Vertu Motors plc (VTU) Earnings Call Transcript & Summary

I'm delighted to be joined by Robert Forrester, who's the CEO of Vertu Motors. Good morning, Robert.

Good morning.

Robert, your interim results came out this morning. Talk us through the key highlights.

Well, there's a lot actually that the business achieved in the last 6 months. Our omnichannel retailing developments and sales have continued at pace. And the Click2Drive sales technology platform is really delivering for us. And we actually aim to launch that on TV to make sure customers know that they can engage with us online and omnichannel. So I think that's going to be -- I think that's been a big bit of focus for us, and we're about to see the benefits of it. In terms of our portfolio, Bristol Street Motors continues to be in the top 3 sector brands. We've done a lot of multi-franchising actually, has been long in the planning to put more franchises into our dealerships. And we've added MG as a franchise, which I think is important. We've got a strong pipeline of acquisitions and considerable firepower to actually go and execute over the medium term. Our capital allocation discipline has been helped significantly by the fact we generate a lot of cash. We generated GBP 63.6 million of free cash flow, which is really important. And we've reestablished the dividend this morning, which I think is -- will be welcomed by shareholders and recommenced our share buyback program. There's a lot of work we've done with our colleagues. Our colleagues are absolutely pivotal to our success in operational excellence. Our colleague satisfaction scores are really very high. And we've done a full review, given the very tight labor markets and the fact we've got -- in my view same level of vacancies in line with most British business at the moment. Then we did a full pay review, and we've looked at our apprentice programs and the combination of our anticipated increased pay levels and a significant increase in the number of apprentices, means an annual investment of around GBP 12 million coming.

And Robert, with regards to the KPIs, how are you performing there?

Well, it's been a very strange, but exhilarating period for the sector. We've had the biggest tailwinds that I think this sector has ever had in terms of initial, sound strange, a real reduction in supply of new vehicles, which has put margins of new vehicles and also used vehicles to almost record levels. So albeit we've sold less vehicles, we've made a lot more money when we've done it. And our profitability in the first half was record, GBP 51.1 million profit before tax, which is considerable compared to our historic profitability levels. That's generated a lot of cash. And it's gone straight to our balance sheet because we've now got tangible net assets per share of 61.5p, which is a very, very strong number, I think, will surprise many.

So although you see a record period there, which is fantastic. What about current trading?

Well, September was also a record. Actually, it was the most profitable month in the history of the group. And for very similar reasons, we saw constraining new vehicle volumes. We saw continued supply constraints in used vehicles. And this slide on the screen shows that we were down in like-for-like sales and volumes in every channel, but the margin enhancement that we've had from strong pricing disciplines, which meant we've made more money. We've actually outperformed SMMT registrations in September on every channel, and the business performed, I think, at a very, very high level, making the most of the opportunities and the situation. So we actually made a profit of GBP 20 million in September, which is clearly a good position. And we've guided this morning that our FY '22 adjusted profit before tax will not be less than GBP 65 million.

And with the ever-changing marketplace that's going on, how do you see the outlook for the rest of the year?

I don't think the new car supply constraints are going to resolve themselves in the next couple of months. I think this is going to continue well into 2022. I think margins will remain robust. So clearly, it's supply and demand. I think we can see supply being constrained, obviously, demand can change. Though at the moment, we've got record high order banks and demand is strong, but that can always change. So I think we will see used car pricing to be fairly robust, barring a demand shock for the quite foreseeable future actually. Because there are hundreds of thousands of cars not being built, which will not be depleted in 3 years' time, and there's going to be a general shortage of used cars for quite a period. And we've seen that in the past, it takes 3, 4 years for the margins in some cases to normalize, albeit we have to watch the demand side as well. So I think we're set quite fair. I think in terms of our strategy, we're very focused on delivering growth from acquisitions. We're focused on making sure we've got the right number of colleagues and the values of the business is right and they're trained. We've put a lot of investment into training and that's going to increase next year. And then we finally need to make sure customers know where we are and what we do. So strong focus on brand awareness and the launch of the Click2Drive brand and its technology aspects and the concierge personal shopping service, we're going to launch, means we've got a lot to do, but we have a plan and we aim to attack.

Robert Forrester, CEO of Vertu Motors. Thank you for your time today.

Thank you.

Congratulations, Robert, another set of record results. You must be very pleased with the volume outperformance, pricing discipline and strong cash generation you demonstrated during the period.

Yes. I mean the team across the board have worked really well. I think we haven't completely maximized, but we weren't far off in terms of getting the strategies right, marketing right. We actually overdelivered massively compared to where I thought we'd be on used car stock procurement. I was much more bearish actually in terms of our ability to buy used cars and the fact that we have a decentralized model and people in dealerships can buy used cars worked very well. So I think the business has performed at a pretty high level. You can't get carried away because they definitely were a massive sector tailwinds. So let's not forget that. This isn't a revolutionary step change in long-term profitability I don't think, but the business is in a good shape. Certainly, actually, one of the things we make -- we say in the announcement is the acquisitions performed well, helped by tailwinds, but a real turnarounds that has helped push our numbers forward.

Yes. I mean we've seen a lot of discussion about digitalization in the sector from new and established players in the market. And clearly, Vertu has achieved a lot in that as well. But can you outline what Vertu's achieved in the period? And how you intend to build on what we believe to be a strong competitive advantage in that area?

Yes. I mean everything you touch leads to a technology project is. We are a technology company. We've got 40-plus developers working around the clock on initiatives. And I think there were 3 things that we've done. One, the Click2Drive sales technology platform, which allows anything from pure e-com to video, live chat and SMS messaging to sign documents. It is clearly a major competitive advantage, and we'll be launching a TV campaign at the end of October for 3 months to make sure people are aware of Click2Drive and all they can do under the Bristol Street Motors banner. I think online service booking might not sound very exciting, but 37,000 people in 6 months booked their service online. And actually, a part -- big chunk of that was actually a very successful digital conquest strategy for aftersales which we've never managed to achieve prior. And thirdly, and I suppose, it was a short-term priority that got delivered is to Sell My Car functionality on the website where you can go on the website and get a valuation helped us by used cars and that remains an absolute priority to develop. And I'm very pleased with how that's gone.

Yes. And the balance sheet is obviously very strong as well, always has been strong, but particularly strong in these results. And it looks like you're well positioned to address all of your capital allocation priorities. I'm particularly interested to read your comments about your M&A pipeline potentially being more visible as well if you could expand on that?

Yes. I think as we came out of the March lockdown, and we hit the results in May, actually, our pipeline was broadly nonexistent actually. I think I said that to you all the time that we are not focused on selling the business. I think people are more focused on selling businesses now. And we definitely have a much better pipeline of acquisitions. And I hope there's some news on that front before the end of the year. I think the caveat that we've put into the announcement is clearly if the sector is on record earnings. Don't want to be buying based on unsustainable profitability level. So we have to have some semblance or sense. I actually think vendors will be sensible around that. And I think all the change coming around business models and digitalization, people will have the realization that scale is important. And having 2 or 3, 4 dealerships, you're really not going to get there. I mean, you can't order ahead of cyber risk, for example. Or conversion rate optimization managers and all the good stuff that we are now very familiar with, but I wasn't 3 years ago. So I think there will be more and more consolidation, we've just got to be careful on pricing.

And you mentioned in your commentary, again, you potentially got GBP 90 million of M&A firepower. And I guess, if I apply that to my '24 forecasts and assume the usual multiple range of 4 to 6x. That will still be less than 1x net debt to EBITDA on that basis. With that thinking in mind that, do you think that's conservative? Do you think you can build on that?

I mean it all depends what you buy, doesn't it? And how quickly you get the earnings stream actually because you could buy turnarounds, it takes you 3 years to get the earnings through. But I think we are inherently conservative people. I mean saying that, we've grown a near GBP 4 billion turnover group in 15 years, doesn't sound very conservative, does it? But actually it is. Net tangible assets per share is 61.5p, I think, says a story. Actually, we are very conservative. So we have the firepower, we will deploy it, but we will not take massive bets. This business has not been built on bets. It's been built on judgments and a strict capital allocation policy. And our capital allocation policy is about investing capital in new dealerships, definitely. Particularly those franchises that have got massive potential over the next 10 years, big investments in new technologies, big brands. But also, personally, I think, share buybacks if your share price is less than intrinsic value is an important component. And I think we've bought a fair chunk of the business back actually over the last few years. And then we continue -- we recommenced this morning, and I think that's important, and it makes me feel very comfortable. And I also think we're a U.K.-based plc. So you have to have a dividend policy. I think London expects dividends and expects the discipline of dividends. So we're in a fortunate position of being very cash generative, strong balance sheet, and we can do multiple things on the capital allocation.

I'm just going back to tangible net assets per share. I mean, clearly, at the period end, 61.5p, exceeded my 58p forecast for the full year, which was great. And obviously, when I'm looking at my numbers up to '24, I can see that advancing to around 75p. But I think perhaps what we don't always look at is the efficiency of the asset base as well and the level of multi-franchising that you've been doing quietly in the last 12, 18 months. Can you expand a bit on that as well?

Yes. I mean I think you've got to be operationally efficient. So you've got to make sure that the properties you've got generate the right return for shareholders. And if they don't generate the return for shareholders, what are you going to do about it? And there's a hierarchy in my mind. One, first option multi-franchise. Is it because you need more aftersales. And a quick way of getting aftersales is to put the franchise in, and that's a good one. Does it need a completely refranchising? My franchises isn't strong enough and that can't happen. Does it need a management change? It could be it's not performing because you've got the wrong management and you have to face those brutal facts and reality. I'm pleased actually with the management we've got in our dealerships at the moment. There's not too many of that. And the fourth thing is sometimes you just have to conclude, you're just not very good. It's the wrong dealership in the wrong place at the wrong time with the wrong franchise with the wrong management. The best thing to do is sell it or close it. And you've seen us do that. You've seen us refranchise, and I think that's important. And actually, property disposals generating cash and recycling that cash into higher return activities, be it what they are, I think, is important. I think in terms of multi-franchising, we were quick at it. I mean I think we spotted early this was going to be a trend. And I think it's complex for management on site, no doubt about that, but the benefits of having extra technicians, less -- more diverse income streams. The days -- with technology these days, you don't need necessarily as many cars in the showroom. You have digital screens. You can draw resources, hub and spoke. So you have a smaller showroom, just draw the resources down from the hub. So I think manufacturers are a lot more flexible and will be a lot more flexible. They will want to reduce their cost of representation. And multi-franchise is a very good way of doing it. So I think we've done well with that strategy, and there's certainly more to come. We actually -- we opened yesterday morning Beaconsfield MG, alongside Mercedes and Jeep in Beaconsfield, fabulous location. And electric vehicles in the Southeast of England strike me as a good business proposition. So there's lots more to come with that and optimizing the portfolio is very important to sweat the assets.

And then finally for me, I mean, the share buyback program we've touched on, and that's resumed this morning, which is great. Hadn't realized that you'd already bought back 7.5% of the issued share capital, which was a bigger number than I expected. My current assessment of intrinsic value is about 86p per share. But I am ignoring the strength of the balance sheet and any potential M&A activity and any further share buybacks. You talk about the Board and how they assess intrinsic value. I was just wondering how you think about it, how long term you are and whether we can accept -- where we can see any further share buybacks in the future, given what...

Well, we've announced -- we've announced we're recommencing this morning. So you can bet your life that the Board believes intrinsic value is higher than the current share price because that's our criteria. I mean, intrinsic value, I think, is actually a fairly subjective matter. Depends on your time frame, right? And there are various ways, as you know, as an analyst in valuing the company. And I think you have to look at a smallest board of methodologies and then sort of subjectively decide where you are. But I think we, as a Board are one, our intrinsic value is considerably higher than currently either on a sustainable future earnings basis or taking cognizant of the fact we've got a very, very strong balance sheet. And who knows what economic times we've actually got ahead. I'm still not convinced that having a strong balance sheet is a bad idea. It strikes me as a very good idea. I did read piece from an investment fund manager today that their priority is capital. It was making sure they don't destroy capital. And I think that's important. We have got a strong balance sheet. This company has never made a loss. Actually, in periods of economic dislocation, we tend to accelerate. Actually, they tend to be not nice periods, but good for the company. So I'm confident really that we can weave our way through the changes that are coming, and there will be major changes in the sector over the next 5 years, but will come out of it strong. And we are aligning ourselves with the manufacturers. That's a key message. We think aligning yourself to the manufacturer is a good thing. You get the franchise aftersales, you get the benefit of their brand, you get the benefit of the connected car, all their technology expertise and the kudos of the brand, be it in used cars or new cars alone. Our strategy day, the first judgment was, do we want to be franchise dealers? It's a pretty important conversation because the strategy would have been a lot different if we would have said no. But the answer is we do want to be franchise dealers, and we have to be absolutely in partnership with our manufacturers, not in conflict.

Robert, that's great. Thank you very much for your time, and congratulations again.

Thank you. Thanks, Mike.

My name is Robert Forrester, Chief Executive of Vertu Motors Plc, and welcome to our presentation of our interims for the sixth month period to the end of August 2021. I'm joined this morning by Karen Anderson, our Chief Financial Officer. And I'm going to cover the highlights, Karen is going to go into more detail with regards to the financial performance and then I'll cover strategy, current trading and outlook. So let's start off with an at a glance of what we've achieved over 15 years. On the 1st of November, it's the 15-year anniversary of incorporating Vertu Motors. And we've used aim throughout the history of the company to grow a very scaled business and we're one of the sector leaders now in the industry. We are in a very strong position. You can see that revenues have grown in the 6 months to GBP 1.9 billion despite the reduced vehicle sales. We have a very strong conservative balance sheet 61.5p net tangible assets per share is a much increased number. It just shows the bedrock in terms of the balance sheet that we've got. We've now got a group of 154 outlets, with the widest range of manufacturer representation of any group in the United Kingdom and built on a very solid basis of high customer satisfaction levels. You can see Net Promoter Score in used cars, 85%, and 84% of colleagues saying that Vertu Motors is a great place to work. So we have a really strong platform with which to continue. So if we look at the highlights for the period, we've had a period of significant sector tailwinds where I believe we've delivered operational excellence. We've got 4 areas we'd like to draw attention to. The first is the digitalization technological innovation piece, where we've done a lot of work with our in-house development team, driving innovation. Our Click2Drive brand, which we outlined to our shareholders when we did our final results, is coming on a pace. The technology platform that drives our sales online and offline is improving considerably, and we are about to launch in October, a 3-month TV campaign where we'll be communicating to our customers for the first time what Click2Drive is and how it fits with Bristol Stream Motors, and it's about that we can do full online and full omnichannel retailing, putting the customer in control of how they want to interact with us to buy a car. We'll also be launching as part of the Click2Drive initiative for the first time a concierge service. So if somebody is struggling with online retailing, lacks a bit of confidence, they'll have a personal shopper engaged that who can find videos of the car they want, interact with the dealership, answer any questions and actually guide them to the online sales process. We've also undertaken a lot of development with regard to use of data in decision-making. We've now got a fully operational used car vehicle valuation methodology for online part exchange valuation and also to power Sell My Car, which was an initiative on our website, so we could purchase vehicles directly from the public in respect to whether they're going to buy a car for us, and that certainly helped us in a period of constrained supply. We've developed our portfolio, both of brands, franchises and properties. We continue to invest in our core brands to generate heightened awareness. We have multi-franchised more of our portfolio to give us greater operational profitability for each of our rooftops. And we've taken a new franchise on, we've now got MG which is a very electric vehicle-focused franchise, and we've now got that in Carlisle and this week opened in Beaconsfield. We've also given our investors an insight into how much firepower we have. We would envisage that over the next few years, we'll be investing again in acquisitions, and we believe we've got on reasonably conservative assumptions about GBP 90 million of firepower, which brings us on with capital allocation, which is a key consideration for the Board. We've generated significant cash in the period. We have a very strong net cash position. And that has given the Board confidence to reestablish the dividend in January and to recommence the share buyback program, which we'll go into more detail on later. The fourth pillar, which is absolutely crucial to achieving all our goals in terms of operational excellence and execution is making sure we've got the right colleagues -- the right number of colleagues and that they're appropriately trained. We have had very strong satisfaction levels in colleague surveys of late, and I think that reflects the support that we gave to colleagues during the pandemic. But clearly, the labor market has changed, and we are undertaking a full review of pay across the group to be effective at least by the end of this calendar year. And the combination of expected pay augmentation and new apprentice programs, which are very significant, we expect that to have an annualized investment cost of around GBP 12 million. So if you look at the financial KPIs presented on this slide, you can see we've generated record profit and substantial cash generation, clearly aided by significant tailwinds in the industry. The supply constraints in new vehicles, which are fed into supply constraints into used vehicles, have augmented margins considerably to almost record levels. And despite lower sales volumes, the group has generated a record profit of GBP 51.1 million profit before tax. The excellent cash levels is exhibited in the fact that we no longer use used car vehicle stocking loans actually for the first time in 15 years. And the significant free cash flow of GBP 63.6 million just shows the cash-generating capacity that our business actually has. The strong foundation is there. Tangible net assets per share of 61.5p, I think will surprise many that it's grown so significantly over the period. I'm now going to pass to Karen, who's going to go through the detail of the financial results.

Thank you, Robert. So on Slide 7, we've set the income statement out and actually compared it to each of the last 2 financial year periods. With percentage movements shown against the pre-pandemic period of the 31st of August 2019 that 6-month period ending there. And that's because of the significant impact the lockdown had on the results for the 6 months to August 2020. Revenue growth of 16.8% was achieved against the pre-pandemic period, with 80% of this uplift related to acquisitions and the balance due to rising vehicle values. Margins were strong at 11.6% as the group maintained good pricing discipline in the light of the market conditions. GBP 5.6 million of government support was received in the period, with the vast majority of this GBP 5.2 million relating to business rates relief on retail premises. Amounts claimed under the coronavirus job retention scheme were just GBP 400,000 in the period, and no amounts have been claimed under this scheme since the end of April. A GBP 21.7 million growth in operating expenses is apparent, excluding that government support. 90% of this growth is due to the impact of acquisitions. Growth in the core group actually included a GBP 3 million investment in the TV brand marketing campaign and increased variable pay such as commission and bonuses of about GBP 4 million as a result of the strong trading performance. The impact of these costs together was partially offset by the impact of cost savings such as the GBP 10 million head count savings, which we delivered in FY '21. Reduced finance charges were seen in the period, and that's due to the reduction in the pipeline in terms of funded new vehicle consignment inventory, driven by well-documented supply constraints as well as a reduced level of borrowings by the group. The underlying effective tax rate shown on this slide excludes the GBP 2.9 million charge on the revaluation of deferred tax obligations to the new corporation tax rate for the future of 25%, up from 19%. And dividends have been reestablished, as you can see on this slide. The profit bridge is set out on Slide 8. As with the previous slide on profit and loss, this compares to H1 financial year 2020, namely the pre-pandemic period. New vehicle gross profits in the core group grew by GBP 0.7 million. And this is despite new retail sales and Motability sales volumes declining. The growth in gross profit in this channel is, therefore, entirely due to improved margin retention with a 20% rise in gross profit per unit being achieved by the group. Fleet and commercial sales also were impacted as a result of supply dynamics. Manufacturers diverted what supply and production they had into higher-margin retail channels. Whilst this meant that the group saw reduced volumes of new fleet and commercial sales volumes, we saw a significant uplift again in gross profit per unit earned in this channel, which drove the overall positive result in gross profit generation. Clearly, the most significant increase in core group gross profit arises in the area of used cars. Volumes were level in the core group in used cars, and the group maintained pricing discipline in the light of the market conditions in used cars, which led to significantly higher retention of margins. Gross margins in this channel were 10.6% in the period, up from 8.1%. And this is what's driving this positive performance. In aftersales, too, augmented margins were the cause of the uplift in gross profit. Service hours sold actually declined as the lockdown in April and May 2020 reduced the number of vehicles sold coming back for service the next year and disruptive service anniversaries for those vehicles already in the park. The group's aftersales processes helped drive improved average invoice values, which offset the reduction in hours and drove improved margins and service. Parts revenues were also stable, despite some franchises moving to an agency model. We managed to capture market share in those other franchises we held. Improved margins were also seen in this channel, both as a result of agency and as a result of our actions. I've discussed operating expenses, interest and government support when I talked about the profit and loss account. But one last thing on this slide is a significant contribution from acquisitions, which saw a GBP 3 million uplift in operating profit in the period. And this is certainly significantly ahead of our expectations at the time of acquisition. By way of example, the BMW acquisition of 12 outlets completed in December 2020. This business generated a loss before tax of GBP 6 million in the year immediately prior to our purchase. We implemented our acquisition plan, including the appointment of a management team with BMW experience. Nevertheless, our expectation was this business would lose money this financial year, breakeven next year and contribute thereafter. This method has actually generated a profit before tax contribution of over GBP 2 million in the period, significantly in excess of our expectations. Turning over to the cash flow on Slide 9. The group was very successful in converting the high level of profit into cash with a conversion of 116%. This performance was aided by an inflow from working capital of GBP 15.8 million, but there are some significant moving parts within this working capital movement. New vehicle supply constraints meant the group held GBP 18.1 million less new fully paid inventory and GBP 6.5 million less trade receivables at the period end. The group, in contrast, was successful in securing supplies of used vehicle inventory. And this, together with higher prices, led to an absorption of GBP 13.1 million of working capital in respect of used cars. Again, in working capital, demonstrated stocking requirements, which have been relaxed during the restrictions were normalized, and this saw an absorption of GBP 8 million in the period. Finally, within the 15.8% is a movement in trade payables of GBP 12.3 million, which represents an increase. And this was increased customer deposits as lead times, particularly on new cars extended out, an increase in warranty and service plan funds held by the group and a growth in VAT. If I turn over to Slide 10, this should be a familiar slide for many of who've been to these presentations in the past. And this sets out the capital allocation disciplines of the group. The strength of the balance sheet is demonstrated by the strong tangible net assets per share figure of 61.5p per share. If we apply prudent EBITDA multiples to the numbers that we get an implied debt firepower figure of at least GBP 90 million available for growth. However, the allocation of capital to acquisitions will only be made if we have achieved expected hurdle rates in terms of EV EBITDA ratios. The current positive market conditions in the sector driving high levels of profitability may mean some potential acquisitions are too expensive in the short term, and we will not execute these. Share buybacks have long been a use of excess free cash flow by the group where shares are trading below intrinsic value. The group has repurchased 7.5% of its issued share capital since 2017, and the current repurchase program will recommence now that the group is out of close period. The group targets a dividend cover of 3x to 4x sustainable EPS. But remember the extraordinary level of profit declared in the first half has resulted in a higher level of cover being applied for the interim dividend. If I turn to Slide 11, we set out the balance sheet and its strength underpinned by its freehold and long leasehold portfolio. The group's defined benefit pension scheme remains in surplus with the scheme requiring no cash contributions from the group. Current assets saw a significant decline in the period, largely due to the supply constraints in new cars. These reduced the level of funded consignment inventory considerably in the period along with the reduction in the associated creditor. In contrast, the group was successful in its management of used inventory levels, which have grown not only as of arising prices, but by the active management of the group to ensure a good supply of stock in volume terms. I'll now hand back to Robert, so he can give an update on the strategic progress of the group.

Thank you, Karen. I'll now go through where I think the group is in terms of its strategy and the execution of its strategy. The slide presented here is very similar to that presented in recent results, there's good reason for that because the group structure remains very consistent. However, in September, the full Board, including nonexecutives, had a full day reviewing the strategy and assessing where we were in the light of clearly changing realities. And we have made some amendments to the strategy slide, which the eagle eye will spot. The first element of our strategy remains, which is to aim for scale growth. We are ambitious to grow earnings by deploying capital in the growth of new dealership operations. And clearly, we'd like to build scale with the major OEM partners who will thrive over the next decade, and there's clearly judgments to be made there. The second element is digitalization and having a cohesive bricks and clicks strategy, which we are a long way through developing. We've clearly got the Click2Drive technology in our sales plan which is going to bring together not only the online omnichannel web elements of sales, but we're going to make sure that the dealership experience mirrors it. A good example would be around making sure it's the same used car valuation that's in place online and in the dealerships and locking that down using algorithms. We've got a very good road map to bring the dealership experience and the online experience together. We're now very focused on digitalization development in aftersales to enhance the customer experience and to make that as effortless as possible, and we've got some very good ideas we're working on in that area. And we're also continuing to roll out robotics and technology to increase efficiency and crucially to increase the use of data to make the right decisions at all levels of the business. The third element is focus on colleagues and customers. Colleagues obviously drive the customer experience. And a lot -- a number of things in this presentation stem from that in terms of management actions to make sure that, that pillar is delivered. The fourth pillar, which we don't talk about that much, but is increasingly important in terms of profit delivery for the group are the ancillary businesses, tend to be digital businesses that give synergies to the core group but are not dealerships. And there's a significant focus on growing that arm to help the group overall. And indeed, we acquired a website called Powerbulbs.co.uk, which we've integrated into AceParts, increases our online parts retailing business. So in terms of trying to explain the sector tailwinds and performance and clearly, very significant increases in profitability, you've really got to go back and look at the new vehicle market and what's happened there. And Karen has covered a lot of the dynamics, but I think it's worth trying to put it into overall context. The new car supply situation has clearly been challenging for a number of reasons, general supply chain woes across the globe, specific impact of COVID on factory capacity and production as workers were not available. And then on top of this, a significant shortage of semiconductors. You can clearly see that the forecast new car market is 21.8% lower than the decade average, clearly significant. And let's bear in mind that 2020 with all the lockdowns was also significantly down. They've had quite a long period of reduced new car supply. If you look at the 6-month period in our like-for-like new car volumes, you can see we were down 13.8%, and we split it by channel. And you will see that the channels that actually were protected more than others by the manufacturers with commercial brands. And clearly, that has been a very buoyant element market, and the manufacturers and ourselves make very good margins on that. So that's been protected to a high degree. And fleet has been the variable that the manufacturers have sought to reduce the most, and that's their lowest profitable channel. So we've seen a mix change. That mix change benefits not only the manufacturers but benefits ourselves in terms of we make higher margin on retail and indeed commercial vehicles. So -- there's the new car piece. We have our better margins. It's brought us more than just offset the volume shortages. But the real big impact of the new car challenges is actually on used cars because this is a system that operates as one, and there was a direct flow-through from new car supply constraints into used car wholesale markets. If we sell less new cars, we take in less part exchanges to feed our used car business. If fleets can't change their fleet and de-fleet and then send cars to the auction or we buy them direct from the fleet, then clearly, the wholesale market in used cars tighten up. And that is exactly what we have seen. So we're seeing -- because of supply constraints, we have applied very strong pricing disciplines, both in new and in used cars, but the real impact has been actually in used cars. We normally expect in normal market used cars to decline by around 5% over a 6-month period. Certainly, our H1 with normally about 5% to 7%. We've actually seen the average car go up in value by over 20%. And when we sat on inventories of well in excess of GBP 100 million, that has a massive impact. We sat on an appreciating asset. And the strong pricing delivers -- strong pricing disciplines have given us extra margin, as you can see on that quite spectacular profit bridge. So our gross profit unit in used cars has gone from just over GBP 1,200 a unit to GBP 1,650. Highest margin that we have seen in terms of pound notes, at least, in the history of the company. And people use words like unprecedented and exceptional, and I think that's right, but let's not think this is going to disappear overnight. These supplier issues aren't going to go away. We've got the immediate issue that semiconductors aren't going to free up new vehicle supply anytime soon. But in addition to that, the cars that have not been made are never going to be made, which means that we've got a 2- to 3-year period of constrained used vehicle supply. And we've done an analysis of our gross margin over time. And you look back to scrappage, which sucked a lot of used cars out of the system and a relatively weak -- relatively weak new car market before that and the global financial crisis. And it took around 3 to 4 years for used vehicle margins to actually get back to normal. Now clearly, demand has an impact on that. So I'm not making a prediction there, then we can certainly see strong margins for the next 6 months, I would say. We shouldn't forget with this fixation on sales that we actually have a very strong, resilient aftersales business. Now in aftersales business as a percentage of the whole gross profit has actually made it -- made the least contribution for years, but that's not because it's been weak. It's because vehicle margins have been so strong. It is actually the linchpin of franchise retailer profitability, and we shouldn't forget that. And there's a lot of things happened in our aftersales business, which have been good in the period. We've got a real grip of process around identifying additional work and selling it. Our average invoice value has gone from GBP 244 to GBP 278. And that's an environment during lockdowns where customers have actually used their car less, so wear and tear is down. So I think we've done a good job there. The AceParts, online parts business, has clearly benefited from the growth in online retailing continues to grow in terms of profitability. And we're taking a real good look at the digitization of the aftersales process. You can see here, we've certainly done a good job on online service bookings, which are highly more efficient to us than having to make outbound calls or taking inbound calls. And we've increased online service bookings over 2 years from 13,000 to nearly 37%. So a fantastic result and with more to come, we will see online service bookings increase. Part of the reason why that's been so successful is, and we mentioned this 6 months ago is that we have bought quite a significant budget around digital conquest marketing for aftersales to bring in new customers where we never actually sold the car in the first place. And we've had 10,000 bookings plus actually in the period, and they've all gone through the online service booking channel. So we're very pleased with that, bringing new customers and growing our revenues. We don't often talk much about parts and accident repair centers, but I think this is worth a mention here. We have set up a new contact center in Gateshead, which takes the phone calls from all our dealerships that don't have dedicated trade center hubs. So all the retail customers wanting parts now phone into Gateshead. We take the order and they go to the dealership to pick it up. And that has certainly led to a much better customer experience for the customers, but we've actually captured a far higher proportion of that business, and we've grown revenues by GBP 300,000 per month, and that's rising as more and more dealerships come into that book. Finally, accident repair centers. We actually have 11 accident repair centers. We've now put them into a new company with dedicated management and body shops that are driving much better levels of operational excellence and focus. We're having real move forward in terms of profitability. And actually, given the fact that the largest player in the sector fell over last year in nationwide accident repair center, we think the supply-demand dynamics in that business is a much better now on a market perspective. So we would envisage maybe having more accident repair centers going forward. So if we turn now to digitalization of sales. There's quite a lot to discuss here. You've seen a slide similar to this before. There's a range of activity undertaken by customers. There is no 1 customer now in terms of how the market behaves. Some people want to transact entirely online. Some people want to just come into a dealership and have a traditional process. And in the middle, there are those who want to do more online than less online. Now we think we've got a strategy really to move our business forward in this area. And we would like to make it absolutely interchangeable and transparent between online and offline. So if you get a valuation of a used car online, then the dealership has the same value. You commence the dealership, you get the same value for the used car as if you're online. And we're well through making that a reality. In addition, we have got a lot of very good initiatives under the Click2Drive banner to actually push the message to customers that we are omnichannel retailing and we can increase our penetration of that market. However, let's put things into perspective. Of 50,000 used cars that we sold in H1, 681 were pure e-commerce. And actually, this is due to conversion. So our normal dealership operations have a conversion ratio requires a sale of around 30%. In online pure used car retailing, the average conversion ratio was 0.8 of 1%, which explains why pure online retailers have to fund millions and millions of pounds of marketing in order to get any volume at all when you put a 0.8% conversion ratio. It is a minority score. What we're going to do to increase that conversion ratio because it is an efficient channel. Our dealerships have to do less work clearly on an online purchase is we are putting personal shopping concierge people in the mix to help the people who are online. We spot them online, we can then ask them, have they got any concerns. They can ask questions, we can provide them with videos. We can change the deal for them, we can even take over the screen. That is going to be launched later this month. And we will be driving customer awareness of that through the TV campaign of Click2Drive. Click2Drive is far more than e-com. It is actually the whole technology platform, which allows customers to choose how they interact with us. But we're very confident and has seen evidence in the U.S. that concierge services can significantly increase conversion of that channel of pure e-com. Now the other element clearly, we've seen is, as the world has reopened, as dealerships reopened, a good 30% to 35% of customers actually just want to go into a dealership, transact us normally and the vast book of customers actually have a test drive. And it is quite clear that that's increased and reversed the trend when we were lockdown where no one could test drive. So there's a -- we've got to cater for all these customers. However, it's probably worth putting out, but the vast majority of customers do interact with us online at some point. Be it the initial inquiry or a personalized video or even over the phone to actually finalize the deal, and we've got very good technology to make that as seamless as possible. So if you actually look what Vertu offers in the wider sector, if you include the independent used car operators and where pure e-com operators, we think we are very well positioned to fight our corner both against the established players and disruptors. Our customer experience in used cars is sector leading at an NPS of 85%. We're very, very proud of that, means that customers are getting what they actually wanted to get. We've got a strategy that's bricks and clicks. We cater for pure e-com, but frankly, the vast majority of people want to have test drive. I much prefer to operate at a high conversion ratio well in excess of 0.8%. And I think that the online disruptors have a real problem if they continue to try and push everybody down in e-com, no test drive route, they're not going to get the volume. Now actually, we've seen consumers establish a physical footprint across the U.K., but still not offering test drives, and you can't go and actually see the car really before you buy it. I think they'll have to change that business it makes absolutely no sense to me whatsoever. The other factor that's very much in our favor here is because we are franchise retailers, we are able to purchase new vehicles and used vehicles from manufacturers. And we've been talking for a number of years that the objective of the manufacturers is very clear. They want to control not only the sale of the new car, they want to control the used car sale and the subsequent used car sale by keeping everything in a close loop. So supplying only franchise retailers not supplying independents. And I think they've made good progress with that. But also if they sell to a fleet to do a buyback, so they can bring it back into the franchise network. Now they want to do that to make sure the franchise networks are viable and profitable, but also because as franchise dealers when we prepare the car and if we sell the car and then we upsell a service plan, we're retaining those older cars in our network and buying parts from the manufacturer. So this is really core strategy of OEMs to create a closed loop. And frankly, I think people outside of that loop, i.e., non-franchised used car retailers are going to struggle with supply for quite a while. And the proof is in the eating, if you look at this slide. We have over 8,000 cars for retail sale, used cars on our web at the moment and major competitors like Cazoo, Motorpoint are approximately 3,000, Cinch about 5,000. So I think the proof is in the eating. The other cornerstone of our strategy as franchise retailers is we provide a full service. Because of our high-margin aftersales business in every location, we are there when something goes wrong, I think customers want that. And we have a far deeper relationship than a pure e-com model. And when you factor in the connected car technology that the global brands are developing and customers increasingly have an app with the manufacturer, it ties the customer into the manufacturer, but also their local retailer. And I think this is really important. We are going to see higher retention and a deeper customer relationship on the back of the customer's relationship with the OEM and the OEM's relationship with the retailer. I think connected vehicles will give us long-term retention in sales and aftersales, which will be much to our benefit. We are very confident that our business model will stand up to scrutiny. If we turn over and look at electrification. The pace of electrification is fairly quickening, and we clearly need to be at the forefront of that. And our market shares on electric vehicles and hybrids are excellent with all our manufacturers. And you can see here, there's been a 19% increase in terms of the share that electric and hybrid has taken in 2021 compared to 2020. There's a number of reasons for that. Clearly, the OEMs are excited to make sure they don't have regulatory fines, which are massive, but also the technological changes going through. The range of electric vehicles is now much better. Range anxiety should be much reduced. So while there are still lots of impediments to the wholesale adoption of electric vehicles, largely around infrastructure. Actually, the cars are now coming through and people -- more and more people are able to drive them without completing their daily life. Now there's a number of points, I think that are important. One is actually electric vehicles need a lot more semiconductors than internal combustion vehicles. People don't necessarily know that, but that's putting more and more pressure on the supply chains and production because they have to make electric vehicles for regulatory reasons, but it's absorbing a lot of chips. You can also see that hybrids are a significant part of the current picture of car sales. 34% registrations, Jan to August were actually hybrids. Now this will reduce over time as electric vehicles improve and as more and more people see the 2030 deadline, though hybrid to go after 2030 degree. You will see that change in electric vehicles more. Interestingly, from an aftersales perspective, on the right-hand side, you can see that the SMMT forecast that by 2030, 73% of the U.K. vehicle parts by over 30 million cars will be internal combustion engine with hybrid a further 7%. So over 80% of the vehicle part will have an internal combustion component. And we're quite -- we're confident that -- that will provide a lot of resilience in our aftersales business for a lot of years to come. In addition, there's a growing body of research that shows that customer retention is actually higher in battery electric vehicles and hybrids than in traditional internal combustion engines, which is all good news for franchise retailers. And I am very confident that the connected car technology will also produce a retention benefit for aftersales franchise dealers. So I think we are in a very good position. If we turn to colleagues, which are clearly pivotal to our execution, the labor market is in a very changed -- very much changed position than pre-pandemic. And it's not at all what we anticipated when we went into lockdown. To be honest, I was concerned we were going to have high levels of unemployment. And we clearly are not. We're in the U.K. now with record levels of vacancies. And actually, we've got approximately 500 vacancies at the moment, which has been going on since the end of the last lockdown, and I suspect we are not unique. So we have developed a plan to ensure that we have a sustainable, fully resourced team of colleagues and that they are highly trained because there's a lot of change in our sector over the next 2 or 3 years, and we need people to be ready for that change. So we had a plan, and we are in the middle of implementing it. We've significantly augmented maternity pay. Colleagues now get 90% of their pay for 6 months, but we are bringing more and more females into the workforce, particularly in the sales area. We are in the middle at the moment of a full-scale pay review of every job role in the group, which will be complete by the 1st of January. Our technicians review is fully complete and rolled out. And the reason for doing that is we want to make sure that we can secure through recruitments that we can retain and that our colleagues don't feel that they need to leave to get better pay somewhere else. So that is important for us in terms of sustainable business going forward. In addition, we've looked to the future and to make sure that we've got the right caliber of talent coming through and the right numbers coming through. So we've always had a very substantial light vehicle technician apprentice scheme, but we are launching on the 1st of January a modern apprentice scheme for service advisers. It's the first ever in-house design program, and we will be recruiting approximately 120 service adviser apprentices over and above current resource levels with effect from the 1st of March before rollout. When you actually add that package up, we estimate that approximately is an investment of around GBP 12 million a year. Obviously, there's a lot of new roles in that. That's not entirely all pay. And that number excludes the impact of national Insurance next year, which is the chance of this timely dividend, which is under circa another GBP 2 million. Now it's okay having colleagues, but you need to make sure they're motivated and trained. We have done a lot of work, including a strategic partnership with Dale Carnegie Institute to make sure that every single colleague in our group will have access to online personal development programs and we will be significantly upgrading our line manager training and general manager training to oversee the pace of change that we expect in our business over the next 3 or 5 years. So let's move to current trading and outlook in September. September was a very strange month. You can see that every metric in terms of revenue and volume is down. However, despite declining volumes, the group delivered a record profitable month. And this really shows, I think, the impact that oversupply of vehicles into the United Kingdom has historically had on decreasing margins in the sector. And the delta in margin is about 2% in terms of gross profit margin peak-to-trough, but actually 2% of a massive number. So it was a big impact in terms of profitability. Clearly, we're now at almost record margins. And we delivered a profit before tax in September of GBP 20 million, which is clearly considerable. Revenues overall were stable, but were bolstered certainly by acquisitions, and we've done a significant number of acquisitions in the past couple of years. Service revenues, unusually, actually, for our group, were actually down like-for-like, and that was due to a number of reasons. Clearly, if you have lower vehicle sales, you've got less cars to prepare and to PDI. We had significant pent-up demand last September coming out of lockdowns, and we're seeing slightly muted -- more muted demand, but not abnormal demand in September. And we also had resource constraints around COVID and indeed vacancy levels. So service revenues were down, but actually profitability is strongly against a strong margin. If we turn to new vehicles, you can see the channels there -- of the 4 channels of new vehicles, and every channel was down. However, we outperformed in every single channel versus the SMMT registration numbers. And in some of those channels quite significantly, we continue to gain market share in the fleet car channel, massive outperformance compared to the market and also in commercial vehicles, which is a real sweet spot for the group. We have deep expertise in commercial vehicles, including our Vans Direct business, and we're very, very happy with our performance. We showed strong pricing disciplines in the face of supply constraints. If we turn to used cars, actually, we were down a volume, 7.4%, which probably isn't a great surprise given the supply constraints. That did surprise me slightly. We were very firm in our pricing disciplines coming into September. And with all the uncertainty over the new car market, we really didn't know where our used vehicle supply levels were going to be with a very important used car month of October and so into Q4. So we make sure we maximize the margin that we made on the cars that we had, which clearly put us into a strong profitability standpoint. As it happened, our stock levels going into October are high. Actually, we've done well in terms of procurement and that bodes well, I think, for Q4. But clearly, we saw volume down margins and margins up. Margins were significantly up pretty well across the board. It is worth pointing out that September was the last month of major rates relief in England. We've now hit the cap that the government has set. So we will not be able to have rate benefit going forward. However, we continue to gain rate benefit in Scotland where the rules [indiscernible]. So the final slide, let's deal with outlook, which will bring a number of these issues together. The semiconductor supply chain issues, we do not think will resolve very quickly. We see them going well into 2022 from a new car perspective. And actually, on used cars, we think that this deficit of supply will have an impact for quite a long period. There is no sign of faltering demand at present. But clearly, we've got to look at supply and demand. Our order banks for new vehicles are at historically high levels. We have an order bank we just need the cars. We've clearly discussed the labor market changes, and we've hit these head on to make sure that we've got the right numbers of colleagues and that we're strong on retention and recruitment. And also, we're bringing additional colleagues in to power the growth of the business going forward. While that's clearly got an investment cost, we think it will put us in a good position in terms of generation of gross profit, generation of additional revenues and an enhanced customer experience, which will stand us in good stead with regards to retention. The upshot then is the full year guidance is the profit before tax will not be less than GBP 65 million, which clearly would be a record. If you take a wider view in terms of the strategic focus, we are a management team that is very focused on the job in hand to prepare the business for the future around a more normalized set of market conditions, greater scale coming from acquisitions to be executed. A dynamic environmental change around business models and technology, we will see continual change over the next 5 to 10 years, and we're preparing the business for that. And we've got very exciting developments in digital such as the launch of the Click2Drive brand and innovations around concierge personal shopping. In essence, we continue to focus our capacity for growth. We continue to make sure that our brands have high levels of customer awareness through marketing. That we've got the right number of colleagues that we've got stable colleagues with the right skills and that we've got acquisitions to execute. It is also true to say as we've put in the announcement that compared to 6 months ago, we got a more visible acquisition pipeline. So as Karen pointed out, we need to make sure we don't overpay and get carried away with the current earnings levels of the sector because they will not continue forever. In essence, we feel confident, we have a plan and we're going to attack.