Pinewood Technologies Group PLC (PINE) Earnings Call Transcript & Summary

Yes. So Sanjay, I can't talk about the past. I can just talk about what Mark and I have done as we started to work together end of last year through this year. And we're looking to be -- have a much more collaborative relationship within our different business units and how we go out there and communicate vision and go out there and run the play. And so to me, it is -- it's kind of a partnership, an ebb and flow. Certain things need to be decided at a store level. Some things need to be decided at a NFD or MD level and then some other things need to be decided at maybe Mark or my level. But if Mark and I are making the decision, I'm going to make sure I've gone all the way down the chain and understand what the needs are all the way down to -- from a valet all the way up to the head of business to the NFD, to the MD, to myself. And likewise, when it goes the other way around. So I'm sure it's going to be different than it was before, but it's going to be much more collaborative. And at the end of the day, it's all about winning. Kind of the way I figure is Mark and I are calling the play, the store's job is to go out there and execute at the highest level possible.

Okay. Are you changing the way in which staff are incentivized in any way?

Yes. I mean I don't want to get overly into that, but we have changed a lot of the incentive programs. We started with upper management, and then heads of business put much more focus on individual performance within their business units and on then driving to the targeted number. That's been set by the company as a whole and we will continue to do those types of things.

Okay. Is there anything in there in terms of customer service as well? Or is it another thing?

Absolutely. CSI and the way the customer is being taken care of, the factory requirements, the different KPIs, balanced scorecards that are used always play into that as well. If anything, Sanjay, what we have done is on certain aspects of the business, customer interactions and stuff like that, we put in more influence into the stores and giving them more autonomy, more control of customer interactions than maybe they had in the past. They're responsible for -- they're the ones that the customers want to deal with. So we're putting more of that into them and taking that out of the centralization. And likewise, we've seen performance grow because of that. But CSI is always going to be a major component of that.

Our next question will go to Mike Allen from Zeus Capital.

Two from me, if I may. Just on the H1 gross margin in used cars. I mean, obviously, we're in quite different times at the moment in terms of residuals and strong move up year-on-year. What should we be thinking in terms of the normalized gross margin? Should we sit kind of halfway in between what you delivered last year compared to this year? Or is there a feel for that? And I'm assuming most of that uplift is due to residuals increase, unless I'm mistaken on that.

So Mike, on the first half, that wasn't really to do much with residual. That was performance-based more than anything else. We did not perform well in the first half of last year. So a lot of our increase was, once again, getting our -- how we were able to acquire inventory, how we stocked our inventory, our turn rates, how we are pricing, how we are managing our used vehicle inventories overall for the first half was mainly driven by that. As we go forward, you're probably right. It's somewhere in the middle, but one of the things, Mike, it's -- you're going to hear us talking not just about margin but also PVR and GPU. The one challenge when it comes to used vehicles especially is margins do not translate all the way through. So you don't get the same margin percentage on a GBP 30,000 car that you do on a GBP 10,000 car. And you can actually get a higher margin on the lower-end vehicles or lower-priced vehicles than you can have on a higher one. So you'll hear us talking about GPUs as well, but the systems, the processes, the way we're operating business, the things that we're developing, put in place are designed to sit here and drive volume, to drive high margin and drive a high turn rate. So we have very, very little aging, fast turn of our inventories, generating the highest number of sales for the highest margin possible.

Yes. And just second question. I mean it's not -- nobody is providing guidance at the moment. But if I look at the H1 numbers and kind of just strip out the kind of lockdown effect of kind of COVID where we might get GBP 13 million to GBP 15 million profit in the first half and maybe the same or a little bit more including September, a normalized level of PBT, assuming no lockdown, I appreciate is in the forecast. But just given where some -- where you are in terms of cost savings, et cetera, is GBP 35 million, GBP 40 million kind of a good end point as a target over the next 12 months obviously just withstanding any unique factors including the pandemic? Is that a kind of normalized run rate to aim for over the shorter term?

Yes, I think that's a really interesting question. And obviously, we haven't given guidance for all the reasons that you talked about there. It's tough at the moment with what the market might do in Q4. But certainly, all the metrics you pulled out there in terms of what we estimate we were running at pre-pandemic. Clearly, Q3 is looking like it's going to be pretty strong and we know we are profitable in Q4 last year. So if you put all those pieces together, I think consensus pre-pandemic was GBP 20 million. I think we were comfortable against that number and possibly looking at beating it as we were trading through the first couple of months and what we saw in June. There is certainly the question that Bill has already answered around how much is Q3 real. I think our observation on that is that a lot of the benefit we've seen year-on-year is driven by cost reduction. That's in our control a little bit more than the market is, so we're pleased with that. And as we think about Q4 against last year, obviously, we've talked about a GBP 37 million cost saving, which at a run rate of about GBP 3 million a month gives us GBP 9 million of protection against last year. So I think, Mike, in the round, the GBP 20 million consensus we were comfortable with. And since that point, we've taken some fairly aggressive cost actions as the right thing to do for the business. So I will let people draw their own conclusions. But certainly, the numbers that you mentioned there would be, all else being equal, how Bill and I will be thinking about the business.

Okay. So that looks like it completes Q&A on today's call. I'd like to pass the call back to Bill for any closing comments.

Thank you, Milly, and thank you, everybody, for joining us on our call. Mark and I just want to thank all of our associates for their hard work during lockdown, all the stuff that they were able to achieve during lockdown and how they performed coming out of it. At the end of the day, thoughts and ideas are easy, execution is hard and our team has performed at a very high level. Thank you, everybody.