Good morning, everyone, and welcome to Auto Trader's half year results to the 30th of September 2019. Before handing over to Nathan and the team, I thought, given this will be my last results, as the Chief Executive Officer of the company, I'd take this chance to make three high-level observations about the business that come through clearly in these results. Firstly, the core foundations of the Auto Trader business, which drives over 85% of our revenue, remain absolutely rock solid. Our market position and competitive moat remain strong, indeed, have become somewhat stronger. Our customer base of retailers are growing despite tougher market conditions. Our strength in pricing remains, and our product innovation continues, as can be seen through the results of our April 1st pricing event this year.
We remain able to innovate despite keeping our cost base predominantly fixed, and of course, we have a very high return of cash flow to investors with almost zero capital tied up. Secondly, whilst there's understandable pressure on revenue from display advertising and from available stock in the market, given Brexit uncertainties, the business has shown once more how resilient it can be in tougher macroeconomic conditions. Thirdly, given this core strength and resilience, our mid to long-term growth potential from the continued digitization of the automotive ecosystem in the U.K. still feels extremely significant. Finally, as I expected, Nathan, Jamie, and Catherine have all been stepping up to both drive the success and continue the commitment to purposely focus on and extend from the core. The transition is proving almost seamless, and I'm confident that post-March, I'll be watching this business continuing its prosperity from the outside.
Over to Nathan to go through the key highlights.
Thank you, Trevor, and good morning, everyone. I'm pleased to say that we've made a good start to the year. Our core business has performed well, delivering strong revenue and operating profit growth alongside gains in our competitive position against all external measures. We've seen continued growth in revenue at 6%, mainly through strong growth in our core classifieds business, with revenue from retailers up 8%. Operating profit grew at 9%, and margin improved by two percentage points to 70%. The increase in margin resulted from a continued focus on cost, which increased by just 2% in the period, and a contribution from our joint venture Dealer Auction. Basic EPS growth of 14% came through a 12% increase in net income and fewer shares in issue as a result of our continued share buyback program.
I'm pleased to announce that we'll be paying an interim dividend of GBP 0.024, up from GBP 0.021 in the first half of last year. Cash generated from operations was up 3% to GBP 133 million. This is a lower growth rate than that of operating profit. Our cash conversion remained high at 98%. Jamie will further explain this variance in the financial section that follows. Finally, cash returned to shareholders in the period was GBP 70 million through a combination of dividends and repurchase of shares. The amount of surplus cash generated in the first half was reduced as additional tax payments were made following a change in HMRC's payment profile. In terms of key drivers, we continue to focus on the same priorities that underpin the health and sustainability of our core business. We are the U.K.'s largest automotive marketplace.
Despite more competitors, we have grown market share of time spent and increased visits on an absolute basis year-over-year. Cross-platform visits increased by 4% to 51.2 million per month on average for the period, engagement increased to over 75% of total time spent across our full competitor set, up from 72% a year ago. Full page advert views declined 6% following changes we've made to the site as we seek to improve the car buying experience. Retailer forecourts grew an impressive 1% year-over-year, predominantly from smaller retailers, which does have a dilutive effect on ARPA growth. In a market where conditions are undoubtedly challenging, the growth in retailers highlights the importance that our fragmented customer base places on Auto Trader. Average revenue per retailer forecourt or ARPA grew by 7% or GBP 125 per month compared to the previous year.
This growth largely came in product due to the monetization of our Vehicle Check and Text Chat products in April. We also continue to upsell customers to our advanced and premium advertising packages, which provide retailers with increased prominence on our marketplace, resulting in more sales and therefore profit. The number of cars advertised on-site increased 10% to an average of 481,000 for the period. Much of that was due to new car stock, which averaged 33,000 cars, predominantly on a free trial basis. Core retailer stock has proven its resilience, demonstrating that stock on Auto Trader is less cyclical than used car transactions, which in turn are much less cyclical than new car transactions.
We've also seen an increase in private stock following the launch of a new hold until sold package, which has seen strong take-up. Finally, the number of full-time equivalent employees remained flat at 798 for the period, a slight decrease as a result of us transferring 15 people to our Dealer Auction joint venture. The continued focus on our growth strategy and the acquisition of KeeResources in October means we expect this to grow on a full year basis. We're also making good progress against our strategy to improve car buying in the U.K. for the benefit of consumers, retailers, and manufacturers. All of these areas will be covered further in the course of the presentation.
However, at a high level, we've continued to grow our core through a product-led packaging event that also improves the buying experience for consumers, while continuing to see a good uptake of our prominence products. In October, we acquired KeeResources, a primary data source that provides what we believe is the most accurate data set for identifying vehicles in the U.K. We've also made notable progress in our adjacent opportunities. Our new car marketplace has grown over the past 12 months, and we are very pleased with the product, user growth, and the outcomes our retail customers and consumers are achieving. As a result, we've commenced monetizing this, and will continue to do so throughout this financial year and beyond.
Dealer Auction, our joint venture with Cox Automotive, has come a long way over the past six months, and is looking to provide a great foundation for us to begin meaningfully growing our share of the 3 million car opportunity in the B2B marketplace. Finally, we continue to work hard on the component parts of an online transaction journey for consumers, with our most immediate focus being on improving and digitizing the automotive finance space with our retailers. I'll now pass over to Jamie to take us through the financials in more detail.
Thank you, Nathan. Good morning, everyone. Starting with revenue, we continue to see good top-line growth, with revenue up 6%, primarily driven by our classified advertising products. Our core trade segment has been the key contributor, growing at 8%, which was largely driven by a 7% increase in ARPA and a 1% increase in retailer forecourts, as customers focus on maximizing their exposure in a competitive market. Also within trade, we've continued to see a decline in home trader pay-as-you-go listings. This was partially offset by growth in other trade-related revenue. Consumer services revenue increased by 5%, which was revenue growth in C2C private listings. Much of this growth came through a change to our package structure, and the introduction of a new higher yielding hold until sold package. Lastly, we saw a decline in revenue from manufacturers and their advertising agencies, which was down 22%.
Although this was largely in line with market trends, it was greater than we initially expected at the beginning of the year. Manufacturers are under pressure with tougher economic conditions, which include the low rate of sterling and new emissions regulations, which have in turn led to a decrease in U.K. marketing and display advertising budgets across the industry. On to ARPA, the key driver of our trade revenue. As Nathan said earlier, total ARPA has grown GBP 125, or 7% when compared to the same period last year. The good level of growth has been suppressed somewhat by a strong increase in retailers, many of which were smaller forecourts with a lower than average yield. Once again, the largest contributor to ARPA growth in the first half was product, which benefited from the product built and launched over the past three years.
Penetration of our advanced and premium packages continued to increase, ending the period at 21% of advertised retailer car stock, compared to 15% a year ago and 19% of the full year. Also contributing to the product lever was our successful packaging event, which took place in April and included two new products: Text Chat and Vehicle Check. In addition, we continued to drive further penetration of managing forecourts, growing by 400 retailers in the half, and returning to good levels of growth for this product following a slower second half of last year. As a reminder, there was a GBP 9 headwind on product as revenue from Smart Buying was transferred out of Auto Trader and into our joint venture Dealer Auction following its formation in January 2019. Turning now to stock and the chart on the right.
The turquoise line shows the increase in cars on site, which grew by 10% in the period, largely as a result of the increase in the number of new cars on our marketplace since the product was launched on a free of charge basis in August 2018. The average number of used cars advertised on Auto Trader each month increased by 3%, with the majority of that growth coming from an increased number of private listings, largely through the uptake of our new highest level package. The stock lever was marginally down for the period by GBP 5. When comparing the stock lever to live stock, it should be remembered that free of charge new car stock and pay-as-you-go private and home trader listings do not impact ARPA or the stock lever.
The increase in price of GBP 50 relates to an effective increase of just under 3%. Of which the majority was delivered in April 2019, and was consistent with that achieved in the prior year. Cost growth was 2% in the six months to September, with growth being broken down as follows. People costs, which include share-based payments, decreased by 1% to GBP 28.1 million. This decrease was partly due to a lower number of full-time equivalent employees, which was impacted by the transfer of people to Dealer Auction. Underlying average salaries continue to increase as we compete for in-demand digital talent. This has been marginally offset as we place a greater focus on early careers recruitment. Marketing costs represented 5.4% of revenue in the period. As previously guided, we expect to spend 5% on a full year basis.
Other costs, which include data services, property-related costs, and other overheads, increased by 11%. The increase comes largely from higher costs as a result of the group's ongoing migration to cloud-based services, which increases our level of resilience, security, and speed of releasing software, whilst over time reducing the need for capital expenditure in physical onsite assets. There are also small costs linked to functionality Dealer Auction provides to Retail Accelerator customers, as well as costs associated with our new Vehicle Check product. Finally, depreciation and amortization declined by 27% as the group's self-developed order-to-billing system became fully amortized. As a reminder, our low levels of CapEx and depreciation are not a reflection of low levels of investment in our business.
In addition to our investment in cloud-based services, we have around 300 people in product and technology who are continuously improving our platforms and developing new products for customers, the costs for which are taken in full through the P&L. CapEx for the period was GBP 0.9 million and was mainly on technology hardware. With revenue up 6%, costs up 2%, and a GBP 1.8 million contribution from our share of profit from joint ventures, operating profit grew by 9% and our operating profit margin increased two percentage points to 70%. Cash generated from operations was up 3% to GBP 132.7 million. The increase in cash generated from operations was lower than the increase in operating profit for three reasons. Firstly, a slight shift in cost base with an increase in overheads and a lower level of depreciation and amortization relative to prior years.
Secondly, the non-cash contribution from the share of profit from joint ventures. Finally, a negative movement in working capital compared to a positive movement in the comparative period. Overall, cash conversion remained high at 98%, demonstrating the group's ability to efficiently convert profit into cash. The statutory income statement outlines areas beyond operating profit. Finance costs decreased year-on-year to GBP 3.7 million, in part due to the reduced level of debt drawn under our facility. The prior year also included an additional GBP 2.2 million of accelerated amortization costs relating to our former debt facility, which we have not had to incur in this period. Our profit before tax was GBP 127.7 million, and our effective tax rate was 19%, which is in line with the standard average U.K. rate.
At 14% growth, basic EPS grew faster than profit after tax as a result of fewer shares in issue due to our share buyback program. As Nathan said in the financial highlights, I'm pleased to say we'll be paying an interim dividend of GBP 0.024 per share. Moving now to net debt and capital allocation. Net debt reduced by GBP 9.7 million over the period, and leverage reduced to 1.1 times. Cash generated from operations of GBP 133 million was used to pay GBP 0.9 million of CapEx and lease payments of GBP 1.3 million. In cash terms, we paid GBP 3.1 million of interest, and we incurred GBP 0.5 million of refinancing fees as we extended the majority of our facility by an additional year to June 2024. Tax paid increased to GBP 47.3 million as HMRC accelerated the due date for quarterly installment payments.
This is a one-off impact, purely an acceleration of when payments are made, and there is no additional tax charge for the group. Of the remaining free cash flow, GBP 42.6 million was paid in dividends relating to last year's final dividend, and GBP 27.3 million was used to buy back shares at an average price of GBP 5.32. In total, we returned GBP 69.8 million to shareholders in the first six months of the year. Gross debt increased by GBP 16 million in order to initially finance the acquisition of KeeResources, which we completed on the 1st of October. Our overall capital policy remains unchanged from that communicated in June. That concludes the financials. Catherine will now talk about the current market and product updates.
Thank you, Jamie. Good morning, everyone. New car registrations declined by 2.6% in the first half of financial year 2020, a modest improvement from the 3.7% decline in financial year 2019. Manufacturers remain under pressure. Specific issues such as the Real Driving Emissions test measures and concerns over exchange rates are having an adverse effect on the supply of some new cars into the U.K. market. As noted in June, used car transaction volumes in the 2019 financial year decreased by just 0.9%. However, in the first quarter of financial year 2020, the last period for which data is available, transactions declined by 2.9%. This reduction in used car sales was due to a decrease in transactions of vehicles over 10 years old and also those less than two years old, for which new car supply and the availability of pre-registered cars is important.
Whilst Brexit has been and will continue to be a significant focus for the industry over the coming months, we will only be affected by the outcomes to the extent that there are significant changes in consumer confidence and/or new vehicle supply into the U.K. market. We do not foresee any issues with our ability to provide our services, nor do we expect any material change to our cost base. We continue to publish a monthly price index of trade cars advertised on Auto Trader, the results of which are shown in this chart. The turquoise line shows the average price of a vehicle advertised, which you can see has increased steadily. By grouping cars by type, age, and fuel, we separate the impact on price from a change in the mix of cars on site.
It's worth noting that this index shows prices at any point in time and does not attempt to show residual values, as it ignores the original retail price of the cars. As you can see, for several years, like-for-like prices, indicated by the dark blue bars, have increased. However, this trend reversed in July. For the sixth month to September, like-for-like prices decreased by 0.6%. This decrease in advertised price is likely a result of a fall in wholesale values in May and June, after a period of excess trade supply. Interestingly, a change in the mix of cars advertised towards more expensive car types have caused the overall advertised price to continue to increase. This mix impact is shown by the gray bars on the chart. Now on to our audience metrics.
We continue to exhibit clear market leadership in terms of audience, and we have strengthened our position throughout the period. Cross-platform visits increased by 4%, and engagement remains strong as time spent on Auto Trader increased by 1% year-on-year based on our internal measures. What's more, our trusted brand, large stock choice, and consumer-focused user experience means that unlike most of our competitors, around 91% of our audience is from non-paid channels. The small increase in paid-for traffic to 9% in the period resulted from an increased focus in direct over brand marketing. In absolute terms, both paid and unpaid audiences have grown over the period. There were on average 233 million adverts viewed each calendar month through the period. This was a decrease of 6%. This was due to the continued optimization of the car buying experience we provide.
We have enriched the content of individual adverts, which has in turn increased the level of consumer engagement. Changes including part exchange, finance calculators, and Deal Builder have influenced this. Our new Vehicle Check product, which I will speak about later, is another example of such an improvement. We use Comscore along with a number of other external metrics to help us track how our audience is performing relative to the market as a whole. While there are challenges with all of these measurements, it remains the only way today to get an approximate view of our relative share. We have grown our share of minutes according to Comscore and have over 75% of all minutes spent by consumers across our full competitor set.
Our closest competitor, which is the eBay Motors Group, is seeing a decline in their audience share, which has reduced significantly from 19% to 11% over the past two years. The combined CarGurus and PistonHeads share of minutes has remained broadly flat, with their overall share of 5.6% compared to 5.7% two years ago. Looking at minutes spent on automotive sites in September as measured by Comscore, Auto Trader was eight times the size of the eBay Motors Group and 15 times the size of the combined CarGurus and PistonHeads group. There have also been two new entrants to the classifieds market over the summer, heycar and Cinch. Both have invested significantly in launching their propositions and were recorded by Comscore for the first time in September. We remain materially larger than both in terms of minutes spent.
In total, Auto Trader is hundreds of times larger than heycar and Cinch combined. Users spend on average 14 minutes on Auto Trader per visit, compared to only two on heycar and Cinch. The relative importance of aggregators in the marketplace continues to grow, our relative share versus manufacturer and dealer sites has increased in the last two years. We are now more than 32 times the size of all manufacturer sites combined, and more than 48 times larger than the combined dealer groups that we are able to measure in September. To an update on our products initiatives. As we have already mentioned, we monetized two products as part of our annual event in April, our Vehicle Check product and Text Chat.
Our Vehicle Check proposition, targeted initially at independent retailers, has seen strong levels of uptake with around 80% of independent retailers opting to pay for the product. This product provides strong benefits to both retailers and consumers. For our retailers that have bought the product, they gain access to unlimited checks on vehicles they may be looking to source, either at auction or through a possible part exchange. This gives retailers confidence in the vehicle that they are looking to purchase, knowing that there are no underlying issues that could inhibit their ability to make an onward sale to consumers. We provide this product at a discount to the major alternative. In addition to this, all of their vehicles on Auto Trader will appear with a full check, providing consumers with additional transparency and confidence in both the retailer and the car that they are looking to purchase.
In April, we also introduced Text Chat within all our advertising packages, which gives buyers the quick and easy ability to chat with retailers via text, complementing our existing live chat product and ensuring we are offering the communication options most used by consumers today. Since launch, there have been over 200,000 Text Chat sessions. We continue to take meaningful steps forward with our new car proposition, which we first launched to retailers on a free trial basis in August 2018. Our stock-based product allows retailers to upload physically available new cars at current retail prices, much the same way as they've been doing for decades with their used car stock. On average through the period, 33,000 new cars were advertised by retailers on the marketplace, predominantly on a free of charge basis across over 1,000 retailers.
The majority of these vehicles have discounts applied, which allows the consumer to better understand the relative options, and all of these vehicles are immediately available. Consumer reaction to the proposition has been strong. New car adverts attracted 19 million advert views across the period, with 1.6 million unique consumers viewing a new car on our platform in September alone. By way of context, this is around 10 times larger than the number of new cars sold privately in September. The strong performance of the product to date has led us to decide to monetize this product throughout the financial year. Retailers will pay a fixed subscription fee each month, the magnitude of which will depend on the brand that they are advertising.
There will remain significant opportunity for growth in this area as there are a further 90,000 new vehicles across more than 3,000 retailers that we've not yet been advertised. We expect to increase penetration in time as we overcome technical and operational challenges that currently make this difficult for some retailers. I will now pass over to Nathan to talk about strategic acquisitions and the outlook.
Thank you, Catherine. Before we get to the outlook, I'd like to talk briefly about two investments we've made in the past 12 months. The first is securing the taxonomy and data services that underpin Auto Trader through the acquisition of KeeResources, and the second is the formation of Dealer Auction, our joint venture with Cox Automotive, which furthers our goal to make the industry more digital, more data-driven, and thereby more efficient. On the 1st of October, we acquired KeeResources. KeeResources has been an integral supplier to Auto Trader for some time, as their unique vehicle data underpins almost every experience we provide to consumers, retailers, and manufacturers. Whilst this may only be a small acquisition, it is strategically important as it secures a key asset on which our core depends and is critical to accurately identifying cars in a digital world.
In addition, KeeResources provides a range of data and software services to other players within the industry, most notably manufacturers, lenders, and fleet companies. As we move towards our third horizon of transacting online, we believe our relationships with these customers will become ever more important to the business. More information on how KeeResources will impact this financial year is contained within the appendix. Dealer Auction, our joint venture with Cox Automotive, continues to make good progress. Our focus for 2019 has been integrating the technology and commercial models of the three businesses we transferred into the joint venture. I'm pleased to report that the teams have made excellent progress over the past six months while maintaining the strong profitability of the business.
Moving on to the outlook for the full year, which incorporates the impact of the acquisition of KeeResources, as discussed on the previous page. In the first half, we have seen stronger than expected revenue growth from retailers underpinned by product innovation. We expect good offer 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 small retailers. Consumer services growth is expected to moderate slightly as we lap a tougher comparative in the second half. Manufacturing agency revenue, which is 5% of total revenue, has been weak due to the challenges facing these customers. We anticipate the rate of decline to accelerate. With KeeResources included, we anticipate total operating costs for the year to increase by low to mid single digit percentage. Finally, the board is confident of meeting its growth expectations for the year. Thank you for joining us this morning. That now concludes the presentation, and we'll now take any questions from attendees in the room.
If you could just, I know I say this every time, if you could start with your name and organization and try and keep it to two questions just so we can make sure we get around everyone in the room. Go for it, Will.
Hi, it's Will Packer from Exane BNP Paribas. Two questions. Firstly, you've updated us with your H2 stock ARPU guidance, which sounds reassuring, slightly worse than H1, but similar, I think is my interpretation. Many people in this room track the data on your website on inventory trends. If we adjust for private listings, for new cars, et cetera, the underlying run rate in the second half of your financial year is more like -5% to -6%. Could you just help us understand why that is not an accurate representation of your underlying stock ARPU?
Why are you more confident on the outlook there? Secondly, historically at this time of year, you've commented on your thoughts around product for FY 2021 over next year. Last year you were reticent to do so because of the strategic value of Vehicle Check. Could you update us of how you're thinking about product for next year? What's interesting, what's exciting? Thank you.
I can field the stock ARPU question. I think where we were back in June, the guidance was slightly down in line with market trends. I think we got a similar question where people are looking at the live stock, and it was more favorable. Again, I think people are tracking it. It was largely down to larger customers who were putting on more stock.
Where we're guiding to now is slightly worse than the -5% that we've done in the first half, but still probably not as bad as the -22% we reported last year. The reason for that being to the stock trend you're referring to is, I'm not sure we do expect that boost from those larger customers, but because of that mix effect and the yield impact, it doesn't have such a big impact on ARPU. It wasn't as beneficial on the upside when there was that boost, and we don't believe it will be as negative on the other side.
Just to clarify, you see some cyclical improvement. It's on the current run rate you're comfortable.
Yeah. I think the guidance of it being a slightly bigger headwind is that used car transactions are likely to still be down, and it's a tough market. The reason it's not necessarily down as much as the 5%-6% is more in the mix of who was putting on stock for that comparative period.
In terms of the events next year, the focus is very much on products within the core. The goals we have for those products are still to help retailers generate more profit and to sell cars faster. In terms of the options we're looking at, they are all linked to data-driven retailing and helping retailers to hit those goals. Outside of the event next year, we're continuing to focus product thinking on horizons two and three and how we continue to grow our new car position and look to move towards online transactions over time.
Maybe just to come back almost on both combined. In Q2 next year, we have the three-year anniversary of the new car market going negative quite severely. Do you need to have a really good, strong product year next year in order to maintain growth rates, or are you a bit more sanguine on the risk around stock? I think the shape of the levers will still be that products will be the largest component. I think there's elements of the event there. There's continued upsell of advanced and premium. There's managing products, and there's likely to be some contribution from new car.
I think I would just add one thing, which is in the same way as we had years and years of the really high market of new car growth, we didn't necessarily see that flow through in a positive way through. I think that's probably because those cars are coming back into the market after one year, six months, 18 months, as well as three years and four years. I think at the same time, on the other way, when it's coming the other way, you're not going to see the same negative.
Okay. Thank you. Adam.
Good morning. It's Adam Berlin from UBS. I'll ask two questions as well. The first question is, when you've got to June in previous years, you've talked about products that you've been trialing for free that you've been able to monetize in the March-April pricing season. Is there anything you've got under trial right now that you might be able to monetize next year, specifically with reference to your comments around digitizing the auto finance? Second question is, the improvement in the penetration of the premium products was a little bit slower than this time last year. Do you think that product is reaching maturity, or is it just a first half issue and we should see more acceleration in the second half? Thanks.
The short answer on, there's always free trials going on in Auto Trader's product world, because that just runs at the very core of how we work out what products we should be building in the first place. We do have a number of those going on at the moment, but nothing like the things that you might be used to when we normally talk about free trials, something like finance or something like New Car, where we have thousands and thousands of customers and we're moving to a moment of perfecting the product and then monetizing it. It's not necessarily the same as that this year. There are still those options that we're looking at, but they're probably for more subsequent periods.
I think we will get to a period where the answer to your question will be yes, but it might be in a few months' time or such like. In terms of advancing premium, did you want to?
I think if you look back historically, with the only exception being the very initial launch of this product, it is always a little bit slower in the first half. It does tie in with the event. You've seen it with our managing forecourts as well. I think we do expect slightly better growth rates in the second half. It also laps a slightly tougher comp. I think in terms of penetration rates, we've said that we price the products at 30%-35% penetration. We still think we can get there. I think the rate of growth and the rate of uptake does slow down.
Hi, Joe Barnet-Lamb from Credit Suisse. I will take my allotted two as well, please. Firstly, on New Car, where you seem to have pulled forward monetization a little bit. Can you talk, or give us a little bit more detail on how much of a benefit that was to product in 1H? Maybe talk a little bit more about how you are starting to monetize that, how that process is working, so we can think about how that flows through. My second is your penetration of retailers. You said smaller independents has improved a little bit. Can you tell us what your penetration is, just to help us understand how much more there is potentially to go after with regards to penetration of independents? Thank you.
On New Car, we started the free trial in the summer of 2018. We've always talked about for retailers, there are significant operational and technical challenges to getting this stock live, because often it's stock that hasn't been imaged, that hasn't been priced, that doesn't have the same kind of operational process that dealers have been used to running on Used for many years. We are confident that over the course of the second half, we'll get to a period by year end where of the 1,000 or so retailers we have currently trialing the product, a good proportion of those will be monetized. It will be a bigger contributor to H2, but it is a product that we think we're on a multiple year journey of continuing to drive that franchise customer penetration to much higher than the 25% or so that we're currently working with.
In regards to retailer penetration, every time we've looked at this, it's a difficult question to answer because the barriers to entry to becoming a particular independent retailer are very low. Having been here 12 years, we seem to still be able to find them. Officially, we have probably 85% plus of franchise retailers, 85 to 90%, somewhere in that region. For independent retailers, when we look at it's probably around the 80 to 85%. I think generally we think the market is going backwards at around 1%. We've kind of said that, and we think that's been true for probably the last 15 to 20 years, and we think that's still true. We still see that we'll be able to grow as we've kind of guided for the rest of this year. Ordinarily, we guide to typically flat, which is still a market share increase.
I think what we do find is as we get into some of those different dealer groups, you've got to remember there's the trade online or pay as you go ads, where we have thousands of dealers that use us on an intermittent basis. Some of the growth that you've seen in subscription have been those retailers converting, and there's thousands and thousands of retailers there. Officially, they're the stats, and it feels like there's some way to go. We wouldn't be saying that we're going to see huge jumps in penetration, because I think you get to ever more, their business models are slightly different. They're doing cheap cars. There's a whole bunch of reasons that sometimes they don't necessarily choose us.
I'd say one thing that is just interesting, an anecdote more than anything else, but clearly a lot of the manufacturers are saying they're trying to reduce the networks, and they're going to reduce the network over the next, well, it varies, but five to 10 years. What we're seeing actually on some of them that we know are actually making plans, and they're removing the franchises. Those franchises tend to last two years, so it's going to take a couple of years to come down. What we're seeing is those franchise physical locations are being taken away and just immediately being replaced by independents. It still ends up being a forecourt. Sometimes even within the same group, they're just switching it out and saying, "I'm no longer going to be a Nissan guy.
I'm now going to be an independent guy, away from the restrictions of the manufacturer. It's not as bleak as one might imagine, even with the potential decline of the franchise world.
John, just at the back. Can we just get John there in the middle there? Sorry, he has had his hand up the whole time.
Thank you. John King from Bank of America. Couple of questions. Just on the market share gains that you've been seeing in the cross-platform visits, I wonder, can you just talk to us about why you think that's still happening, or you think the big gaps are versus the competition? Perhaps that's a trite question, but obviously the supply gap doesn't seem to be growing. If anything, that seems to be that expresses the closing that gap. Why do you think consumers are increasingly seem to spend more time? Is it the app? What's the driver? The second question is
Just maybe, perhaps for Catherine, just talk to us about the idea of selling entirely online and what the big barriers would be for doing that in the consumer's mind?
Sure. On market share, we benefit from the years of history that we have from our brand. The fact that we have this underlying benefit from very strong direct traffic, very strong organic traffic, underpins a lot of the audience performance that we see. I think from consumers, potentially, that history and that brand trust does play in a market of uncertainty. I think potentially we have seen some flight quality from consumers. We have shifted slightly more of our investment this year towards direct marketing channels over brand. We felt like we were seeing good efficiencies from some of that spend, and that has enabled us to get more targeted and more sophisticated in some of the audience segmentation that we've been doing. We've seen good gains there.
Coupled with that, the majority of growth has come from mobile and the app platforms, and we have been focused on them from a product perspective, and have a pipeline of continued product development and innovation that we're hoping to drive, that should drive repeat visits and more visit volume back in through those platforms as well.
I can take the online transactions. I think the brief answer is, consumers, when we say transacting online, it can sometimes be deceptive because it implies that at the end game is doing the entire transaction online, the car being delivered on the back of perhaps a fancy trailer, and we do think there is a possibility of that happening. The main benefits we see is moving most of the transaction online. If you think at the moment, the efforts involved in a dealership, and for a consumer as well, they're probably spending at least two or maybe even three three-hour visits. Now that all requires labor within the dealership. You've got automotive finance, which is quite paperwork heavy, certainly the way it's done today.
The short answer is, there seems to be an appetite for it, and dealers are certainly looking for a more compliant, more efficient way to be able to sell cars. What's missing is someone at scale that can develop the technology to do that. In most of these markets, you've had big retailers, the Tescos and like of the world, that are able to invest in supply chain, invest in technology, and have a wholesale impact. Probably one of the good things and bad things about market is it's highly fragmented and no one can necessarily take that position. I think that's where we see Auto Trader stepping in almost and becoming that technology enabler for online transactions.
Even if we can get the appointment down to 20 minutes, the implications of that to the industry, you're talking about GBP 2 billion, GBP 2.5 billion worth of labor that goes into that. They're quite massive. That's probably more the way that we think about it. Right. We will go over this side now just to be democratic. Robert.
Yeah. Hi, it's Robert Berg from Berenberg. I'll just go with one question, a quick one on capital allocation. We've heard you detail a couple of deals in the last 12 months, albeit not hugely material in the grand scheme of things. I know some of your growth comes from areas which maybe you deem it quicker or easier not to generate internally. Should we be earmarking a certain amount of cash flow for more of these JV acquisitions, or is it going to remain fairly immaterial going forward?
Yeah. It's a good question. We don't have an acquisition strategy as part of our strategy. In terms of us thinking about allocating capital to mergers and acquisitions, as an ex mergers and acquisition person, I think that's a recipe for disaster in some ways. I don't think it needs to be something that will be in there. That being said, I think as we look at particularly the new areas, not at all when it comes to our core, it feels like organic is definitely the way to go there. As we're looking to get into automotive finance, as we're looking to get into new cars, and we're looking to move the transaction online, what we're finding is that because we're very culturally orientated in terms of how we hire people and the sorts of people that we have, that does become a limiting factor.
We think in some of these areas, it's worth making generally small acquisitions because you can't name any big targets, to be honest, when it comes to this. Generally capability acquisitions that can get us to move forward, something that might have taken us 24 months to do internally, or we don't even necessarily have all the experience and background in acquiring that might make sense. I suspect they'll very much be sporadic here and there sorts of things, not something that you'd see as a constant recurring element of what we do with our capital. Yeah, sure.
Hi, it's Natasha Brilliant from Citi. Just coming back on new cars. Of the customers you've got at the moment on a free trial, do you anticipate that you'll be able to convert all of those to a monetized subscription, or is there any risk of some of those churning off if they can't overcome the challenges or don't want to pay? Equally, as you bring on new customers, will they be on free trials, or would you expect to monetize them from sort of day one? Secondly, just so I understand on the new customers and thinking beyond this year, is it fair to say that the forecourts will continue to get smaller if that's the greatest opportunity, and therefore we should anticipate that sort of dilutive impact on ARPA to continue if those are the customers you're signing up?
Ash.
Yeah.
In terms of new car, yeah. We've got of the 1,000 or so customers currently on trial, for those retailers that are investing in getting the right quality of adverts that have discounts, that have images, we think they're seeing really, really strong value, and that the current yield at which we're monetizing, we're very confident that retailers will convert. For those retailers that are churning, they are typically retailers where we haven't quite got either the operational or the technical solution right. We're confident actually that there's a rolling pipeline of people that we can keep going back to help work through and fix those solutions. In terms of the 1,000 that we've currently got trialing the product, we do expect that number to grow between now and year-end as we find sales activity that is encouraging those customers to invest in the operational and technical processes.
We hope that we'll convert a good proportion of the 1,000, and then there may be a growing pipeline, or there should be over the coming months as well.
On forecourts, it does tend to be pretty mathematical. I think the fact that we're guiding for modest growth, we talked about at the time of the IPO, a rule of thumb, which should be taken with caution, however, it seems to be relatively helpful, is that for every percentage growth we typically see in retailers, you'll see half of that in terms of ARPA dilution. 1% growth in retailers should translate through to roughly 0.5% dilution in ARPA. The extent to which we guide growth, you could take that into account. When we don't, is probably the best advice.
Coming back to the new customers. Sorry, just coming back to the new customers. Sorry, the new car, new customers. Will they be monetized immediately, or will they go onto a free trial?
I would say customers are typically being onboarded to a free trial period.
Thank you. Bridie Barrett from Stifel. Just one question. Your annual pricing event obviously went quite well. There doesn't seem to have been quite the same benefit flowing through to ARPA from the increase in premium and advanced packages. If we look back half year and half year, you saw a nice seven percentage point increase in uptake, which I think works out at about 2% to ARPA growth. Whereas last year you also reported a seven percentage point increase in uptake, and I think that fed through to about a four percentage point increase in ARPA growth. I wonder if you could just talk a bit about that dynamic.
Yep.
that correctly.
No, I can take that one. I think there's definitely a slight disparity between the measures that are reported. Advanced and Premium stock is exit to exit. It's also just car advertised stock, whereas ARPA is on an average over the period and includes all our customer base. Built into that, there's also a yield impact. Typically the smaller customers that we're acquiring that's driven that forecourt growth, they tend to be on our standard package, a middle one rather than, not saying we can't upsell them, but they tend to be standard. Whereas the larger customers are typically the ones that are taking Advanced and Premium, which does come at a lower average yield.
Andrew. Oh, Andrew, yeah.
Oh, sorry. Sure we can squeeze both in. It's Andrew from Barclays. I guess one question with two parts. First bit, I'm interested in your perspective on independent car dealer profitability and how you think that has changed this year. There's been a lot of noise from the PLCs around gross margins under pressure, but wondering what you think independents are seeing. And I guess at net margin as well, with kind of other pressures on cost base. An extension to that, do you think there's enough health in the dealer profitability pool that you are confident that with price and products, you can get to your normal 6% or 7% ARPA growth for next year, even with a stock headwind?
I understand we're not going to get all the details of the product mix today, but I just want to be clear you think you can do that normal level of ARPA growth even if stock is down?
I mean, I'll take both those questions, and others chime in. Having spent a lot of time with a lot of dealers, the answer to any question relating to a dealer is a bell curve, and profitability and net margins is no different. I think one comment I would say is when we look at our industry level analysis, independent retailers run at probably a better net profit than most franchise dealers. When you think about that, they don't have some of the costs imposed on them that come along with a franchise agreement in terms of where the property is and what's got to be done to it from a capital expenditure and therefore depreciation, amortization perspective. Independent retailers, we talk about margins of 1%, 1.5% being about the industry average.
We will see independent retailers operating well above that, some at scale of 3%, 3.5%. At the same time, you'll see retailers that don't typically operate for a very long time at zero or negative margins. Tends to be a source of new business, I guess, at some point down the line. There will be those customers that are struggling. One thing I can say is my experience of retailers is those retailers that are running their business in the sort of way that a progressive retailer, and I'd like to think we talk about using data to source cars, making sure they're pricing to market day one, not being too opinion driven about things. They can still achieve not only decent profit margins in this market, but growth as well.
There are dealers out there that are growing year on year above 2%, 3%, 4% at good profit margins. They are not doing it at sacrificing margin. As to your second question, I think if you look at the profit pool for retailers, it's an incredibly competitive industry. One might say, actually, the profit margins reflect more that perfect competition than they do any other particular aspect. When we think about what we are doing from an event perspective and Vehicle Check, dealer finances are two very good examples of this, and this is definitely a theme that we want to take forward. We are looking at what things can we package or additional products that we can sell that, A, either increase your gross margin, with finance as an example. One more finance deal, that is another £400.
That probably could ripple the price that the dealer paid for that product. Something like Vehicle Check, where we know there's an existing cost in their business that we can do at maybe a third of the price that they were paying previously. We're very proactively not looking at the profit margin and asking how much of that can we take, but actually asking how much of the cost can we help reduce for the dealers, where we can take some of it and they can keep the remainder. Silvia, sorry.
Thanks. It's Silvia Cuneo from Deutsche Bank. Just following up to this last point, can you share some more thoughts about how much Auto Trader represent now of an average dealer in terms of revenue in percentage? I remember that used to be single digit. Is that growing because of the monetization of the new product, or maybe because the revenue base of the dealers is coming under pressure?
Just to clarify, was that the percentage of gross margin question?
The % of the revenue, like Auto Trader cost in % of that.
Okay. Yep.
Secondly, just going back to the market share point. Now, you've moved to total minutes spent as a metric to measure the leadership position. Why is this a better measure than overall traffic per month? Can you share some more thoughts given that the average page view went down but the average time spent increased? You mentioned part-exchange is benefiting that. Is it also the time spent taxing to the dealers maybe?
I'll take the first one, perhaps, Catherine, if you can take the audience question. The gross margin is a better way to think of it, because it's a better way to think about dealer profitability. I think at the time of IPO, we were around 5.5%-6%. Ironically, despite the way that we've kind of changed over the years, we still represent about the same number, probably around about 6%. That varies greatly depending on retailers. Some retailers, we might be upwards to 15%-20%, particularly in our car supermarket that's very heavily focused on used. When you come to some franchise group dealerships, we might be 2%. Interestingly, there is no correlation between those two decisions in net margin. Very often, actually, the supermarket's net margins turn out to be better.
We're probably about the same as what we were, which might sound a little strange, but the thing to remember over that period of time is used car transactions have grown in terms of the absolute volume. We expect that the used car car park is bigger than it's ever been. Now, it's not turning at the same rates that it used to, but at some point it will get back to that normal level and volumes will be up. The other thing is that, which has been true up until the most recent data, is the average price or value of a used car has been increasing. It's still true that the average value has been increasing, but it's partly driven by mix.
If you take, say, 2% volume growth and you combine that with on average 4% price or value growth, and gross margins have held relatively the same, actually, that's why we end up being about the same as we were, ironically, about five years ago.
In terms of audience, the reality is we track visits, ad views, minutes, and increasingly leads as well as measures of how are we performing for relative to share and also for our retailer customers. The reason we focus on minutes for share is that we think that's probably the best indication of the quality of consumer engagement and the quality of the audience that we are attracting. It's not that we don't track visits, but we place more emphasis on minutes because we think that's a better quality measure. In terms of the ad view trend and how we think about that ad view trend, we continue to focus on products and driving product to either improve the consumer experience or to drive more connections or leads for our retailer customers. All of our product thinking is driven by one of those two goals.
As we continue to make and drive improvements, sometimes those product changes we are investing in will drive positive ad views. Sometimes we might see a different trend in ad views, we're confident. We've seen double-digit lead growth for retailers in the first half. We've seen good visit performance, and we've seen good minute performance. We're confident that the product journey that we're going on is delivering the right outcome for audience and for retailers.
Very good. If there's no more questions, we'll finish it up there. Thanks very much for making the time to come and meet with us today.
Thank you all. Thank you.