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

Good morning, and welcome to the Pendragon 2021 Interim Results Call, which will cover the results for the first half of the financial year, a performance review and a further update on the significant progress we are making against our strategy. I am Bill Berman, and with me today is the Group CFO, Mark Willis. I will start by reviewing the performance for the first half in each of our divisions before updating you on progress with our strategic initiatives. I will then pass the call over to Mark to run through the financial performance in detail. Mark will also cover some guidance and outlook for the rest of the year before we open up for questions. I continue to be impressed with the evolution of our digital propositions and the response of both our associates and customers to these changes. For more than 3 months from the start of the year until the 12th of April, our showrooms were closed. But the digital developments we made in 2020, together with further capabilities we introduced, meant that despite this closure, we're able to complete over 40,000 vehicle transactions in the first quarter through a combination of home delivery and click and collect. The strength and quality of our multichannel proposition gave our customers the confidence to transact effortlessly and smoothly. As we reopened during the second quarter, we were able to maximize the benefit from the unprecedented conditions in the used car market. Our advantages in our vehicle sourcing supply chain allowed us to maintain vehicle inventory levels in challenging supply conditions, meaning we can meet the levels of pent-up demand and maximize our margin opportunity. Our performance in both the new and used car markets, together with the benefits from the significant changes we made to our cost base and further strong results in both Pinewood and Pendragon Vehicle Management, delivered an underlying profit before tax of GBP 35.1 million in the first half. Mark will give a little more detail on the outlook at the end of the presentation. But in summary, we believe there is still a high degree of uncertainty over the remainder of this year, with shortfalls in new car supply driven by supply chain constraints currently impacted the key month of September, potential disruption from COVID-19 and the timing of a correction in used car pricing. Starting with Franchised UK Motor, revenue grew by 64.6% on a like-for-like basis, recovering well against the first half of 2020, with our business better positioned to perform during this year's lockdown. This growth and the ability to respond to stronger customer demand was only achievable due to the advances of our digital capabilities and the efforts of our associates. New capabilities and strong operational performance meant we're able to outperform both the new and used car markets. In new, our like-for-like volume was up 42.7% against the market up 39.2%. And in used cars, we recorded like-for-like volume growth of 38.3% against a market up 33.3%. Our access to a wide array of used vehicle sources such as part exchange, our Sell Your Car proposition, our relationships with OEMs and our leasing business as well as multiple other channels meant that we are able to maintain our used vehicle inventory under challenging supply conditions. This allowed us to maintain good volumes throughout the half and maximize our ability to sell into rising used car prices, in particular through the second quarter. This is reflected in the improved margin in gross profit per unit with a used GPU of GBP 1,418, significantly up on the prior year. New margins were also stronger compared to last year, with the gross profit per unit rising to GBP 1,620, up from GBP 1,256. Our cost restructuring was primarily even focused on UK Motor division, with a GBP 45 million reduction in costs compared to the same period in 2019 before the pandemic, a successful outcome from both our selective store closures and a more efficient store operating model. Overall, as a result of the improvements being born from our strategy in both margin and in cost management and from good market conditions, UK Motor delivered an underlying profit of GBP 37.6 million. During H1 2021, Pinewood increased its overall net user numbers, excluding Pendragon, by 3%, a good result in what remains challenging conditions for growth as dealers reviewed headcount and implementation suffered from physical travel restrictions. Across Pinewood's international markets, there was a 14% net increase in user numbers with international growth driven by system installations in the Nordic markets, which was supported by overseas hiring and the establishment of a new team on the ground in Sweden to support further growth. Strong growth in international user numbers is expected to continue in the second half of 2021 despite the travel limitations arising from the pandemic. We continue to invest in hiring new development resources to aid long-term growth. As a result of user growth, combined with the reversal of discounts offered to customers last year, revenue grew by 12% to GBP 12.1 million. Operating profit increased by 13.6% to GBP 6 million. In H1 2021, Pinewood continued to invest in the functionality of its DMS platform. These included the development of online sales capabilities and tools as well as platform architecture and security. We are delighted to continue to focus on developing OEM support at an international level, most notably with Pinewood DMS achieving U.K. certification as part of BMW's Retail Integration Services alongside a role as a global partner to lead further development. During the first half of 2021, Car Store recorded an underlying operating profit of GBP 0.3 million compared to an operating loss of GBP 1.7 million in H1 2020. As with franchised dealerships, Car Store showrooms were closed from 1st of January to the 12th of April, with limited aftersales capability. There was less potential to mitigate operating costs through service activity, although the business continued to be able to remotely sell cars utilizing the group's digital developments. As a result, Car Store reported a loss in Q1 of GBP 0.7 million before returning to profitability in Q2 with an underlying profit of GBP 1 million. Overall, I'm pleased with the established Car Store locations are now consistently contributing to the group results. While the ongoing focus of trading performance has been critical to this improvement, the team's attention has also been on the development of our used car proposition ahead of the relaunch of this part of our business. I will cover this in more depth when I talk through the strategy in a moment. Pendragon Vehicle Management performed very strongly in the period with a 72% increase in operating profit to GBP 8.1 million, up from GBP 4.7 million in the first half of 2020. As flagged back at the 2020 results, PVM has seen a reduction to its fleet size compared to this time last year due to lower levels of new business during the pandemic and the decision we took to exit the body-shop sector. A smaller fleet size led to a reduction in recurring income during the first half. However, this was more than offset by a 90% increase in disposals of defleeted vehicles year-on-year. The strong market conditions for used vehicles, in particular in the second quarter, supported high levels of profit on disposal of motor vehicle. While the order book remains strong, it is likely that supply chain constraints on new cars will also impact on PVM, restricting the ability to issue new business in the immediate term. We are confident about the long-term prospects for fleet size growth as these constraints ease. Finally, US Motor. I'm pleased that we have now successfully concluded our U.S. disposal program, having completed the sale of Los Angeles and Santa Monica sites in the first half of this year, closing the chapter on this part of our business. In total, we achieved total proceeds before tax of GBP 106 million against the original target of GBP 100 million. I will now move to talk through the progress we have made with our strategy. As a reminder, our vision is to transform automotive retail through digital innovation and operational excellence. To achieve the group's vision, we identified 3 strategic priorities for growth: first, unlock significant value in the Franchised UK Motor division; second, grow and diversify our software business, Pinewood; and third, the disruption of stand-alone used car sales in the U.K. Against each of our growth priorities, there are 3 underlying objectives: those that have been progressed and have started to deliver value; those that are currently in development; and those that are on the road map for future development. The group is progressing well to strengthen existing as well as create new competitive advantages in the evolving U.K. automotive retail landscape. UK Motor operates from a far leaner cost base with substantially improved efficiencies; continues to act as a cost advantage source of supply of stand-alone used cars; has a greater reliance on an internal and external data in order to strengthen our digital capabilities and an improved internal decision-making; has a broad portfolio targeting multiple customer segments, with significant representation across the U.K. Our physical estate both now and in the future will be a critical asset to satisfy the omnichannel demand of customers. Pinewood has made excellent steps forward to further surpass its competitors through the development of enhanced digital capabilities, to enable the group to advance its digital and physical ecosystem and to contribute to group profitability both in the U.K. and internationally. Finally, the disruption of stand-alone used cars, launching late this year or early next, is unique to Pendragon given the vertically integrated assets and capabilities within our group. We'll benefit from the infrastructure of up to 150 locations for vehicle collection, has no OEM dependency, allowing greater levels of strategic freedom, will drive both volume and margin upside. Our strategy aims to restore and improve underlying profitability and put in place a foundation for sustainable profit growth. Financial improvement has continued in the first half of 2021, with underlying profit before tax of GBP 35.1 million. This upside has been supported by the strategic initiatives that have been progressed so far and the associated improvements to our customers' journey, operated model and cost base. Looking further ahead and after the market tailwinds subside, we remain confident in our target to achieve underlying profit before tax of circa GBP 85 million to GBP 90 million in full year '25. While there have been a number of contributing factors for the last 12 months period covering half 2 of 2020 and half 1 of 2021, we recorded an underlying profit of GBP 74.3 million, which builds confidence in what we achieved from our newly shaped business moving forward. The next slide provides a summarized view by strategic priorities of: a, the initiatives that have been progressed and are delivering value, 33 successful implemented projects across the group to further our omnichannel strength, drive margin upside and unlock additional cost opportunities; b, the initiatives that are currently in development, 24 initiatives to upweight our pricing capabilities to continue the journey to operational excellence and reposition our used car proposition; and c, the initiatives that are for future consideration, additional levers targeting operational excellence, further growth of Pinewood and the scaling of the used car physical estate based on the learnings of our concept store. I'll now highlight the benefits of the progress in development strategic initiatives to our customers, the group and our shareholders. Our first strategic priority is to unlock significant value in the Franchised UK Motor division. Against the objective of accelerating digital innovation, Pinewood has driven progress to strengthen our omnichannel capabilities. Evanshalshaw.com and Stratstone.com are now transactional, enabling customers to purchase used vehicles with cleared funds online. Evanshalshaw.com is enabled with finance payment functionality. Customers are able to apply online, receiving automated and real-time decisions to complete the transaction. Today, EH customers have the ability to complement their online vehicle purchase with insurance products, driving additional margin for the group when transactions are completed 100% online. We are progressing to have the same capabilities at Stratstone.com. Finally, Sales+ is a new functionality within the Pinewood ecosystem that enables our store associates to efficiently manage the sales process digitally. A number of actions have been pursued to drive improvement in the conversion of both part exchange as well as Sell Your Car vehicles in the first half. Our [ store ] associates now receive automated valuations via single group tool, which is underpinned by improved data. The omnichannel capabilities and conversion levers I have mentioned were incubated and fully scaled within the stand-alone used car division before being rolled out across UK Motor. We will continue to adopt this approach to drive change across the group at pace. In summary, these enhancements place us at the forefront of the U.K. automotive retail sector. They have been a key contributor to largely mitigate the impact of the third national lockdown in the first quarter and emerge stronger in quarter 2, outperforming the market. The second objective of UK Motor is to drive operational excellence and best practices. A number of enhancements have been made to our used vehicle warranties following an in-depth competitive review. A 3-year product to complement the existing 1 and year 2 products has been introduced. In line with the benefits of our proposition versus our peers, we revised the prices of our existing products. Our regional leadership structure has changed to drive greater operational focus. Second, we have revised our internal processes and made changes to drive improved margins from those vehicles that did not fit within our stocking profile and our [ center ] trade. The third objective for UK Motor is to operate from a lean and efficient cost base. As previously communicated, we restructured our store estate and store operating models. We are confident that these revised structures have delivered the benefits we previously outlined and will remain in place. A number of initiatives are currently in development for UK Motor. We are scoping a group-wide vehicle acquisition management and pricing platform. By utilizing Pinewood's technologies, we will build capability to leverage data, improve the processes for vehicle acquisition and automate inventory management. In addition, we will develop dynamic used pricing capability by harnessing both internal and external data to optimize the pricing of used vehicle inventory, impacting margin and turn speed. We are in the process of moving to a single finance system across our digital and physical assets. Once completed, this will give us some improvements to customer data transfer and lender response times. It will also be an enabler for future finance activity such as rate for risk and new car finance online. Finally, building on the current Sales+ platform, there are a number of further releases planned between now and the end of the year. These releases will drive efficiency by automating deal optimization, further improve our OEM integrations and the utilization of third-party data. A group-wide program is ongoing, targeting processes and procedure improvements to impact vehicle preparation, speed and quality as well as the subsequent spin on rectification. This program will also enhance the digital presentation of vehicles. The team is working on interventions to maximize both the quantity and conversion of vehicle health checks performed in our workshops. Improvements will be made to the customer journey to offer additional payment functionality. The next step with used warranties is to transition from a single product, the only variable being termed to tailored and tiered products. We will shortly launch a trial to offer customers warranty products that vary by age and mileage of the vehicle at the point of sale, which will be priced differentially. Finally, against the objective of driving operational excellence and best practice, a hub-and-spoke trial for Sell Your Car is currently underway. Conversion for these locations is tracking well ahead of the rest of the estate. The trial is providing the incremental used car supply. On a lean and efficient cost base, in addition to the progress cost levers mentioned previously, we are close to concluding the transformation of our finance function within UK Motor. Dealership teams have been centralized within our existing shared service center. Centralization has been supported by the standardization of process, investment in automation technologies and the new business partner capability. Pinewood has made excellent progress to enable and strengthen the group's omnichannel capabilities. Group-wide digital payment functionality, insurance products online as well as multiple Sales+ releases have been developed and delivered by the team at Pinewood. These capabilities have been successfully implemented in UK Motor using stand-alone used as the incubator. At present, the team are working on a number of development initiatives mentioned previously. Stand-alone used cars will shortly be relaunched. As part of the relaunch, the website will be redeveloped to improve the look, feel and flow, incorporated additional functionality as the ability to include a part exchange to the omnichannel transaction. On a stand-alone basis, there are 2 objectives for Pinewood. First, to deliver the material existing pipeline of international orders and the division has built. Internationals have grown by 14% over the first half. As I said earlier, this is incredible step forward in light of the travel restrictions that have been imposed as a result of pandemic. Second is to deliver further geographic expansion. Existing relationships have the potential of further orders from both dealer groups and OEMs to be the single in-market DMS provider. Pinewood is now one of the only 2 global partners to support BMW's retail integration strategy. Congratulations to the team for the growth that this will drive over time. Our third strategic priority is the disruption of used cars in the U.K. The U.K. is the most attractive used vehicle market globally. The total market for used vehicle sales is approximately 7 million to 8 million per year. Based on the age and mileage profile that will resonate best with our target customer segments, the addressable market to us is around 4 million cars per annum. The addressable used market for Pendragon is bigger than the total U.K. new car market. We believe that Pendragon has a significant advantage. We are able to leverage the complementary attributes of the wider group to provide a steady source of suitable stock. While I have a high level of brand referrals within the group, the omnichannel capabilities progress so far and in development will allow us to leverage further scale advantages into a differentiated used car proposition and drive higher margins. In late Q4 2021 or early Q1 2022, our new vision and brand will be launched. Customers will experience clear propositions across buying, selling and aftersales included, but not limited to, group stock availability and collection locations, a personal adviser to support the end-to-end customer journey, part exchange capability on the website, in-house as opposed to third-party home delivery capability, interest-free aftersales options. We are targeting the development of 8 further locations over the period to full year '25 to drive incremental volume for the group. The first concept store to inform our future expansion will launch in Chesterfield early next year. Used car sales whenever, wherever and however a customer wants. Your car, your way. In summary, I'm delighted with the progress that has been made during the first half of 2021 to deliver the group strategy. The initiatives progressed have been a key contributor to largely mitigate the impact of the third national lockdown in the first quarter and a more stronger in quarter 2, outperforming the market. The cross-functional team continues to maintain a high pace of change with a large number of initiatives in development to drive further stakeholder value in the second half and beyond. The Board and I remain confident in the opportunity that our strategy provides and how the group is positioned in the evolving consumer and competitive landscape. We continue to target underlying PBT of circa GBP 85 million to GBP 90 million by 2025 and the significant shareholder value creation this drives. Finally, I would like to thank our 5,100 associates for all their hard work and dedication through these unprecedented times. Without them, we would not have been able to achieve all that we have. I will now hand over to Mark to take us through the first half financial performance in a little more detail.

Thank you, Bill, and good morning, everyone. Starting with the first slide, which gives an overview of the key financial metrics and demonstrates the positive momentum both when compared against last year, which was obviously impacted by the COVID-19 pandemic, but also against a more directly comparable period in 2019. I will cover each of these metrics over the next few slides. But in summary, whilst the smaller store estate has led to lower revenue when compared to 2019, the improvements of the business has delivered in the gross margin rate, together with the material changes to the cost base that combined to offset this lower revenue, it has resulted in an underlying profit before tax of GBP 35.1 million, which is over GBP 65 million better than both of the 2 prior years. Turning next to look at the summary group income statement. And starting with revenue, which grew strongly against last year, heavily impacted obviously by the severe restrictions of the first national lockdown. In total, revenue growth grew by 49% and by 62.6% on a like-for-like store basis. This is a particularly creditable result for the reasons Bill outlined already, with stores physically closed for 14 weeks in the period compared to 10 in the same period last year. Gross profit grew by 56.1% with the gross margin rate increasing from 11.1% to 11.6%. It's worth noting the different supply and demand dynamics between the first and second quarter and how that impacted on the gross margin rate in used cars in particular. Just to give a little more detail on this, UK Motor gross profit per unit was approximately GBP 500 per car lower in Q1 than in Q2. The supply remained at high levels, whilst underlying demand dropped as people stayed at home during the lockdown period. Therefore, in Q1, the GPU was approximately GBP 1,100. Whilst in Q2, as demand increased and supply tightened, the gross profit per unit increased to approximately GBP 1,600 per unit, leading to an overall H1 UK Motor used GPU of GBP 1,418. Looking at cost next. Again, as Bill outlined earlier, the success in the implementation of a restructured store estate and the more efficient payroll operating model introduced during the second half of last year has driven a significant reduction in operating costs, improving operational leverage. Total underlying operating costs of GBP 159.3 million benefited from GBP 10.1 million of furlough grants and rate relief in the half. Adjusting for this, there was still a reduction of over GBP 75 million in underlying operating costs compared to the pre-pandemic in 2019. While gross profit is just GBP 24 million lower, with the GPU reduction driven by a reduction of GBP 27 million from the sale of the U.S. assets. Underlying interest costs were GBP 16.8 million or GBP 3.4 million lower year-on-year, principally driven by a reduction of GBP 3 million in vehicle stocking plan interest as a result of the lower inventories. Net result of all of these movements is an underlying profit before tax in the period of GBP 35.1 million. The group also recorded non-underlying costs of GBP 4.3 million in the half, comprising of a charge of GBP 5.4 million for the impairment of right-of-use assets, which almost wholly relate to the impairment of 3 leases in California that remained with the group following disposal of the U.S. assets. These remaining short-life leases are all in good locations and are currently being marketed to sublet. Termination and severance costs were GBP 0.9 million. And these principally relate to the transfer of finance processes from dealerships to a centralized shared service center as part of our ongoing program to operate from a lean and efficient cost base and pension costs of GBP 0.5 million, all of which were partially offset by gains of GBP 2.4 million on the sale of business and property, plant and equipment, mainly arising from a combined profit of GBP 2.0 million (sic) [ GBP 1.0 million ] on disposal of the U.S. assets in Santa Monica and Los Angeles, together with gains arising on the disposal of a small number of other freehold properties. After non-underlying items, the group recorded an overall profit before tax of GBP 30.8 million, an increase of GBP 82.8 million versus the prior year loss of GBP 52.0 million. This next slide demonstrates the quarterly volatility from the changing COVID situation. It illustrates the weighting of performance between Q1 and Q2, showing both the impact of the lockdown and then the benefit of pent-up demand. Despite being physical closure in the first quarter, the reduction of the cost base and improved multichannel capabilities, we were still able to deliver a material improvement on Q1 FY '20, with Q1 underlying PBT of GBP 10.8 million. The strong trading, improved volumes and higher margins in the second quarter, together with the new cost structure, resulted in underlying profit before tax of GBP 24.3 million in Q2. Looking next to the cash flow for the first half. The group's closing adjusted net cash of GBP 9.5 million reflects a cash inflow of GBP 109.9 million from the full year '20 closing net debt of GBP 100.4 million. Cash generated from operations was an inflow of GBP 114.8 million compared to an inflow of GBP 76.3 million in the first half of last year, with the increase principally coming from the improved underlying operating profit of GBP 62.7 million as a result of the strong trading performance. In addition, there is a working capital inflow in relation to a short-term VAT timing benefit of approximately GBP 35 million, which has arisen from the reduction in new car inventory during the second quarter. This timing benefit is in addition to a continued benefit from the deferral of VAT payments made in half 1 2020 and the government support scheme, which as at June stood GBP 29 million. Combined, therefore, at the half year, the group's net debt position is benefiting from a total VAT timing impact of approximately GBP 64 million, which will unwind during the second half of FY '21. Contributions to the defined benefit pension scheme increased from GBP 2.6 million to GBP 6.3 million, with payments into the scheme reverting to the levels agreed in 2019, following the unwind of an agreement with the scheme trustee during the first half of last year to deferred payments from the first half into the second half due to the initial impact of the pandemic. Net capital expenditure was an inflow of GBP 24.9 million and is a combination of GBP 28.8 million of cash received from the disposal of the U.S. assets and a small number of U.K. properties, together with GBP 3 million inflow from a reduction in fixed asset vehicles, which were partially offset by a GBP 6.9 million outflow from capital expenditure. This remains at the low level during the period as we continue to exercise caution during the lockdown in Q1 and with a number of projects being weighted to the second half of FY '21. Lease payments and receipts increased by GBP 5.8 million to GBP 19 million, with the increase coming from the reversal of the timing benefit in half 1 of last year from the temporary move to monthly rent payments during the early stages of the pandemic. Finally, for the financial statements, an overview of movements on the balance sheet, where net assets have increased by GBP 59.7 million compared to December 2020 to GBP 186.4 million as at 30th of June 2021. The key movements I want to put out for commentary are a reduction in inventory of GBP 139.8 million to GBP 469 million, as new car inventory has declined by approximately GBP 170 million, driven by constraints on the global supply chain, exemplified by the ongoing chip shortages. This reduction has been partially offset by an increase in the value of used vehicle inventory of approximately GBP 40 million, as the average value of a used car in stock appreciated by circa 15% in the period as a result of the strong demand for used cars pushing up the average cost of a used car in stock as well as the retail value. We currently expect new car inventory levels to remain lower throughout the second half of FY '21. There is a reduction in payables of GBP 94.6 million, which relates to the lower vehicle creditors as a result of the reduction in vehicle inventory, partially offset by the increase of VAT creditor as explained in the cash flow. And finally, the net liability for defined benefit pension scheme obligations has decreased from GBP 75.5 million at FY '20 to GBP 34.9 million at H1 '21. The decrease of GBP 40.6 million comprises of contributions of GBP 6.3 million, net interest of GBP 0.5 million and a net actuarial gain in the period of GBP 34.8 million. Lastly, let's look at a couple of guidance items and a summary of the outlook. So to guide on cash movements, we expect to see a high level of CapEx in the second half of up to GBP 50 million as we progress a number of larger developments, although I would caveat this remains subject to the availability of certain materials such as steel. As previously discussed, there is approximately a GBP 64 million timing VAT benefit that will unwind in the second half. In terms of outlook, there remains a high degree of uncertainty over the remainder of the year. We've started to see shortfalls in new car supply through July, August and September. And at this point, we expect this to continue at least through the remainder of this year. Offsetting this, used car margins remained strong, and the timing of any normalization of these remains unclear. We also remain conscious that COVID-19 could continue to have an impact both in the U.K. and through further disruption to global supply chains. Because of these factors, there remains a range of possible outcomes for the full year, where we currently expect underlying profit before tax will be in the range of GBP 55 million to GBP 60 million. In summary, we are pleased with the progress we continue to make against our strategy, and we believe we have the right plans in place to deliver our long-term financial targets. Thank you. Bill and I will now answer any questions.

[Operator Instructions] We will now take our first question from Sanjay Vidyarthi of Liberum.

Bill, Mark, a couple of questions, please. First one is you've talked a lot about the investment in systems and IT and your ability to mine the data. Can you talk a little bit about people as well, please? And obviously, it's been a difficult period, but just if you could talk a little bit about staff retention now and recruitment; and also the culture of the business, how that's evolved over the last year or 2.

Absolutely. I'll take that one, Sanjay. So I think the best way to start off is just the talent that we've brought in over the last 2 years. We've brought in a highly skilled Chief Marketing Officer. We've brought in a highly skilled Chief Information Officer. We've brought in -- we announced last earnings, a highly skilled individual to run our stand-alone used car proposition. And then we just recently announced a new Chief People Officer. And you're seeing with those additional individuals that have come in that they're bringing a new culture, a new sense of urgency, a new skill sets into the organization and help drive the business. In addition to that, we already had a great existing staff on the leadership level and especially at the store level. A little bit of challenge on changing the culture during the middle of pandemic and not being able to get out to the stores to the extent that we would like. But we're seeing our associates responding well to the changes that have been made in our business, accepting of the new business model that Mark and the team and I have laid out. And we actually have done a very, very good job with the retention of our people. There is pressures out there on the wage side of the business, which I think everybody is feeling, not just automotive, but I think that will subside over time once the furlough schemes unwind and things get back to normal. But we're seeing a great amount of success from our staff and very happy and proud of the performance that they've given us.

Okay. Sounds good. Has there been any change in the way that they're incentivized on the ground at the dealership level?

There's constantly changes. We've changed focus to drive different behaviors and to drive different initiatives. It's ever-changing. We've looked at increasing wage levels in key positions, technicians, service advisers and salespeople, but that is something that we are doing on an ongoing basis. And we look at it at least on a quarterly basis and adjust to any market conditions that may arise.

Okay. So I mean, it'd be interesting to understand just on that point, what are the key priorities now that you're incentivizing staff on?

Well, I mean it's -- we talked about the strategy. I mean, I'll give a good example, would be how we're incentivizing them on part exchange, for example, something that wasn't put out there prior. Part exchange is part of the deal, but we didn't have an additional incentive into our stores to help drive additional part exchanges. It's something we put out several months ago, and we've had great success with that. We've also changed the way we incentivize other behaviors within the store. I don't want to get into particular because some of it is proprietary. But we sit here and the kind of adages, I show you how you pay me and I'll show how I'm going to act. So we're incentivizing whether it's our technicians, our advisers or our salespeople for the desired behaviors.

Okay. Right. And the second area of question is just in terms of the shape of the portfolio. So if you could talk a little bit about multi-franchising, how much of that is happening? How much you think that might kind of improve productivity over time? If it is something -- a road that you'll go down, if there are any further disposals, and also, if you would have -- if you're thinking that in the short to medium-term, acquisitions could be back on the agenda.

Yes. We're very happy with the store estate that we have right now. We don't see any further closures. We made those tough decisions last year in the middle of the pandemic, and we're good where we go. As far as multi-franchising, I'm definitely open to that. Haven't seen any real direction from any of the OEMs. I think most are still reluctant onto that with maybe the exception being Stellantis within their own brands. And as Stellantis works through their current network redevelopment, you might see some changes to the way that they have their store setup. So we would absolutely be open to having multiple franchises within one facility. To your point, it gives us greater flow-through, lowers expenses, greater revenue, greater profitability. So we'd be absolutely open to that. As far as acquisitions, we don't have the best balanced estate right now. We're light in certain Asian brands, Korean brands, Japanese brands. Toyota, Honda, Kia, Hyundai, I would like to have more of those. I have no Toyota and Honda. And we have 0 VW and Audi stores. I mean, those are 2 great franchises and 2 franchises that are definitely in the move, especially with electrification. So we would be absolutely open to acquisitions and being able to balance out and further grow our current dealership estate.

We'll take our next question from Michael Benedict of Berenberg.

Congratulations on another strong half. A couple from me, please. Firstly, I think the statement noted you've seen good success in the Nordics with Pinewood. I wonder if you could give a bit of color on your future international focus markets for that business. And then the second one, clearly, there's some uncertainty in terms of volumes. And in terms of the 2025 target, that's, I guess, mainly around margins and costs. But what level of car market volumes versus 2019 would you still be confident with in hitting that 2025 target?

Okay. Starting off with Pinewood, currently -- and our strategy is to continue to grow within the markets that we currently exist in. Obviously, within the U.K., we feel there's additional growth opportunities within the U.K. We have the opportunities that we have in the Nordic countries, especially in Sweden, especially with a couple of key groups up there that we're closely tied to and then obviously, some of the businesses we have in South Africa and Southeast Asia. I also think that over time, there would be an opportunity for North America as well. We have a superior product, and at the right time and the right place, there may be an opportunity for that. But primary focus right now is to grow within the U.K. and then to continue to invest and grow in the markets where we currently exist in right now. As far as 2025, initially, in our strategy, we have forecasted out that in 2023 that we get back to 2019 new car volume numbers, then with small incremental growth from thereon from '24 and '25 and the respective growth in volume that will go along with that, roughly 2% to 3%, which historically has been kind of what the new car market has done and then the used car market follows proportionately to that. That might be a little bit up in the air right now because with the chip supply shortage and no real, clear definitive time line when that is really going to come back online. It might take a little bit longer to get to those volumes. With that said, though, we are still very confident in our full year 2025 number of GBP 85 million to GBP 90 million, and I feel that we have no problems getting that even if the volumes do not hit the numbers that we have forecasted.

Yes. Mike, I'll just add to that. You might recall that we were assuming that the market got back to 2019 levels by 2023. So as Bill absolutely rightly points out, that might be a year or 2 delayed. But I don't think it materially changes the view that by 2025, it should be somewhere back to where it is now -- sorry, was in 2019.

[Operator Instructions] We'll now take our next question from Andrew Wade of Jefferies.

Just 2 from me. First one, could you just talk about financing income and attach rates given the changes from January on [ DIC ] models? That's the first one. And then the second one, on the agency model, what developments are you seeing specifically some stuff going on? And how could you see that impacting the model longer term?

Are you talking about finance and insurance, the finance rates? Or are you talking about the financing of the company?

F&I, I think -- yes.

Finance and insurance, yes.

Finance and insurance. Listen, the rules were announced way ahead of time. We were able to adjust our business models to work within the confines that were set by the FCA and the regulatory bodies. We have seen no negative impact whatsoever from that. And if anything, we've actually seen our F&I gross profits continue to grow. The only caveat would be in the first quarter with trying to sell cars via lockdown and having do home deliveries and click and collect, and there's a little bit of downward pressure on F&I margins at that point in time. It's a little easier to sell those products in person than it is via Teams or Zoom calls. As far as agency model, I'm a big proponent of agency model. I think the industry is going to continue to evolve in industry -- or agency models are one of the fastest where they may involve in. I'd say the one that's probably foremost on that, that's talked about the most and that's in most of that would be in Mercedes-Benz. And we're supportive of the direction, at least the way that they've laid it out. If you look at it, Andrew, I mean, you break down every revenue stream that comes in into a dealership, on the sale of a stand-alone new vehicle without finance and insurance, if you lay overall the cost, it's the least profitable part of our business. And it's the part that since has the most risk and has the most expense attached to it. So on the agency model is the way that people have talked about them, we're no longer responsible for floor plan. We're no longer responsible for marketing. The OEMs are setting pricing and incentives. We're not having to stock irrationally, and we're not having to discount irrationally. We get to facilitate the new vehicle transaction and get a commission for doing that. And then still the profitable parts of our business, we still get 100% control of, which would be part exchange, finance and insurance and aftersales. So at least the way that it's been brought to market so far, I see nothing but a positive for us.

And just to add a bit more on the F&I side as well, I think you'll be familiar that the idea was to remove the incentivization of dealer-based commissions for different commission rates. I think it's important to remember that we operate within pretty narrow range previously without the highs that some of the market might have. So what we needed to do is find almost the sweet spot between penetration and rate as we move to a fixed rate. So we're pretty confident that we've done that pretty well.

And it appears there are no further questions at this time. I would like to hand back to the speakers for any additional or closing remarks.

Only thing is thank you, everybody, for the call. And once again, I just want to thank our 5,100 associates for all their hard work. And without them, none of the performance we had in the first half would have been possible. Thank you, everybody, and have a great day.