Good morning, everyone, and welcome to Water Trader's Full Year Results for 31st March 2019. Before we get started, I want to touch on the announcement that I made at the end of April regarding my upcoming retirement. And it really has been the greatest privilege of my career to lead Australia through another successful phase of its life. It really is an amazing business with incredible dedicated employees who have helped to create the successful company that it is today. The timing of my decision is down to 2 things.
Firstly, my youngest daughter will leave the family home next year. And as my family starts out on the next phase of their lives, I want to be there for them as they've been there for me for the last 30 years of my career. It also gives me the chance to give back to other causes and sections of the broader community that I feel I can help with. And secondly, this team that I leave behind are ready to step up and lead AutoTrader. Nathan effectively been running the business alongside me for the last 2 years.
He's ready to lead this company. And similar to what happened to me in my previous company, Thoughtworks, which is still prospering under the leadership that succeeded me 6 years ago, I just know it's time for me to move aside. Additionally, I'm delighted that Catherine, who joined us in 2017, is stepping up to the role of Chief Operating Officer and is now a member of our Board. Catherine brings a wealth of experience from senior positions at both Trainline and Addison Lee and has had a measurable impact on the operations of Autotrader to date. Jamie sets up from Deputy CFO to CFO designate, a successor to Nathan as CFO and will join the board in due course.
It really is hugely satisfying that we have been able to recruit these roles internally, to execute on our succession plan and it gives me great pleasure to introduce both Catherine and Jamie to you here this morning to present our full year results. Onto the highlights. I'm delighted to say that we've had another excellent year despite tough market conditions. We've seen significant uptake of both new and long standing products, which has accelerated our revenue growth from that reported in the first half and enabled us to maintain double digit operating profit growth. Revenues up 8%, which has come predominantly from our retailer customers who have chosen to take a greater volume of our products.
Through continued operating leverage and 1 quarter's profit contribution from our new joint venture, operating profit grew at 10% and margin has improved 2 percentage points to 69%. Basic EPS growth of 18% also benefited from the joint venture. We recognized a one off non cash £8,700,000 profit on the disposal of our asset Smart Buying as it transferred into the new entity. Underlying growth came through low double digit growth in net income and fewer shares in issue a result of our continued share buyback program. We proposed a final dividend of 4.6p which when added to the 2.1p interim dividend gives a total of 6.7p Cash generation from operations was up 13% and cash return to shareholders in the period was £151,000,000 delivered through a combination of dividends and the repurchase of shares.
And finally, we continue to delever with debt repayments of £30,000,000 in the year, taking leverage down to 1.2 times. In terms of operational highlights, our average revenue per retailer forecourt or ARPA grew by an average of £149 per month or 9% when compared to the previous year. As anticipated, this was driven by excellent growth in our product lever, predominantly due to the success of our dealer finance product launched in April 2018 and the continued upsell of our advanced and premium advertising packages. The number of cars on-site was up 2% despite the anticipated underlying used car stock being marginally down year on year, we launched our physical new car product, which allows retailers to surface their brand new cars available for sale now to our consumer audience and this drove the year on year growth. We exited the year with over 30,000 of these new cars on-site, which contributed an extra 12,000 to the average over the year.
Pleasingly, retailer forecourts remained stable, actually increasing by 27 year on year. In terms of our audience metrics, we changed from absolute minutes as measured by Comscore to cross platform visits measured internally by Google Analytics. We've made this change because we've consistently not seen the same trends internally as those measured externally. So in 2019, we've grown the number of cross platform visits by 1%, but have seen full page advert views decline 3% year on year, which Catherine will talk to in more detail later. But we still believe those external measures are still relevant when measuring audience share across automotive sites and against competitors.
Looking at Comscore, we've marginally grown our share of minutes and are now 5 times larger than our nearest competitor in terms of minutes spent on-site versus 4 times larger a year ago. And finally, on operational highlights, the number of employees declined to an average of 804 for the period, driven by the transfer of 15 employees to our joint venture on the 1st January 2019. Almost 18 months ago, we presented this horizon slide at our Capital Markets Day, it continues to reflect how we think about our strategy. It demonstrates how we relentlessly focus on and manage the current performance, whilst also focusing on maximizing a limited number of future opportunities for growth. I use the word focus quite deliberately as there are another 10 things we could put on here as well as creating further horizons within with the thinking around connected cars, ride sharing and autonomous vehicles.
But what we're saying is the most important things we can focus on, the biggest opportunities that are in front of us are on this slide. And in our core, we believe there continues to be a strong runway for growth underpinned by continuous improvement of the car buying experience and helping retailers improve the profitability. We continue to improve the tools we offer in how retailers target in market car buyers, how retailers manage their forecourts based on data and how they advertise their financing. And we've identified the adjacent opportunity to our core marketplace in new car sales and the way in which our retailers source vehicles. We believe the scale of our consumer audience and the relationships we have unlock these opportunities.
And in future, we believe the evolution of both our products and our consumer experience, which aim to keep consumers online for longer throughout the buying journey, can result in greater amounts of the transaction being completed online. And we've made significant progress against these growth horizons and our broader strategy this financial year, with more detail on the majority of these given by Nathan later in the presentation. We've increased the penetration of our highest two advertising package levels, advancement premium, to 19%, an improvement from 12% reported this time last year and 15% reported at the half year. We've maintained the take up of our dealer finance product through the year. We've launched our physical new car products and had over 30,000 of these new cars on-site at the end of the year.
We've relaunched our managing products, Retail Check and Retail Accelerator, known as iControl, with significantly improved data analytics. And finally, following clearance from the Competition of Markets Authority in December, we entered into a JV with Cox Automotive to form dealer auction, as we look to use digital to disrupt the existing B2B auction market. It's been a great year for Progress and we really have a range of products and initiatives at varying stages of their life cycle as we maintain a strong pipeline for growth. I'll now pass over to Jamie to take us through the financials in more detail.
Thank you, Trevor, and good morning, everyone. Before I go through the financials and as mentioned in the half year, I wanted to point out that we have adopted 3 new accounting standards for this financial year. IFRS 9 and 15 relating to revenue and financial instruments have had no effect on our results. However, IFRS 16 for leases has had a small impact on costs and therefore profit. We have restated prior years to reflect this impact, and a reconciliation of that restatement is included within the appendix.
Have seen good top line growth with revenue up 8%, which has been predominantly driven by both retailers and manufacturers adopting new products launched in the last 2 years. As with past years, growth achieved in our core trade segment has been a key contributor, growing at 8% and driven by a 9% increase in average revenue per retailer, or ARPA, versus the prior year. Also within trade, we saw a continued decline in home trader pay as you go listings, although there has been some switching within this line towards dealers opting for an Autotrader package subscription, resulting in slightly higher volumes of retailer forecourts, which then falls within the retailer line. And other, which was largely attributable to Motor Trade delivery, grew in the year by 27%, albeit of a relatively low base. As discussed in the previous two sets of results, consumer services continued to see lower volumes of private listings, although the second half of twenty nineteen has seen some improvement, which was partly due to package changes resulting in improved mix and therefore overall yield.
There was a small drop in motoring services as we discontinued a low yielding display product, the impact of which outweighed growth from our 3rd party finance and insurance partners. Manufacturing agency grew 18 percent year on year. The level of growth, which was skewed towards the first half of the year, was largely driven by insearch. In the second half of the year, we believe we have seen an impact from well documented uncertainties resulting from Brexit and cost pressures facing both car manufacturers and their advertising agencies. Now on to ARPA, the key driver of our trade revenue.
As Trevor said earlier, total ARPA has grown £149 or 9% when compared to the same period last year and was consistent with that achieved in 2018. Average retailer forecourts were also reasonably consistent year on year, although we did perform better in the second half, with Q4 showing our highest volume of retailers since Q1 of 2017. The product lever, which as anticipated was the largest contributor of ARPA growth for the year, has been a great success. As a business, we have been consistently investing in our product set and believe this can sustain growth for many years to come. The key drivers for the year were continued upsell of our advanced and premium packages and the introduction of our dealer finance product.
In addition to these, we introduced 2 new product features, stock exports and dealer profile pages, included within all packages from April 2018 and also saw small levels of growth in our managing forecourts. All these gains were offset by small headwinds, part of which from the transfer of revenue into our joint venture in the 4th quarter and remains an ARPA headwind for the 1st 3 quarters of the next financial year. The chart on the right via the turquoise line shows the volume of live cars on-site for the 3 years to the end of financial year 2019, which we have split to show the trend in underlying live used car stock. Our new car proposition, which resulted in an additional 12,000 cars being included in the full year average and driving the 2% year on year increase, is currently unmonetized and has no impact on revenue or ARPA. Underlying live used car stock saw a small decline year on year, which was largely through private listings and pay as you go home trader listings, which again does not impact ARPA.
Livestock from retailers was broadly flat year on year. As discussed in November, the first half of the year was impacted by restricted supply, particularly in younger vehicles. This improved through the second half of the year, aided by a greater focus from large groups on used cars. With ARPA only impacted by paid for subscription stock versus the livestock just commented on, the stock lever was down £22 in the period, in line with our half year guidance, which with live volume flat was due to the mix in yield. Finally, the increase in price of GBP 50 related to an effective increase of just under 3%, of which the majority was delivered in April 2018 and was broadly consistent with that achieved in the prior year.
Just a reminder, the costs for comparative periods have been restated following the implementation of IFRS 16. Cost growth of 3% in the period was growth was through growth in people, marketing and other costs, marginally offset by a slight saving in depreciation and amortization. As shown at the half year, you will notice a change in the presentation of people costs, where we have combined cash costs with share based payments. This year has seen a change in our remuneration policy, where a greater proportion of performance related pay is settled in shares. And so the combination of the 2 gives a fairer like for like comparison.
Headcount reduced by 20% in the period, although there was some small impact from employees transferring out to our new joint venture in the Q4, with the remaining decline being down to some small efficiencies and the timing of vacancies. The growth in cost was driven by an underlying increase in salaries as we continue to attract and retain the best digital talent in a very competitive market, and we lapped a low comparison period in share based payments where there was a one off credit in 2018. Marketing costs grew in line with revenue and remained at 5% of revenue. Other costs saw low levels of growth at 2%. And finally, our depreciation and amortization was marginally lower.
As a reminder, our low levels of CapEx and depreciation are not a reflection of low levels of investment in our business. We have around 300 people in products and technology who are continuously improving our platforms and developing new products for our customers, the cost of which are taken in full through our P and L in people costs. In addition to this, we are making a greater investment in new public cloud based solutions, which over time will replace our physical data centers and equally will not be capitalized. Use of the public cloud maintains security and resilience of our platform, but importantly, it also lowers the risk and enhances the speed associated with software releases, demonstrated by the 15,000 releases during the year, three times that we achieved in the prior year. The $2,300,000 of CapEx that we did spend in the year was largely made on hardware and property.
With revenue up 8%, costs up 3% and £900,000 contribution from share of profits from joint ventures, operating profit grew by 10% and our operating profit margin increased another 2 percentage points to 69%. Cash generated from operations was $30,100,000 higher at $258,500,000 reflecting profit growth and a high level of cash conversion driven by a particularly strong performance in terms of customer payments and collections. The statutory income statement outlines areas beyond our revenue and operating costs. Finance costs of $10,200,000 were relatively flat year on year. Dollars 2,800,000 amortization of debt issue costs, of which $2,200,000 was associated with our former loan facility, which has now been fully amortized.
Following the adoption of IFRS 16, finance costs relating to leases were $900,000 with the remaining $6,500,000 being interest costs. We also recognized a one off noncash profit on disposal of subsidiary of $8,700,000 created by the transfer of our Smart Buying business to the joint venture, which was nontaxable. Our profit before tax was $242,200,000 and our effective rate was just over 18%. But when allowing for the nontaxable profit on disposal of subsidiary, remains in line with standard UK rates. Basic EPS growth of 18% was also impacted by the same profit on disposal of subsidiary, which was a one off.
Underlying growth came through low double digit growth in net income and fewer shares in issue as a result of our continued share buyback program. And finally, as Trevor said in the financial highlights, we are proposing a final dividend of 4.6 pence, bringing our total dividend for the year to 6.7p per share. Moving now to capital structure. As referenced at the half year and previously mentioned, the group signed a new £400,000,000 5 year revolving credit facility. And I'm pleased to be able to report following year end, we have extended the majority of this facility for an additional year to June 2024.
The new facility has no bearing on our stated capital allocation policy, which remains unchanged. Cash generated from operations of $258,500,000 was used to pay $2,300,000 of CapEx and lease payments of 3,100,000 As part of the agreement to enter into the joint venture, we paid $19,700,000 to Cox Automotive. In cash terms, paid $6,600,000 of interest, which, as previously mentioned, is lower than the P and L charge due to amortized debt issue costs and finance costs relating to leases. There were $3,300,000 of fees associated with the refinancing. Tax paid was $42,200,000 which lags the P and L by 6 months.
And $1,900,000 was also recognized as our 2015 Save As You Earn share scheme reached maturity at the end of 2018. Of the remaining free cash flow, dollars 57,600,000 was paid in dividends relating to last year's final dividend and this year's interim dividend. And $94,000,000 including fees was used to buy back shares at an average price of £4.61 In total, we returned 100 and 51,100,000 to shareholders in the year as well as repaying £30,000,000 of debt. That concludes the financials. I'll now pass over to Catherine to take you through the current
market.
Thank you, Jamie. Our revenue is primarily driven by the number of used cars that are listed on our marketplace. The overall size of the U. K. Car park continues to grow and this underpins transaction volumes.
Despite this, used car transactions in the 2019 financial year decreased by 0.9% year on year. This level of decline has moderated since the previous financial year. We believe this trend is likely to continue throughout calendar year 2019, where transaction volumes are likely to be marginally down. We are also influenced, though to a smaller degree, by new car sales, where we earn revenue from manufacturers advertising on our platforms. New car sales influenced used car supply, both in terms of parts exchange volumes and used vehicle supply in the subsequent 1 to 3 years.
With the launch of our physical new car product for franchise retailers in the last financial year, we're likely to see some volatility in our livestock. This may be impacted by new car sales more than we have seen previously. In terms of new car sales, the last financial year saw an improvement on 2018, being down only 3.7%. This was in comparison to a decline of 11% in the prior year. There were some large year on year swings around August September.
These months were impacted by the worldwide harmonized light vehicle test procedure, the WLTP changes. Under this legislation, which came into effect on the 1st September, vehicles that do not meet the new emission standards cannot be registered. This pulled forward a significant volume of new car sales into August, which was followed by a subsequent decline in September. The remainder of the year generally saw small year on year declines each month as supply constraints and Brexit concerns remain. We anticipate the current trend to continue until there is greater clarity on wider macroeconomic issues.
As mentioned, new car transactions influence the used car market over the subsequent 1 to 3 years. This supply factor is certainly one driver of used car transactions, but it is not the only one. This is because the fluctuation in the volume of new car registrations is small relative to the 35,000,000 cars in the UK and the 8,000,000 or so used car transactions every year. The first chart with the more significant impact on the number of used car transactions is how many cars there are and how often that they change hands. The first chart shows that the U.
K. Car park has been growing steadily for several years. Cars are lasting longer and the scrappage rates remain below the level of new car registrations. Whilst the car park is getting bigger, it doesn't necessarily mean that there will be more used car transactions. The second factor is how frequently U.
K. Consumers change their cars. In the U. K, this is relatively stable at about once every 3 to 3.5 years. As you can see in the middle chart, consumers have been changing their cars slightly less regularly over the last 2 years.
That said, the market remains more active than during the last recession. It is likely that some of the current macroeconomic uncertainty has weighed on consumers' willingness to change vehicles. However, we believe the prevalence of 3 to 4 year finance contracts within both the new and used car markets will mean it is unlikely that consumers change their cars much less frequently. It should also be noted that subscription and used car PCH deals are not included in the transaction or turn number. Whilst these models are in their infancy, we believe their share of market will grow and they will need to be considered in the future in this analysis.
The combination of the total U. K. Car park and consumers change cycle generates the total number of car transactions we see each year, as shown in the 3rd chart. In calendar year 2018, 35,000,000 cars turned on average every 3.4 years and resulted in 10,300,000 transactions, of which 2,400,000 were new car sales and $7,900,000 were used car. We continue to publish a monthly price index of trade cars advertised on Autotrader.
The average like for like price of a vehicle advertised has increased steadily in recent years. During the last financial year, prices rose for all three fuel types, even diesel. This suggests used car demand from consumers remains strong across fuel types and provides the helpful tailwinds for retailer revenue growth. We continue to exhibit clear audience market leadership. As you can see from the chart at the top of this slide, which shows share of cross platform minutes as measured by comScore, we're approximately 5x larger than our nearest competitor, Gumtree, an increase of 4 times larger a year ago.
We're 18 times larger than PistonHeads, 39 times larger than motors and 44 times larger than CarGurus. You'll see that our relative position has not changed meaningfully for some time. As previously mentioned by Trevor, here we show cross platform visits and full page advert views, which have grown 1% and declined 3% year on year respectively. We have moved away from reporting absolute measures prepared by third parties as the trends do not reconcile Comscore, Hitwise and other data sources to track our relative performance, but we use them all as a guide to directional movements in relative share. The decline in ad views was also evident in the number of minutes spent on-site as measured by Google Analytics.
However, we continue to see positive trends in engagement on our platforms. The volume of past exchange guide quotes provided to consumers increased to $2,400,000 in 2019. We saw nearly $15,000,000 finance calculator interactions in the year. And most importantly, we grew the volume of leads provided to customers as measured by calls, e mails, chats and text year on year, increasing the value delivered to our retailer customers. I'll now pass over to Nathan to take you through our product section and the outlook statement.
Thank you, Catherine. We continue to invest in our data driven managing products, which we completely rebuilt and relaunched during the course of the year as Retail Check and Retail Accelerator, formerly known as Eyecontrol. The new products represent a significant enhancement with new and improved data, analytics, design, goal setting and reporting all delivered on a mobile optimized platform. The number of retailer forecourts using one of these products at the end of the year was 3,200 versus 3,000 last year. And we have over 39% of trade stock being managed using one of these data intelligence solutions.
We now provide rich evaluation data a proprietary retail rating, which takes account of supply and demand, enabling retailers to get a more accurate view of how likely and how quick a vehicle will sell on the live retail market. Building on the success of its predecessor, EyeControl, Retail Accelerator takes a retailer's business goals and creates a daily action plan aligned to their desired stock turn and margin. It enables them to manage their inventory more effectively by constantly tracking changing market conditions and delivering alerts on valuation changes, incorrect pricing and aging stock as well as dynamic performance reporting allowing them to improve their competitive position. You may notice a small drop in customers paying for the product since September, which was in part down to sales focus on migrating existing customers to the relaunched versions, but we also saw a large customer choose to invest more aggressively in stock at the expense of their managing products. As touched on by Trevor, we have made a significant step forward in new cars, launching a stocks based product allowing retailers to upload physically available new cars at current retail prices, much the same way they have been doing for decades with their used car stock.
We had over 30,000 of these physical new cars on-site at the end of the financial year on a free trial, but there remains significant room for growth as we estimate there are further 90,000 of these cars that are not actively being marketed online. Both consumers and retailers are showing strong appetite for the offering and 9 in 10 consumers state that they would value a site where they could compare brand new cars available at local dealers. Importantly, these vehicles have discounts applied, allowing consumers to better understand their options and the offers available. However, the technical and operational challenges to get these cars online has proven to be high, but we are pleased with the progress we have made and will continue to make further improvements in the months ahead. At present, we're offering this product on a free trial basis and intend to commence charging during the course of this financial year.
Much has already been said about the joint venture we entered into with Cox Automotive in the Q4 of our financial year. As a reminder for everyone, the new business dealer auction has seen 3 businesses come together, which in time will combine onto a single platform and single commercial model. Cox Automotive, the world's largest automotive service organization transferred both dealerauction.com, which offers an online auction of trade in vehicles from UK franchise dealers and Manheim Online, the online remarketing services division of Cox Automotive to the joint venture. Autotrader transferred Smart Buying, formerly known as Autotrademail, our retailer to retailer platform. I'm pleased to be able to report that the initial period has gone well.
Dealer Auction transacted just over 30,000 vehicles between January to March 58,000 vehicles advertised for sale. In the 3 months to March 2019, the business in whole generated £3,500,000 of revenue and £1,800,000 of profit after tax. Much of the focus, however, in 2019 remains on the platform and commercial model integration, which then provides the foundation for our disruption where we'll offer a new lower cost and data driven alternative to B2B buyers and sellers. During the year, we've also continued to significantly improve our user experience, particularly in terms of the look and feel of our full page advert view, where consumers now get a greater level of detail on the specification of the car. And as you can see on the slide, we have bought the part exchange guide valuation and finance quote into a more integrated journey, helping the consumer to easily understand the end transaction online when and where it suits them.
This has been one of the reasons we've seen growth in lead volumes, finance calculator interactions and part exchange quotes mentioned earlier by Catherine. We will continue to evolve our proposition to provide more of the buying process online, which our consumers desperately want and allows retailers to reorientate their operations and costs to digital retailing. The recent launch of our new vehicle check product is a further result of providing more of the process online, increasing trust and providing an opportunity for retailers to reduce a significant cost in their business. And now to outlook. As with last year, we've executed our 1st April pricing event, which has gone well.
We also launched and monetized a new vehicle check proposition primarily to independent retailers, which has seen strong levels of uptake with 80% of independent retailers opting to pay for the product. This provides strong benefits to both retailers and consumers. For our retailers, they gain access to unlimited checks on vehicles that they may be looking to source, whether that's at auction or through a possible part exchange. This gives retailers confidence in the vehicle they are looking to purchase, knowing there are no underlying issues that could inhibit their ability to make an onward sale to consumers. In addition to this, all their vehicles on Autotrader will appear with a full check, providing consumers with additional trust and therefore confidence in both the retailer and the car they are looking to purchase.
Within our packages, we also included this year the ability for retailers to communicate with consumers via text message, complementing our existing live chat product and ensuring we are offering the communication options most used by consumers today. The latest structure of our packages is shown in the appendix. So having made a good start
to the year, here is a summary of
our full year 2020 outlook. We expect another strong year of ARPA growth, which again will be underpinned by our product lever, albeit the growth in product is not likely to reach the exceptional levels we saw in 2019. We expect the price lever will be broadly consistent and the stock lever is likely to be slightly down in line with market trends. We anticipate average retailer forecourts to be flat year on year and we have seen an improvement in consumer services, which we expect to continue. Towards the end of last year and beginning of this year, manufacturing agency revenues have been volatile and we expect revenue from these customers to decline in the first half of this year.
That being said, it does not at all detract from our belief that this remains a material long term opportunity for our business. We anticipate total operating costs for the year to increase at a rate of lowtomidsingledigit. And finally, the Board is confident of meeting its growth expectations for the year. Thank you very much for joining us this morning. That now concludes the presentation.
And we'll now take any questions from attendees in the room.
It's Will Packer from Exane BNP Paribas. Free for me, please. Firstly, in terms of your stock guidance, I just wanted to understand how cautious you are being there. If we look at the H2 trends, it was basically flat in terms of the ARPA. If we do the inventory tracking of the website and exclude private listings and new car, it's currently growing mid single digits.
Could you just help us understand what is behind your guidance of slight decline in stock ARPA? Secondly, in terms of the product opportunity for FY 2020, could you help us understand the potential upside and downside risks? It sounds like VehicleCheck has gone well with independents. Is there a scope to upsell it to franchise dealers? Retail accelerator has slowed in H2, but you've got big new products.
So could there be an increase in adoptions there? And then just lastly, on the JV, two questions. Firstly, what is the organic growth of the product for the last year? And could you help us understand when the new product will be ready? Thanks.
I'll kick it off on the stock. So I think the first thing to say is we do expect it to be better than the minus 22% that we reported this year. I think the steer on the guidance, and you've sort of alluded to some of the nuances there are with livestock on-site around pay as you go private home trader, also new car. I'm sure we'll come on to a question about new car and how it's monetized, but it's unlikely to go into the stock lever specifically. The other nuance that is maybe not always immediately obvious is we do make an adjustment for yields.
And a lot of this growth in the second half has come from larger customers. So you're not getting as much benefit there as you might assume if you're monitoring the website. And then lastly, I think our steer is still that we believe used car transactions are likely to be down, albeit only marginally. And so the stock guidance is really in line with that, and that's the step for it.
I'll take the product to Alpha 1. I think we consistently say over the years that we'll be somewhere between 6% 10% in terms of growth of ARPA. And on a low stock year, we'll be towards the bottom of that and a high stock year, we'll be at the top of that. And I think that's why I think we sort of we sit there and look at last year, the year just gone and go, it's pretty exceptional performance actually, particularly in the product lever. That was made up of, if you like, 50 percent bounce in premium, about a third, maybe a little bit more in terms of dealer financing the event that we did last April and then the rest with managing and we were trying to fight against the headwind that Jamie talked about with the smart buying.
As you come into the new year, we still see that advancing premium will make up roundabout that half. Although we expect it to be a little bit less because just penetration is higher, and so each one is a bit harder every time than it was a year ago. But there's no reason that we believe it should stop in the next year, so we can continue that. We know the event, vehicle check and then the event is about the same from a percentage perspective, but we think it's going to be a little bit lower in absolute terms. And then the question, I guess, which is your meat of your question is, all right, well, what will the extras bring us?
And I think from what we know, we've still got to fight against that smart buying headwind. And we think with what we know, that sort of percentage of 10%, 15%, 20% with the managing and other products we've got feel okay. I think if you want to be a bull in the world, you sit there and you look at, well, okay, vehicle checks are in the independent and you can go to franchise. It is more difficult because the product has to change somewhat and a lot of those are in 12 month contracts. So it takes some time to get into that market.
So that will be a slow burn rather than a step. New car, we've got the new car opportunity, which we're not quite sure exactly when we're going to be monetizing which customers when. And so we've got to work through that, even though we know it's going to be a subscription product. And so I think we've probably been cautious in terms of what we know in terms of those new products because we sit there and go, we just don't know it. And our tradition is we'll basically say, unless we know, we're not going to do those things.
It could be better than that. And it could be at the top if we do things well and execute things well, and it doesn't cannibalize that other growth in the other area. But that's a bit we don't know yet. So that's where we are.
And on the joint venture, not to duck the question, I think the organic growth, the thing I would say to be careful is the revenues that we quote there are currently a mix of 3 different business models. And what we are going to do, at least what we're thinking at the moment, we're going to do is move more heavily towards the transaction model, which is a portion of that revenue. That doesn't mean that we're going to walk away from subscriptions. But so I'd say the underlying kind of organic growth, it should be like a 15%, 20% kind of growth rate just in terms of volumes. That's what I would expect ordinarily.
That being said, on the other side of the new product, we'd like to see some level of acceleration or step change. Leading up to that, there's going to be a point where we bang the commercial models together and I'd expect that we'll probably lose some revenue there, which will be fine because I think that's we need to kind of pick our business model. We can't have our cake and eat it too. So that's why I guess the organic growth is just be careful with it because you'd expect it to kind of drop down and then accelerate from there. In terms of what we're working to, we'll be using the technical platform that we've built.
I guess the partnership was born. We're quite good at software. Cox are very good at B2B and the physical processes that sit around it. So we will be moving the whole business onto our Smart Buying platform. It will still be dealer auction fundamentally.
And that means we need to take people that are on subscription products, people that are on transactional products and bring them all together. We're aiming to do that early next year is kind of the target date for that. In a perfect world, we'd get off to that start 1st January or maybe even a little bit sooner. But it is software and these things tend to be a little bit uncertain. But it is it's all going to plan actually.
We've not felt like things have taken if anything, things have happened a little quicker than what we might have expected. Joe, the microphone is there.
Joe Vanadam from Credit Suisse. 3 for me, please. So you spoke about some retailers moving across from Home Trader into the core business. Can you quantify how many there were? And is there capacity for more of that going forward?
Secondly, VehicleCheck, obviously, a great new product. Can you talk a little bit about the gross margin profile of that product? A lot of the incremental revenue you get from product driven side of ARPA is incredibly high incremental margin. So can you talk a little bit about the gross margin of that product? And then finally, with regards to your share of voice in the industry, the charts show that you haven't seen a huge amount of change with regards to consumer traction.
With that in mind, should we assume that, that 5% of revenue spent on marketing is unchanged as you look forward?
Thank you.
So I'll take the Retail as one. So I mean it's not to quote Nathan and dodge the question, but it's hard to quantify because of the nature of pay as you go. It's not as specific as having subscription package, and we get to know the customer very well, and we're servicing those customers with our sales team. But having the analysis we have done probably says about half of the improvement in full quarters has come from that transition. And I think it revolves around those improvements that we've made to the packages, both in 2019 but probably more in 2018, where we put a lot more products into our kind of core base package.
In terms of how much more that can drive, that probably is a little bit, but it's probably slow and over the course of the year. So I wouldn't say that there'd be as much or as material benefit as we've seen this year. And then I think we're obviously coming into the year in a strong position. That 4th quarter is a good place. I think we still believe the market for car dealers is contracting at about 1% a year, which has been pretty consistent for the last 15 years.
So I think that's why we're probably at flat despite coming in at that good run rate into the year.
On VehicleCheck, I'd say there are in terms of gross margin profile, there are 2 broad camps of products that we do. The ones that we like best are core, core, advanced, premium, those sorts of things. We can build them in a very small amount of time. You've got to think very carefully about it, but there is essentially no technology or direct cash cost that goes along with that other than the investment in resources, obviously, to roll it out. And then you've got another bucket of products broadly, which include things like dealer finance and vehicle check, where we need to work with a partner to deliver those.
In those cases and this is all putting aside the cost of investment in the product because we expense that through the P and L and it's just about choosing where our people focus their time. So in terms of direct gross margin, vehicle check is more like a dealer finance than it is like an advanced and premium because there is a for every check done there is a fee that we pay and the business model to retailers is obviously uncapped. So we've done the economics and it looks like we've worked that out fine. So it's still a high margin product, but it's not as high as something like Advanced and Premium. Cost of sales in our P and Ls is all is within the other cost line.
So it's not a big necessarily a big cost to the business, but we have been spending more money in that area as we've taken other costs down,
position. With that context, I don't think we see any reason to move away from the 5% number. That said, we're definitely not complacent and we do remain very focused on the competition. We I think we're very fortunate in that a big chunk of our traffic comes directly to us. So actually, it's internal resources and focus that drive audience growth for us as much as significant investments.
The only scenario in the future I could see where we might change that is if in one of our big adjacent opportunities, we took a different view on acquiring consumers in a new area that we were looking to grow into. But in terms of the core, very focused on maintaining that percentage.
I'll go on Andrew quickly. Adam, it's definitely coming across to you. Andrew from Barclays. Just two. First one is to follow-up on new cars.
So it sounds like you're going to monetize that with a subscription. Can you give us some help about how much you think that subscription could be worth and a sense of how many franchise dealers might be interested in paying for it? The second one is to go back to financing. Obviously, that was a nice step up for you last year. You haven't spoken much about it in terms of incremental contribution this year or beyond.
Can you talk about the opportunity to drive up ARPU in that bit of a business as you take a higher chunk of fee, referral fee on the finance fleet?
Yes. I can I can take your on certainly the commercial aspects of it? So as we said, we've sort of been working through it. I think where we've landed in terms of how we're going to commercialize it is going to be a per dealer charge rather than the cost per slot model we have on used cars. In terms of and so that's then dependent on the number of dealers that are subscribing to the product.
We believe that all franchise dealers are selling new cars. So this should hopefully operate as an outlet for them to sell those cars. We sort of alluded to the market opportunity. We think there are about 120,000 of these cars that are out there produced in the UK, not currently advertised to consumers. We're just over 30,000, or we were at the end of the year in March.
So that split, the 30,000 over the 120,000 is not way out of sync with how penetrated we are with dealers. So it starts to give you a sense for where you might model it. In terms of pricing, again, we're probably still working through a few final pieces to it. But I think the reference point is we understand the competitor that does GBP 300 on sale, and that's probably what we use or have used as a kind of reference price in where we're starting to derive what a monthly charge might be.
On finance, I think there's probably 2 bits to the answer. The product that we've launched early last year it's fundamentally an advertising product allowing them to advertise an add on that is very, very lucrative for the retailer and consumers have a great deal of interest in it. It's a very sensible product. And obviously, we've got to very high penetration very quickly. Pretty much anyone that was going to buy it bought the product.
And the couple of reasons why they didn't want if you're charging very high APRs, you don't want to go telling the world necessarily about that. If you can't make it happen from an operational process perspective, then they haven't necessarily made that happen. So we probably continue to see I think that level of penetration is good and that feels like it's relatively limited from a growth perspective. The way to grow that product is at the moment within monthly finance check. There's no way for a retailer that really wants to promote their finance offers over and above everyone else like we let them do in the used car model.
There is no product like that within finance. We don't have any imminent plans to launch it launch those. So I'd say for this year, I don't see a great deal of upside coming from the finance side of the business the finance advertising product, I should say. That being said, what we've discovered as we've done that first product and dug further into finance is that we think there is a very big opportunity for us to play a role in that space. You've got £1,000,000,000 of commissions.
We're not looking to take those from our retailers at all. We still very much believe finance will happen at the point of sale with retailers, but it is frighteningly inefficient for a retailer. People think see between £120 to £170 of cost per finance application. It's very, very expensive for the finance providers and consumers feel like it's an opaque process and no one likes going into a car dealer having someone tell them, sorry, you didn't make the finance, perhaps you need to look at your expenses. No one really wants that experience.
It's a horrid experience, and it doesn't need to be like that. So in the medium term, I would say we should be able to play a big role in that market, and that is a very, very big market. I think it will take us we'll have to do a lot more than just advertising products, so to unlock it, and we're looking at those kind of things now. So hopefully, there'll be that'll be one of the things that we progress during the course of this year, as Trevor outlined some of the areas that we've done in the last right, Adam, going to the right side of the room.
Good morning, everyone. It's Adam Berlin from UBS. Three questions from me. Just continuing on theme, Nathan. You mentioned that you think consumers want to transact online.
And I was just interested in what you've seen that makes you believe that. How you think that will work in the future? And when we might see it coming through? Because I think it's a really interesting opportunity. Second thing I wanted to ask you about is although you've guided for manufacturing agency revenue to be down in the first half, are you still taking share of that market?
Or is it just that the market's down? And third question is operating cash flow was up 13%, but the buyback was down. Why? And what does that mean for the buyback in FY 2020?
Yes. So I think when we talk about transacting online, from all the research that we've seen and done, I think the perception of the transaction in a consumer's mind is that the deal is done. There is no haggle to be done when they arrive at the forecourt. So the research says that the vast majority of people, and it's a pretty steady number of people, want to actually physically visit somewhere away from their own place and see the vehicle before they drive it away and make the final, final, final decision. However, the bit they hate is the confusion that they feel around all the different aspects of the deal.
So when we talk about transacting online, we sit there and say, how do we take them through that so they can do the whole deal on the sofa? And that includes guaranteeing the part exchange price for their car. That includes making sure that the finance they are approved for and they will get and to some stage signed for, yes, and paying some sort of deposit to reserve the car and make sure that when they turn up at an appointed time, everything is ready for them to hopefully go in and 10 minutes later leave. I think it's the next stage of that feels like a massive yawning chasm, which is all that stuff gets done and the car magically appears on your driveway. That feels like that for the majority of the be all these other bits, I think it's going to be gradual, but I think each year we'll see movement towards it.
And I think I'd be surprised if you're not getting to that stage in a sort of 3 to 4 year timeframe, where a large number, not necessarily the majority by any means, but a large number of people and a meaningful number of people are getting are doing that today. And more and more of the progressive retailers are trying to move that way. And what they're seeing is that interestingly, you think to yourself that could be a problem for retailers. Actually, what they're seeing is that if you do the thing online, the consumer is comfortable paying more for the card than they do when they come in. Actually, they get more because people just don't want to haggle, they want to avoid the haggle.
So they'll just pay what it is, and it feels like it's fair and transparent. And all the extras, if you give them time, people will buy more of those extras, not less. So the hard sell turns people off. And so actually what we're seeing is those people that have gone quite a long way down, they actually make more money out of the overall deal than those people who don't. So I think there's something in there for the retailers that undoubtedly have to change their fundamental process model, but there's still an economic model that fits alongside that, that can make it successful.
Yes. And I'll just very quickly add to that. If you imagine that we still only got to 1 4 court visit per 4 court visit
per transaction, which is kind of what
Trevor is saying, but you did most of that online. You'd be going from 1.8 average 4 core visits per transaction down to 1 massive reduction. You'd be going down from a 3 hour visit per visit down to 10 minutes is probably really quick, but let's say an hour, it is Trevor and he's high aspirations. But if you went down to an hour, all of the costs, most of the costs apart from the $500,000,000 or so spent on marketing within the value chain that beat up the gross margin of used cars, the $4,500,000,000 or so, are all down to the economics of people, also the physical side of cars, but most cars are stored off-site now anyway. So the impact we can have on retailers, even
if you get to
a one visit per transaction, which is online enough, could be quite huge. And that's kind of where we're coming from. If we can get below 1, then that would be great, but that might take some time. Manufacturers and agencies?
So new car marketing pot, so there's a we talk about a spend bucket of about GBP 900,000,000 spent by on new car marketing in the U. K. We do see that total pot being under some pressure. You've got a backdrop of a kind of perfect storm for manufacturers Then macro and Brexit pressure in the short term layered with consumer demand, Then macro and Brexit pressure in the short term layered with consumer uncertainty and weak consumer confidence with then all the regulatory and emissions requirements that are also being layered on top of that. You then also got agencies on the other hand whose business models created further uncertainty.
So overall, that spend pot, there's a huge number of moving parts within that. In terms of our share of the segment of that that we address, I think our best estimate is that we're probably holding share of the spend that we see or that is available to us today. The big long term opportunity for us is clearly to address and source other pockets of spend outside of the display category that we currently sit in with most of those agency and manufacturer relationships.
Excuse me. And just on the buyback. So they're only marginally down, so £2,700,000 less. I think the important thing here is the capital allocation policy is completely unchanged. And that policy is we'll invest in the business, then we will is we'll invest in the business, then we will distribute roughly onethree of net income as dividends, dividends have grown, and then we will use surplus cash do the majority through share buybacks and the remainder through repayment of debt.
And obviously, we've made an investment in the business, so more specifically, the JV, where we've paid CHF 19,700,000 to COGS. So that's probably the biggest driver of why that might be a decline. But there's obviously no change in that policy, and that's been pretty consistent, I think, since IPO, really.
Okay. We'll just take one more question that will have to be until we end the queue.
Thank you and good morning. Silvia Cunha from Deutsche Bank. Just one question on the competitive landscape. I think you addressed the consumer perspective. I was just wondering if you have any color you could share about the dealers' perspective.
Are they trying the new competitor propositions, especially after consolidation? Like, are dealers using more than one platform? And you seen any changes in consolidation last year?
I'll take that one. I think the 2 do go hand in hand. At the end of the day, retail is driven 1st and foremost, not so much by audience statistics at all. They don't really care much about them at all. What they care about is what sales get driven into their dealerships.
And I'd say most dealers today, because all of the classified providers are providing relatively low cost advertising, there's a good portion of retailers, particularly the bigger ones that will try 2 or 3. For a large portion of our customers, a surprising percentage of our customer base, they will just use auto trading because it's simple, it's easy, it works. They kind of get the volume that they need. When it comes to retailers, I would say what they see there's no retailer that sees any competitor providing anywhere close to the scale that they're getting through Autotrader and the numbers would suggest the numbers are either massively wrong or they would say that. So I think that they're getting used by retailers and they always have.
I would say in the past year, there is no change in that though. So the consolidation that's happened with eBay and motors, the CarGurus and PistonHeads, I personally speak to lots and lots of retailers. I've not had anything like that really mentioned. There's been some talk of bundled packages with Ebays and Motors, but we've not really seen that substantiated or get any traction. So I'd say it does very much reflect the consumer side.
There are some good competitors. They provide a product, but their product caps out at a certain level and that's a long way away from the volumes they get through auto trading. Well, thank you very much everyone.
Thank you.