achieved through a price rise that they did from the 1st of April this year. Similar to our other markets, in other countries, we've seen good growth in key operating metrics here, such as traffic and leads and customer acquisition. And like everywhere, inventory is still somewhat of a challenge at the moment. On to Slide 22. And look, in summary, it's been a really strong performance across our largest international operations over the last 6 months, and there's a number of great highlights to mention coming up, but we'll start with South Korea, and we're really pleased with the consistently strong revenue growth of the Encar business over the last year, with 21% revenue growth and 12% EBITDA growth. Our key operating metrics continue to grow and, as we flagged in February, we invested AUD 3.7 million in building consumer awareness around our Dealer Direct product. Without this investment, EBITDA would have grown close to 22% on PCP. The growth in the popularity of our premium products like Guaranteed inspection, combined with the opening of 5 new branches during the year, is continuing to play an important role in driving organic revenue growth. Dealer Direct and Home Delivery services also played an important role throughout the year for the business and they achieved some great milestones. Dealer Direct grew over 100% in transaction volume, while Home Delivery now has over 10,000 cars on offer on the Encar site to consumers on behalf of dealers and is an important component of our Korean e-commerce strategy. Home Delivery revenue grew over the last 12 months materially, and we're encouraged by the opportunity for future growth here, too. Just on to Slide 23, looking at Webmotors. And it was really pleasing to watch how the business performed here, continuing to build on the resilient half 1 that we had to finish the year with revenue growth of 16% and EBITDA growth of 25% on PCP. And 1 of the companies, I suppose, worst affected by COVID-19 over the past 18 months, our margins expanded 3% to 44% as the business managed exceptionally well their costs. CRM revenue nearly doubled, and we added about 1,500 new customers. We also added about 2,000 new regional dealers and are at record customer levels of over 16,000 dealers across the country now. Finance revenue continues to become a more material part of the business growth of 21% on PCP. We also saw strong operating metrics, performance around our lead volumes and traffic, which are up 45% and 15% on PCP. Onto Slide 24, and it has been a challenging 12 months for countries across Latin America just dealing with COVID, but the teams in each of the countries have done a really good job in working together and keeping costs well and truly under control. At the same time, we've continued deploying product into each of these markets, and we're really well positioned, particularly in Chile to -- for further improvement, I guess, over the coming 12 months as restrictions starts to ease. Just on Slide 25 and reflecting on our major international markets and starting with South Korea, the vehicle trading environment stood up well over the past 12 months or more, as much as the new car supply issues have been a challenge for many international markets, the supply of locally-built Korean cars into the hands of Korean consumers have been more protected, I guess, from supply chain issues with new car sales volumes returning to near record levels in FY '21. In the United States, market conditions for power sports equipment and RVs have been strong as people have modified domestic tourism and recreational behavior due to COVID. As mentioned earlier, supply in some verticals, particularly power sports, has been challenging, but good Dealer gross margins as they've seen over there. Over the coming 12 months as inventory levels sort of begin to return to normal, I think this is going to really benefit the Trader business because they have a listings base model there. In Brazil, challenging COVID environment. Automotive sales have strongly recovered with new and used car sales, up 32% in the second half, which is also backed up by Webmotors' strong operating metrics in half 2 and hopefully sets us up for a really good start to FY '22 over there. Just on to Slide 26, just backing up some of those market comments with some more specific data points. And we've really -- we've already mentioned this, but the strength of Encar. Again, you can see here, our business continues to back up its strong financial performance with continuous growth in traffic and clear market leader against its nearest competitors. Trader Interactive, as many will recall from our recent road show, has the leading digital marketplaces for buying and selling RVs, motorcycles, ATVs, PWCs and power sports with trucks, the market's contestable. And we have more inventory than our nearest competitor, and we're closing the gap on traffic. When it comes to commercial and ag equipment, where we're building our position in this market, and there's a lot of potential for growth there, too. In Brazil, we look at the vertical competitors we have there, and we've extended our lead over the nearest competitor in traffic over the last financial year with -- which reflects the strength of the business and its ability to innovate. On to Slide 27 and turning to our broader international strategy, and how it's gone for us, the focus areas over there. So like the domestic business, I was really pleased, and we're all really pleased with what we've achieved there in these markets, which is reflected in the performance we've just discussed. Again, I won't talk through the ticks, but there are a couple of areas that we are finished with. And the first of these is Brazil regional push there, which was interrupted by COVID as much as we started the process. We did pull it back because of the operating environment that we were faced with, but we will refocus again on that in FY '22. The other area is the financial partnership with Santander. This could have been a tick, but these agreements have been done, they are in place in Chile and Argentina, but with lockdowns, we weren't seeing material benefit that we're expecting to see come from those agreements yet. On to Slide 29. And as we've done over the last couple of years, this section, I will provide you with some insights on some of the areas we're focused on this year across the domestic and international markets. Overall, our business strategy hasn't changed. And in the interest of time, I'll just keep moving, although we have modified our business purpose this year. On to Slide 30 and looking at the strategic objectives for FY '22. And rather than refer to each bullet point, I'll just talk to the broader areas of change. So look, with Dealer, we've started monetizing our Dealer Finance business in FY '21, and it's getting there. But we'd like to increase penetration further. At the moment, we have around 10,000 listings with the Dealer Finance offer attached to them. We haven't changed the objective around our digital car buying, but we're moving into the first stage of that journey with the launch of a buying experience that we'll discuss further in the presentation. With private seller, we'll continue to push in to an offer as we've seen -- we do see and we'll continue to see considerable upside there for the consumer and the Dealer with that product. With dynamic pricing, we're now getting there. This is a great opportunity for us to get some yield uplift and to better target markets we're chasing. So we'll progressively roll out new features here over the coming year. We also do believe in the long-term opportunity that we have with tyres. But as we've discussed, it needs to be more profitable, and we'll be working on that to over the coming year. Media, we continue to push hard, advancing our product offerings for consumers, and there's some tech changes that we're making here with CDP and self-serve platforms and there's also quite a focus on enriching the experience of logged on members to keep people engaged and offer a more tailored user experience. Just on to Slide 31 and looking at dynamic pricing. And over the last 5 years, we've been able to evolve our pricing strategy for private sellers from the simple fixed price model that we used to have to a value-based or tiered pricing model, which has given us good steady growth in yield over time since FY '16. But dynamic pricing, it will enable us to continue to evolve our capability even further here based on factors such as location, demand for cars or a time of year that a car is being sold, for instance, we see dynamic pricing as an opportunity to continue to build yield, but through better targeting of desired outcomes, we also think there's a good opportunity for us to add volume or a volume benefit there, too. We've been doing some AB testing, as some of you may know, of location-based pricing over the past several weeks and the results here we've been seeing have been encouraging. On to Slide 32. And as mentioned earlier, one of the key strategic priorities for us this year is to launch the first steps in a differentiated digital product experience that's going to support the market moving further into digital retailing over time. In February, we discussed how COVID has been changing consumer purchasing behavior, and like many retail experiences, the digitization of used car buying is also evolving as consumer expectations change. On the Dealer side, we want to make sure that our car sales dealers have an online platform to compete against the emergence of digital used car retailers, such as Carvana, Cazoo, AutoHero and Vroom in the United States and in Europe, and these sorts of digital used car retailers will, over time, eventually come to Australia, and we want to ensure that the industry is prepared for when that happens. And with our capability and with the biggest car buying audience in the country, we think we're very well placed to support our dealers, facilitating the digital buying experience that people are beginning to look for. But just on that, our research tells us that around 37% of consumers are willing to purchase a used car online. But today, only a small percentage of transactions are currently being completed online globally. We also know that, from that research, what the most critical components of an online car buying experience for consumers what they're actually looking for to be confident in terms of completing a transaction online. We -- what we've done with that research and with the strong capability that we have is to develop a new digital used car offering called carsales Select, and we anticipate this offering like in so it will evolve over time, but the strategy is about bringing our digital product capabilities together and developing a seamless online car buying experience and a compelling offering for our dealers to put to their buyers called the SELECT Promise. The opportunity here for the consumer is a better car buying experience. The opportunity for the Dealer here is to continue to become more efficient and -- by having more of the buying journey online, and the opportunity for car sales is to move from an advertising platform to an advertising and transactional platform over time. We do think this opportunity is meaningful for our customers and for ourselves over the long term, and we're starting from a strong position of being the largest, most trusted and engaged automotive marketplace in the country. On to Slide 33. And there are 5 major features of the SELECT Promise, which addressed the larger barriers for a consumer and considering transacting online. These features include a prenegotiated price where we're using our pricing technology to ensure our select cars price is highly competitive to remove the need to negotiate and ensure the consumer is getting a fair deal. With a certified inspection report powered by RedBook Inspector, a CarFacts report and images of imperfections, the Dealer can communicate the quality of the car to the consumer, instantly reserving the car online with the deposit ensures the Dealer has a committed car blower and the buyer has a car locked in for them to complete the purchase. There'll be a 7-day money back guarantee post purchase, which instills additional confidence for the buyer and replicates the test drive experience and will also feature the 3-month statutory warranty. These features will exist in the first phase of the SELECT product. And we've already commenced onboarding dealers to the program and the product is now live. The next phase will be working on incorporating trade-ins as we know how important this is for the Dealer. And in the longer term, we'll see this being more automated using some of our existing capability upfront. We'll facilitate taking deposits, but we'll also be working on integrating dealers with their finance products as well. And longer term, we'll also look to provide a delivery capability, but we know from research that this isn't a big barrier to buying online. On to Slide 34. So aside from our research and what we're observing elsewhere in the world, we also can see what we've achieved with Encar Home Delivery in South Korea since its launch in mid-2019. carsales SELECT replicates many of the features of Encar Home Delivery. And on the Encar site, we now have more than 10,000 cars available for Home Delivery and transaction volumes there have steadily increased since inception, and in particular, since the beginning of the global pandemic growing 2.5x over the last 12 months alone. Slide 35 and just looking at our international FY '22 key focus areas and some of the focus areas you're already familiar with, such as continue to expand guarantee, building Dealer Direct awareness and user experience, expanding Home Delivery, accelerating our regional expansion to Brazil and so on. There's some nuance here. So for Trader Interactive, as they stand today before completion, just to give you a bit of an early steer, but slightly likely some of these might change or they'll evolve once we get the opportunity to start working with the Trader team. Just on to Slide 39. And as a business, sustainability is extremely important to us, and we're always looking to improve across our 6 sustainability pillars being people, customers, community, innovation, governance and environment. Over the past 12 months, we've achieved a great deal in many of these areas and anticipate a number of achievements coming over the 12 -- next 12 months. And finally, on Slide 38. I'm not going to run through the individual trading observations for each segment, but we'll say that in FY '21, our domestic business recovered the declines in leads and private ad volumes following the prolonged lockdowns and temporary retail closures in the first half of the year. And while the current domestic lockdowns and retail closures are having an impact on lead volumes in New South Wales and Victoria, if our experience is consistent with these prior lockdowns, the business is well placed to recover all or most of these declines once retail reopened. So on this basis, we expect at a group level, to deliver solid growth in adjusted revenue, adjusted EBITDA and adjusted NPAT in FY '22. And depending on the duration and frequency of lockdowns in H1, our financial performance is possibly likely to be skewed more heavily to H2 than usual. Excellent. So sorry, I ran 5 minutes over, but Harmony, I'll throw it open for questions, please.

[Operator Instructions] Your first question comes from Kane Hannan from Goldman Sachs.

Just a couple for me, please. Just first started with Trader given that first half trading and the improved second half RedBook. Has there been any change to your expectations to that mid-single-digit accretion? And can you also just give us a sense of the -- so it's a quantum of the adjustments you made to Trader EBITDA in the first half versus the reported number? And then secondly, just on the SELECT product, just talk a bit more about how you're going to monetize that product from a revenue perspective. And then from a margin perspective, who's going to be funding these things like warranties and deliveries? Is that going to be sitting with the Dealer? Or is that something on the carsales side?

Yes. So thanks, Kane. So just while Will's writing the question. In terms of the first one, just around mid-single-digit earnings accretion. I think nothing changes there from our point of view. We want to complete the transaction first, get in there spend some time with the team. We've got a really good perspective on what we think we can do. But at this stage, we're not changing any guidance around that. Do you want to do the second one?

Yes. And just in relation to the adjusted versus reported, Kane, I think -- I mean there's 2 key items which are the difference between adjusted and reported, which is the acquisition cost they've incurred, on the transaction with us. And then I think we've called out the rental initiative. And so they are the 2 main ones. And so there's not a big difference between adjusted and reported, but we will provide a more fulsome reconciliation of that when we start owning the business.

Ajay, do you want to talk about SELECT?

Yes. Thanks, Cam. Kane, in terms of SELECT, firstly, we're thinking of moving to a transaction model here away from a leads model longer term. So that's sort of directional thinking on the business model. In terms of your question on who funds the warranty? In terms of the warranty, it's -- the 7-day warranty, the Dealer just simply takes the car back at this point of time. And from our perspective, we refund the stamp duty. And we've done some modeling based on international comparisons on return rates, et cetera, and what it costs us. But the more important point is, at the next 6 to 12 months, there's a lot of experimentation here on business models, on product, et cetera. But it's really directionally right for us to be thinking about moving to transactions away from leads, but also core funding some of these opportunities with the Dealer.

Your next question comes from Entcho Raykovski from Credit Suisse.

I've got 3. I'll just run through them quickly. So firstly, private, very good performance. It looks like Instant Offer was a key driver of that growth within the Core business. Are you able to -- and as you've called out, but are you able to give us an idea of where Instant Offer monthly volumes are trending right now? I know, in the past, you've spoken about the $3,000 to $5,000 monthly volume target rather? And perhaps if you can give us some indication of where you are relative to that target? So that's the first one. So the second one, cost commentary into FY '22. So for the Core Domestic business, beyond the add-back of wage subsidies, which I think was about $6 million, are there any other specific areas of investment we should be thinking about, for example, into SELECT? If you can give us that sort of rough guide would be useful. And then just finally, the dynamic pricing that you put through in private, you've given us some good color, but what's your thinking around the potential to adopt similar dynamic pricing for dealers as well? That is it for me.

Ajay, do you want to address the private performance and dynamic pricing?

Yes. Yes. Thanks, Cam. In terms of private, firstly, Instant Offer has to be contextualized with the overall private performance. The Instant Offer has been going really well as you correctly pointed out. Lockdowns do impact in Instant Offer, but outside of lockdowns the run rate was heading very close to that $3,000 mark that you were talking about still under, but starting to get closer and closer. In terms of overall private performance, the private performance has been very pleasing coming out of the pricing changes that we've been making. So it's partly yield, partly volume recovery as well. In terms of dynamic pricing and going into Dealer, our first focus is there's a lot of opportunities for dynamic pricing in private, and that is the first opportunity that we're focusing on. In terms of Dealer, there are opportunities for dynamic pricing more in places like depth rather than leads in the first instance. So we are currently not thinking about leads. We're very focused on rolling out dynamic pricing for privates, which, at this point of time, holds the most opportunity.

Will, do you want to answer the question on cost?

Yes. Entcho, so I think nothing to call out outside of not having JobKeeper obviously, next year. So I think we've shown that we've got the ability to flex our cost base depending on the level of activity in the market. So we don't give specific guidance there, but we did just want to call out that, obviously, there will be a difference between FY '21 and FY '22 on the basis that we don't have JobKeeper in '22.

Okay. Got it. And just to confirm, that was $6 million in '21, right?

Correct.

Your next question comes from Eric Choi from Barrenjoey.

Great stuff on all the initiatives. I had 3, just all around the digital retailing opportunity. Just firstly, in terms of the potential uptake, I think there's around 35,000 listings today where dealers offer buy-from-home capability, which is sort of 20% of your inventory. Do you think that's a sort of a reasonable guide of where SELECT penetration could move to sort of short to medium term? And then second question, am I correct in sort of that one of the primary benefits of selected dealers is for consumers to hit that reserve now button. And if consumers do hit that reserve now button, I guess this could lift Dealer volumes and sort of help dealers save on their other selling costs. So just thinking that through I guess you guys capture 6% to 8% of the Dealer GP today, but their selling commissions are more like 25% of the GP. So therefore, do you think that's sort of the main cost pool that potentially fund SELECT in the medium term? Or anything else you can comment on in terms of the potential TAM? And then just the last question, I guess, around Phase 2 around those trading finance and delivery products, do you think you'll take a similar approach toward a Trader U.K., I guess they're developing quite distinct market offerings for each of these? Or do you think you sort of bundle those capabilities into the select product just uptake of that?

I'll get -- thanks, Eric. I'll get Mark to answer those.

Yes. Eric, so in terms of -- sorry, in terms of the first question and the 35,000 of our listings currently flagged that way. We see SELECT is definitely much medium to long-term play. We look at the dealers using our badge right now as being those most ready to this concept. To put it in context, though, we're in a very early days, first few days of talking to dealers and onboarding dealers. So 1 of the key learnings we've got over the next few weeks is to test out that number and test out that assumption. As Ajay mentioned, there's a whole bunch of experimentation here about is a product resonating, but also is it right, the dealers and our dealers and ultimately customers ready. In terms of the second question around what's the primary purpose of this? Why does it make sense for customers and for dealers, we see multiple benefits there. But definitely, we see if this was -- when this gets scale, we see a really significant efficiency play from the dealers. We see an opportunity to reduce costs and to improve. But ultimate cost of doing business for dealers. And we think by adding value in that space, we can make money as well. But again, it's a test, and we need to try this out over the next few months. And then finally to -- with regards to Phase 2 and where do we go from here? I think some of these products could, and will hold their own in isolation. But the real magic of this, I think, is when we stitch it together in that digital retailing journey where we have an integrated flow from securing my car to trading in my old car to locking in finance, which is when they will all start to hum. So whilst these products may work in isolation, we'll work with a green isolation is when they come together that we should get some real scale.

Your next question comes from Roger Samuel from Jefferies.

I've got 2 questions. First one, just on the Dealer business, you mentioned about strong demand for the depth product and the value-add products. I'm just wondering why that's the case given the time to sell is very low? And my second part of the question is, are you going to provide any Dealer support package in the current lockdown in FY '22? Second question is on the Korean business. Just wondering if you can give us some guidance into the potential for the continued marketing investment in Korea and whether you are going to offset it using any price increases in that business.

So Roger, I'll handle the second question that you asked about Dealer support packages. So I guess, as you guys know, one of the benefits of our model is that it's a variable model, right? So as consumer demand goes up, dealers get more inquiry volume. They pay us more. We make more money. It's -- there's complete symmetry there. So in periods of lockdown where retail is shut, obviously, lead volumes come off, as we've mentioned in the outlook statement. So that goes to billing as well. So our model inherently supports the dealers. We -- as you know, in the past sort of 12 to 18 months, we've offered them other services around EAP support and extended credit and so on and so on. But we think our model is providing them with a good degree of comfort at the moment. Just on Dealer depth, maybe, Ajay, do you want to just talk to that one?

Yes. Thanks, Cam. Roger, in terms of Dealer depth, there's a twofold story here. We've been talking for a long time about reoccurring revenue for depth. And the pleasant news is we've made strong strides in continuing to increase that. We've had double-digit increases in -- increasing our reoccurring debt revenue, and that's held us in good stead in these times when suppliers is quite an issue. And you're correct to point out that when supply is an issue, depth could be impacted, but it's the strategy that teams take in terms of reoccurring revenue that has held us in good stead. I must point out, however, there is still a component of depths revenue that is self-service. And that part of the revenue has actually gone down, but it has been offset by the good strategies put in place around increasing recurring revenue.

And just the interest of time, I'll quickly address the Korean question. So we will continue to invest in Dealer Direct SP, and we all recognize a significant opportunity that we have with that particular business in South Korea. But we're not making any calls on any price rises or price changes at the moment.