CAR Group Limited (CAR) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the carsales FY 2022 Conference Call. Just before we start, I'd just like to acknowledge the traditional owners of our country throughout Australia. And here in Melbourne, where we are this morning, it's the Wurundjeri people and we just pay our respects to the elders past and present. On the call with me this morning, you've also got Will Elliott, our CFO; Kane Hocking, who's the Head of Investor Relations; Paul Barlow, who's the MD of Australia; SB Kim has dialed in from Korea, he's the CEO of Encar; and Lori Stacy has dialed in from the United States and she is the CEO of Trader Interactive. So like we normally do, we'll get through the slides and hopefully leave enough time to get through everyone's questions that you might have, and I'll just call out the slide numbers as we go. So we'll start with Slide 5. And look, we pre-released our results on the 27th of June with our announcement around the Trader Interactive acquisition. So as you can see here, we've come in slightly above or on adjusted revenue and earnings guidance, and that's obviously a reflection of the great year that we've had as a business. We've seen a strong H2 growth in revenue and earnings, while also continuing to deliver on our strategy to unlock our long-term growth potential. Momentum in the domestic business has been fantastic and it's accelerated, and we're continuing to execute well against our strategic priorities here. So a couple of clear examples of that being the 15% PCP revenue growth that we've seen in our Media business, and that obviously reflects the investment in product and insights capability and the deliberate diversification of our customer base that we've seen. And then Private is probably another good example of that where we've seen 26% PCP growth, driven in part by growth in yield and dynamic pricing, and Instant Offer as well. International businesses have also had a strong 12 months with the U.S., Korea and Brazil all generating double-digit revenue growth and EBITDA growth on PCP, which is fantastic. So on to Slide 6. Over the past 12 months, we've seen the vehicle trading market really perform quite strongly, whether that be consumers continuing to move into lifestyle assets like RVs and Powersports, or buying their next car. Used car prices have continued to rise significantly throughout the year, particularly, dearly used cars, driven by ongoing new car supply challenges and strong demand against pre-COVID levels. Looking at the slide and the data on the slide, you can see here, I mean, we've got real strength in those market conditions coming through, and that's reflected in things like our market position, as you can see here, but excellent performance for customers reflected in time to sell and lead volumes, both performing strongly against pre-pandemic levels. On to Slide 7. And look, part of our strategy for many years has been about investing in large, high-growth markets, where we can leverage our intellectual property and our technology to create long-term, sustainable value for our carsales shareholders, and we've been highly effective at that with our investments in South Korea and Brazil, especially. With the acquisition of Trader Interactive in the United States, I mean, that strategy continues to play out. And with nearly half the business revenue being generated offshore by these large high-growth businesses, we feel like we're in a very good position moving forward. Also, as you can see here, the diversification through geography, industry mix, and our business models, we're in excellent shape to continue to grow into the future. On to Slide 8, and just adding to the comments on the previous slide, and we've presented this before. But yes, we operate in very large and growing TAMs with emerging opportunities that have been accelerated by COVID. And with this, we see significant room to increase our share in these markets, which will drive our continued long-term growth. On to Slide 9, and just looking at some of our strategy execution in 2022. So the last 12 months have been exceptionally good for us. We've performed well through the challenges of COVID. Some of the key Australian highlights have been the great progress we've made on our digital retailing capability, our volume growth in Instant Offer, yield uplift in dynamic pricing, the repositioning of our Media business, and growth in Dealer Finance. On the international side of things, we've also made great progress with launching our new branches in Korea, the guarantee and growing our dealer customer base in the United States for Trader. So very pleased to announce also that we, as you can see, have become a carbon-neutral business with certification from Climate Active being received this year as well, which is a great achievement. So on to Slide 10. And I'm very pleased to see the execution of our strategy also contributing to great financial performance outcomes in FY '22 across both our Australian and our international businesses with double-digit revenue and EBITDA growth. So what we're looking at here is this is on a pro forma basis, which normalizes the acquisitions of Trader Interactive and TyreConnect on an underlying basis. Move to Slide 11 and on to the outlook. Looking at FY '23 on a pro forma basis here, we expect to deliver good growth in adjusted revenue and adjusted EBITDA. Good growth is higher than solid growth. And on an actual basis, with the inclusion of the 51% of Trader from October, you will see us deliver very strong adjusted revenue, adjusted EBITDA and adjusted NPAT growth in FY '23. You can also see here from the comments that it's a business where we've got good momentum heading into FY '23, which we see in both the domestic and the international observations that we're making. And look, since we announced the Trader acquisition in June, it's probably also important to say that we're continuing to see positive momentum there with the growth in inventory and customer acquisition, and we're really looking forward to that transaction being closed at the end of Q1. Just in terms of margins, we expect to see a margin expansion of group EBITDA margin on both the pro forma and then actual basis in 2023, which is good, and we're in very good shape moving into next year. But I'll hand over to Will now to talk about the financial performance in more detail.

Thanks very much, Cam, and good morning, everyone. Carsales has delivered another fantastic result in FY '22, which is a continuation of our strong track record of financial performance. And the results here on Slide 13 are a testament to the ongoing strength of our Australian and international businesses as well as the long-term investments we have made in our people, products and technology. Our business has proven to be resilient across market cycles and also adaptable to meeting our changing market conditions and competitive dynamics. And as you've heard from Cam today, we are confident in our ability to continue delivering excellent growth for all the opportunities we have in front of us. And on to Slide 14, which shows our look through financial performance. And this provides an economic ownership view of our revenue and EBITDA rather than the accounting concept of consolidation. These metrics are meaningful for us given the size of our minority investments in Trader Interactive and Webmotors in FY '22. And similar to our consolidated results, we continue to deliver excellent look through revenue and EBITDA growth. On to Slide 15, which provides a more detailed view of our financial performance and also demonstrates the great results we have delivered in FY '22. From a presentation perspective, we've included a pro forma view on the right-hand side, which normalizes for the impact of the Trader Interactive acquisition and TyreConnect acquisition, and this best shows the underlying performance of the business. On this basis, we delivered adjusted revenue growth of 11% and adjusted EBITDA growth of 13%, excluding JobKeeper, which is a very impressive result. And moving below EBITDA, the growth in depreciation and amortization of $6.7 million reflects the DNA of building fit outs and internally generated software assets. The investment we are making in our software platform and capability is critical in supporting our future revenue growth. And the group delivered adjusted net profit of $195 million, which was 27% higher year-on-year, reflecting strong underlying performance of the business and the addition of Trader Interactive as an associate. The Board has also declared a final dividend of $0.245 per share, which is up 9% on last year. And this growth is particularly pleasing given we issued almost 25% more shares for the Trader Interactive acquisition. On to Slide 16, the group has delivered an excellent margin performance in FY '22, which highlights the inherent operating leverage in our model, our ability to deliver yield increases, and as always, a strong discipline in managing costs in what's been a more challenging inflationary environment. It is particularly pleasing to see continued margin expansion in our core Australian marketplace business. And as you can see on the right-hand side, this has been a consistent story of growth over the last 6 years, which demonstrates our ability to grow margin in different environments. In Asia, we have a strong EBITDA margin of 51%. There was good growth in underlying margins in Encar with a small overall decline you see here on the bridge due to an uplift in brand marketing investment to support the growth of the Dealer Direct back into the future. And while Trader isn't included in the bridge, as it is not consolidated, there also was very strong margin expansion in that business in FY '22. There's a small drag on margin from carsales investments in the Americas, and that's through incremental investment in Placie, our mobility app, and marginally higher losses in Mexico due to a challenging macro environment. Acquisitions in the chart reflect the mixed impact of including the TyreConnect business. And on to Slide 17 now. We generated strong operating cash flows again in FY '22 with an EBITDA to cash flow conversion ratio of 99%, which highlights the strong working capital profile of our marketplace business model. From a CapEx perspective, the business continues to invest to support ongoing growth with investment focus on a number of the key projects that we've talked about, such as Instant Offer, Dealer Direct, dynamic pricing, our Media product diversification and carsales SELECT. These products are supporting current and future revenue growth and customer experience. An increase in FY '22 in CapEx has also been reflective of less employee churn and higher wage costs in the technology teams versus FY '21. And as pointed out on the slide, we expect the rate of CapEx growth to moderate in FY '23. And from a funding perspective, we are currently refinancing our syndicated debt facility to fund the acquisition of the remaining 51% of trader. The refinance process is going well and our banks are very supportive and we anticipate having net debt of circa $1 billion upon completion of the acquisition, and we are seeking to upsize our facilities to circa $1.4 billion to retain funding flexibility. We're also considering the most appropriate mix of maturity dates, fixed versus floating interest rates and currency hedging as part of this process. We'll provide a more detailed update once the refinance has been completed, which we expect will be towards the end of Q1. And as we said in June, post completion of the TI deal, we expect to have leverage of about 2.7x net debt to EBITDA, and our plan is to delever over the next 2 years to around 2x. Now I'll hand back to Cam to provide some additional detail on our Australian performance.

Thanks, Will. So just on to Slide 19 and talking about Australia and starting with some market observations, those [indiscernible] I want to just call out here. So over the past 12 months, we've continued to build our audience and engagement. Inventory still remains fairly tight, but published inventory is growing. It's up around 10% of that since the start of the year, which is driven by higher sale prices attracting private sellers, or instant offer customers into market, stable new car sales volume supporting tradings, and time to sell, which has risen a little bit more recently, but still well below pre-pandemic levels. As mentioned before, we're seeing new car sales volumes stabilize with data from VFACTS showing sales volumes pretty similar to last year, and we're continuing to see strong demand from consumers with our new carsales listing its products. So also with the inventory remaining pretty tight and good consumer demand continuing, this has clearly flown through to the freight as well, and that's reflected in average gross margins we're continuing to see through the likes of Deloitte. On to Slide 20 and just diving into some of our performance of our base segments. So as already mentioned, our Australian business had a really good 12 months with revenue growth of over 10%. So breaking that down and starting with Dealer and Media. As you can see on the left, with Dealer, revenue growth of 6% for the year and 10% for H2, was a solid growth overall in what's been an eventful and a buoyant year for the automotive industry. Demand for new and used cars has remained robust with underlying metrics such as audience, time to sell, lead to sale conversion remaining strongly supportive of the Dealer network's performance that we've seen. Revenue growth of 6% primarily came from, as you can see there, yield, while lead volume and finance product also made positive contributions. Looking at the right-hand side of the slide there and Media performance, and it was great to see this part of the business finishing the year strongly with revenue growth of 15% and 19% in H2 on PCP. So what's working for us here has been our ability to diversify at a customer level with nonautomated customers and at a product level with native advertising, programmatic and another product like brand terms really paying dividends for us. So you can see that on that chart. On to Slide 21, and just looking at Private. And Private has had an excellent year, growing exceptionally fast with revenue up 26% on PCP. Private no longer includes tires and inspections, which I think we talked about a little while ago, but these are now part of carsales Investments segment, which we'll talk about in a moment. So look, the drivers of the strong performance here are market conditions for private sellers have continued to been excellent and helped them command higher prices and are up around 9% since January in terms of price on the previous year. So time to sell those is still running lower than pre-pandemic levels, which I mentioned before. In addition to Private seller, ad volume strength. We've seen that advertising price changes and the launch of dynamic pricing has led to yield increases by around 19% year-on-year. And alongside Private is Instant Offer, which you can see there, which has performed exceptionally well, growing consumer awareness. With the release of also Climate Active pricing engine there and improving conversions helped us get to around about 3,000 cars a month being purchased, which has been, the most we'd remember, our long-term target that we've had and supporting the great double-digit revenue growth that we've seen overall in Private seller. On the right-hand side, looking at Data and Research, it's up slightly 3%, which we felt was a resilient outcome given market conditions, and some of the H1 revenue growth came from RedBook. Just talking about carsales investments on Slide 22. And as we discussed back in February, these are businesses we consider to be standalone from the rest of the Australian operations that we control. And as you can see there, they include tyresales and TyreConnect, RedBook Inspect and Placie. Biggest contributor to this segment is our tire business, and that saw around 150% revenue growth on PCP, which is primarily driven by the inclusion of TyreConnect. But without that, we saw underlying revenue grow about 8% on PCP, which was a solid outcome. RedBook Inspect, and that business, as you can see we've rebranded the business. It was challenged through lockdowns in half 1, but has bounced back nicely in half 2, particularly around ridesharing volumes, which is pleasing. And then Placie is the longer-term player that we made good progress on building relationships and so on. It's an important part of our rideshare segment that we're looking to continue to invest in over time. Slide 24. Just looking at some market observations in International segment of the business. So a few things to point out here. United States observed solid growth in customer acquisition across all 4 verticals and strong growth in inventory in all verticals, including truck and especially in equipment. Given the commercial model of the company and the initiatives that we will commence flipping on in FY '23, we think we're well positioned here. In South Korea, the vehicle trading environment has continued to stand up well over the past 12 months or more. Unlike other markets, we're seeing inventory levels rising over the past 12 months, which is again supportive of the business model that we have in South Korea. And in Brazil, the strong acquisition of new customers with our regional expansion has also supported the increasing of inventory there. And despite rising interest rates and inflation, we continue to observe a strengthening new car market with sales up about 23% on PCP in half 2. On to Slide 25, and just talking more in more detail about our international portfolio. And overall, we have continued to deliver offshore, which is fantastic. And we've generated 15% revenue growth on PCP and feel that we're really only just getting started offshore skill. And looking at Trader Interactive, they had an excellent year with revenue and earnings up 11% and 16% on PCP, respectively, on a constant currency basis, and EBITDA margins expanding through operating leverage from around 54% to 57%. All verticals grew, but RV and Powersports were the standouts through growth in yield and customer penetration and rising inventory levels. Overall, the business is really well positioned coming into FY '23 with average yield uplifts of around 7% from March-April this year. Inventory levels are continuing to improve and the execution of our synergies we mentioned earlier in June will all support the incremental revenue growth that we're looking to achieve into next year. Just on to Slide 26 and looking at Asia and Encar. And again, we've been able to deliver strong financial performance outcomes here, while investing in the long-term future growth opportunities. So revenue growth of 17% on a constant currency basis was underpinned by strong execution across their 3 growth products. So a guaranteed growth of 30% there was impressive and driven by branch network expansion with the addition of 4 additional new sites and growing customer penetration rates there within those branches that we have. Around 40% of Encar vehicles on site are now inspected. Looking at Dealer Direct, and we remain focused on building product awareness through marketing, quality and user experience improvements and increasing dealer penetration and volume, which were all key contributors to the 76% PCP growth that we saw here. Encar Home grew 65% on PCP, which was pleasing as we continue to refine our consumer and our dealer experience and product offer. And I think we're up to around 19,000 vehicles listed in Encar now, which is fantastic for home delivery. On to Slide 27 and Webmotors. So yes, again, another outstanding year across the business, finishing with revenue growth of 26% and EBITDA growth of 23% on PCP on a constant currency basis. Fee revenue growth was strong here, underpinned by new customer subscriptions across the country and yield growth, the result of increases in lead fees and improvement in chargeable lease and the sale of premium products such as SCRM. Regional expansion recommenced in half 1 as you'll all recall. And with this, we've seen it's been a nice driver of new dealer subscriptions through the South and Southeast regions of the country. In relation to inventory, like we're seeing in Australia and other parts of the world, inventory levels are recovering and getting closer to pre-pandemic levels, too. On to Slide 28, and just looking at Chileautos and Soloautos, and it's been a challenging year for our Chilean and Mexican businesses dealing with COVID, but the teams in both countries have done a great job in working together and keeping costs under control and looking for good growth opportunities as the market conditions improve. Chile is beginning to show some promising signs of recovery and we're seeing consistent double-digit revenue growth here being delivered each month now. So we've also seen probably a particularly strong recovery in private sellers. But we're confident this growth trajectory is going to continue into FY '23. Mexico still remains a challenging market at the moment with new car sales still down around 30% below pre-pandemic levels. Our focus here remains on holding back costs while awaiting market conditions to improve. So just on to Slide 30 and just providing more around strategy. So on Slide 30, we'll just step through some of our strategic priorities on this one. And this slide was in the investor deck, so I'm sure many of you may be familiar with it. But it is important because what it reflects is what we're trying to do, which is taking our traditional sources of growth and building on these while adding material new growth drivers to meet the demands of a changing landscape, which will continue to see and keep the company in a strong position moving forward into the future. So at the same time, we've diversified our sources of growth within large addressable markets with trend tailwinds and all end markets where industries -- where we can leverage some of our IP and our technology, which we believe is best of breed. So probably no need to continue talking about that slide. On to Slide 31, and just looking at SELECT. So with digital retailing, we've made significant progress here over the last 12 months since we launched our product in August last year and seeing good outcomes for the customers, and we're only really scratching the surface of this. But like Instant Offer, it's going to take us some time. We said at the half year that our focus was going to be on delivering increasing volumes of eligible cars, bringing more dealers onto the platform, as well as integrating trade-in and dealer finance products. So as you can see, we've delivered largely on that. We're excited to have sold more than 6,000 cars. Also so far, we've got close to 2,400, 2,500 select cars on the carsales site today, and we're gradually bringing more dealers into the product as you can see on the left-hand side of that chart. And we've evolved the product from Phase I launch through Phase II with the introduction of trade-in. And over the last week or so, we're close to launching a new finance integration module. So look, over the coming months, there's going to be plenty more that will be done here to improve trade-in pricing and integrating finance partners on the platform, but we're making steady progress here, which is really pleasing. On Slide 32, Instant Offer, I mean, this is a product that we've had in market now for 5 years, and it's a product that we've tweaked and pivoted several times to ensure that we're building the right buyer and seller experience. Over the past 12 months, we've built the product, getting the right place for us to start developing consumer awareness, and we've been doing that with above the line advertising, as you can see on the slide. And this has had the effect of bringing more sellers to Instant offer. And we're now selling, as I mentioned before, around 3,000 cars a month through the platform. The other thing to say that we've done here over the last few months has been to look at our pricing engine, so it's better optimized for current market conditions, which that can change quickly and volumes can be sensitive to small price changes, and we call that [indiscernible]. The final thing we've been working on is buyer and seller experience, and the focus has been on consumer NPS scoring to ensure that we're getting the right dealer experience. And we've been bringing more dealers onto the platform, so that as volumes continue to increase, our dealers can service consumers properly and to ensure that also distances consumers are having to travel to dispose their cars are minimized where we can. So the outcome of all these improvements can be seen on the far right-hand side of the slide, and we feel that there's much more private seller volume that can be sold through Instant Offer over time because it's simple, easy, convenient, and a fast way to sell a car, which is what basically people want to see. On to Slide 33. And yes, dynamic pricing is another area that we want to explore for some time, and the last 12 months has been great to finally get into market and the results have been extremely positive. As we've discussed earlier, private grew by 26% on PCP in FY '22, and a significant portion of that growth has come through the introduction of dynamic pricing. And we feel there's significant opportunity for further growth here and also in the United States to use dynamic pricing in time. So over time, we will continue to adjust our dynamic pricing algorithms and ensure that we're delivering on our objectives and matching pricing to things like the value, market conditions, time of year, time to sell, make model, location, all that sort of stuff. On to Slide 34. And yes, Trader Interactive is going to be a key priority for us in FY '23, and we're working together with the Trader team to ensure that we're in a good position to begin unlocking these growth opportunities once we get into October and through transaction completion. But it's probably known as you go through each of these opportunities given that we presented them in the last couple of months, but the thing to say is we're really excited about working more closely with Lori and the team and we see huge potential in the Trader business. On to Slide 35. And these are our most strategic priorities and they're going to continue to be. And ultimately, where we're heading is to an end-to-end digital retail experience over time. Just looking at Guarantee, and we will continue to see more of our inventory being guaranteed cars. We're now up to 40%. And as we continue to open up new branches and increase customer penetration in existing branches, that percentage is going to grow and is going to help maintain the currency that Guarantee has today, which is ensuring trust for buyers and sellers of cars in South Korea. In Dealer Direct, we've seen significant uplift in transaction volume and dealership participation here, and we continue to work on improving product performance and our competitive position against the market leader. One of the ways we will improve performance is through the launch of Dealer Direct Pro, which will see cars inspected prior to being loaded onto the platform. And we think that's going to help us improve conversion and pricing consumers are achieving. Encar Home inventory is continuing to grow, as we mentioned before, and as transaction volumes and the priority over the coming 12 months will be to scale the product further by lifting the numbers of dealers participating in the program and continuing to enhance user experience and education of the product. On to Slide 36, just Webmotors, and look, this is a fantastic business and has made great progress over the last 12 months in its organic growth and in its regional growth. In FY '23, all those priorities are going to continue to be the case. But the company is also going to focus on other digital products that follow similar themes to the rest of the business, as you've seen or observed. So FazTudo is a concierge product for private sellers. Repasse is a new vehicle wholesale product that's going to facilitate trade between dealers through Cockpit, which is a CRM platform they have, and car delivery has been around for some time, but we're going to look to build it out further. Other areas that we'll continue to focus on is on take-rates. And as the slide suggests on the right-hand side, we've made some good progress is here. So look, I mean, that completes the presentation for today. As you can see, we're really happy with how the business is performing and how we're executing and driving strategy. We're also really excited about taking full ownership of Trader Interactive and have a lot of confidence in future growth delivery of the carsales business. So let's open this up for questions.

[Operator Instructions] We have our first question from the line of Entcho Raykovski with Credit Suisse.

So my first question is on the outlook. And I mean, I think this is reasonably clear. But if you can just confirm that the pro forma outlook that you're providing is for TI to be held for the entire FY '23. So obviously, clearly, when you reply, you only have it for about 9 months or so? And just related to that, given that you're providing the guidance on a constant FX basis, if you mark-to-market FX, the spot exchange rates, how much of a tailwind would that provide to pro forma EBITDA in FY '23? I don't know if that's too detailed, if you can provide that sort of color. I'm calculating about 1%, but any clarification would be useful.

Yes. Will, do you want to do it?

Yes, no worries. So you're right, Entcho, in terms of the first question around pro forma. We are assuming 100% ownership of Trader Interactive in both FY '22 and FY '23 to show it on a like-for-like basis. And in terms of currency, your math is right in terms of the exit run rates versus the average FX rate in FY '22. We would generate about a 1% benefit from that. The statement of good is made on a constant currency basis, so assuming the same currency performance as we achieved in FY '22. From a currency perspective, we are getting a decent benefit from the U.S. dollar, but there is a downside in the Korean won in terms of exchange rates.

Got it. And then the second question. I mean, just picking up on your comments on Encar. Are you able to quantify the additional investment that you're making at Encar into FY '23? You're obviously guiding to a lower EBITDA growth than revenue growth. And I guess to what extent will that investment be temporary and expect to drop off in future periods or essentially continue?

SB, do you want to talk to that?

Sure. At this moment, I mean, what we plan to do is we try to maintain and continue to invest in Dealer Direct and we don't expect a significant increase for the Dealer Direct investment. But from other cases, I mean, Guaranteed, I mean, some of the expansion of branches may require some additional investment as well. But overall, we don't expect a significant quarterly investment between the FY '22 to FY '23.

Okay. So just to be clear, so that just means that you're maintaining sort of similar levels of investment? And is that the run rate we should be thinking about beyond '23? Or is it just too early to tell?

Well, for the Dealer Direct, as I said, I mean, we try to maintain and trying to have a similar level of investment. The Guaranteed, I mean, it's a little uncertain, because we try to diversify different formats of the branches. It may require some investment. But I mean, it's a little uncertain at this moment.

Okay. Great. And I just have a third one, SB, it's probably for you as well. The Hyundai entry into the used car dealer market, I mean, that's generated a little bit of publicity, and it looks like it's been delayed into next year. Interested in your thoughts, once they launch, do you expect they'll use Encar as a distribution platform? And if not, how are you preparing for their entry? And is this driving some of this continued investment into the business?

It is really depending on how much their expectation in attracting the customers on their own. I think at the initial stage, I mean, given the Hyundai's typical stance, they're probably more confident that they can attract the customers on their own. But I mean, in a pre-owned vehicle, each vehicle has a different condition, and as you might be aware of, the maximum number of vehicles that they have capped is up to the 5% of the total pre-owned vehicle market here, right? So with the limited variety of the cars, if they realize, I mean, they have a difficulty to attract the customers on their own, they may consider to put their vehicles on our web pages as well in the longer term. But at the initial stage, I rather believe, I mean, they'll be more confident that they do on their own.

We have next question from the line of Eric Choi with Barrenjoey.

First one just for Lori. Probably quibbling here, but in USD terms, were Tier 1 FY '22 revenues a little worse than what you guys were forecasting at the 27th of June? And if that's the case, what vertical was a bit softer?

Yes. No. I mean we're actually right on track to our numbers, but I can say it came from different areas. So commercial truck was a little bit softer, but RV and private seller was a little bit higher. But we're right on target for 2022.

Got you. And then another one for you, Lori. I guess we're getting lots of queries on the impact of a weaker U.S. consumer. Do you think we should be fairly relaxed on volumes given your price on inventory, not transactions, and FY '23 yields look likely locked in. But I'm just thinking in the back end of FY '23 and '24, do you think it gets harder to pull price, especially in the verticals where you're #2?

Yes. I actually feel like we have a very good strategy as we don't just do a price lift. I mean we have it planned every year. But alongside of that, we're building increased value in our product, in our delivery at the same time. So our value continues to get stronger and we feel very confident that we should be able to capture value and ROI from the value we're providing to the customer. So we have put in fairly conservative lifts in our price over the next few years in terms of direct price increases. The rest of the yield is coming from launching new products and also upselling, for example, depths, where carsales has done a very, very good job in selling different levels of premier listings and things like that. We have a long way to go on that. And so a lot of opportunity that we feel like just the pay to play levers are going to be able to drive yields further as well. So I actually feel really confident in the yield side in the outer years. And as inventory increases even in the future, then that's really something that we can capture.

Got you. And just the last one for PB, if he's on the line. Just comparing and contrasting the Dealer versus Private outlook. I guess, Dealer will grow probably high single digit next year, Private double-digit. And just thinking when Private eventually slows, how confident, PB, are you in Dealer accelerating to pick up that slack from things like maybe a volume and depth rebound and maybe things like dynamic pricing?

Yes. I think what we usually plan for and you'll see in our initiatives that we have a pretty good spread across Dealer, Private, Media in creating a natural hedge amongst those lines. Certainly, with dealer leads, the activity is still good, and we envisage that to pick up through the year. But from a Dealer services perspective, and you mentioned depth, Dealers really haven't used depth like they have in previous years, simply because the cars have been -- the time of sale has been a lot quicker. But we're starting to see depth starting to pick up. We expect that to improve and our whole Dealer services line as well. So I think Private sales, I mean, we've got -- the other part of Private, too, now is the emergence of IO. As the brand starts to pick up, because -- and Cam said it in the call, it seems every week we're improving the pricing algorithm, we're improving the dealer experience, and it's a premium consumer offering. So Private might drop off a bit, I think IO will be a natural hedge to Private, and then you've got the Dealer side as well. So I think at the moment we've got a pretty good spread to continue the growth in both lines.

We have next question from the line of Kane Hannan with Goldman Sachs.

Three for me as well, please. Firstly, just the Media outlook. I mean, that's reasonably upbeat in terms of the commentary. Just can you talk about the confidence to keep delivering in that segment? Is that guidance requiring some recovery in auto spend, or is it continuing to execute in the non-auto categories?

Yes. I think we're pretty well positioned, Kane. We've been working around [indiscernible] and the implementation of that, our mobile first strategy is really starting to take effect. Our non-auto diversification, we're getting great benefits from that, and we expect those 3 things to continue through this financial year. And then we've got our customer data platform and our self-serve platform, which we're taking to market in the first quarter of this year as well. So we expect those products to perform well for us and continue that growth.

Perfect. And then just on the Private yields, I mean I know that curve is hypothetical, but I mean if you -- I suppose just what are you thinking about putting those sorts of changes through and that step-up from increasing pricing on the higher end, do you think that's going to be enough to offset any normalization in used car pricing, and then what impact that might have on dynamic pricing?

We think so. We think there's a lot of headroom still at that top end, and we've done a lot of work around being really micro from that dynamic pricing. And Cam mentioned in the call as well around the time of year and the type of cars. There's a lot that we can do to -- again, within Private on its own, we want to create a natural hedge. So I use that and it might be a popular word this time around because those lower-priced cars, we might see dropping off a bit, and we might have to do some work around there from a pricing perspective. But I think all the way through the price ranges, we've got a lot of flexibility and a lot of growth to come.

Yes. And then just lastly, Instant Offers. Does that pricing engine impact that Q4 volume growth at all? Or is that a driver into FY '23 in terms of continued volume?

I think it helps, for sure, because we're able to price more cars. So we've extended the breadth of cars that we can now price. We've got more accurate on the pricing. We're giving the consumers a better experience. We're giving the dealers a better experience. So I think it has started. But the pricing algorithm is improving all the time, and it's not perfect, it's far better than anything else in the market. It's the best by far, but we have a lot of work to go with that, combined with the brand advertising that we've been doing has helped to lift the IO. We expect that as we continue to build out those experiences, that we'll get more confidence from a consumer perspective. I mean, it is a premium consumer offering and we want to continue to build it out that way.

And so when did that go live, that pricing engine?

Within Q4, April, yes, just at the start of Q4.

We have next question from the line of Roger Samuel with Jefferies.