Vertu Motors plc (VTU) Earnings Call Transcript & Summary

Welcome to the Vertu Motors' Investor Webinar. [Operator Instructions] There's a PDF of the slides on the right-hand side, and this webinar is being recorded. I now hand over to Robert Forrester, CEO; and Karen Anderson, CFO. Robert, over to you.

Thank you very much, [indiscernible] and good afternoon, everybody. This presentation is updated from our investor presentation that we did in May, which I know a number of you have seen. So we will crack on straight through into the agenda. We're going to cover the highlights for the last financial year, which actually ended in February in which we presented in May. Karen will then go through the financials, and then I'll go through some market trends and outlook updated from the year-end. We've a number of trading days in the last couple of months, which I'm sure a lot of you are aware of. So if we move to the next slide. The business is actually 15 years old on the 1st of November, and it's been quite busy 15 years. You can see here in 2006, we've clearly had 0 sales. That was remember the 155, which is up from 149 when we came down to -- well [indiscernible] city in May. And you can see that there's been quite a strong growth in revenues, clearly to over GBP 3.5 billion. On a run rate, we got [indiscernible] GBP 182 million of tangible net assets till the end of February and very strong tangible net assets per share over 50p. We've continued to grow the business in all the way through the pandemic, but I'm just going through the highlights for the last sort of 18 months and particularly around the pandemic. If we just move to the next slide. Okay. We have spent a lot of time in recent years and rapidly through the pandemic period in improving our technology. And we believe our Click2Drive sales technology platform is best-in-class. We've got full online capability in most areas. Actually, I'll comment in more detail. And we've used robotics technology to improve efficiency across the business, taking a lot of costs out during the pandemic period. And we used data extensively all the time in terms of we've got the right data decision-making through our general managers and managers have the right decision making, and we continue to improve quite radically the analytical capabilities of the business. We've got a scale business, GBP 3.7 billion in normalized revenues and had these quite a significant number of handlers during the pandemic. We had a very strong balance sheet going in. We realize we're in a strong position to make acquisitions, for example, a significant BMW acquisition and also recently added the MG franchise for the first time. We have more franchise out list actually -- franchise manufacturing partnerships than in a U.K. motor retailer. During the last 18 months, we've had a lot of actions to reduce costs. We also obviously have to weave our way through the COVID restrictions recently we did with relative ease over various moments. We have 5,000 people on furlough at one point, and we very much managed cash flow, significant cash generation. And we'll see in the first half of the year to the end of August significant cash generation coming through. One of the crucial things in terms of building a business of this scale is one, is the culture as a business. And I think we get more positives here than negatives, 87% of the colleagues consider the Group a great place to work, and 98% know our values. For those of you that watch the television, you all have seen our values in action or not as the case may be last Thursday night. 93% of the colleagues actually believe that the directors practice the values, which is a very, very strong number. So we think we've got a very strong platform with which to grow the business further. So what business are we in? If we move to the next slide, is our dealership portfolio. So here's a breakdown of 155 sales outlets. We've got 3 brands, Bristol Street Motors our most common known brands, sort of 44% property brand awareness in the United Kingdom, tends to be our volume brands, as you can see there. In Scotland, we've gone for Scottish brand of Macklin Motors, and we're growing a premium brand business of branded Vertu. Actually, since the year-end, all our Land Rover dealerships have moved from being our own branded to Vertu branding. And we've got a real focus on growing our Vertu brands. We think we need different brands to fit geographies but also split between volume franchises and premium franchises. In terms of strategy, the strategy of the group has actually been exceedingly consistent over 15-year period. And we've got another strategy with David, the Board in September, and there will be some tweaks no doubt. But the strategy is actually around having a very strong platform, very strong culture, having very big customer focus and then some strategic goals. Clearly, growth is paramount to actually grow as scale's franchise dealership group, but also on the extreme side, inside our ancillary businesses, which adds to the scale of the group actually help the franchise businesses and grow in their own right. And we've got a number of -- and acquired a number of online businesses, such as [indiscernible] is one of the biggest sort of online parts in the United Kingdom on eBay and Amazon. And our van online broker faces as well, which is delivering over 300 [ tons ] a month. So the growth comes in franchise dealerships and ancillary businesses, clearly, got a massive fo loss on digitalization. We've got 45 full-time software developers, all robotic experts in the business, and that continues to grow. Because clearly, we need to invest heavily in the technology platforms, that cost is actually in payroll. We tend not to capitalize any software development costs. It's an ongoing cost to the business. And we've got to be bricks and clicks, and you'll see that later on, but I don't think you can be pure e-com in cars. Frankly, that has a conversion ratio of about 0.8% to 1%. But clearly, you need to be on the Internet because that drives faster customer activity prior to actually coming into the dealership. We are low margin. So we're going to have a real focus on costs, and we've driven some real strong cost improvements. We have a committee that meets monthly called the bureaucracy efficiency and Productivity committee, and I have an update today from it, to the drive cost down and just make us more efficient. And we've got to have a focus on colleagues and customers. Customers pay our wages, colleagues deliver the service, and we've got to get those 2 groups of people very much for into what we're trying to do. I'll pass it over to Karen to go through some of the financial highlights.

Thanks, Robert. So on Slide 9, I haven't gone through the granularity of the results at the end of February '21. For those of you who are interested in that, we do publish our analyst presentation and recording of that on our website, so you can access that for more granularity. And -- but this slide here shows the gross profit composition of the group. [indiscernible] always pay to the new car market and what's going on in the new car market and its impact on dealer profitability. As you can see from this slide, the group's profit streams are much more diverse in simply new cars. Just 18% of the total gross profit of the group in FY '21 came from the sale of new cars, new resell cars or cars to resell customers. Whereas actually, if you look used car sales generated nearly twice as much gross profit as out for the group. So clearly, we've got a more diverse [indiscernible] and new cars. After sales though makes up 43% of the group's gross profit. There's a majority of that coming from our service operations, and that helps us be more resilient when the new car market fluctuates. And it's also aftersales has also the -- our service in particular, within our aftersales is also the highest margin activity the group undertakes. And those margins have been rising in recent years in driving improvements in aftersales margin, as you can see in the line graph on this slide. And we have a solid retention strategy such as prepaid service plans, which we sell to customers as well as some advanced contracts and the strategy that's executed to our contact center here and [indiscernible]. We initiated a digital conquest strategy. [Technical Difficulty] [indiscernible]

Karen, I'm really sorry to cut across you. Could you unplug the mic and replug it in again. It's distorted and we're not on the right mic.

[Indiscernible].

Can you now tap that mic just to...

Is that any better? Hello?

Yes. Can you now tap that mic just to.

Is that any better?

Tap the mic again. Okay, carry on.

Okay. Apologies for that. We're also making use of technology and aftersales by offering the ability to customers to book service online, and that's obviously impacting on efficiency on our aftersales and contact center. It's also worth noting the group has a large piece of commercial operation, which although contributes quite a small percentage of overall gross profit. And it is a big operation, including being one of the U.K.'s largest suppliers for -- for transit. If we turn over to the balance sheet, on the next slide, you can see this shows the summary of the group's balance sheet as of the end of February. And Robert already pointed out, we've got a very strong tangible net asset base, which is underpinned by the group's freehold and long lease of property portfolio, which has a net value of [ early ] of GBP 230 million. We actively manage this portfolio, and that results in some assets held for resale, which is shown separately. And recent sales of these surplus assets have yielded value in excess of book values. And we took action in terms of protecting our liquidity in the light of the uncertainty around [ salvage ]. And you can see that actually we delivered a reduction in net debt of GBP 24 million, excluding lease liabilities from the position at the end of February 2020. And that meant that we had a net debt of just GBP 4.6 million at the end of February '21. It's worth pointing out that the borrowings on this slide, includes used vehicle stocking loans, which typically in our industry is cost as trade payables rather than borrowings. So if we match that with our actual position would have been adjusted net cash of GBP 1.4 million, which is consistent with our peers. We acquired the BMW MINI businesses in December 2020. And I introduced some long-term mortgage funding to the group. And that's provided by BMW financial services. And it's secured on the properties. And it's actually a 20-year term. You will find operating capital fluctuations through manufacturing new vehicle stocking lines through CMML and for used vehicle stocking. And we have facilities in place with low levels of utilization. If I turn over to capital allocation discipline on the next slide. Our strong balance sheet and tangible net assets per share gives us that higher to grow, and that's obviously one of the elements in terms of capital allocation. We carefully consider how we spend our money. So in terms of portfolio management, we do detailed business translate acquisition, with target EV EBITDA ratios to be achieved over a 3-year period, and we consistently review and prune our portfolio that we have to make sure that the capital is deployed in the right way. We obviously invest in our portfolio with capital expenditure, and we're seeing increasing flexibility of [ performance ] and representation, allowing us to make the most of our assets through, for example, putting new franchises into existing sites. Dividends is a very important discipline that the Board are keen to reestablish, and it will certainly be our intention to do so, as we already stated in the year-end results announcement. And finally, share buybacks have been part of the group's history, which is on the next slide, you're right, and we would consider to use free cash flow to meet further repurchase. So in evidence of this, this slide shows the annual dividends, which obviously halted that's heart of the pandemic in order to protect liquidity. And also, we've returned 7.5% of our issued share capital in repurchase cancellation utilizing GBP 11.6 million of cash so far. I'll hand back now to Robert to go through market trends and outlook.

Okay. So if we move to the next slide, I'll give an overview because we clearly we could talk for hours about the trends in the sector generally. There is a gradual increase, I'll go through it in more detail, in the use of the Internet with regards to consumer behavior. However, it should be pointed out the outset. Online purchasing, is truly defined as an individual going on a computer or a mobile device and purchasing a car with no human involvement is a very, very low level volume in the United Kingdom at the moment. And that has the lowest conversion ratio of around between 0.5% and 0.8%. You cannot build a significant business, frankly, if you are doing pure e-com sales for volumes. So you just get there and you have to spend a fortune in marketing to actually get the traffic spill and conversion ratio to actually produce volume. However, there is absolutely no doubt that more and more people are using online tools, websites, et cetera, to actually interact with us, and it's a key part of the buying journey and our sales process had to have been amended a lot actually over the last few months, and we'll go through that. The industry is seeing quite a few changes. Manufacturer is reducing the number of franchise outlets, which didn't impact us, and also I'm pleased to say, it actually helps those number goes down, those remaining get more business. And we are seeing disruptions in the industry rather move into an agency model, where the manufacturers are actually -- transact directly with -- legally with the customer, makes it very little difference from what I can see to ourselves. It's just a legal process whereby rather [indiscernible] an invoice and having turnover, we'll get [indiscernible] fee and manufacture legally contracts. The reason we want to do that is they want to be able to fix the price of the new car and reduce discounting and take out intra brand competition. So they want to actually try and keep more of the money and within the value chain rather than seeing massive discounting. So that's not really going to kick in even in the franchises that are planning to do it before 2023. There's a lot of work to be done in the sector before then because that's quite a radical change actually in terms of systems. On technology, I've said a lot about data analytics. We've got actually first-class technology, and we're using technology not only to understand the customer and to do digital marketing to a significant degree, but also to enhance productivity. And finally, clearly our trends and [Indiscernible]. So very interesting things emerging around our expectation, is very much a regulation push rather than a consumer pull equally bioelectric vehicles, certainly should test drive them and do test driving is quite a different experience. And the infrastructure on charging is way behind where it needs to be for mass adoption of electric vehicles. Also, it's an interesting data, the U.S. actually since in the last couple of months, that the average invoice value in electric vehicle going into a service department, is actually higher than the average invoice of an internal combustion engine going into service part. So we've been saying for a while that we don't see in the next 5 years radical purchase in terms of aftersales revenues, in fact, quite the reverse, I would say I suspect in some franchises. And to adopt new technology, it just tends to go wrong. If we move to the next slide, which goes into the customer journeys a little bit more. And actually, I would -- If I was redoing this side again, we're going to probably have 4 bookings rather than 3. All customers is really well different. There is a very, very, very small number of people who will transact entirely online. We did 434 used car sales through our online transactions in FY '21. I think we did 90 last month, and we probably sold 8,500 used cars. So you can see it's very small bit. We are going to see to actually increase this number quite radically, and we are expanding our experience center in the gated area. And we're going to offer a concierge service whereby if somebody is online or if somebody needs help on the website or buying a car, then we'll have specialists to be able to help them to talk to them, probably talk to them rather than like chat, to be honest with you. And also to be able to take control of computer and help them along the way. So we have that aim to have that concierge launch by 1st of October. Because clearly there is efficiency isn't there and actually doing it online. So it's just not many people feel very comfortable in doing it, to be honest. On the right-hand side, we have 30%, 40% of the customers who traditionally want to fully transact in a dealership. It's still been on the [indiscernible] actually to some degree, but we want to come in and sit down and do the deal, do a bit of handling. We did a customer survey, which we'll go through the interim actually massive [ Christmas ] so that 60% of our customers who bought last 12 months wants actually like negotiating, it's quite a surprise. And the number of customers who actually want text driving is massive i.e. 75% of our customers actually want to test drive. So at the end, you're going to dealerships so point. The middle box is really a hybrid, which I think is where the majority of customers are at the moment. So they're on the Internet. They're interacting with us or e-mail or live chat. We will send them videos of the car they want. We may even send them the deal that we're proposing at some point end up probably coming into a dealership rather collect the vehicle or to do a test drive. But it's certainly not a pure online transactions, but definitely interaction with our sales teams. And bricks and clicks really is vital. If you take the online competitors, I mean, presumably some open day collection center in Carlyle. And I think if you've got to open in Carlyle, that proves you need a national network of dealerships. Moving to the next slide which is a Karen's introducing slide and it's a work of genius. The 3 boxes on the left hand side, so pure online, the flexible hybrid and the physical, you can see the technological tools, which actually makes your car safe to drive platform. So we can do videos through the platform within our video call through the platform. You can sign all documents through an SMS messaging, which takes -- which means you can pay to do that, where we can do a dealership process of signing documents and the dealership is identical. If you are at home, we offer some of these test drives or complete test drives now. Interestingly, 25% of customers actually want the sales executive in the car with them, which actually I would never have thought, I always thought it would be high, but I've got wrong actually, 75% wants a -- on a company test drive. But we also really increasing the sales process where the customer chooses the journey as opposed to a strict linear sales process, which we'll have talked for a lot of years. And so the customer is really much more in control. Do we care? Not really as long as we sell a car and we get the right conversion ratio, and then I think we're all good to go to. Okay. If we move to the next slide. We are very focused actually on our brand. To be honest, a major reason why we undertook the undercover the box project was because we thought it will significantly enhance brand awareness of Bristol Street Motors, which is -- I think it's on over 3 million people watching that program since last Thursday night as well as the part failure will pay off to build that Bristol Street Motors [indiscernible]. If you look at the box on the graph, you can see Bristol Street Motors is on to brand awareness, and if we do a monthly, you've got to say that to be honest. It's around 44%. [indiscernible] these are the ones that got the most brand awareness. That's a legacy view in my opinion. And 38% is actually on a [ craft ]. If I [Indiscernible] mention competitors, that will be most of [Indiscernible] it would be on a clock in international chain. And all other U.K. franchise dealer groups, have a property brand awareness of 20% or less. So they haven't built off their brands. Now you can clearly see, the shorter one and the shorter 2 and this is dated October to March. If we were rerunning that maybe close to 40% from the brand awareness now. It's the latest view that we've got all update again at the [ interest ]. So clearly, I think from brand awareness is important. It drives organic search actually on Thursday, Friday and Saturday, we have 20,000 more visitors to bristolstreet.co.uk normal on the back of the TV program because that brand awareness actually shot up. So we've got marketing strategies which include seeking to build brand awareness. And things like the service on full coverage for from the one at least [indiscernible] we've also got additional benefit from the 154 dealerships all signed -- all we signed, which is actually a very big difference. So to try and get people to the website, then try and convert them and we've got a lot of very specialist job roles to maximize like click analytics to maximize search engine optimization and our products, as we call them, reserves for GBP 99 on the web offer you a service online on the web plus there are products, and we're clearly working hard to optimize that through conversion and optimization. Next slide, please. if actually look, the Click2Drive technology platform that we've got, which will actually promote quite heavily in the course for this year in terms of TV promotion. We do -- generally, we're on TV pretty well all the time, both with Bristol Street and with Vertu Motors brands. And you can see actually taken it here of what we can do. And we can do pretty well everything has got more than these online digital competitors, and we certainly sell a lot more cars. So the only advantage that these competitors have got is they've got more marketing dollars than we've got. This is as simple as that. However, with a 0.8% conversion rates, I think that is problematic on their side in terms of getting a return. We launch our asset sales base. We've got our new car base, which makes our business very different. And actually, I think it's better if consumers speaking on encompassing experience. The world of e-com and omnichannel retail is definitely not finished, we've got a lot of work to do. We did launch 3 months ago sell your car where we're buying cars from our customer base and that's been great, actually will use part of being constrained still a lot more work. Next slide, please. Okay. So this is the final slide. The business is clearly had -- and the industries had a significant amount of business momentum. These are record trading conditions. I've been in the industry 20 years and I've never seen the like albeit our latest guidance was for the full year out from January to February between GBP 40 million and GBP 45 million. That includes, in my opinion, an abnormal levels of profitability coming out of used cars. Our used car margins are at historically high levels, which is a combination of strong demand which continues and supply constraints leading to margin increases. We've also seen margin increases in new cars quite a significant margin increases. So strong profitability, strong cash generation. Clearly, we're in the middle now. We're heading into a period where we're going to see quite significant supply constraints with regards to new cars. It's a very different sort of franchise, the franchise base to [indiscernible] we still got great visibility. If we deliver all the cars that my computer says we're going to deliver in September, I will be delighted, but I just have this quite big picture that the cars will not arrive. And so I can't really give you any more guidance that I gave you last time but I hope I -- our interims in the 13th of October, clearly we've got through September, and we should have some quite good visibility than Q4. So I think it's a very strange environment. But clearly, if you're not making on your motor retail now, you never will make money. And the profit numbers are clearly quite significant. I do not think there is a direct read across into future years. I think we've got to be very careful to accept that we are in a relatively unique situation. Having said that, I can't see where the dynamics we use for our margins relatively coming down -- or coming from. So I think new car supply and used card supply will be constrained are actually quite superior, of course, would be certainly 9 months. So I think that's going to be actually quite interesting to see how that plays out. At the same time, on the business strategy side, we put our massive focus on execution. We are really focused on the fact that these are very benign, very favorable market conditions. We have to get ready for the market initially to turn back to normal and not ex delusional. We've got to continue to invest in the digital developments. And we've got to make sure that our marketing is absolutely top draw and delivering for the business. We haven't put on this slide, but we have slides it in the announcement. We are seeing cost structures going through, particularly around wages. I think when the dust settles, you will see that we made a GBP 10 million annualized cost savings during the pandemic, which we said would continue, but we are seeing wage pressure emerge. You saw today the record levels of vacancies in the U.K. economy, and we have record levels of vacancies. So we are taking steps to make sure we're training people and take the steps to make sure we attract the right caliber of people. And for example, we've an [ artifact ] 90% paid for six months in the last couple of weeks. So that's a run-through of our business, hopefully, it was interesting. And I think now we are open to questions.

[Operator Instructions] And we have the question here, which says, you certainly can use excess free cash flow to buy back shares below intrinsic value? What do you consider current intrinsic value per share to be?

Yes, that's not a number that we disclose. But all I would say is consistently higher in even our current share price or indeed our tangible net assets per share. I agree with the sentiment, so clearly, if that is the assessment, then share buyback should be on the agenda.

Tremendous. And going on from that, with the tangible net assets per share of 50.2p, the share price looks undervalued at 46.5. So how do you judge the attractiveness of raising equity to fund growth by acquisition?

I think it would be slightly problematic, but that's not to rule out in specific circumstances. But clearly, corporate finance, they will be able tell me if your share price is low, [indiscernible] per share then you should probably be aiming on buying shares back rather than issuing equity. I think that's probably right, actually. I mean you don't mind a few acquisitions at the moment I think with record levels of profitability in the sector, right, the decision to sell a business now would be critical actually, and actually got supreme price for it. We are buyers of businesses, we're not buyers of businesses at any price. And I can see that dynamic of actually less acquisitions in the short-term plan now because once we get out of this period, people will try and sell their business on a multiple of a very, very high profit number. And they're going to get a bit of a real waiting when we got an offer from most.

And to what extent the new car supply constraints vary between brands? And is your franchise mix positive or negative or neutral in this respect?

I'm not going to guess as whether it's positive, neutral or -- well, we just have to play with that and we're giving -- I don't think there's any point kind of comparisons. I think on a very assessment, the quotes that our manufacturing plants are for the major semiconductor production areas of Taiwan and South Korea, in my opinion, the easier it is to get [Indiscernible]. So I think Japanese manufacturers, South Korean manufactures and certainly Chinese manufacturers, which actually we are the largest player with Honda, for example, in -- we are in the top 2 finest. So we've got a strong Japanese and Korean and the like is a Hyundai player in the U.K.. I think we've got some strength there, which is certainly going to help us. I think once you get into European production it becomes more problematic. And certainly, the premium side of the business is -- looks to be under more pressure actually than the non-premium side.

And when do you think new car supply will return to normal?

Well, I'm looking for my crystal ball. No one has the volumes idea when that happens. So the latest is -- I think the key question probably is the impact March next year, and my gut feel is, I think it might actually. I think it will be less severe than September. I think it should be more severe compared to September. And we haven't got great visibility actually on September to give you great visibility on March will be still hard. But I think the supply chains will revert back somewhat to normal in Q1 next year.

Again, vary by manufacturer.

Yes, designed by manufacturer, of course, it will yes, I mean you saw that [indiscernible] JLR, which a big JLR player was quite considerably impacted. One U.K. located production but also for a relatively small player in the global terms, and therefore, at the back of the issue when it comes through the distribution of semiconductors. Having said that, automotive is at the back of the queue sectorally. So it's a very interesting position really. I will say on the cost side, every time we see shortages of vehicles, our margin goes up.

The historic until summer 2020, secondhand market turnaround was GBP 500 a unit, and this was quickly eroded over time. The skill was to sell quickly. How I've read the secondhand price turn, I buy at sell at has been GBP 1,500. The blame is on new cars, normal ones, not premium ones being in short supply. What direction do you think this term will be going in over the coming months as normal car sales return? Can we wrap up the Packard's guide?

Oh, no. No, the guides are very up-to-date in my opinion. They're very good at doing things like that. I'm trying to just see what the question was left me asking.

Is how fast smart over the time.

I think, over the market, there's some -- if we take the big hike in used car prices the last summer, not this summer, last summer, and it didn't really reverse massively. There was a little bit -- there was some weakness. But that was really lockdown-related. I think, it wasn't supply-related so much as in a lockdown demand then. So I think that we saw some weakness actual in the new franchise we got in premium. What we're seeing now which is even more exacerbated than it was this time last year, but we've got to slightly more supplies. There is -- there are 2 elements to where demand and supply could. Where is demand for used cars is going? Well, it looks like there's going to be a period of full employments, I suspect quite well. I've got -- and I've made that prediction completely wrong. That's good for demand clearly. And we've got a continuation of max [indiscernible] COVID and COVID transport areas help cars. So I think the demand side, I think, will be pretty robust some other shock or indeed more COVID restrictions and lockdowns. The supply side, I think it's going to be very constrained for quite a period. I think fleets are defleeting, the new car market, I think, will be quite suppressed for quite a time, and that will take, I mean, these are vehicle park and used car markets actually really fascinating, that's going to -- this bubble is going to be in the bag for quite a long time. You think you've go out 3 years from now, this reduced new car period will mean there will be a reduce in the number of used car because those new cars weren't sold, they normally split every 3 years. There'll be a lack of used cars coming into the market. So it's not quite a long term effect, I think, which could be positive. But there again, there are always other factors that come into play. Where is the economy given that states debt burden, et cetera, et cetera. I think we have to monitor it and be very pleased to as usual really.

Is there any update on the Stellantis franchise agreement. Is there a risk that this agreement could negatively impact the business going forward?

There's no risk with regards to number of sales outlets, is related to around different business models and agency far too early to call out. And actually, what scientists have said is that LTV light commercial vehicles will go agency in 2023 and cars will go agency in 2027. So we've got quite a long time to worry about that. I think how that all played out with regard to agency and what it means to the fleet market, what it means to Vans Direct will be purely speculative. And then we are big players with the manufacturers. We're clearly -- we're having discussions with them, giving investors comfort. The ICDP, which is the good same titles yet to find an example globally where the move to agency is considered detrimental to dealers who have the contract.

As you demonstrated, service and parts are a key component of profitability, do you see electric vehicles as making a difference to this in the next 10 years?

Possibly. It's a very complex area. As I said, actually, the U.S. listed motor retailer I've actually said that their average invoice value in electric vehicles after all. It's a critical case to say that electric vehicle, plus wear and tear, servicing requires us time and less oil I buy into that. All I would say is that the way that the electric new car sales have change in powertrains actually impact the vehicle part. There are I think 32 million now in the vehicle part. New car sales will be 1.8 this year, of which a quite small percentage will be pure electric due to the modeling taste, decades, so it's in fact come in. To be honest, it's like watching place is developed. So I don't see in the time horizon of the average investor, this is something that should be particularly disturbing.

And having 224 dealerships, are you not concerned your overweight for the brand in decline?

It's our most profitable division.

And going back to electric day costs, how are you preparing to the move to electric vehicles and stopping of selling ICEs in 2030? Do you see electric as an opportunity or risk?

No, no. See, it's anything. It's a car, to be honest, I can understand the argument after's for sale. I can't really see how it's different selling electric vehicle to actual vehicle part that I've got to provide electric vehicle charges, and we are continuing to invest in electric vehicle charges. I don't really get too hung ho about what kind of cars we sell.

And where are you using robotics?

Karen?

In all sorts of places, in service bookings, in vehicle administration, so we have a robot that can tap the used car with DLA and pay for it, and so -- and lots of other places. So anywhere where there is efficiency that we had and to present rekeying it's an opportunity for us. So we're currently using it in specifically contact center, online booking and iteration to our systems and also in the administration capacity.

I think we've very active robot, and I was at a meeting this morning where there will certainly be a 44. Because in terms of buying used cars, we can use robotics and some of our competition actually already slightly on that. I think we have in a lot of areas but certainly in buying used cars with robotics were not. So our 6 to 7 robotics engineers are going to be busy for a long time.

And how much of a risk is inflation to the business given that capital expenditures are likely to rise significantly?

Well, the first part of the question I agree with, I think inflation is a risk. I don't actually think capital expenditures are going to to rise significantly, actually. I think as we see potential of the reverse. I think the manufacturers are keen not to get retailers to make massive uplift furniture and to actually, in some cases, downsize the use of showroom. So we've got an outlet in Scotland that is currently going from one franchise and by end of January next year will be 4 franchises. There is a capital expansion of that to fuel the future for the next kind 10 or 15 years and actually manufacturers have made substantial contribution to it. So I don't agree with the statement, the capital expenditures are going to significantly rise. However, I would agree actually, there is inflation on the cost base of the business is a concern. I think will concern most businesses. We own a considerable proportion of our property portfolio. That is actually a good thing in an inflationary environment because really the property value is worth more on the portfolio that is leasehold, clearly rented. But the vast majority of our leases are open market value rather than -- rents rather than RPI. So RPI would be a fascinating one if the entire portfolio was an RPI-based rent review. Clearly, the cost in our business is payroll, I've already alluded in the presentation to -- for [ IC ] pay pressure. And I think that's going to increase costs, whether if we managed to pull off the on to customer trade, I'd like to see where the world is normal rather than this very abnormal world rent at the moment. So I think we've got to be highly productive to try and raise our way to try and avoid the impact of the wage inflation and certainly wage inflation that impacts. I suppose coming back to the CapEx point, it's fair to say that the commodity price increases, et cetera, are increasing the cost of the average project. But I don't see that as a massive material risk. And in reality, we would assess the economics of the project with the inflated CapEx in. And if we didn't feel it gave us the right shareholder return, we wouldn't do it.

And if you were an investor and not a CEO of a motor retailer with all your knowledge and experience, what would you look for operationally when assessing a motor retail investment?

Well, It's very good question? And not one I have ever been asked. What would I look for operationally? I look for a comfortable CEO.

Culture from the top.

[indiscernible]

Culture from the top.

Well, I don't in CEO, who I have a great team of people with the team player, built a great culture along the stores, analytics and the modern world.

With the reduction in volumes in new cars, therefore, the profitability of new car sales department will be impacted somewhat. Will the increased used car performance cover the reduction in new car overall profitability?

Well, I draw you to the significant trading upgrades that the sector has seen actually in the past 4 months despite some strange new cars. The trading update all have been the positive. so the answer is, yes, There's a bit of equation that's missing in the question is, we've actually also seen enhanced margins in new products and I suspect that will continue.

Yes. And what do you do to invest in training and development of your staff?

It's another good question. A myriad of things as it happens. We had a strategic arrangement with the Dale Carnegie Institution to do leadership and management training pretty well across the piece. We are about to expand that. So every single colleague in the business will have access to online training with Dale Carnegie, which we are very much into the cultural aspects of running the business. And I think before how to implement virtually with a fantastic book. We are -- and have been for a long time, very clear that we prefer to our internal promotions and development. So we do -- we recently ran every colleague and manager on a 9 square grid to identify those who can become foreman who have potential and then we are offer store training funds certainly for every manager, but also we go busy to identify business through sales executive with potential or traditions with potential from workshop controls and service managers. So managing that talent pipeline is expensive. We've invested very heavily right from the beginning of the launch of them in degree apprenticeships to bringing people in straight from school to business management degree at Northumbria irrespective of where they are in the country. And using the advantage levy and that's bodes really bright people actually into the business than we have on the development. We'll do our graduate program. I'm very pleased to report that we've just appointed the General Manager of Volvo [indiscernible] has come from our finance graduate programs, and I've got high hopes for him. He's been in the finance community, but I think he's very, very talented, and it's just been made general manager of actually our biggest whole dealership that is his first appointment. So there's a massive amount of work goes on in this business on people development and we use [ training instrument ] from the U.S. We have a 1-hour training session with all our general managers of about 120 people once a month, whereas icons like [ Mel A ] talked to us about culture and development and just in everybody's sat that on the learning approach.

And going back to secondhand prices, are they still rising?

It's good question.

The last PR report concerned that there was a price rice in...

Yes, I personally think it will stabilize. I can't see it going down much. You're investors, not, advisers forever. And actually, you get to a position ultimately, where new car is worked is actually being -- you can buy a new car cheaper than you can buy used one. Clearly, that presupposes that new one is available, is a bit of strange. I think what - yes, I think we'll probably reach the peak probably around October time, if I was guessing. And then I could see some leveling off maybe not to say maybe it's going to come down. So I still think we'll end up with supply-constrained situation, actually, but usually our advisers won't rise forever not [Indiscernible].

It's still rising but they're not fast as they were.

Yes, I think that's true. But that's a new car supply pipe, I think that could get some more into this. But I mean, there are at high levels at the moment. There's no doubt that.

And are new car margins normally static and likely to remain so?

No, new car margins are comparing those terms quite significantly.

And can you give us some more color on what you're doing to increase aftersales revenue in this new environment?

I don't think it is a new environmental in aftersales, actually, aftersales is a very stable slow moving piece. We are doing some interesting things got to make sure we got the right number of technicians actually that's our biggest constraint at the moment. So restructuring packages, enhancing packages, there is a shortage of technicians quite considerable [indiscernible] again. And actually, some predictions are actually leading the industry and going to do all the jobs, which is interesting, which is clearly a massive inflationary impact on wages at the moment. We've done a lot of work on -- we've got massive contact centers here. We've got over 200 people taking in bank bookings, making the bank calls, we use online tools to make customers very easy to book in all pretty -- all very joined up. But we've used a lot this year. It was actually last month, we had -- our new digital conquest marketing strategy for aftersales delivered its 2,200 additional bookings of people who have no intention of ever coming into our business. So there's a lot of work being done to make sure that we get new customers, and we keep the ones we are. I mean it's keeping customers it's not that difficult when they come in, give them a great experience and ideally sell them a service plan where they pay monthly for 3 years servicing and that massively increases retention. So lots of different strategies. I would say the biggest thing is to make sure and the comment we get is very good service.

The so-called disruptors claimed that part of their edge is their ability to better price used cars based on that use of data to anticipate demand and supply. Do you think there's much to this claim?. And do you think that there's an area where the disruptors business can gain an edge over more traditional car dealers?

I think generally that senses have happened nonsense. We actually had a period where we were buying car that retail from Vertu and then selling them at a profit. They did capture us doing and we start doing on that. But I think that proves that they were definitely not any more digitally advanced than anybody, but somebody with the glasses guy for the work out [indiscernible] we're underselling the cars. Having said that, the more data you've got and the more digital analytics you've got the better you can price the cars and maximize gross profit today our margin, that's obvious. So we've put a lot of effort into product called virtual analytics to give our people in the business the best possible information for a variety sources, internal data, auto traders, [indiscernible] VCA, all in one place so they can make the right decision. That will get more and more sophisticated over time in terms of stock mix and actually machine learning to relatively where we can start. I think the sources will get better. If you want my honest opinion, I think that there was development and thinking resource into it. But, that's not really a worry for me. You've got to bear in mind the user market is closest thing to a perfect marketplace never lie good bye. And the idea that somebody really can buy cars a lot cheaper than the competition or sell them to a different price to the competition is broad nonsense.

And look at some Pendragon are expecting to achieve profits in their second half despite supply shortages in September. Yet Vertu is expecting to be broadly breakeven even in half 2. Does the difference in half 2 out like -- outlook, sorry, derived from a different business mix or different market outlook?

I mean if you look at there rather check his profitability history, and I think with our different businesses in many ways was, we have taken a view, I would hope it is conservative as we like to take conservative views on things. And therefore, that's our view.

And over the long term, will more manufacturers go directly to the consumer? And if not, why not?

Well, you're going to be very careful with the sentence like that. When you mean directly to the consumer, do you mean one, Tesla, which has no dealership, no dealers or retailers and literally transacts directly with the consumer? Or do you mean the agency model where the customers come into the dealership or buy a car on our website, but the legal transaction is actually directly with the manufacturer. It's actually quite a different question. I don't think mainstream manufacturers or the [indiscernible] will in next 10 years at least, full time retailers and just have an online system because you've got to provide us so. And actually, there's a massive benefit to having feet on the ground as it were. Do I see some of the manufacturers going through an agency model? And I do see some of them going through an agency model. I also see some of them look west. So we'll end up with 2 models beneath actually. I think you've got to be very careful when you talk about going direct, what we define as going direct. The agency model...

The clarity is that they meant going direct like Tesla do?

Yes. I can't do that at all. I think you'll get some niche players like, for example, [ old staff ], our signing off, we Volvo subsidiary. What else do I see. There's a high-end by owned premium brand, which sells precisely no cars, which are also going direct. So I don't think it's likely. However, you've got to watch out and see, but I don't think it is likely, I think our business is pretty complicated. And I don't think the manufacturers -- I think the manufacturers thinking of the job actually getting there consistent brand agency without deciding to go wholly direct.

Okay. And how long do you anticipate the aftersales revenue per dealership returning back to 2019, 2020 levels? And how will this be impacted with large amounts of used cars being sold?

I have to say the department is very busy, very, very busy. We saw a bit of a dip. We would like a 6-week dip at the end of the last lockdown, also the anniversary of last year's lockdown and people who have been coming for surgeries, but we are going to be very busy. There is going to be a massive shortage of [ MOT ] capacity in the industry from middle September through to November. Booking levels will be very, very strong. And I don't sense any great problems around that. So clearly, if we sell that new cars with less PDI, have less internal preparation [ Steve ], but I want to decide used cars being quite strong. So on the demand side for aftersales, I'm not particularly concerned. I would be more concerned about the cost impact actually on debt repay.

And you're coming up to 15 years, Robert, to see off to -- with the promising prospects of a career in television and the recent disclosure of your ambitions to be Prime Minister, where do you see yourself in 5 years' time?

So in 5 years' time, I will definitely be sitting in this seat. I will probably be sitting in the seat in 10 years' time when I will be 61 years old. And at that point, that will actually be quite a question. My job is to make sure that we've got when the time is right, the right succession plan. I'm not a member of political party, so I don't think the Prime Minister thing is going to happen any time soon. So I'm very happy doing this. And frankly, Boris Johnson looks absolutely dreadful. And I actually enjoy while I could.

And your Twitter feed indicates you're out in the network a lot and you read a lot. How much time do you spend out in the network visiting sites? And what books do you recommend other than Dale Carnegie?

Oh, books. I very much enjoyed the outside of [Indiscernible]. I like biographies of Abraham Lincoln. I think his leadership skills were fantastic. I like 7 Habits of Highly Effective People, and I've got a fairly extensive library. I'm actually very rarely viable because on average, I get spent about 3 books a month because people know I like reading books. I'm actually reading a book at the moment about how to avoid making investing mistakes. You can find inside of my bed at the moment. So I do spend a lot of time out in the dealerships, largely because it's the only time you can actually find out what's going on. Because with layers of management in a big business like this, however, is confident and great that our management are, we don't know what questions to ask. And the only people who know the answers to the questions and the questions are actually in the first place are the people, so the people who are actually at the chart [ Colfax ]. So going through leadership and getting 8 colleagues in a room are given and then listening to him for 1.5 hours, is the most valuable 1.5 hours you will spend that day. In fact, my team [indiscernible] I think last week told every theories. [indiscernible] So you've got to go and see a [indiscernible] because you learn things. And I can see in this boardroom and have a divisional review, it's very helpful and all the data everything like that. But you're missing if you don't go and ask the people on the ground, what's actually going up.

I've got pageful actions.

Pageful actions. Yes. And that's why the lockdown was actually so infuriating, and that's why the demise of civil aviation structure is so infuriating. Because actually, it's really hard to get anywhere quickly these days. But we have to go out and [ about ]. And certainly, I'm looking forward to getting out. I've got a week actually when I'm entirely based in the Northeast with some of capital.

And what's the length and cost of the contract to sponsor Channel 4's F1 programs? And what benefit does your research suggest for this?

Well, lockdown in the past. I can't remember the length, but I agreed to it this time. But the benefit is in the perception of the Bristol Street Motors brands. If you back say 15 years with 33 dealerships in the business through networks in going [ 100 years ], obviously, but it's fairly middle of the state, northeast state. And what we want to do is grow that perception and ask you, is there a benefit? Well, there is a benefit from the brand awareness. And because you'll spend [ GBP 50 million ] per annum and they grow their property banning in 2 years from 0 to [indiscernible]. And I think it does benefit to the business. There is no doubt that. You got the wrong customer proposition and brand awareness you have to sell in thing, but it's not the deal of end or whether is no doubt at all that growing that brand awareness is really useful. You just got power and staff with the fact we've also got to make money. I don't think our investors they will be short of us not to GBH 50 million on other time.

And are you looking to buy more [ breakers ]?

That's a good question. No.

And you mentioned your dealerships will be valued on high CV-related values. How do you propose valuing a future acquisition?

The same we've always done, which is we've got our investment hurdle rates. We will do a calculation of EBITDA over a 3-year period. We will assess that against the enterprise value, including any debt that's taken on or start property goodwill and make sure that we believe we've got a return out [indiscernible]. No change. I could obviously, as the property value go off, then in theory, the enterprise value goes off with cars. So a good roll number has to come back.

And do you see your management style being in alignment with that Berkshire Hathaway's, Warren Buffett and Charlie Munger. And if so, in what way?

I think they are much better than me. And a lot more successful. So I wouldn't really want to compare myself with them. I think that would be inappropriate. Management style, the learning thing, come. I've learned a management style based probably on folks. And mentor, I'm a great believer that you are the products for the people you associated with, and I have been extremely fortunate to have some in my opinion, first, [indiscernible], Peter Jones, [indiscernible] who is Chief Executive of [Indiscernible], who is rated very, very highly actually unbelievable to be successful and leader. I have the same mentor from the day when he was a nonexecutive at [Indiscernible]. I met him 20 years ago. Bill [indiscernible] , senior partner in [Indiscernible] is one of the first half -- first 100 partners in [indiscernible] actually I see to do pretty well every day and their feeds is obviously very nice. So I think mentors are critical. And we've got to learn from that actually in our business, getting to a mentorship program to think of absolutely critical.

And question for both of you. What are you most proud about, about Vertu? And what warms your heart about the business?

Karen?

The values that we've created and then it's live in our dealerships.

Yes. I think that's a good answer. I also think the thing that -- I actually had a dinner last night actually, we went to New York. So our senior management leadership went out, and we celebrated the 2020 management awards. And we got about [indiscernible] I think the thing that I liked was the values of the people in that room will be without question first part. The average age was really low. I mean with the business manager of the year was 26, He is now a sales manager and [indiscernible] is the general manager in their time for. So the ability to take people from still or at a young age, say 20s odds and develop them in the right value set and in meritocracy where hard work gets rewarded. And there's no mediocracy and then you put learning development to them so that they get promoted. And within 10 years, they are general managers able to provide to their family to have great holidays at [Indiscernible] universities without any worries that is the key thing, I think. Is the thing that really, I enjoy during the same people who develop. And we've got directors now and when we bought this sales executives. And I think that's a big contribution because of a lot of malign forces has society items and a lot of core values activity by people in leadership. And it's our job to make the world a better place, but we don't only do that what a home too it was.

And a final question to both of you. What's your favorite car color?

I don't really have one [Indiscernible], it's only just not white, anything but white is fine with me.

Yes, I'll not take one to answer that question. I wouldn't notice what my car color was.

And that's the end of questions. Robert, do you have any closing remarks?

No, I'd just like to thank everyone who's come on. I know it's August and it's holiday time, but it [Indiscernible] and despite big numbers of people. And it's just -- yes, thank you very much for giving us a significant part of your afternoon. And hopefully, learned some things you decided to invest or not invest. Hopefully, I'm decided to sell. And I'd just like to thank you very much for your time.

Thank you.

Many thanks, Robert, and Karen. And to everyone listening, you'll now be taken to a feedback form to give your comments on today's presentation. If you can't complete it now, it will be sent to you by e-mail afterwards. We'd be really grateful for your feedback. Many thanks for joining. This is the end of the webinar.