Auto Trader Group strong initial bounce back in used car demand

automotive

Auto Trader Group plc (LON:AUTO), the UK’s largest digital automotive marketplace, announces full year results for the year ended 31 March 2020

What we have done since the COVID-19 outbreak (principally relating to the period after 31 March 2020)

–      Our priority has been the physical and mental wellbeing of our people, and providing support to them through the crisis

–      We supported our retailer customers by providing free advertising during April and May when they were closed, followed by a 25% discount in June

–      In the first three weeks of June we have seen record levels of audience, with cross platform visits up 28% on the same period last year  

–      In April and May, while we were loss making and our customers remained closed, we utilised the Government’s Coronavirus Job Retention Scheme for a short amount of time. All furloughed employees returned to working from 21 May 2020

–      When the crisis passes, we will return all money received to date under the furlough programme

–      On 1 April 2020, we announced the placing of approximately 46m shares, raising gross proceeds of £186m, which strengthened our balance sheet and liquidity position. This equity raise gave us the flexibility to act in the best interests of all of our stakeholders

Financial highlights for the year ended March 2020

–      Revenue up 4% to £368.9 million (2019: £355.1 million)

–      Operating profit up 6% to £258.9 million (2019: £243.7 million) with Operating profit margin increasing to 70% (2019: 69%)

–      Profit before tax up 4% to £251.5 million (2019: £242.2 million). The prior year included a one-off £8.7 million profit recognised on disposal of Smart Buying to our joint venture, Dealer Auction

–      Basic EPS up 6% to 22.19p per share (2019: 21.00p)

–      Cash generated from operations1 up 3% to £265.5 million (2019: £258.5 million)

–      £126.4 million of cash returned to shareholders (2019: £151.1 million) through £61.7 million of share buy-backs (2019: £93.5 million) plus dividends paid of £64.7 million (2019: £57.6 million)

–      Net bank debt2 reduced by £31.7 million to £275.4 million (2019: £307.1 million) with leverage3 at 1.0x (2019: 1.2x)

–       As anticipated, no final dividend proposed given the current uncertainties surrounding the COVID-19 pandemic (2019: 4.6 pence per share). Total dividend for the year is therefore 2.4 pence per share (2019: 6.7 pence per share), being the interim dividend which was paid in January 2020. We are hopeful for an early return to our previous capital return policy

Operational highlights for the year ended March 2020

–      Audience engagement remains strong: cross platform visits4,5 per month up 3% to 50.8 million (2019: 49.1 million);  share of time spent by consumers on automotive platforms4,6 up to over 75%, now 9x larger than our nearest competitor (2019: 5x larger) and the highest level since our IPO. Full page advert views per month4,7 decreased 2% to 235 million (2019: 239 million)

–      Average Revenue Per Retailer forecourt4 (‘ARPR’) per month up 6% or £105 to £1,949 (2019: £1,844), with growth from product and price offsetting the expected reduction in stock

–      Retailer forecourts4 growth of 1%, increasing to 13,345 (2019: 13,240)

–      Physical car stock on site4,8 up 4% to 478,000 cars (2019: 461,000). Our new car listings product contributed over 31,000 to that average (2019: 12,000) 

Strategic highlights for the year ended March 2020

–      Successfully monetised our new car proposition with over 1,000 retailers paying to advertise new cars on our marketplace by the end of the financial year. Through the year there was an average of over 31,000 physical new cars advertised on our platforms

–      As part of our April 2019 pricing event we launched two new products to retailers: Text Chat and our Vehicle Check product that we run in partnership with Experian. These products provide benefit for both consumers and retailers, helping to build trust between the two

–      We are pleased to see that stock penetration of our Advanced and Premium packages9 continues to increase, reaching 23% (2019: 19%), as retailers continue to see the benefits of paying more to appear with a greater level of prominence on our site

–      We acquired KeeResources, a trusted data and systems provider to the automotive industry. This has secured the vehicle data which underpins much of our core platform

–       Dealer Auction, our joint venture with Cox Automotive, completed the re-platforming and integration of the three component businesses in early 2020. Moving on to Auto Trader’s platform sets the business up to leverage the scale of both Auto Trader and Cox Automotive

Nathan Coe, Chief Executive Officer of Auto Trader Group plc, said:

“We are pleased with our achievements in the past financial year, however we recognise these have been well and truly surpassed by the events of the past few months. Through this time, we have been absolutely committed to supporting our people and customers in the face of the most challenging conditions ever experienced by our company or industry.

“Since the early stages of the pandemic we have endeavoured to act decisively and responsibly to ensure we and our customers could emerge in as strong a position as possible when the crisis passes. We’ve been encouraged by the strong initial bounce back in used car demand, and whilst the short-term outlook remains uncertain, we believe the case for moving more of the car buying process online is stronger than ever. We are looking forward to making this a reality with our customers in the years ahead.

“We would like to take this opportunity to thank our people for their unwavering commitment and support, and our customers for their trust in us through these most trying of times.”

Outlook

April to June 2020 trading

Since 1 June, when retailers were able to re-open their showrooms, both visitors and enquiries have rebounded strongly and are now at record levels. With high levels of demand in the market, used car pricing has remained strong.

Despite an increased number of vehicles on our platforms, the number of retailers has declined by 3%. Whilst we retained more retailers than during the same period last year, this was not offset by the normal levels of new business. 

We have been seeing a higher than average pipeline of customers exercising their 30-day notice period to leave the platform. Up until now, this has not translated into increased levels of cancellations.

The table below gives clarity on KPIs and financial performance through April, May and most of June 2020:

 March 2020YoY %April 2020YoY %May 2020YoY %1- 21 JuneYoY %
Average retailers13,298(0%)13,146(1%)12,921(3%)12,920(3%)
Live car stock (‘000)4871%54612%53410%487(0%)
Daily cross platform visits (m)1.5(13%)1.2(32%)1.6(7%)2.128%
 April2020May2020June*(Estimated)2020June(Estimated)YoY%Q1(Estimated)2020
Retailer0.40.517.0(34%)17.9
Home trader0.10.20.5(38%)0.8
Other trade0.30.40.5150%1.2
Trade0.81.118.0(33%)19.9
Consumer Services0.61.42.3(12%)4.3
Manufacturer & agency0.20.40.6(65%)1.2
Revenue1.62.920.9(33%)25.4
Costs(8.0)(7.7)(9.3)7%(25.0)
Share of profit from joint ventures(0.2)0.2(33%)
Operating (loss)/ profit(6.6)(4.8)11.8(45%)0.4

* June revenue was impacted by a 25% discount for retailer customers in England and a combination of discounts (100% and 25%) for other UK countries according to when restrictions were lifted. These discounts were applied to FY21 rates which took effect from 1 April.

At the end of May the Group had net bank debt of £80m and leverage of 0.4x.

July 2020 onwards

Following a period of reduced revenue through which we supported our customers, we will to return to full rates from 1 July 2020. Based on current trends we would expect July retailer revenue to be down by mid-single digits on the same month last year.

Total Group costs are likely to decline at a rate of low-mid single digits as cost saving measures were taken in response to COVID-19. This was largely through reduced marketing and other smaller discretionary spend.

Given the situation, it is difficult sensibly to provide guidance on what the number of retailer forecourts or the level of stock might be over the coming months.

The reduction in stock levels and the stability in used car prices are a sign of industry health, which although negative for our stock on site at the moment, is positive for our customer base. The COVID-19 outbreak is likely to result in an increase in the level of exclusive use vehicle ownership. We believe the current environment will only accelerate the shift towards greater digitalisation of the car buying process. The Board therefore remains confident in Auto Trader Group’s long-term growth prospects.

Analyst presentation

A presentation for analysts will be held via audio webcast and conference call at 9.30am, Thursday 25 June 2020. Details below.

Audio webcast: https://edge.media-server.com/mmc/p/fimkcdqz

Conference call details:

LocationPurposePhone TypeNumber
United Kingdom, LondonParticipantLocal+44 (0) 2071 928338
United KingdomParticipantTollfree / Freephone08002796619
United States, New YorkParticipantLocal+16467413167
United StatesParticipantTollfree / Freephone18778709135

Passcode: 9567728

Please note: Questions will only be taken from the conference call. Participants on the conference call who also plan on following the slides via the webcast should switch the webcast to Phone mode using the cogwheel icon located on the bottom right corner of the webcast screen to ensure the slides are synced to the phone audio rather than the webcast audio.

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