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

Good morning, and welcome to Pendragon's full year results presentation, during which we'll cover the financial results for full year '22 and give you an update on the great progress we continue to make with our strategy. I will start with a recap on our vision, why we strongly believe our set of diversified assets that create real competitive advantage and a reminder of our ongoing strategic priorities. Mark will then take you through the financial performance before I run through a more detailed operational and strategic review for 2022. As always, we'll be happy to take any questions at the end of today's presentation. Our vision is to transform automotive retail through digital innovation and operational excellence. Over the last year, the scale of strategic delivery has once again been substantial and has taken a key contributor to the performance announced to the market today. To support our vision, we redefined our purpose and values in 2022. I'm confident that the outputs formed across all divisions of the group will further unify our teams and drive even greater pace of transformational change in 2023 and beyond. The Board and I remain confident in the opportunity that our strategy provides for value creation, and we're well poised in the evolving consumer and competitive landscape. Pendragon is highly differentiated in its assets and capabilities. And since the launch of our strategy, the group has progressed extremely well to strengthen or create new competitive advantages. In UK Motor, we operate from a far leaner cost base with substantially improved efficiency, effectively leverages big data from internal and external sources to improve decision-making and customer journeys. Features Car Store, our new used car strategy, is resonating well with customers and our new CarStore.com website lists approximately 12,000 used cars, more than any of our new digital disruptors and the second largest overall. UK Motor has broadened its portfolio to include BYD, the world's largest manufacturer of new energy vehicles. I'm delighted that Pendragon is acting as BYD's lead launch partner for the U.K., 2 stores in Birmingham and Milton Kings are already operational and 6 more are in build, including a flagship store in London. Pinewood has made excellent steps forward as well, further surpasses competitors through the development of enhanced digital capabilities, enables the group to advance its physical ecosystem at a greater pace than its peers. It's also contributed to group profitability both in the U.K. and internationally. Pendragon Vehicle Management has diversified OEM representation, is growing well beyond its B2B core in a number of B2C adjacencies and has a full year service proposition driving high levels of customer retention. This slide recaps our strategy announced late in 2020. As outlined at the end of FY '21, substantial progress has been made against the UK Motor objective of operating from a lean and effective cost base, while tactical opportunities continue to be pursued. This objective has now been replaced with the enhanced of our new car representation across the U.K. Beyond our existing partnerships with BYD, acting as a U.K. lead launch partner, we are in conversation with a number of other brands to respond to the electrification of the U.K. fleet. Moving to Slide 6. The outputs of our strategic initiatives and significant investments across our divisions are driving much improved productivity and gross margin resilience across the group. The relaunch in the year of the market-leading omnichannel Car Store proposition with a fully transactional website has contributed to the robust underlying profit before tax announced today, a GBP 57.6 million. This performance was ahead of the Board's expectation at the start of the year. Our PBT performance was in strong light of well publicized and significant headwinds during the year, with operating costs of nearly GBP 34 million year-over-year. The balance sheet of Pendragon continues to improve. At the end of FY '22, net debt stood at approximately GBP 23 million versus nearly GBP 50 million at the end of FY '21. I will now hand the call over to Mark to cover the numbers in more detail.

Thank you, Bill, and good morning, everyone. I want to start the slides that I've shown at our last couple of results presentations, but wanted to revisit once more just to demonstrate the structural shift in performance and the improved efficiency of the group since the launch of our strategy back in late 2020 when considered against results pre-pandemic. In the year, revenue was up 6.7% on a like-for-like basis at GBP 3.6 million. This is than pre-pandemic 2019 when the group was operating from over 200 stores compared to just 145 today. As a reminder, a number of those stores were loss making. We delivered further growth in gross profit in FY '22, which is up 5.5% on a like-for-like basis versus FY '21 of GBP 457 million, delivering a gross margin rate of 12.6%. Our focus on driving strategic initiatives that benefit used car gross profit per unit and maximizing our new GPUs and supply constrained conditions, together with like-for-like growth of 6.9% and after sales gross profit underpinned this performance. Again, comparing this to FY '19, gross profit is just GBP 15 million or 3% lower now than then, despite the near GBP 900 million lower revenue. At the start of FY '22, I guided the underlying operating costs would grow by approximately GBP 30 million during FY '22. As a result of the removal of brakes relief worth approximately GBP 12 million, the investment we've made into marketing of approximately GBP 10 million and the impact of inflation. In total, costs grew by GBP 33.7 million to GBP 358.7 million, with inflation that peaked tied and forecast at the start of the year being the key driver of that higher cost base. Once more, though, looking back against the pre-strategy cost base, costs remained GBP 87 million lower. So in the year, despite the increase in gross profit and revenue, the impact of that cost changes together with the higher interest rates resulted in a reduction in underlying profit before tax from GBP 83 million to GBP 57.6 million. Compared to FY '19, still an improvement of GBP 74 million. At the launch of our strategy, we stated our priority for capital allocation was the investment in capital to support initiatives, together with a focus on reducing the level of bank net debt that the business was carrying. During 2022, we have delivered a further reduction in net debt from GBP 49.7 million to GBP 23.3 million. This is now down by GBP 96.4 million since the start of our strategy. Turning next to Slide 9 to look at the summary group income statement. Following on from the comments on the last slide on the growth in gross profit, a little bit more color on the drivers and you'll hear more as Bill move through the operational review as well, but the gross profit performance was underpinned by strong growth in new car margins as some implied constraints were more than offset by improved gross profit being at GBP 2,719. As we expected, the used car margins were down from the extraordinary peak levels seen in the second half of '21, but the levels achieved at GBP 1,607 for the year were still significantly higher than historically delivered, benefiting from the combined impact of numerous strategic initiatives, which again will be covered shortly. The aftersales margin rate was flat year-on-year despite the impact of technician labor cost increases with -- which combined with a 7.5% like-for-like sales growth resulted in an incremental GBP 9 million of aftersales gross profit compared to FY '21. And as I covered on the previous slide, costs were up to GBP 33.7 million. So I'll just finish on this slide by drawing your attention to the nonunderlying items, which totaled GBP 0.4 million. And there's a combination of a net gain on disposals of property and business of GBP 7.9 million, offset by impairment charges of GBP 4.8 million, which is the impairment of the goodwill on the disposal of our DAF truck business. In addition, changes in the base interest rate resulted in approximately GBP 8 million of incremental interest charges in the year, and the net impact of these movements was the underlying PBT of GBP 57.6 million. Moving on to Slide 10, to look at cash flow. The group delivered another good year of cash generation, driving further debt reduction, whilst increasing the level of capital investment into the business. Cash generated from operations was GBP 116.7 million, which included working capital outflow of GBP 5.1 million, and that was primarily driven by the cash fund element of used car increased values. Net capital expenditure of GBP 27.1 million comprised capital expenditure of GBP 43.7 million, which included a number of major development programs that Bill will touch on shortly. In addition, almost GBP 6 million of development capital was invested in Pinewood to support its future growth. The CapEx was offset by inflows from disposal of excess property, largely from the sale of a vacant site in St. Albans for GBP 10.5 million and GBP 2.9 million generated from the disposal of the DAF truck business. Lease payment and receipts were GBP 2.8 million lower as we continually to successfully manage the extent vacant properties from our store rationalization program. The results of the lease regear with our largest landlord that has allowed us to return early 12 vacant properties, resulted in a cash saving of GBP 2 million in FY '22 and that will rise to GBP 3.5 million on a full year basis. Over the course of the last 3 years now, we have successfully reduced our vacant leasehold property generating over GBP 7 million in annual rent savings and a further GBP 3 million reduction in rates. And we're pleased with the ongoing reduction in the group's net debt position. And lastly, on the financial statements just to cover some key changes on the balance sheet, which has further strengthened. Net assets increased by GBP 55.4 million to GBP 281 million. Key movements include an increase of GBP 16.1 million in property assets, reflecting the investments we've made into our estate. Inventory increased by 21% or GBP 107.5 million, and that's driven by a combination of approximately GBP 44 million in increase in new car inventories as a supply eased a little bit at the back end of the year and an increase in used car stock of GBP 63 million, GBP 22 million of that is driven by higher volume of these cars at the end of the year as we prepared from the start of this year and the remaining GBP 40 million is driven by an increase in the average value of the cars held. There is a corresponding increase in payables of GBP 121 million, principally driven by the increase in creditors against that inventory. Finally, the net liabilities for defined benefit pension scheme obligations has reduced from GBP 23.6 million to GBP 2.6 million at the end of '22. And that improvement comprises contributions of GBP 13.1 million from the company and a net actuarial gain of GBP 8 million. We also completed the triennial valuation of the company's pension scheme during the year as at the 31st of December, 2021. And that exercise concluded that the funding deficit has reduced from GBP 170 million when we last did the exercise in 2018 to GBP 33 million as at December '21. So the company and trustees have agreed to continue the current level of contribution since the pension scheme until the end of 2023, at which point the actuarial deficit is expected to be met. And at that point, we're moving to a long-term funding target, but contributions will reduce by GBP 10 million to GBP 3.5 million per year, and that target we met in 2026. I'll now pass back to Bill, who will cover the operational and strategy update.

Cheers, Mark. Next to Slide 13 to look at the operational performance of the motor vision before I move to cover our strategic initiatives. We have revised the way we look at our used car strategy. It now reflects our group ride omnichannel approach to used car retailing. As the market has continued to evolve, we have adapted our strategy away from a standalone proposition to a group-wide proposition, ensuring we maximize the advantage of our entire used car inventory, our physical assets and our digital capabilities. To achieve this, all of our used inventory now is listed on a fully transactional platform CarStore.com with in excess of 12,000 vehicles currently online. We remain focused on maximizing our performance in the important new car business, and we made significant investment into a number of our premium brands, in particular, for 2022, including major remodels at Porsche, BMW, Mercedes-Benz and our new Land Rover location in Mayfair. In addition and in line with our plans announced back in 2020, we have now opened 2 new format Car Store locations in Chesterfield with the addition aftersales facilities completed in 2022 and a brand-new site in Warrington. As a result of the supply challenges, which impacted the whole market and persisted throughout the year, volumes were down 6.1% in new cars and 8.7% in used cars. Our order bank for new vehicles, however, has remained incredibly strong. And we came into 2023 with an excess of 20,000 orders in our Motor division, and we are confident we are well placed when supply eases. In used cars, we are in line with the market overall for the year. But following the launch of our new used car proposition in May, we outperformed the used car market over the course of the second half by 600 basis points. Excellent new and used GPUs, which I will cover on the next slide, together with a strong performance in aftersales, again supported by strategic improvements, all underpinned an overall improvement in gross profit of GBP 18.4 million year-over-year basis. Mark has covered drivers of cost increases, but the impact of those cost increases offset the growth in gross profit, resulting in an operating profit of GBP 69.1 million. So coming back to look at per unit performance on Slide 14, our strategy to implement changes in the way we operate in order to improve the used car gross profits, GPUs, is having demonstratable results with the used car GPU of GBP 1,607 being well above historical levels. From 2011 to 2018, our used GPU averaged GBP 947 pounds. The 2022 GPU is in excess of GBP 600 higher than this and the initiatives we have focused on since 2020, have underpinned this growth. A focus on maximizing new car margins where supply is restricted resulted in a record new GPU of GBP 2,719, which is GBP 808 better compared to full year '21. Turning next to Slide 15. Against the strategic objective of accelerating digital innovation, the group enabled by Pinewood has made excellent further progress to strengthen its omnichannel capabilities in FY '22. Sales Plus is a DMS application that enables store associates to seamlessly manage a sales process across digital and physical channels. Addition to this app in the year have included, the automated inclusion of insurance products and customer offers, which is driving penetration improvements year-over-year, associates and customers using the same system and process, whether in-store or at home can now amend in real-time finance type, deposit, term, annual mileage and insurance products. The increased levels of transparency and optionality have been well received. F&I menus shown on the right side of the slide as well as the sale of insurance products, not at the point of purchase in the vehicle, are currently in development and will be scaled across the group in FY '23. We expect these developments to deliver further penetration improvements and incremental sales. Second, our market-leading digital F&I capabilities have been strengthened throughout FY '22. And variable APRs by balance of finance are being utilized for BMW, Mercedes-Benz and JLR on unused vehicles. The dynamic and real-time capabilities to compare lender offers and associated variances and residual values has been scaled across the group can maximize customer value. Data capability has been built in to monitor the equity position of customers purchasing used vehicles on finance in addition to automated communication tools. We are trialing this capability at present with positive early signs for customer retention and unit volumes. The sum of these F&I initiatives has driven a 5 percentage point improvement in finance penetration with approximately GBP 8 million in FY '22. Looking forward, rate for risk capability is currently being developed, personalized finance rates based on a soft credit check will be serviced to the customer in FY '23. The group wide vehicle acquisition, management and pricing platform is focused on optimizing both the turn speed and margin of used vehicles. Market-based pricing has been furthered with the inclusion of internal demand and vehicle supply indicators in 2022. Improved levels of automation and a cloud-based solution, have reduced the manual inputs, driven unit economics and accelerated turn speed. The total benefit driven by pricing revisions totaled approximately GBP 4 million in FY '22. The teams have redefined the part exchange and Sell Your Car journeys, so they're seamless for customers both online and in-store. To complement these journeys, Sales Plus has been further developed to include proprietary appraisal and valuation capabilities. As a result, the reliance on third-party systems has been removed, workflow into customer and associate journeys has been built, and finally, visible of expected virtual actual costs and preparation has been driven to further fine-tune customer evaluations and optimize margin. Looking forward, a science modeling with the application of machine learning is in development to maximize the cloud-based pricing solution. These market-leading capabilities will be used in part to support objective of doubling Sell Your Car vehicles given the favorable metal margin dynamics versus other used vehicle channels. A program targeting reconditioning delivered good progress in FY '22. The right used cars are getting to the right location faster. Revised stock allocation frameworks, coupled with process automation to stop the reliance on vehicles being manually brought into stock, has improved turn speed. The team are now reviewing cosmetic preparation processes and capabilities to identify further improvements. The aftersales performance announced today has benefited from a number of developments in the year. Technicians have a revised incentive structure, which reduced churn and driven productivity improvements. Vehicle health check conversion and performance has improved year-over-year, underpinned by revised local reporting and dedicated operational focus. A first half trial of offering interest-free finance for vehicle health checks has been scaled across all UK Motor locations in the second half. [ VHC ] improvements have driven approximately GBP 4 million worth of benefit in FY '22. For FY '23, opportunities to improve service pricing across our channels, service plan penetration and utilization of our own labeled parts will be explored. Used vehicle warranty products, record levels of penetration and margin for the group were driven in the first half of 2022. I'm very pleased to state that this performance is furthered in the second half. Since launch, used guarantee penetration improved by 5 whole percentage points and approximately GBP 3 million of benefit has been recognized to date. The next iteration will be dynamic pricing for individual cap codes. This will unlock Stratstone vehicles that do not qualify for OEM warranties and drive further upside across the business. Taking together all these operational improvements and things and processes have contributed towards the margin improvements we have seen in UK Motors. Moving to Slide 18 and BYD. I'm very proud and pleased that Pendragon, our BYD's lead launch partner in U.K. BYD is the world's largest new energy manufacturer. They sold approximately 1.9 million new energy vehicles in FY '22 and year-over-year growth of more than 200%. BYD has substantial plans for the U.K. market, targeting 5% new vehicle market share in the next several years. The first model line to launch in the U.K. is ATTO 3. The ATTO 3 is C segment SUV with a fully electric powertrain and a range of over 260 miles. Moving forward, the product roadmap is impressive with 3 further model set to launch in the U.K. in 2023. Last week, we opened our first 2 locations in Birmingham and Milton Keynes and the initial customer reactions have been positive and has shown the vehicles to have a high quality and innovation. We have already started taking orders on the ATTO 3. Going forward, we have 6 further locations planned for the year, including BYD's U.K. flagship locations in Mayfair, London. BYD is the first new partner against our objective of enhancing new car representation. We are delighted to partner with BYD in the U.K., the world's largest manufacturer of new energy vehicles. Our new used car strategy. Car Store's mission is to empower customers to buy, sell and take care of their car needs the way that they want. From a traditional walk-in journey to a full online transaction with no associate interaction and everything in between. Car Store's proposition is truly personalized and seamless across digital and physical channels. Further revisions have been made to the proposition in the year. All grew used stock, some 12,000 vehicles currently is now transactional via the CarStore.com website and supported revised image standards. 12,000 new vehicles gives us greater scale than any other digital disruptor and going forward, Car Store will be the used car brand and platform for the group. In the second half of 2022, SellYourCar.com was launched and now is driving incremental used vehicle acquisition for the group. The revisions we have made to your Sell Your Car journeys place us in the forefront of the market and enables us to capture disproportionate share. They have also supported into gross margin resilience across the group versus FY '21 and the unprecedented market tailwinds at that time. All Evans Halshaw locations are enabled with the CarStore.com omnichannel proposition in FY '22, Car Store will be the group's used car platform and brand going forward. The first stand-alone concept store to support the omnichannel proposition and to test and learn launched in Chesterfield in April. The store has been very well received by customers and now acts as the blueprint for future expansion. As referenced at the first half, the next store to come online in Q4 was Warrington. Warrington is a circa 3-acre lot, and displays approximately 400 used vehicles. Again, the store has been well received by customers. Looking forward, we are targeting 2 new Car Store locations in FY '23. The number of small format locations branded as CarStore Direct has scaled during the first half of '22. 10 new locations are now live across the U.K. These locations support the SellYourCar.com proposition as well as adding points for click and collect and vehicle delivery. A full launch of the proposition supported by integrated omnichannel campaign began in May '22 in addition to prime-time TV advertising to drive awareness of the repositioned brand. We partner with leading touring car team, Power Maxed Racing earlier this year. The impact of the proposition launch has been positive. Digital traffic to CarStore.com is up more than 60% on a year-over-year basis. New customers are being attracted to the brand and the full year reputation.com score has market-leading 4.7 out of 5, up 2 basis points year-over-year. And with trust pilot scores also strong at 4.6 out of 5. This was a contributing factor to our market outperformance in the second half of FY '22. I presented this slide at the half year to highlight the market-leading omnichannel capabilities that underpin our omnichannel customer proposition. During the second half, we have continued to maintain our digital and physical advantages versus the competition. We have greater levels of opportunity as others have exited. We have industry-leading trust pilot scores, our scale of inventory is greater than any other digital disruptor. I'm confident that the digital and physical changes coming in 2023 and beyond will continue to drive customer satisfaction, scale and differentiation versus the competition. Turning to Slide 23 and Pinewood. Pinewood continues to be a fundamental to the pace and scale change that we are delivering. Pinewood's evolving technology is powering our U.K. Motor business and ultimately will be to the benefit of Pinewood's external customers, which make up approximately 80% of Pinewood's customer base. Pinewood delivered a strong second half of the year with a total user of 4%, resulting from new users added during H2. Pinewood now serves approximately 32,000 users across 19 different countries. International user growth was up 13% during FY '22, taking the international user count to a record high of approximately 6,400 users. The second half as also saw Pinewood enter into 2 new international markets in Singapore and the Middle East. And finally, on the international front, the customers in Asia Pacific were transitioned onto a direct sales relationship with Pinewood, U.K., improving the margins achieved in this market. There remains a strong pipeline for international expansion, both directly with retail customers and through engagement via Pinewood's strong OEM relationships. Approximately 90% of Pinewood DMS revenue is on a reoccurring basis, an important metric for a SaaS business. Coupled with this, Pinewood benefits from a strong customer retention model with net user churn below 1% in 2022. In order to accelerate its growth, Pinewood is investing more into development and operational resources with costs increasing by GBP 1.7 million during the year. As a result, despite the revenue growth, the cost investment resulted in a reduction in underlying operating profit to GBP 11 million. We are confident that this investment will drive returns in the future. A number of important strategic enablers to the UK Motor division's performance were developed and delivered by Pinewood during FY '22. I covered these in more detail during the Motor division review, but as a reminder, all the modules that I mentioned, including open banking payment developments, Sales Plus enhancement, the progress with our acquisition management and pricing platform and the strong performance in F&I were all powered by Pinewood. The speed at which we have been able to develop, test, and launch these capabilities has been an important advantage to us. There is further strong development pipeline in place for '23, including insurance menu pricing, stand-alone product sales, capability, in addition, further after sales enhancements and new finance models such as rate for risk are under development. On a stand-alone basis, looking forward, Pinewood is targeting double-digit percentage growth in total users in 2023 and is making good progress with this aim with approximately 200 new users added year-to-date and orders of approximately 1,600 users currently in place. Finally, the sales pipeline continues to build strong given the digital assets and capabilities of Pinewood that are unrivaled on a global basis. Looking at PVM on Slide 25. Pendragon Vehicle Management, our leasing business, also performed very strongly in the period with a 13.7% increase in operating profit to GBP 19.9 million up from GBP 17.5 million in 2021. PVM's growth continues to be driven by profit on disposal of defleeted vehicles where the residual values for disposable vehicles were set 3 to 4 years prior. These disposals therefore continue to benefit from the increase in used car prices we have seen since late 2021. The fleet size like much of UK Motor retail sales is being restricted by supply, but PVM is continuing to focus on generating orders and currently has an order bank of over 2,000 orders, substantially higher than pre-pandemic run rates. We also believe there continues to be an exciting opportunity for fleets looking at electrification and the benefits that will bring to their employees from a tax perspective with support for future growth. Our relationship with BYD gives an opportunity to grow in this space. Over 40% of our current order book for PVM is for either a hybrid or pure electric vehicle. In summary, I'm delighted with the scale of delivery across the group in 2022. I consider our omnichannel capabilities to be market leading, and we continue to obtain a high pace of change. There's still a strong pipeline of strategic opportunity, and we are confident in how we are positioned to deliver these opportunities in evolving landscape. We have continued to invest in driving growth in the business. And you see the evidence in our performance in the UK Motor and Pinewood. Pinewood, in particular, is a part of the business that we are very excited about. With that in mind, we plan to host a Capital Markets Day for investors and analysts this summer, which will include an update on Pinewood. 2023 has started well with good volume and with good volume growth in January and February, driving operating profit ahead of 2022. Last week, we opened our first BYD locations in Birmingham, and Milton Keynes. We entered the year over 22,000 new car orders across Motor division and PVM. And while we expect supply to remain below historic levels, there are some signs of improvement in vehicle supply as well. We remain mindful of the potential headwinds from challenging macroeconomic conditions. However, we continue to expect our ongoing operational initiatives and growth opportunities to more than offset operating cost inflation within the business this year and beyond. The Board remains confident in the prospects for the group in 2023. And lastly, on a personal note, I would like to thank all 5,600 of our associates for all their hard work and dedicated. Thank you. Mark and I will now take any questions.

It's Mike Allen from Zeus. So a couple, if I may. Just on goodwill, the slight reduction there. Am I assuming that's JLR related?

No, as I said in my comment, all of the goodwill impairment is because we disposed of the DAF business, so we're writing for goodwill associated with that. All of our other goodwill is still held at carrying value.

And so confident no kind of write-downs?

Yes. I think if you're thinking about what is [indiscernible] like we're confident with the outlook that we've got there that we won't be impairing.

That's good.

And all that hasn't been finalized yet, so we won't know that until later in the year, what that proposition looks like.

That's good. And maybe just some updated thoughts on agency post Mercedes taking that decision and how that's gone and how you think it might develop?

I mean, so we're in a really, really early stages. I think if anybody is going to be able to figure out the agency model is going to be somebody like Mercedes-Benz. It has been well received by the customers. Obviously, there's a big change from 1 day doing the traditional model to the next day going on the agency model and stuff like that. And I think with some of the supply constraints, maybe that's somewhat benefited from them. We still have a large order bank with Mercedes-Benz. Like I said, the customers have been receptive, and we're working through it. I think it's really too new to rate. What I think is that the way it looks today won't be what it looks like in 6 months or a year from now, I think it will continue to evolve. And as others come into the marketplace, I think everyone will have kind of a different version of it, but it will just kind of be able to find a new norm at some point in time. To me, the way it's currently set up, I think, ultimately could be additive to the current dealer base and the dealer body. So I don't see it as any type of a negative. If anything, I see as an opportunity for us to grow when it comes to used vehicles, hopefully, a better customer experience. And then -- and one of the key things is you get a little bit more control of your initial marketplace and stuff like that, so better retention once again. So we think it is a positive.

Yes. And then just last 1 for me, just on -- I mean there's a plethora of Chinese brands expected to come to the U.K. market. You're clearly in a strong position with BYD. But will you consider new Chinese brands as well or you rule that out for now?

We're an equal opportunity. We'll take anything and everything. There's lots of them that are coming in, not just coming in from China from different parts of the world. And I mean, we look our current footprint. We're best at and the type of things we sell. Some of the entrants are coming in and they're specializing in LCVs and stuff like that. Definitely with PVM, that could be a huge opportunity. So we're in talks and engaging with just about all of them. But like you said there's quite a few coming in, and we'll find the ones where we feel kind of their methodologies and ours aligned, and we look to grow. That's a huge opportunity for us to be able to grow. You don't often have -- I've been doing this for a long time. You often brand-new OEM come into a marketplace. So on that end, it's pretty exciting.

Mike Benedict from Berenberg. I have a few, I can go 1 at a time. But so firstly, on Pinewood be great to get a bit of color on your growth outlook for the year ahead in that business. And given the additional costs is for GBP 20 million profit still achievable in FY '25 for that business?

So first of all, we said in our thing here that we're looking for double-digit growth overall. We're off to a very good start. I just said earlier, we've already put 200 new users on. We've got 1,600 in the pipeline and a very high amount of people that were engaged with in intense discussions with. When it comes to a SaaS business like this, growth is key. So we haven't revised our target for 2025. But where the opportunity to invest more money into it to grow faster, we will always going to weigh out on those balance points in there right now. The things that they've built for us and mind you, when they have built something for UK Motor, UK Motor is actually pays for that. So it's not ad hoc or anything like that. So there's actually a revenue stream for them. But those things ultimately will be pieces that they can sell through the system. So when you look at Pinewood, you're going to see growth in a couple of different ways. Traditionally, it's always been user count. So you'll see that going on there. We have a great product lineup, our production line up when it comes to international marketplace, but now you're going to start to see us being able to sell vertically through the different pieces, the things that I talked about, whether it's rate for risk, F&I menus, used vehicle management tools, the enhancements that we've made to Sales Plus. Even the transactional website, which was developed and built by them ultimately, will be able to be sold through that system. So you'll see user growth continue and hopefully accelerate over time, but then you're going to see other revenue channels developed over the years to come.

And I think just for context, Mike, when we put that strategy out in 2020, we talked about the GBP 20 million coming from user growth, not from those incremental revenues. So that was always something that we had to upside on that as well.

Great. Second one, just on marketing investment. So you stepped up in FY '22. I guess what should we -- how should we think about that moving into FY '23 for example, doubling the Sell Your Car penetration?

Yes. So I mean, listen, that's always fluid and based on market conditions, we will constantly revise that. We spend an extra, I believe, it was GBP 10 million last May or not just in May, but we started in May to go drive that proposition. It was huge success. So the transactional website, the marketing campaign that came to it, which I think was just really ingenious, really played out well. If you look at the second half of the year, we outperformed the market by 600 basis points percentage points, [ 6 full ] percentage points. That's very difficult to do. If you do really good, you might be able to beat by 1 or 2 to beat by that level. So it was a combination from the operational side. Obviously, our new used car strategy, CarStore.com. As we go into this year, we already have that momentum behind us, so we'll strategically look as inventory builds and opportunities to go out there and continue to drive additional traffic in. Right now with the used cars, it's, he or she who has the car, wins. So being able to acquire the vehicles is key. That comes to our SellYourCar.com proposition, which now, like we said, is a sub-brand. We are really happy that we're able to get that URL and now be able to market that in addition to it. Prior to that, we had Sell Your Car links on everything, but that just went into a system. We actually now can go out there and market that as a URL and bring people in. And we'll look throughout this year where opportunity comes in to maybe go out there and drive that even further. Mark talked about it. We take a vehicle and we buy directly from a customer, we get higher margins, faster turn rates. So there's nothing bad with it. And at the end of the day, it's a low-cost channel to bring additional used cars in. So it'll ebb and flow based on market conditions, but we will start to really push on the SellYourCar.com proposition.

Brilliant. And then last 1 for me. Clearly, net debt, well down and said you're reviewing capital allocation policy. Any color on sort of what your preferred method of shareholder returns would be great?

So listen, especially right now with the rates going up, having little to no debt is good, and especially with some of the numbers that came out today and who knows what the different central banks will do and how that can affect you. To me, capital allocation can kind of go in a couple of ways. In 2020, we talked about our capital allocation being to grow the business, investments in BYD, investments in our new used car strategy, our stand-alone used car propositions and as such. To me, growth is always out there, but you always have to balance that off with shareholder return and what's best for them. So for us, we look at trying to grow our proposition first and foremost, always with -- in the back of our mind, what's best for shareholders and then how do we allocate any additional cash that comes out that way, whether it's a dividend or a share buyback. We've had discussions with the Board. And as the year progresses and we see where our cash position is, we'll definitely look at either a dividend or a share buyback. Personally, I tend to favor share buybacks. And historically, they've had a greater return for us. But as the year progresses, we'll come back to that.

Yes. I think context is important, right, back into early 2020, the tangible net assets on the balance sheet were negative. So having changed our position around, having a stronger balance sheet, GBP 280 million in assets, we just mindful that it opens up different opportunities.

Andy Wade from Jefferies. A couple from me. First one, when you mentioned around discussions with other brand, really opportunities in electrification, was that around new entrants? Or are there also opportunities there in terms of existing -- [ paying sites ] down with existing brands?

No, there's huge opportunities with existing brands. And while we have a good core set of OEMs, and I'm very happy with OEM relations we have now. There are several key brands that we don't currently represent. VW, Audi, Toyota, Honda and such. And we definitely are engaging with those groups and see if we can grow that way too. To think about BYD and some of the new entrants, that doesn't happen too often. I've been doing this for 35 years. I think I've seen 1 or 2 pure new entrants into that space, especially through a retail dealer network. So I'm not counting the polestars or Teslas of the world to see something completely come from the ground up. And that partnership with BYD, I mean it's like the largest electric car company that nobody ever heard of. I mean they're the biggest in the world. And I guarantee most people don't even know they exist right now. So the quality of the car is exceptional. It's well built. It's well designed. I think it's going to be a huge success here. And like I said, they are the biggest and the best right now. We're just happy to be part of that.

Great. And second 1 on the motor side, you sort of used the phrase substantial progress has been made sort of across all those areas through per [ buy-sell ] margin and F&I and all those sort of elements. Obviously, it's a bit of a moving feast to where you think you can get to. There's always iterative. But versus where you want to be right now, are you -- how would -- I'm not going to necessarily I'm going to ask you for a number [indiscernible] are you sort of 75% of the way along that? Are you only halfway? How much...

Andy, it's an impossible question, because it's a journey, not a destination, right? So there's always room for improvement. So if we're at GBP 3,000 margin on used cars, how do we get to GBP 3,100. If are at GBP 3,100, how do we get to GBP 3,200. I think the opportunity is -- was is that 4 or 5 years ago, we're probably at the very bottom end of the peers when it came to some of those metrics and stuff like that. And I'd say now at the very least, we're on par and in a lot of cases, especially over the last 12 to 18 months, we've actually come to the top of those metrics. Once again the performance in used vehicles for the last half, new vehicle GPUs right now. And this is taking advantage of great staff that we have that goes out and executes this, but using Pinewood to the fullest to help be able to drive listings. It just gives us a really unique competitive advantage.

Great. One which I wouldn't normally find myself asking, but you sort of talked about your -- revising your approach to the people side of things and the whole new sort of approach to that. Can you give us some idea of what the -- obviously, you've got a huge amount of employees across all your showrooms and so on. And having guys and girls sort of putting in the right direction, could have a big impact on the business. I'm interested as to sort of what you think the benefits of that could be?

So Mark and everyone always heard me say this. We have some great facilities and some great brands, but you can have the best brand and the best facility and the cars don't sell themselves. They don't fix themselves. It really comes down to the people. And at the end of the day, while everybody is important, you have key people that engage with customers to do that. For Mark and I, we are nothing more than support. I can come up with the best idea in the world, but others have to go out there and execute it, and that's the hard part. And I don't think kind of back to what I said about some of our performance where we're kind of on the back of the pack when it came to how we compensated people, some of the underlying benefits, we just didn't prioritize that maybe as much as we should have. So we've made a concerted effort to revise those things. We did a lot of work last year on that, whether it was paid time off, whether it was health benefits, whether it was pension contributions and such. And we made sure that we were rewarding the people comparable to the market at the very least. I mean even this year, when we're looking at how we -- because that's an evolving thing. And we're just now really prioritizing our people because once again, at the end of the day, they are the ones that make the difference. All these things sound great, but it's the 56 -- or 5,598 of them that do all the hard work and Mark and I just sit here and get to sit here and talk to all of you guys. Okay. I think that's all the questions. Thank you all for your time. Appreciate it.

Thank you, everybody.

See you again next time.