Motorpoint Group Plc (MOTR) Earnings Call Transcript & Summary

Well, good morning, everyone. Thank you for joining us for the Motorpoint Group plc half year results for 2023, our financial year to 31st of March and our strategy update. This morning, we're going to be looking at our -- there you go, our half 1 results, which I'll take you through. Our CFO, Chris Morgan also joins me, will be taking us through our financial results and ESG update. And then come back to me for a strategy update and outlook, and then we'll take any questions. So just to clarify a little bit, for those of you who don't know who we are, this is a beautiful photo of our new Coventry branch. But Motorpoint is the U.K.'s leading omnichannel used car retailer. We only sell used cars. We only sell up to 4 years old and 30,000 miles. And currently, we're investing for significant and profitable long-term growth. So many areas of investment and our key targets are to grow our market share through building our brand and rolling out our footprint across the rest of the United Kingdom. Again, just a reminder of who we are. We have 2 distinct channels. We have a retail part of our business, which is the Motorpoint-branded locations and also motorpoint.co.uk. And through that, we sell the vehicles to the criteria I mentioned earlier, into consumers and also light commercial vehicles or vans, as we would call them. We have 2 businesses. The second part is Auction4Cars.com, which is a trade-only website. So these are the vehicles that are above our criteria of 4 years old or 30,000 miles, and we sell those into the wholesale market through entirely online process. Our operating model is the Motorpoint Virtuous Circle. It's very important to us. This model has been with us since I joined the business, and our 3 key stakeholders of Employees, Customers and Shareholders and how they interact. And the way we explain this to all of our team, like many inductions for new starters in the business, is that our employees are the most important of that stakeholder because if we get that bit right, the rest of it flows very well. So engaged employees. We've always been a Best Company to Work for in the Sunday Times list. Engaged employees, I believe, provide dramatically better customer service. Those customers get great service and recommend and repeat purchase from us, which obviously pleases our shareholders, we create market share growth. And that shareholder community then allows us to continue expanding the business across the rest of the U.K., creating promotion opportunities for our employees. In terms of some of the KPIs, we have had record turnover in the period and further strong market share gains. As I said at the start, growing our market share is very important to us. The market is -- has become smaller due to various different factors, mainly around supply. But it's important for us that we continue to grow our market share. So in the 0 to 4 market back in Q3, our share rose to 3.7% from 2.9% in the same period last year against 3.1% in all of FY '22. So we're obviously pleased with that. And for those markets that are 30 minutes drive from a Motorpoint branch, you can see our share increase a lot to 9.5% from 7.3% in the same period. That's mainly because we've got more market areas. We've got 19 now. We've gotten 5 in the last year, and that's part of our strategy to make sure that we are nearer to our customers. Typically when we open in a market or we put a branch in a market, then it dramatically increases our brand awareness and our market share dramatically increases also. So it's a very well trodden path for us to open a branch to take market share and be successful. In terms of revenues, you can see they increased to GBP 786 million from GBP 605 million in the previous year. And pleasingly for us, our e-commerce revenue continued to grow up to GBP 350 million compared to the half. As for units, probably the part which we don't like is that despite a dramatically smaller market, we have also become slightly smaller. And so our units have fallen to 49,000 from 53,000. Since the half year, the markets remained challenging. We expect that this will pick up at some point, typically in the used car market. You get a period of decline or a period of acceleration, and then it does tend to stabilize. I think we're probably seeing that, the beginnings of that now and also the beginnings of the return of new car supply, which is encouraging for us. In terms of units sourced from consumers, the supply has been challenging as everyone in the industry knows, we've continued to grow the amount of units we source from our consumers, now up to over 22% versus 15% in the previous period. In terms of -- our momentum continues, we -- as we've said previously, we will continue to invest strategically. We will remain profitable, but we will continue to invest strategically. So in a more challenging environment, we are aware that people would sometimes retreat from a strategy. We do not intend to do that. At the moment, we can see that it's working. The numbers back it up, that growing our footprint, growing our brand awareness leads to a big growth in market share, and that's the path that we are following at the moment. But as you can see, that does have an impact on profit, so much lower profits compared to the previous year. I would remind you, the previous year was probably the most stellar trading conditions I've ever seen in the industry in 20 years with values of cars going up every single month. However, that GBP 3 million would compare to probably a normal period in the past of maybe GBP 6 million to GBP 7 million. So we are investing a lot, but it is within a controlled environment, and it is with a variable environment that we can dial up or dial down as we see fit. Now our customer acquisition costs come down a little bit since that marketing spend started to work and making sure that we're not -- well, that we've been very efficient on our marketing spend is probably the more important thing to say. So that has come down slightly, as has our days in stock at 50. That's still too high for my liking, but we're working very hard on that to get that even lower. Chris will talk about cash shortly, but obviously, we're pleased that we're in a cash positive position, which is very important in economic times as we're in now. Our facility at GBP 195 million remains very substantial with a lot of headroom for us. Continue to be pleased that our customer NPS is at 84. I think anything over 80 is something we're happy with. And the Best Companies to Work For, I mentioned earlier, that's the 8th year in a row that we've been in the top 100 of that particular survey, which we're delighted with. So our strategic objectives, investment does share -- does increase our market share. We continue to grow the market share gains that we've had in the past. We continue to open in new markets, as I mentioned 5 since the previous time we spoke in October 2021. We have 19 now, 2 of them opened in this half. They were in Coventry and Edinburgh. And as I mentioned, we've got no structural debt with substantial headroom in our facilities. We have maintained our price leadership. That is a key aspect of -- our proposition is to be the price leader. That does obviously impact margin at times, but we think it's better to maintain price leadership. We are very, very confident. So when someone does buy from us, from a Motorpoint store or Motorpoint online, they will not go anywhere else. And the vast majority of our customers do stay with us post their purchase. In terms of the investment, the key areas are the infrastructure, so the branch rollout, the technology, dramatically bigger team and in the brand, and also the digital marketing capability within the business, which we'll talk about shortly. I think this is a slide that we put in because I think this is really compelling for us to grow our market share in every single market in the period -- in both periods that we're looking at here is really encouraging for us. So I think you can only control what's within your control. We cannot control the macro environment, we cannot control the affordability challenges that some of our customers will have with the cost of living crisis. But what we can control is make sure we are the cheapest that we take share in an environment. Motorpoint has always done very well in situations like this. We tend to take share and then we tend to hold on to that share when the market recovers. So this is very much a play around investing now as the market recovers. We will maintain and continue to grow that share and become a much, much bigger business in the future. In terms of the investments that we're making, our digital team is probably the biggest investment that we've made, a dramatic increase in the skill sets that we've had previously. And to be open here, we thought we were pretty digital in the past. I can assure you that we weren't, know that we are, but we really understand what this now means in terms of digital marketing, bringing in-house those functionalities will lead to dramatic improvements in the long term and also really has an impact on operating costs compared to using outside agencies. So I think we will always seek to internalize the core parts of the business and we would not outsource that. And so that's really encouraging that we've now got a very strong team in that area, which we'll talk about later. In terms of product, we've now got a product-led approach to our engineering that is leading to dramatically faster capability in terms of changing the website or changing something else within the engineering community. And that connectivity that we have between the product owners and the engineers working in partnership and really focusing on what is the stuff that we need to get done that makes the biggest difference to Motorpoint. So we'll come to that shortly as well. In terms of the opportunities to increase sales through the product as well the team are focused on by improving the customer experience for some examples of that shortly, but also generating business efficiency. So things like self-serve customer making sure that, that is very easy to use and then driving customers to use that, which reduces the requirement for us to have people waiting for customers to come in because most of the work has been done by the customer when they arrived to collect their vehicle. As I mentioned, the reduction in development times due to that partnering with the engineering teams and also the development of new site features and functionality, now looking to really make that seamless journey between a customer being online and offline. Almost all of our customers -- and no matter which way they buy, do visit our website for one reason or another, and it's very, very important for us that, that feels very seamless to the customer rather than 2 separate businesses. In terms of content and design, we have also recruited a content team, and that they will be making videos and putting lots of written content on that obviously drives our search engine optimization. And in terms of UI and UX, we've recruited those teams internally as well to test and enhance their customer experience. And all of these teams sit under our new Chief Digital Officer, Andrew Thomson, who is making great progress with us and making us sign like we know what we're talking about on some of those things. In terms of digital marketing, key activities we've done so far, the paid marketing platform, so Google, et cetera, linking up with the business MI. So looking at smarter targeting, reducing wastage. You can blow an absolute fortune on Google Pay as I'm sure you're aware, a support for us that, that is an efficient spend and a control of spend. The SEO strategy that we have in place with the new SEO team and the content will drive significant long-term organic search growth. And also the team are providing brand awareness support as an example with our new marketing campaign that launched on Christmas Day. The team are obviously supporting that as well through our digital capability. We've also continued to improve our CRM to make sure that we can personalize as much as we can, and we've increased the amount of contacts we make with customers, which are -- have been very good in terms of the successes we've had with those creating demand and creating inquiries from customers. Going forward, we need to continue working hard in this area, reducing the reliance on the paid media and replacement with organic traffic is important. We'd always rather it be organic rather than paid, and increasing our content and production quality. So I think that app is a good opportunity for us to build real trust with customers. And of course, we will target our spend on the relevant keywords and search terms to make sure that we get the right results for those. Just some screen brands of our website, you can see that we've replaced our new headroom footer, really has a premium look now. Much dramatically improved performance on mobile, which is where the vast majority of our traffic is, and we've also replaced our homepage. So much more look into a lifestyle approach to inspire customers to see what the vehicles can do in terms of their lifestyle. We believe it is an important thing for customers. We've also improved the navigation and we've enhanced the content as well. In terms of the information we have available, we now provide EV data, which is still something that people don't really think about. You do not need to show miles per gallon with an electric vehicle. We show MOT histories and the number of keys that we have for that vehicle. So given it as much information as we can to customers, being as transparent as we can for customers, reduces the inbound inquiries from customers about a vehicle because we provided all of the information to the customer. So that helps the efficiency of the transaction from a customer perspective. But also a better visibility on the website now of our proposition. So to test drive, to reserve a vehicle, we offer nationwide transfers of vehicles and we also offer home delivery, and making sure that they are all very visible as a conversion point on the website has been important. And as I mentioned earlier, some improved sort and filter options to make sure customers can get to the product they're looking for more quickly. You can see the product delivery continues here with new screens. So you can see the introduction on the left of a money off proposition. So obviously, we do reduce the price of cars over time if they haven't sold. We've never really told customers that, that car is now GBP 1,000 cheaper than it was. And that is something that we've now introduced that's been pretty recent development, and also including things like a wish list and vehicle comparison tools. And as you can see on the right, an improved image gallery, which really helps the customer in terms of the desirability of the product. And there's more to come on that in the next couple of months also. In terms of the availability of vehicles. So we will be now far more open with customers as to when is that vehicle actually available, when could they get it home-delivered rather than in the past, customers have bought the vehicle and then found out when they could buy it -- collect it, sorry, when they could collect the vehicles. So again, upfront, giving the customer as much information as possible. We've also improved the checkout journey. So it's very different now if you're buying or reserving so, again, to give customers more clarity. And we've also upgraded our finance panel which is shown at the bottom to make sure that customers can really see the final proposition and the full details of the vehicle, if you were to take our finance. As I mentioned on the slide earlier, we have achieved market share growth in every market. You can see the 5 locations we've opened recently in the top left and we will be targeting a national share within 30 minutes of 10% at maturity. And all of those branches can get to that, in our opinion. We have lots of market areas identified. Whether we believe they're all economical or not is another matter as we come closer to the decision-making point. But we certainly will have more than 19 locations across the U.K. And as I said earlier, our market share growth, when we put a footprint into a market, is very prudent. We've done it 19 times now. We've never not taken share when we've opened a branch and therefore, we are very convinced that when we go into market, we win. And that's very important for us in terms of -- making the investment decisions as valid as possible going forward, is very important that we get that experience of opening branches and taking share into the investment community. As you can see, our investment in brand drives market share gains. This is a summary slide from previous, but this also shows the linkage between the higher the brand awareness typically at -- the higher the market share in that market as well. So that's just by a cohort of openings and, as you can see, the strong correlation between markets, brand awareness and market share. A few customer comments for you to read there. But I think the key thing on this slide is that Autotrader, obviously the leading used car platform in the country in terms of being the most cars on there, they do grade a vehicle based on the price, whether it's low grade, good or not good, which I forget the name that they use, but it's basically a higher price than you'd expect to pay, and 99.9% of our stock is in one of those, sort of, best-in-class categories for pricing. So something we are passionate about and it just validates our proposition on price leadership. Just a few examples for you. I know everybody likes to see these slides. So you can compare various different competitors there. We have Arnold Clark, a traditional main dealer, which is Hartwell Group as well in the middle and Cazoo online only. But as you can see, we are always cheaper. We've got a very strong proposition. Our APR is 9.9%. At the moment, some lots of dealers have gone to 10.9%, 11.9%, 12.9% and even more in the independent sector. We are still holding at 9.9% for now. I mean increased it recently from 8.9%. So good savings there on customers with relatively similar cars. And our NPS growth is something in terms of our proposition, continues to grow and make sure that we get to a -- a good position on that. I think 84 is probably as high as we would want to see it, frankly. I think you can buy your way towards 100 if you want to, but we need to make sure that we're not giving too much value to customers in terms of the -- if there's a slight issue with the car or something that customers are not happy about, we want to get genuine feedback rather than get a higher and higher NPS score. We want to know exactly what our customers think. So I think as long as it stays around 80, I'm happy. I'll hand you over to Chris now for our financial highlights and ESG update.

Okay. Thanks, Mark. Yes, good morning, everybody. Hopefully, you can hear me okay. So if you -- I mean, the headline now and Mark's already said record revenue, but really pleased in return to cash surplus in the half when we talked about market positions and investments. So I could just go on to the next slide, please. So financial headlines again, probably picked up on some of these, but strong growth in the revenue. What is particularly pleasing is the market share up to 3.7% from 2.9%.. The gross profit decline will come back to the P&L in a second to look through that and obviously the PBT. ROCE has dropped from 51% to slightly over 40%, which is still relatively high. But clearly, that's been impacted by the profitability of the business. So if we just quickly look at the operating results. So as Mark mentioned, we all know, the business is really split into two: You've got retail, which is sold via branches, call center or digital channels online; and then you've got the wholesale platform, which is Auction4Cars, which go direct to dealerships. So if we take retail first, we can see record revenues. Revenue from retail customers is up by 28% and selling 32,000 vehicles. And roughly about 34% of those were sold online. Interestingly, what we are seeing is that we're not seeing an increase really in customers sort of moving from the branch to the online experience ultimately in terms of how to buy a car. So I think that sort of reinforces the omnichannel model is the right way to go and to make sure that all the touch points with the customer, whether it be through the website or the branch experience or somewhere in between, make sure that we've got the best possible experience for customers. So we'll continue to work through that. So margins -- retail margins did drop. As Mark mentioned before, there were stellar, stellar performance last year in the first half. They dropped to 6.6%. But again, price leadership is absolutely key for us. So we're very keen that we offer the best value to customers, whether it be in prices of vehicles or indeed finance. And off the back of that, we held our APR rates in the second half of the quarter to make sure we're giving best value to customers. But that did impact profitability, but we believe was the right thing to do. Finance per vehicle sold improved significantly. Now that was partly because of the increased prices for customers on cars because of the inflation. But importantly, penetration continues to increase. So penetration in September was around about 57%. So quite a few percentage points from what we've seen historically. And as Mark mentioned, again, our APR rates are competitive and will continue to be so. Just turning through to wholesale. So this is Auction4Cars. So -- this is either cars that we purchased directly from consumers in the Sell Your Car channel or indeed [ our takes ] from customers. And around about 17,500 vehicles were sold by this purely online platform. Gross margins did weaken somewhat to 4%. However, it was pretty much a game of 2 halves in the first half of the year, where we saw that the margins did strengthen in the second half as we went through August, September to roughly so around about [ GBP 300 ] a car, which is more normal going forward, so seeing that sort of come through. So that's a good performance there. Looking at the operating expenses, the operating expenses grew roughly about 6%. But within that, there's a lot obviously going on. Firstly, there's about GBP 3.5 million of incremental investment costs. So that's in relation to the new branches, but also the digital and technology offering, again, which Mark mentioned. But despite new branches and growth of the digital marketing team, the overall headcount did actually reduce by around about 8%. So again, we've got a strong focus in terms of efficiency, whether it be in branch, preparation or into the head office. Energy costs, obviously, that's sort of a headline for a number of businesses currently. So energy costs, we actually fixed the prices for the current portfolio just over a year ago, which is clearly the right thing to do as it turned out. But the really good news is that from a like-for-like energy usage perspective, so if we look at the same branches to what we had a year ago, the natural usage is down 12.5%. So we're working through, obviously, our ESG agenda that we're coming on to later. We're working hard with everybody trying to make sure that every little help in terms of we can save energy across the estate, so that seems to be working well. Property costs obviously did increase because of the new branches. But obviously, we had rates relief as well last year as part of the post-COVID support from the government, which obviously has fallen away this year. Marketing costs did decrease from GBP 10 million to around about GBP 8 million, but that's primarily because in the first quarter a year ago when the branches reopened post COVID, then we spent significant marketing to really push the performance. And again, we saw record performance as a result of that. So that's on the marketing side. Just quickly on interest, you can see that interest has jumped quite strongly from 1.6% to 2.9%. No surprise, but clearly, we expect that growth to continue in the second half in relation to the interest cost. So that can be expected. And that's what ultimately overall, we saw the PBT down to GBP 3 million. Okay. Mark, you jump over to the balance sheet. So from a balance sheet perspective, very pleased from a cash perspective in terms of how the cash improved from a debt position at year-end through to a positive. And that's really around about the working capital control, not least around the inventories. So you can see the inventories have fallen from year-end GBP 228 million to GBP 286 million. But again, that does reflect sort of tight control. And we feel particularly as we now move into the busy Christmas, post Christmas trading period, that we've got the right levels of inventory for the business. You can see the cash though is at GBP 4.5 million. I'll come on to it, in terms of the cash, in a second. We spent about GBP 5.5 million on CapEx, and that was primarily with the new branches, Edinburgh and Coventry. We did significant resets at Newport, which looks great, by the way. And also GBP 1 million -- GBP 1.4 million on intangible costs really around website and software development, which links in with the digital investments that we talked about earlier. Stock days around about 50. As Mark said before, we want to get back into somewhere in the 40s. So that continues to be a focus. And then lease liabilities increased, but that obviously reflects the additional leases. And just finally on that, you can see the right within the right-of-use assets and the assets held for sale. At year-end, we had GBP 9.2 million, and that related to the Stockton-on-Tees branch and Peterborough prep center, which were earmarked for sale and leasebacks. And those successfully went through, realizing about GBP 9.7 million of cash proceeds in the first half, and they were sold and moved on a pretty much no gain, no loss. Okay. Mark, if we move on to the cash movements. So you can see we exited at year-end at GBP 21.2 million of debt. That's the opening cash and RCF number on the far left, and that primarily included the RCF, which is fully drawn down at GBP 29 million. And as we mentioned at year-end, that was really around the timing of the availability of the stocking finance facilities and then using that to fund the stock. So we're able to use the stocking facility in the first quarter. And you can see the GBP 20.4 million, the stock net of financing facilities. So that reflects the fact that we're able to convert the RCF into the financing -- the stock financing facility, which is what it's there for. The other big -- the big move is the GBP 9.7 million. That was the sale leaseback transaction that I mentioned before. So yes, so much happier from a cash perspective and a real focus both in terms of working capital and stock management. Okay. Next slide, please. And so just moving on to ESG. I mean I think it's -- with the challenges that we have in the industry and some of the macro headwinds that we've spoken about, it's quite easy to overlook some of these factors. But this is really, really important for us as a business, not just now, but going forward. So we want to be viewed as the most environmentally friendly used car retailer. As we mentioned at year-end, we've got an ESG Board Committee setup to those who have now been meeting and operating very successfully. We purchased carbon credits to offset the first year of customer driving emissions. From an EV perspective, we've already sold as many EVs in the first half of this year as we did in the whole of FY '22. Obviously to be expected, but it's really important then that we can make sure we get the communication for these customers, and that Mark showed with the screen perhaps earlier about performance of EVs. So we've worked hard on that. So we're pleased with the EV performance. Mentioned energy use is down, 12.5% on a like-for-like basis and even despite the new branches down overall. We're carbon neutral, Scope 1 and 2 emissions and are working hard on Scope 3 emissions. And we'll be announcing more developments on that when we do a year-end and zero waste to landfill. So again, successful. And on the right-hand side, more areas about the governance, talk about onboarding, talking about cyber attack resilience rolled out. So we've got stronger, stronger defense measures in those areas, improved business continuity plans. And again, the real living wage employer. And again, we're looking at employees in that bracket going forward, how we can best support in difficult times. Okay. I think that's my slides. So I think I'll hand you back to Mark.

Thanks, Chris. So we'll just go back to our strategic update. So really happy with the progress that we've made on our strategic targets. And as I said at the start, we are continuing to invest despite the current macro headwinds mainly because we can see that it's working, and therefore, we intend to continue. In terms of the particular -- sorry, in terms of particular progress, we have grown our market share, which we've mentioned several times already. We've opened 5 branches. We have a customer acquisition channel called Sell Your Car. We continue to invest in that digital capability and our efficiency activity is improving our KPIs. So that's another part of the benefit of technology investment is that we're becoming a leaner business going forward. So despite the challenging headwinds, we have lots of things that are making life a bit more difficult. New car registrations remain very subdued, and that obviously impacts many new vehicle supply so that we remain to see -- we remain -- we have remaining shortages right now. We are expecting 2023 to be a much, much better year in terms of supply for new vehicles. Clearly, we need to manage carefully the impact that has on our -- on the value of our used vehicles, but we will be the first beneficiaries in the used car space or those new supply channels becoming more open as the supply eases. So there is a reduction in the market size, which we talked about, which is causing us to have to work much harder to grow our share, and we've seen obviously unprecedented vehicle inflation in the period, cars sitting still, 40% to 45% more expensive than they were pre-pandemic on average. And that cost inflation is something we're grappling with like every other business, customer affordability challenges continue to be an issue as well, going forward. So we've got to be very careful with how we price our vehicles because that price leadership should allow us to be relatively insulated from that. And obviously, we've got a much more diverse competitor set with the huge investor from the online players in the market. So despite all of that, I think the important thing is for us that we'll continue to roll out new branches and we continue to take market share, which I think we'd all agree is a good result given those macro headwinds. In terms of our e-commerce capability, something we talked a lot about. I mentioned our Chief Digital Officer earlier. We've also appointed a Technology Adviser to the Board, and we expect our new CTO to join in early 2023. Has taken a long time, but we know who we want and we're waiting patiently and we think we've got that person now, so they should be joining in early 2023. In terms of the capability in technology, that continues to build, as I mentioned, the focus on product and engineering working together is really important, and we're continuing to build our data size capability, and that is increasingly driving business decisions with some oversight from humans. We think that's the balance that we've seen. We've tried data science alone and we've tried to human alone. We think the best answer is to merge the two. In terms of generic paid search base, that is something that you can automate. That is informed by a lead score based on success of previous campaigns and what volumes they lead to. And obviously, we are continuing to increase our e-mail communications with the digital activity. So customers are getting more personalized, more frequent e-mail communications, which is leading to an increase in sales through that channel, which we're delighted with. And another thing, we have a store in Manchester, and we've actually converted part of that store to be a technology hub. There's a lot of talent in Manchester in the digital space. And I think that's important recognition from us that if we want the best talent, we need to be in the best market. So we've created the technology hub within our Manchester branch, and that team, because a lot of people are based around there, they can go in and collaborate in that space, and that will help to attract the best talent in the country. So continuing our investment into that technology, data, e-commerce capability, will accelerate the future growth. And I think we've not seen much benefit of this yet in terms of what it will bring in the long term, but we continue to build that capability, and that will be very, very powerful for us going forward. In terms of our customer acquisition and retention. So we have 5 new markets that we talked about. We do have more opportunities in the pipeline. Nothing concrete yet, but some coming. We know that new branches accelerate the market share and the price leadership, combined with that, delivers significant market outperformance, which is why we continue to grow our market share. We do continue to also allow our customers as much range and as much choice as possible from our products. So our unique mix is over 80%, which means 80% of our product is individually make-model-color. Our EVs, as Chris mentioned, continued to grow. So as that supply comes into the used car space, again we will see it first because we are the key operator in the 0 to 4, so we get the new technologies first. And we've also introduced as well as an ESG Board, a customer board. So something I felt that we needed to do was to really focus in a dedicated session on customer experience in KPIs, and that is now up and running, and we'll focus on driving those improvements. And we also have a product underway with our entire company on how Motorpoint will operate in the future. So it's the Motorpoint of the Future project, and it involves everybody across the business with all of the ideas that they may have. And the goals are, for us: To give the best service to our customers; to have a seamless website and branch experience; making sure that our people are awarded to drive market share growth; and in essence, how can we be the best of what we do in every single aspect. In addition, just finally, we have a new brand advertising campaign launching on Christmas Day. And again, that's another step up for us working with a new partner in that area and something we're very excited about. Maybe you can tune in on Christmas Day to watch it. So just to summarize on that, we are creating a truly omnichannel experience for our customers, and that seamless is the word that we really tend to use a lot internally, but we don't want customers to feel the difference when they are online than when they come into store, we want to connect those journeys as far as possible. In terms of Auction4Cars, so in terms of wholesale, Sell Your Car obviously creates supply for Motorpoint, but also for Auction4Cars. That's a part of the business where there's no admin fees or payment fees. We do stand on our bid, the payments made whilst the customer is in the store and it lands in their bank account, which always customers seem to be very impressed with. But we continue to source more in the half than we did in the entire last financial year, vehicle source from customers. And you can see some of the stats there, where the customer car is over our criteria, then we sell a lot of vehicles through Auction4Cars. And we've also continued to expand our home delivery and collection fleet. So we have our own trucks now and our own drivers, making sure that we can be as agile as possible in terms of doing those things. I mentioned operational efficiency, technology and innovation. So there's a big point on this slide to just show that, that technology investment, it's not all about having a better website. We have seen dramatic improvements in efficiency across our branch preparation of back-office functions. So the system is being upgraded, the system is being automated. And that has supported some headcount reduction despite the increases in the digital capability. We do have less people. An ongoing review of what is left as processes that can be automated is continuing. And as an example, we have upgraded our quality control app, which has taken the time to prepare a car down 11%. In terms of the technology and innovation, so this is around customer self-serve, what information do we need, how quickly can we do it? Some of the processes were probably quite clunky, which we probably didn't realize until we got technologists involved, and that has allowed us to improve and automate quite a few of our processes. Like I said, there's more to go, but that has reduced our branch like-for-like headcount down by 16% following our automation and customer self-serve. So something we're very pleased about. We have a company-like procurement review launch. So I think you said a [ drains ] up period when the macroeconomic times are tougher than we would all like, then it is an important function to go through and make sure that everything that we're spending is justified rather than this great value for the business going forward. So as well as those website enhancements I've talked about, our other projects around this include -- technology include the Salesforce and CRM being increasing capability. We've refreshed all of our IT hardware across the business. We've upgraded all our networks, so we're faster and slicker as a business. And we've also launched a new collaboration platform, which is basically a new telephony system which has a lot of capability going forward in terms of things like chat and AI capabilities as well. So that will all lead to enhanced customer experience. Just in terms of outlook, I think we've said this so many times in the past, but it is important. Price leadership, we believe, is absolutely vital, especially in times like we are approaching and in. Right now, we continue to offer the best value for our customers. We believe value wins in the long term, but value should win even quicker in an environment where customer affordability is challenged. We obviously have the macro challenges of inflation, rising interest rates and consumer uncertainty as well as vehicle supply challenges are unique to our sector, but all of these have obviously contributed to, impacted and impacting used car demand. In terms of macro factors, we see that those will continue well into next year. Like I said earlier, that it does tend to stabilize. And we're not really seeing it stabilize right now, but used cars normally do suffer less in a downturn than new cars. So it would be very interesting to see what the size of the new car market will be going forward, particularly our 0 to 4, which we believe will be just around 2 million units a year when the market recovers. We do have a strong track record of demonstrating that resilience. We've never lost money, we've always made a profit. And as we've said previously, we are continuing to invest. Our only goal is to remain profitable. But in the long term, we think that, that will lead to dramatically higher long-term profits than we would have otherwise achieved if we'd not and have embarked on this strategic journey. And so we do see profits being lower in the short term compared to the previous long-term averages as we continue to execute on these investments. But in the future, the business will be a leaner business, technology will create that efficiency, and our lower nonstrategic costs will give us a very lean operating model that will lead to substantially increased profits as we move forward. So that's all for me. And I think now we'll hand you over to Alex, and then we'll take questions.

[Operator Instructions] Your first question today comes from Sanjay Vidyarthi at Liberum.

Slightly convoluted question, but I was interested in your comment about NPS scores and not wanting to take them too far above or keep them around 80% rather than going too far above that. And I can see the kind of -- from a perspective of investing in price, there's probably a very clear correlation between how much you invest in price and how much market share you can take. If we follow that through with investment in digital and omnichannel, do you look at it as an absolute vision of excellence that you want to achieve for gain as your net element of relativity and that you don't want to go too far with it because the competition is actually lagging quite a long way behind you, and therefore, the incremental market share benefit isn't necessarily that much? How do you think about it? Is there an absolute vision? Do you look at someone in the U.S.? Or how do you think about the pace at which you need to stay ahead on digital?

I think it comes down to making sure -- the NPS comment is I think if we wanted -- if I said to my team right now, I want NPS to be 95%. One of the ways you can get there is by giving customers more in terms of the sort of wellness, if there's a slight issue with a vehicle or there's something -- you give the customer GBP 500 compensation or something like that to make sure the customer remains happy. It is not what we want to do. So we want to make sure that we get the customer experience to be genuinely that good, rather than it's 95% because we bought our way to 95%. In addition, you can incentivize teams too much to go for that score. And then you probably get employees asking for scores, which is not what we want to and I've seen that in the past in the industry. Not with us, but I have seen it in the past on certain manufacturer scores and things where the only thing that the employee cares about is to get a score rather than giving a great experience. So that's what the comment is based on. In terms of the digital capability, it's all about being absolutely the best in class. So it is about making sure that our investment is yielding those results and market share, we want it to be as high as it possibly can be. But I think that the price leadership and the technology integration and the market share growth are very, very interlinked and making sure that we continue to run as fast as we can. If we're ahead, we want to pull away. If we're not ahead, we want to catch people up. And I think that we're certainly not the best-in-class across all parts of our business. Others do things, whether it's in the U.S. or the U.K. that we admire, we're very open-minded on what other people do and how they do it and why do we not do it that way or why are they better than us in that area. So yes, we will continue to invest in that journey. I'm not sure whether that answers your question, Sanjay.

No, I think it does. So there is still -- in terms of being best in class and benchmarking yourself against others, there's areas where scope for improvement, hence, it's still worth making the investment. Even though there's probably a lot of low-hanging fruit in terms of a lot of independents, a lot of car seat markets that are probably not doing very well at the moment and haven't got the capability to invest in technology at all.

No, I agree. And I think there's definitely share dramatically being lost by some somewhere. Because if you take Cazoo's [ interest ] all growing our share dramatically, then someone is hurting somewhere, and it's very hard always to work out who that is or where that is. There -- we think there's tons of stuff where we continue to -- we've got it on the road map, we've got it on various things to make sure we do execute. But over the next couple of years as we continue to build that capability, an awful lot of what we've talked about in terms of people and capability being internalized on this presentation, they barely have their feet under the table. So we've not really yielded any significant results from most of those teams yet because they've just joined in the past sort of 6 to 12 months. So as we go forward now, I think there's a huge amount that we will continue to achieve. And if you were to come into our head office, historically, we would have been in a business that looked and felt very much like a car dealer. We probably look more like a technology company now with the people that we've recruited and where they've been recruited from. So there's still an old-fashioned car dealer at the heart of us, believe me. But it's important that we've got those modern technology people into the business to help us to be a winner in that. So I think the capability we're building is super exciting. And we pretty much transformed the business from where we were 2 or 3 years ago, to be honest.

Understood. Just one follow-up, if I can. In terms of supply side of things, I know obviously, you're going direct to consumer. But are there any other new areas that you've been exploring?

Well, not really. The supply is always where is the car? So the car is either with a manufacturer, a finance company, an auction house or the customer. So there's not really many of the challenge avenues you can go down. We're always looking to source vehicles wherever they are. I think sometimes it's about how economically can you source them rather than whether you can source them or not. We definitely have seen some lift in new car supply. I think new car demand has come off in the same way you see in terms of the used car market shrinking, and that new car demand coming off is an interesting thing. Because as supply eases and new car demand isn't quite there, then some of those new cars will probably find their way into the secondary market, which would be us. So we are excited about 2023 and what that could bring in terms of finally starting to see some fleet product come through or some nearly new -- genuinely nearly new, so sort of 6 months and under, vehicles come on to the market, and that would be a great thing for us, I think.

Our next question comes from George Pilakoutas at Numis.

First one, kind of another fairly high level one. We've kind of seen the Carvanas and the Cazoos and market kind of seems to be taking a view that things got slightly overengineered perhaps in some areas and elements of the proposition having to be taken out. I guess, just interested how that is changing your approach to investment into that proposition? And as you were trying to scale further investment, particularly in some of those digital areas, just how you're able to keep tabs on continuing to generate the healthy returns that you have done so far? Maybe that was the first one. And then I got a few others.

Yes. I think so in terms of capability, probably a year ago, I may have said that we need 50 or 100 home delivery trucks by this time this year. That actually is really unwound in terms of what customers' behaviors have changed. And if they've actually changed very rapidly in the last 6 months to home delivery not being as anywhere near as important as it seemed to be, post coming out of COVID. So capability-wise, there are investment areas where you thought you would be spending a lot more. But now looks like maybe you don't need to spend that. So we're quite fortunate that we haven't dramatically scaled in any area where now the behaviors look like they're changing. I think there is no doubt that customers will want our omnichannel experience. The key thing that's been static throughout this period is there are some customers who are willing to do more of the journey online than others, but most customers do want to come to the store to collect the vehicle. And as I said, we offer free home delivery to customers, but that has declined as a percentage of sales over the past 6 months as, I think -- I don't know this for definite, but it feels to me like customers are far more cautious. And they don't want home delivery vehicle if they're not sure about it. We're seeing customers being only really committed to vehicles that they are very confident about. So maybe some of those passive customers who were not really that sure as to where they want the vehicle out, they are now coming into store rather than buy it online and have known delivery. So I think there's an element of cautiousness around customer. I think all the other things in terms of technology, if it isn't driving sales or it isn't driving efficiency and productivity to make us leaner, we won't be doing it.

That's really interesting. Maybe a shorter one is just kind of managing that growth versus profitability and how you think about what is kind of a minimum level of return that you want to be achieving? What are some of the levers that you can pull to ensure that, let's say, whether environments are worsening?

Yes. So I think we want to remain profitable. But what we don't want to do is to get to a period and decide that we can't do this or we can't do that because we've committed to a profit number, so we don't comment on profitability. And I think it's important for us that we have that freedom to invest if we think it's the right thing to do rather than to not invest in order to hit a profit number. So we've said we will remain profitable in the period. We still believe that's the case. Clearly, quarter 1 next year, calendar quarter 1 is our final quarter, which is always a very important trading quarter for us in terms of how the profits are generated in the business. So that's the sort of minimum level of return for us is to be profitable. However, we want to make sure that the business is continuing to invest wisely. So we have not committed to significant fixed cost basis. We can vary the cost base down. We're not into long-term marketing contracts or other. Clearly, the biggest fixed cost we've got is people and property. And clearly, both of those are more fixed than whether you put a bit out or not. But we are trying to make sure that we've been very careful around -- the cost that we incur is how do we get out of it if it's something that we may need to get out of. So we're trying to make sure that things are as variable as possible going forward.

And then the -- on the kind of site cohort charts, I mean, I guess, really encouraging to see market share growing for some of the larger, more mature sites, and then kind of really my questions are more on -- some of those more immature sites or some of the newer sites even opened subsequently and just -- how are they trending? Are they delivering the returns that you thought they would? Are they having a similar maturity curve as the historic site? Anything interesting that you've seen there? And does it change your ambition going forward for new sites?

Yes. I think we opened a couple of sites which were a much smaller footprint, particularly the ones in the Southeast. So they are going to take a lot longer, I think, to get with a 50-car display compared to a 250-car display, you are going to take longer to build a market share to a point where we're happy. And sometimes, some of those stores may relocate to a bigger store once we've got an established base in that market and we've got the demand for more. I think the only surprising thing for us is that some of the new stores are more online than in branch than our existing stores. So when we open in a new market, the customer base tends to be about 50-50 online versus in-store. So that does tell us how many cars we need on display and how many to staff it. So those new stores are dramatically smaller in headcount than the other ones, because more of their content is online. There are also, of course, handover points and home delivery basis by making sure that we get those stores up and running is important. But the 2 latest ones in Coventry and Edinburgh, they are more like an older Motorpoint store in that they've got 200-ish cars on display and they are trending much better than something like Portsmouth, which is a 50-car display. So we've been very happy with the Coventry and Edinburgh openings. The ones in the Southeast are obviously a bit harder to judge because they are smaller footprint. And therefore, they're not going to go and get the market share that a big, big store like a Burnley or Newport would have.

Okay. And last one for me is just on competition. And I guess you're continuing to invest, I'm guessing most others aren't. Are you able to start seeing differences in other people? Like you've kind of touched on APRs going pretty high in some areas. Is there any other kind of anecdotal evidence that they're struggling?

Well, I think I'm not as annoyed now and I've got the TV or the radio on, because lots of the -- no longer on TV and radio every 3 seconds. So I think there's definitely an easing up of the sort of onslaught that was out there this time last year, and that is encouraging for us. And that -- it doesn't really matter which those are, whether it's a retailer or vehicle acquisition service. That cannot be a bad thing for us that others are not out there, and we are out there. So it probably levels the playing field a bit more than it would have in the past, but it was very skewed to those start-ups in particular that add lots of cash.

Our next question comes from Mike Allen from Zeus.

A quick one for me just on ESG, if you wouldn't mind. So I guess you said that you've done Scope 1 and 2, which is great. Just assuming that's done via carbon credits and what might the kind of -- what you'd expect the percentage of EV cars being sold, you know what that is this year and what you'd expect that to grow to. And then a follow-up on that is just kind of timing on Scope 3. I assume it would take a lot longer. But is that an objective for next year? Or would it take a bit longer than that?

Yes. Do you want me to pick this up, Mark? Yes. So Mike, so just picking up on those points. The Scope 1 and 2 emissions, you're right, they are purchased carbon credits. And it's not a huge cost. The much bigger cost for us is around the carbon credits for the first year of customer emissions. So that is quite a chunky outlay. So we're looking at that. Then clearly, over time, that will reduce because of the EV element. So we'd expect that to come down over time. But at the moment, it is a fairly big outlay, which we'll continue with. Just going back to the second point and sort of going forward in Scope 3. We're working really hard looking at that. I think there's 15 -- I think it's 15 things. And so we're just working out which ones are relevant from Motorpoint. There's about 8 of those sort of key objectives. And clearly, it's just in terms of the supply chain, the transportation all that side of things is fairly big, fairly big numbers in there. So we're looking through on those, and we will be giving an update in our annual report and accounts on the Scope 3, but we are taking this seriously as well.

Our next question comes from Clive Black at Shore Capital.

Yes. Thanks for the presentation, and sorry to hear you not so well, Mark. Two questions. Firstly, could you just say where you think Auction4Cars is in your strategic progress? It was an important part of the overall activity level in the market and how you feel about that in the next year or so. And then secondly, this is a presentation where technology has been used as a word like never before, showing the development of the business. What do you see the main output from that hub in Manchester been for Motorpoint?

Thanks, Clive. So in terms of Auction4Cars, I think that's one of the areas where we talked earlier about, do you keep investing in certain things when you think there's other things that could be better than? So in terms of Auction4Cars becoming a wholesale platform, we paused that as a project in terms of the investment required to get that to a point. And what we focused on more now is to increase the customer base of Auction4Cars by ensuring that we can grow the amount of buying the cars on there. We felt that if we did introduce other vendors' stock onto there at the moment, then it would probably be damaging for us as a business, given the level of customer base we've got. So we've switched that strategy to grow the customer base first and then leverage the capability that we've built. It's not fully complete, but it is there. So it will be on that sort of a smaller scale than we maybe would have anticipated in the past. It's still an important part of the business. It's the vehicles that we buy through Sell Your Car in particular, provides a good output channel for those, and we see that as being a very good part for us. So we will continue to generate more stock for that part of the business and to sell it. Probably the new vendor or adding other vendors to sell their cars, and that is not as much of a priority. In terms of technology, I think the key output, as I said, the mantra that we've used very much at the moment, if it doesn't sell us more cars or it doesn't make us more efficient, why are we doing it? And that's something that technology applies to as well in terms of if it's not an increase in the customer experience, if it's not giving us faster, more efficient tools or it's not leveraging data and data science capabilities in the business to make better decisions, then -- they are the 3 key areas that we do it, and if it's not doing that, then we shouldn't be doing it.

But in terms of clear outputs from Manchester, given you've got that new investment and new subculture there, is -- are there 1 or 2 things that you're saying, if you're talking back to us in 3 years' time, this was the output about?

Yes. So sorry, I didn't answer that. But the -- I think the key thing is recruitment, in that when you say you're based in Darby and people think they have to trek to Darby from Manchester 3 days a week or 4 days a week to collaborate with their team, then that's more of a challenge. And therefore, we thought that we can put quite a lot of the people that we have already recruited are living in the Manchester area. And therefore, these guys, we don't really need them all to drive to Darby in order to be able to collaborate, so we've created that space. But we think it will be good for the existing team that we have recruited, all of whom have pretty much joined in the last 12 months. But also it will be good for new recruits as well to see that they've got a base nearby. I think what's happening now is the work-from-home concept is fine for some people. We've got quite a few people who say, well, I want to be able to come in regularly to collaborate rather than just once a month or something.

Our next question comes from Darren Shirley, also at Shore.

Just to hold Clive's comments on better mark. With the site maybe being a bit more important than you would anticipate maybe 12 to 18 months ago. And your commentary around being particularly pleased with the performance of the largest site you've opened recently, does that change your thinking in terms of the rest of the pipeline to get to that 24? Are you may be looking for something a bit more different than you were when you first started the strategy? And then just a follow-up on that. I mean how are you seeing in terms of site availability as other people struggle? And what are the implications of that in terms of costs, et cetera, please?

Yes. So I think in terms of sites, we -- I was really pleased with, as I said earlier, with Edinburgh and Coventry because it felt like they've launched like our historical had launched in terms of volumes that were starting to go through them. Whereas in Portsmouth or Maidstone, which we're not really known in those markets, and they will take longer to be established. They are different to Edinburgh and Coventry, where we should be known in those markets because we've got adjacent towns and cities where we do have a brand. So that was the reassuring part for me. And probably more so than the footprint, to be honest, but I think the footprint hubs, by more cars on the ground in those markets, does definitely help create more demand than having less cars on the ground. So I think what it says is that we wouldn't want to put maybe a 50-car display in a big city outside of the Southeast. And that's the thing that probably says to us that if we're going to be opening in some of the other areas, we want a minimum of 100-car display in some of these towns and cities, so making sure that we don't go into collection only sort of centers. Right now, we don't -- at some point in the past, we thought maybe we just need collection centers. I don't think we do at the moment. I think we do still need big displays on those branches because it helps to establish the branch faster because you've got more product available, which, therefore, gets more eyes on it. And there, that creates the demand that customers can come in and then purchase the vehicle. What was the second part, sorry, Darren?

It was just about site availability and then cost implications and stuff like that as times get tougher.

So there's actually a lot of availability at the moment. And there's a lot of main dealers either shrinking or merging dealerships. I know we've spoken about this in the past, that's definitely happened in this. It feels like there's a manufacturer regularly saying that they're terminating everybody or reorganizing their network. And there's always a bit of fallout from those things. So I think when that happens, then we are one of the first people that you'd call if you're looking for somebody who will pick up a larger ex-OEM -- an ex-OEM deal site. So Motorpoint will be one of the best future occupants of that branch when the manufacturer pulls out.

And in terms of -- are you seeing any easing of cost or any change in sort of?

Yes, you're pretty much able to name your price, but you're certainly able to reduce the rent from what it would have been in the past, I think that's the key thing. So they're more economical for us at lower yields, of course, than they are for others. So I think that the rents that you probably thought you would have paid to secure a location in that area and not where you are. So we are always looking to generate that new branch with a much lower rent than was previously paid by the previous incumbent.

And just -- just one more. I mean in terms of what you've seen over the last sort of 12 to 18 months, does that lead you to think that maybe 24 sites could be increased in the future? I know it's still early days, but...

Yes. No, I think we've got at least 5 -- I think there was a number in there, about 20-ish future locations. And as I said, and whether we do all 20 of them, there's definitely scope for a lot more. And I think we've just got to make sure that we go for the bigger ones first. It is supply led, of course, but there's plenty of gaps in our footprint where we don't have a location anywhere near that market. Think of the southeast of England -- southwest of England, the north of Scotland, we've got to try and get representation there. One of the things, Darren, is if we don't have a location. It's an absolute nightmare to get that car up to the customer. You talk about a day round trip to deliver a car into Inverness or something from our Glasgow branch. So it is important for us to go to where the customers are buying from and as well as having an extra footprint in the U.K. because when we're in those markets, we do take share.

Mark, I'm pleased to say there are no more questions from the floor. So over to you for any closing comments.

Thanks, Alex. Okay. Thanks, everybody, for listening. And any -- anything you have, if you've got any other questions, then you can always come through to Chris and myself. But I'll just leave you with the point that the strategy, in our opinion, is working very well. One of the things that we -- when you go into these things is to -- is that going to work? How will it play out? I'm personally delighted with how it's working in terms of us taking market share. We want to grow our volume, of course we do. That's obviously very difficult in an environment where the market is shrinking. But the market won't shrink forever, it will stabilize and it will grow from there. And as the market grows, Motorpoint's share will continue growing. And as I said earlier, we would be a dramatically bigger and more profitable business in the future, and that's what this investment is about. And so let's focus on short-term profitability, much more focused on the future of Motorpoint and what it can become and how big and how profitable it can become, which is what excites us. So thanks so much for listening, and we'll speak to you again soon. Bye-bye.

Thank you.

Thanks, all.