Company Announcements

AUTO TRADER GROUP PLC

HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2019

Auto Trader Group plc ('Auto Trader', 'the Group'), the UK's largest digital automotive marketplace, announces half year results for the six months ended 30 September 2019.

Financial highlights

-      Revenue up 6% to £186.7 million (H1 2019: £176.8 million)

-       Operating profit up 9% to £131.4 million (H1 2019: £120.6 million) with Operating profit margin increasing to 70% (H1 2019: 68%)

-      Profit before tax up 12% to £127.7 million (H1 2019: £114.5 million)

-      Basic EPS up 14% to 11.13 pence (H1 2019: 9.78 pence)

-      Cash generated from operations¹ up 3% to £132.7 million (H1 2019: £129.0 million). Cash conversion² was at 98% (H1 2019: 101%)

-       £69.8 million returned to shareholders (H1 2019: £80.8 million) through £27.2 million of share buy-backs (H1 2019: £42.9 million) plus dividends paid of £42.6 million (H1 2019: £37.9 million)

-      Interim dividend of 2.4 pence per share (H1 2019: 2.1 pence per share)

Operational highlights

-       Cross platform visits^3,4 per month increased by 4% to 51.2 million (H1 2019: 49.3 million) and share of minutes amongst our full competitor set⁵ has grown to over 75% (H1 2019: 72%). Full page advert views per month^3,6 decreased by 6% to 233 million per month (H1 2019: 247 million)

-       Retailer forecourts³ up 1% to 13,316 (H1 2019: 13,153)

-       Average Revenue Per Retailer³ (ARPR) per month up £125 or 7% to £1,951 (H1 2019: £1,826) with growth from product and price offsetting a small, but expected, decline in paid retailer stock

-       Product growth from existing and new retailer products through monetisation of Vehicle Check and Text Chat in April, along with continued upsell across advertising packages

-       Physical car stock^3,7 on site up 10% to 481,000 cars (H1 2019: 437,000 cars). Used physical car stock³ up 3% to 448,000 (H1 2019: 434,000)

-       New car was a driver of physical car stock growth with an average of 33,000 (H1 2019: 3,000) new cars advertised across the period. In September alone 1.6 million unique users viewed a new car on Auto Trader

-       In October 2019 Auto Trader acquired KeeResources, a trusted provider of software, data, and digital solutions to the automotive industry; securing the vehicle data which underpins much of our core platform 

Trevor Mather, Chief Executive Officer of Auto Trader Group plc, said:

"We have had a good first half and have seen an even greater number of car retailers opting to partner with Auto Trader to access our growing consumer audience.

"We continue to be the clear market leader in used cars and have extended this into new cars, with over 30,000 brand new cars on Auto Trader being viewed by 1.6 million people in September alone.

"Despite ongoing market uncertainty, the Board is confident of meeting its growth expectations for the year."

Outlook

In the first half, we have seen stronger than expected revenue growth from retailers, underpinned by product innovation. We expect good ARPR growth to continue, albeit with a slightly increased headwind from stock.

We anticipate the average number of retailer forecourts to see modest year-on-year growth, largely through the acquisition of smaller retailers.

Consumer services growth is expected to moderate slightly as we lap a tougher comparative.

Manufacturer and Agency revenue, which is 5% of total revenue, has been weak due to challenges facing these customers and we anticipate the rate of decline will accelerate.

With KeeResources included, we anticipate total operating costs for the year to increase at low to mid-single digit percentage.

The Board is confident of meeting its growth expectations for the year.

Analyst presentation

A presentation for analysts will be held at the offices of Bank of America at 9.30am, Thursday 7 November 2019. If you wish to attend, please contact Powerscourt on the details below. Alternatively, you can listen to the presentation via audio webcast at the following link: https://edge.media-server.com/mmc/p/hrfxxkpo  

For media enquiries

Please contact the team at Powerscourt on +44 (0)20 7250 1446 or email autotrader@powerscourt-group.com 

About Auto Trader

Auto Trader Group plc is the UK and Ireland's largest digital automotive marketplace. Auto Trader sits at the heart of the UK's vehicle buying process and its primary activity is to help vehicle retailers compete effectively on the marketplace in order to sell more vehicles, faster. Auto Trader listed on the London Stock Exchange in March 2015 and is now a member of the FTSE 100 Index.

The marketplace brings together the largest and most engaged consumer audience. Auto Trader has over 90% prompted brand awareness and attracts circa 50 million monthly cross platform visits each month, with around 80% of visits coming through mobile devices.

The marketplace also has the largest pool of vehicle sellers (listing around 450,000 cars each day). Around 80% of UK automotive retailers advertise on autotrader.co.uk.

For more information, please visit http://plc.autotrader.co.uk 

Cautionary statement

This announcement of half-yearly results does not constitute or form part of and should not be construed as an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Auto Trader Group plc (the "Company") shares or other securities, businesses or assets described in it in any jurisdiction nor is it an inducement or invitation to enter into investment activity nor should it form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. It does not constitute a recommendation regarding any securities or legal, tax, regulatory, or financial or accounting advice. Past performance, including the price at which the Company's securities have been bought or sold in the past, is no guide to future performance and persons needing advice should consult an independent financial advisor. Certain statements in this announcement constitute forward looking statements (including beliefs or opinions). "Forward looking statements" are sometimes identified by the use of forward-looking terminology, including the terms "believes", "estimates", "aims" "anticipates", "expects", "intends", "plans", "predicts", "may", "will", "could", "shall", "risk", "targets", forecasts", "should", "guidance", "continues", "assumes" or "positioned" or, in each case, their negative or other variations or comparable terminology. Any statement in this announcement that is not a statement of historical fact including, without limitation, those regarding the Company's future expectations, operations, financial performance, financial condition and business is a forward-looking statement. Such forward looking statements are subject to known and unknown risks and uncertainties, because they relate to events that may or may not occur in the future, that may cause actual results to differ materially from those expressed or implied by such forward looking statements. These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in this results announcement. As a result, you are cautioned not to place reliance on such forward-looking statements, which are not guarantees of future performance and the actual results of operations, financial condition and liquidity, and the development of the industry in which the Group operates, may differ materially from those made in or suggested by the forward looking statements set out in this announcement. Except as is required by applicable laws and regulatory obligations, no undertaking is given to update the forward-looking statements contained in this announcement, whether as a result of new information, future events or otherwise. Nothing in this announcement should be construed as a profit forecast. This announcement has been prepared for the Company's group as a whole and, therefore, gives greater emphasis to those matters which are significant to the Company and its subsidiary undertakings when viewed as a whole.

To the extent available, the industry and market data contained in this announcement has come from third party sources. Third party industry publications, studies and surveys generally state that the data contained therein have been obtained from sources believed to be reliable, but that there is no guarantee of the accuracy or completeness of such data. In addition, certain of the industry and market data contained in this announcement come from the Company's own internal research and estimates based on the knowledge and experience of the Company's management in the market in which the Company operates. While the Company believes that such research and estimates are reasonable and reliable, they, and their underlying methodology and assumptions, have not been verified by any independent source for accuracy or completeness and are subject to change without notice. Accordingly, undue reliance should not be placed on any of the industry or market data contained in this announcement.

Summary financial performance

1. Cash generated from operations is defined as net cash generated from operating activities, before corporation tax paid.

2. Cash conversion is Cash generated from operations as a percentage of adjusted underlying EBITDA (earnings before interest, taxation, depreciation and amortisation, share-based payments and associated NI, share of profits from joint ventures and exceptional items which includes profit on disposal of subsidiaries).

3. Average during the period.

4. Cross platform visits measured by Google analytics.

5. Share of minutes is a custom metric based on Comscore minutes (MM) and is calculated by dividing Auto Trader's total minutes volume by the entire custom-defined competitive set's total minutes volume. Comscore MMX® Multi-Platform,  Total Audience,  Custom-defined list includes: Auto Trader, Gumtree.com  - Motors, eBay Motors UK Pistonheads sites, Motors.co.uk, CarGurus, Auto Express.co.uk, Topgear.com, Parkers.co.uk, Whatcar.com, Carwow.com, Exchange&Mart, Vcars, RAC cars, Trusteddealers.co.uk, Carsnip.co.uk April  2017 through September 2019, UK.

6. Company measure of the number of inspections of individual vehicle advertisements on the UK marketplace.

7. Physical car stock advertised on autotrader.co.uk.

8. Gross external bank debt is Borrowings before unamortised debt issue costs.

9. Leverage is external bank debt less cash as a multiple of adjusted underlying EBITDA (earnings before interest, taxation, depreciation and amortisation, share-based payments and associated NI, share of profits from joint ventures and exceptional items which includes profit on disposal of subsidiaries).

Summary of operating performance

We are focused on leading the future of the digital automotive marketplace. Our strategy is centred on improving car buying and selling in the UK, evolving the wider automotive ecosystem and continuing to focus on building a culture that enables us to realise this opportunity.

Revenue grew by 6% to £186.7 million (H1 2019: £176.8 million) underpinned by a good performance in our core business over the last six months as retailers and consumers continue to see the value of using our marketplace and products. Operating profit grew 9% to £131.4 million (H1 2019: £120.6 million) and operating profit margin grew to 70% (H1 2019: 68%).

Our position as the UK's largest automotive marketplace for new and used cars has been strengthened. Average monthly cross platform visits increased by 4% to 51.2 million per month (H1 2019: 49.3 million) and we have grown our share of minutes amongst our full competitor set to over 75%. Full page advert views decreased by 6% to 233 million per month (H1 2019: 247 million) following changes we have made to the site as we seek to improve the car buying experience.

Average stock increased by 10% to 481,000 (H1 2019: 437,000), with new car stock accounting for 33,000 of the average number for the period (H1 2019: 3,000) and contributing much of the growth. The average number of retailer forecourts increased 1% to 13,316 (H1 2019: 13,153), largely through the gain of small customers.

We saw a decline in revenue from manufacturers and their media agencies (a customer base which represents 5% of total revenue), although this was largely in line with the market as reported by third parties¹. Manufacturers are under pressure as tougher economic and regulatory conditions, including continually low exchange rates and new emissions regulations, have impacted their marketing and advertising budgets in the UK.

The UK car market

Over the last six months the new and used car markets have continued to be affected by the ongoing Brexit negotiations as consumers delay big-ticket purchases. Other industry-specific issues, such as the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) and Real Driving Emissions Test (RDE) measures, have also posed challenges as both have adversely affected supply of some vehicles and therefore sales.

According to the Society of Motor Manufacturers and Traders (SMMT), new car registrations declined in the period April - September by 2.6% with a total of 1.2 million cars registered². Used car transactions fell 2.9% in the period April - June³, with the decline coming in cars aged under 2 years old and over 10 years old. However, there are pockets of growth as demand for alternative fuelled vehicles (AFVs), specifically electric vehicles, is growing, with AFV new car registrations up 29% in the period April - September and on Auto Trader we saw the share of fuel-related searches increase to 7% for AFVs.

The Auto Trader Retail Price Index, which tracks the average trade retail price of a used car on a like-for-like basis stripping out the impact of changes in the mix of cars being sold, shows that prices have decreased by 0.6% in the six months to September 2019 - the average price of a used car was £12,851. Uncertainty around trade valuations and volatility in the supply of vehicles has impacted auction markets, which has started to feed into the retail market.

Key product developments

In April we introduced Text Chat within all of our advertising packages, which gives buyers the ability to live chat with retailers using text messages activated from an advert. This tool gives car buyers a quick and easy way to contact a retailer. We also launched a Vehicle Check product, in partnership with Experian, which allows retailers to check the provenance of vehicles they might be looking to source. The checks also provide consumers with a greater level of transparency when searching on Auto Trader. 80% of our independent customers opted to pay for this product from April.

We had an average of 33,000 new cars advertised over the period (H1 2019: 3,000). In September alone we had 1.6 million unique users viewing a new car full page advert. In the six month period April - September, new car stock on Auto Trader generated 19 million advert views for our franchise customers. This year we ran an advertising campaign to highlight to consumers that they can search for a brand new car on Auto Trader, which reached over 80% of UK adults.

Penetration of our Managing products has increased in the period, with the number of retailers now subscribing to either Retail Accelerator (formerly i-Control) or Retail Check reaching 3,600 - up from 3,200 in March 2019. This growth has largely been driven by an increase in the usage of our entry level product, Retail Check, which gives retailers the most accurate view of the live retail market to help ensure that they buy the right stock at the right price and sell it profitably.

Acquisition of KeeResources

In October 2019, we acquired KeeResources, a trusted provider of software, data, and digital solutions to the automotive industry, including a detailed vehicle dataset for new and used cars which Auto Trader uses to power its platform. KeeResources has been an integral supplier to Auto Trader, as its unique vehicle data underpins much of our core platform. Strategically we believe it is important to own such a valuable data source. 

People and culture

We continue to work hard to foster a culture that is truly values-led, principles-driven and agile, and strive to make Auto Trader an inclusive employer where a diverse range of people can enjoy fulfilling careers and make a positive contribution to the communities in which we operate.

Our dedicated Diversity and Inclusion working group has been committed for the past three years to designing and delivering a comprehensive strategy concentrating on all diversity strands, with a focus on: LGBT+; gender equality; disability and neurodiversity; and BAME. As part of this focus, we were pleased to be named a Disability Confident Leader in July, the highest level of accreditation given by the Department for Work and Pensions, which runs the scheme.

The Board

In October, we were pleased to announce the appointment of Sigga Sigurdardottir, a digital transformation expert, to our Board as an Independent Non-Executive Director, with effect from 1 November 2019. Our Board now comprises four Independent Non-Executive Directors, three Executive Directors, and a Non-Executive Chairman. We believe we are one of three FTSE 100 companies to have a 50/50 gender balanced Board.

Investor calendar

The Group's full year results for the year ending 31 March 2020 will be announced on 4 June 2020.

¹ Nielson data July 2019

² Society of Motor Manufacturers and Traders (SMMT) new car registration data

³ DVLA used car transaction data

Financial review

Revenue

Revenue grew to £186.7m (H1 2019: £176.8m), up 6% on the previous period. 

Trade revenue, which comprises revenue from Retailers, Home Traders and other smaller revenue streams, increased by 8% to £161.8m (H1 2019: £150.1m).

Retailer revenue grew by 8% to £155.9m (H1 2019: £144.1m) driven by the launch of new products, our annual pricing event and continued upsell across our advertising packages. The average number of retailer forecourts grew 1% to 13,316 (H1 2019: 13,153), although much of the growth came through smaller retailers. This slightly diluted ARPR growth, which increased by £125 to £1,951 (H1 2019: £1,826). The 7% increase came from both product and price growth, which was slightly offset by an expected small decline in paid stock:

-        Price: price contributed £50 (H1 2019: £55) to ARPR growth as we executed our annual packaging event for all customers on 1 April, which included a like-for-like price increase.

-        Stock: a relatively slow auction market, brought about by a lack of confidence in trade valuations and dented consumer confidence, has at times led to lower levels of inventory being held by some of our customers. The number of cars advertised on autotrader.co.uk increased by 10% to 481,000 (H1 2019: 437,000). However, excluding new car, Private and Home Trader listings, the stock lever declined by a marginal £5 (H1 2019: decline of £45).

-        Product: the largest contributor to ARPR growth in the period was revenue generated from product upsell, which added £80 to ARPR (H1 2019: £142). Penetration of our higher yielding Advanced and Premium packages continues to grow, reaching 21% by September 2019 (September 2018: 15%) as retailers continue to see the advantage of investing in greater levels of prominence for their adverts. In April 2019, we monetised a Vehicle Check product, in partnership with Experian, which allows retailers to check vehicles they might be looking to source and creates a more transparent consumer experience on the Auto Trader full page advert. There was a small headwind to product growth as we passed revenue across into our joint venture, Dealer Auction, as part of the transaction completed in January 2019.

Home Trader revenue declined by 9% to £4.9m (H1 2019: £5.4m), as we have seen some migration to our subscription packages with revenue appearing within Retailer. A reduced number of transactions of older vehicles has also had some impact in this area. Other revenue increased to £1.0m (H1 2019: £0.6m).

Consumer services revenue increased 5% in the period to £15.9m (H1 2019: £15.2m). Private revenue, which is generated from individual sellers who pay to advertise their vehicle on the Auto Trader marketplace, increased to £11.8m (H1 2019: £11.0m). This represents growth of 7% in the period driven by an increase in advert yield, with the launch of a top-level package with longer duration. Motoring services revenue decreased by 2% to £4.1m (H1 2019: £4.2m).

Revenue from Manufacturer & Agency customers declined by 22% to £9.0m (H1 2019: £11.5m) as market pressures through Brexit uncertainty and regulatory changes have resulted in lower marketing spend through the first half.

Costs

Total costs increased by 2% to £57.1m (H1 2019: £56.2m).

People costs, which comprise all staff costs and third-party contractor costs, decreased by 1% to £28.1m (H1 2019: £28.4m). The decrease in people costs was partially driven by a reduction in the average number of full-time equivalent employees (including contractors) to 798 (H1 2019: 802), as a result of the transfer of 15 employees to Dealer Auction, our joint venture with Cox Automotive UK.

Marketing spend increased by 10% in the first half to £10.1m (H1 2019: £9.2m) as we launched an advertising campaign to promote our new car proposition. We expect marketing to be 5% of revenue for the full financial year.   

Other costs, which include data services, property related costs and other overheads, increased by 11% to £15.6m (H1 2019: £14.1m). The increase comes largely as a result of the Group's ongoing migration to cloud-based services which increases the level of resilience, security and speed of releasing software whilst over time reducing the need for capital expenditure in physical on-site assets. There were also costs linked to our Retail Accelerator product and Experian costs associated to our new Vehicle Check product.

Depreciation and amortisation declined to £3.3m (H1 2019: £4.5m) with the reduction coming from the Group's self-developed billing system assets becoming fully amortised.

Share of profit from joint ventures

The Group's profit from its share in joint ventures totalled £1.8m (H1 2019: £nil) in the period following its formation in January 2019.

Operating profit

During the period Operating profit grew 9% to £131.4m (H1 2019: £120.6m). Operating profit margin increased by two percentage points to 70% (H1 2019: 68%).

Finance costs

Finance costs decreased to £3.7m (H1 2019: £6.1m). Interest costs on the Group's Syndicated revolving credit facility ('Syndicated RCF') totalled £3.1m (H1 2019: interest on the RCF and former Syndicated Facilities Agreement totalled £3.2m). The decrease reflects a reduced average drawn level through the period. At 30 September 2019 the Group had drawn £328.5m of the facility (30 September 2018: £323.0m). Amortisation of debt costs amounted to £0.3m (H1 2019: £2.4m), a decrease year on year as the H1 2019 charge included £2.2m of accelerated costs relating to our previous facility. Interest costs relating to leases totalled £0.3m (H1 2019: £0.5m).

In June 2019, the Group extended the term for £316.5m of the £400.0m Syndicated RCF for an additional year to June 2024, incurring additional associated debt transaction costs of £0.5m.

Profit before taxation 

Profit before taxation increased by 12% to £127.7m (H1 2019: £114.5m). The Group tax charge of £24.5m (H1 2019: £21.9m) represents an effective tax rate of 19.2% (H1 2019: 19.1%) in line with the average standard UK rate.

Earnings per share 

Basic earnings per share rose by 14% to 11.13 pence (H1 2019: 9.78 pence) based on a weighted average number of ordinary shares in issue of 927,462,164 (H1 2019: 946,569,892). Diluted earnings per share of 11.08 pence (H1 2019: 9.75 pence) increased by 14%, based on 931,641,648 shares (H1 2019: 949,881,273) which takes into account the dilutive impact of outstanding share awards.

Cash flow

Cash generated from operations increased to £132.7m (H1 2019: £129.0m) primarily from Operating profit growth coupled with a strong level of cash conversion. Corporation tax payments increased to £47.3m (H1 2019: £19.8m) as HMRC accelerated the due dates for quarterly instalment payments for companies with accounting periods beginning on or after 1 April 2019. As well as the final two quarterly instalments for tax relating to financial year 2019, the Group was required to make the first two instalments for financial year 2020. Net cash generated from operating activities therefore reduced to £85.4m (H1 2019: £109.2m).

Capital structure and dividends

The Group's capital allocation policy remains unchanged with the priorities being to invest in the business, organically or through acquisitions, whilst returning around one third of net income to shareholders in the form of dividends. Any surplus cash following these activities will be used to continue our share buy-back programme and to steadily reduce gross indebtedness.

The final dividend for the year ended 31 March 2019 of 4.6 pence per share (H1 2019: 4.0 pence) was paid on 27 September 2019, totaling £42.6m (H1 2019: £37.9m). During the period, a total of 5.1 million shares (H1 2019: 9.6 million) were repurchased for a total consideration of £27.2m (H1 2019: £42.9m) before transaction costs of £0.1m (H1 2019: £0.2m). This decrease in the number of shares repurchased in the period was largely due to a reduction in the level of surplus cash available. Total cash returned to shareholders in the period was £69.8m (H1 2019: £80.8m).

For H1 2020, the Board has declared an interim dividend of 2.4 pence per share. The interim dividend will be paid on 24 January 2020 to members on the register on 3 January 2020.

Going concern

On the basis of facilities available and current financial projections for the next twelve months, the Directors have concluded that it is appropriate to prepare the condensed interim financial statements on a going concern basis.

Post balance sheet event

Since the end of the reporting period, the Group acquired the entire share capital of KeeResources Limited for consideration net of cash acquired of £25.3 million. KeeResources annual revenue and Operating profit for the financial year ending December 2018 was £5.5 million and £0.8 million respectively. As at the date of this report, we have not yet concluded the accounting for this acquisition.

Responsibility statement of the directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

·      the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

·      the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.