Good morning, and welcome to Pendragon full year results presentation, during which we'll cover the financial results for full year 2022 and give you an update on the great progress we continue to make with our strategy. I will start with a recap on our vision, why we strongly believe a set of diversified assets that create real competitive advantage, and a reminder of our ongoing strategic priorities. Mark will then take you through the financial performance before I run through a more detailed operational and strategic review for 2022. As always, we'll be happy to take any questions at the end of today's presentation. Our vision is to transform automotive retail through digital innovation and operational excellence. Over the last year, the scale of strategic delivery has once again been substantial and has taken a key contributor to the performance announced to the market today.
To support our vision, we redefined our purpose and values in 2022. I'm confident that the outputs formed across all divisions of the group will further unify our teams and drive even greater pace of transformational change in 2023 and beyond. The board and I remain confident in the opportunity that our strategy provides for value creation, and we're well poised in the evolving consumer and competitive landscape. Pendragon is highly differentiated in its assets and capabilities, and since the launch of our strategy, the group has progressed extremely well to strengthen or create new competitive advantages. In UK Motor, we operate from a far leaner cost base with substantially improved efficiency, effectively leverages big data from internal and external sources to improve decision-making and customer journeys.
Features Car Store, our new used car strategy, is resonating well with customers, and our newcarstore.com website lists approximately 12,000 used cars, more than any of our new digital disruptors, and the second-largest overall. UK Motor has broadened its portfolio to include BYD, the world's largest manufacturer of new energy vehicles. I'm delighted that Pendragon is acting as BYD's lead UK launch partner for the U.K. Two stores in Birmingham and Milton Keynes are already operational, and six more are in build, including a flagship store in London. Pinewood has made excellent steps forward as well, further surpasses competitors through the development of enhanced digital capabilities, enables the group to advance its digital and physical ecosystem at a greater pace than its peers. It's also contributed to group profitability, both in the U.K. and internationally.
Pendragon Vehicle Management has diversified OEM representation, is growing well beyond its B2B core in a number of B2C adjacencies, and has a full year service proposition driving high levels of customer retention. This slide recaps our strategy announced late in 2020. As outlined at the end of FY 2021, substantial progress has been made against the UK Motor objective of operating from a lean and effective cost base, while tactical opportunities continue to be pursued. This objective has now been replaced with the enhanced of our new car representation across the U.K. Beyond our existing partnerships with BYD, acting as a UK lead launch partner, we are in conversation with a number of other brands to respond to the electrification of the UK fleet.
Moving to slide six, the outputs of our strategic initiatives and significant investments across our divisions are driving much improved productivity and gross margin resilience across the group. The relaunch in the year of the market-leading omni-channel CarStore proposition with a fully transactional website has contributed to the robust underlying profit before tax announced today, a GBP 57.6 million. This performance was ahead of the board's expectation at the start of the year. Our PBT performance was in strong light of well-publicized and significant headwinds during the year, with operating costs of nearly GBP 34 million year-over-year. The balance sheet of Pendragon continues to improve. At the end of FY 2022, net debt stood at approximately GBP 23 million versus nearly GBP 50 million at the end of FY 2021. I will now hand the call over to Mark to cover the numbers in more detail.
Thank you, Bill. Good morning, everyone. I want to start with a slide that I've shown at our last couple of results presentations, wanted to revisit once more just to demonstrate the structural shift in performance and the improved efficiency of the group since the launch of our strategy back in late 2020 when considered against the results pre-pandemic. In the year, revenue is up 6.7% on a like-for-like basis at GBP 3.6 million. This is lower than pre-pandemic 2019, when the group was operating from over 200 stores compared to just 145 today. As a reminder, a number of those stores were loss-making.
We delivered further growth in gross profit in FY 2022, which is up 5.5% on a like-for-like basis versus FY 2021 at GBP 457 million, delivering a gross margin rate of 12.6%. Our focus on driving strategic initiatives that benefit used car gross profit per unit and maximizing our new GPUs in supply constrained conditions, together with like-for-like growth of 6.9% in after sales gross profit underpin this performance. Again, comparing this to FY 2019, gross profit is just GBP 15 million or 3% lower now than then, despite the near GBP 900 million lower revenue.
At the start of FY 2022, I guided that underlying operating costs would grow by approximately GBP 30 million during FY 2022 as a result of the removal of rates relief worth approximately GBP 12 million, the investment we've made into marketing of approximately GBP 10 million, and the impact of inflation. In total, costs grew by GBP 33.7 million to GBP 358.7 million, with inflation that peaked higher than forecast at the start of the year, being the key driver of that higher cost base. Once more, though, looking back against the pre-strategy cost base, costs remain GBP 87 million lower. In the year, despite the increase in gross profit and revenue, the impact of that cost changes together with the higher interest rates resulted in a reduction in underlying profit for tax from GBP 83 million to GBP 57.6 million.
Compared to FY 2019, still an improvement of GBP 74 million. At the launch of our strategy, we stated our priority for capital allocation was the investment in capital to support our strategic initiatives, together with a focus on reducing the level of bank net debt that the business was carrying. During 2022, we have delivered a further reduction in net debt from GBP 49.7 million to GBP 23.3 million. This is now down by GBP 96.4 million since the start of our strategy. Turning next to slide nine to look at the summary group income statement. Following on from the comments on the last slide on the growth in gross profit, a little bit more color on the drivers, and you'll hear more as Bill moves through the operational review as well.
The gross profit performance was underpinned by strong growth in new car margins, as supply constraints were more than offset by improved gross profit per unit at GBP 2,719. As we expected, the used car margins were down from the extraordinary peak levels seen in the second half of 2021, but the levels achieved at GBP 1,607 for the year were still significantly higher than historically delivered, benefiting from the combined impact of numerous strategic initiatives, which again will be covered shortly. The after-sales margin rate was flat year-on-year despite the impact of technician labor cost increases. Which combined with the 7.5% like-for-like sales growth, resulted in incremental GBP 9 million of after-sales growth profit compared to FY 2021.
As I've covered on the previous slide, costs were up GBP 33.7 million. I'll just finish on this slide by drawing your attention to the non-underlying items which total GBP 0.4 million. There's a combination of a net gain on disposals of property and businesses of GBP 7.9 million, offset by impairment charges of GBP 4.8 million, which is the impairment of the goodwill on the disposal of our DAF truck business. In addition, changes in the base interest rate resulted in approximately GBP 8 million of incremental interest charges in the year. The net impact of these movements was the underlying PBT of GBP 57.6 million. Moving on to slide 10 to look at cash flow. The group delivered another good year of cash generation, driving further debt reduction while increasing the level of capital investment into the business.
Cash generated from operations was GBP 116.7 million, which included a working capital outflow of GBP 5.1 million. That was primarily driven by the cash funded element of used car increased values. Net capital expenditure of GBP 27.1 million comprised capital expenditure of GBP 43.7 million, which included a number of major development programs that Bill will touch on shortly. In addition, almost GBP 6 million of development capital was invested in Pinewood to support its future growth. The CapEx was offset by inflows from disposals of excess property, largely from the sale of a vacant site in St. Albans for GBP 10.5 million and GBP 2.9 million generated from the disposal of the DAF truck business.
Lease payment and receipts were GBP 2.8 million lower as we continue to successfully manage the exit to vacant properties from our store rationalization program. The result of a lease regear with our largest landlord that has allowed us to return early 12 vacant properties resulted in a cash saving of GBP 2 million in FY 2022, and that will rise to GBP three and a half million on a full year basis. Over the course of the last three years now, we have successfully reduced our vacant leasehold property, generating over GBP 7 million in annual rent savings and a further GBP 3 million reduction in rates. We're pleased with the ongoing reduction in the group's net debt position. Lastly, on the financial statements, just to cover some key changes on the balance sheet, which is further strengthened.
Net assets increased by GBP 55.4 million to GBP 281 million. Key movements include an increase of GBP 16.1 million in property assets, reflecting the investments we've made into our estate. Inventory increased by 21% or GBP 107.5 million. That's driven by a combination of approximately GBP 44 million in increase in new car inventories as the supply eased a little bit at the back end of the year and an increase in used car stock of GBP 63 million. GBP 22 million of that is driven by higher volume of used cars at the end of the year as we prepared for the start of this year. The remaining GBP 40 million is driven by an increase in the average value of the cars held.
There is a corresponding increase in payables of GBP 121 million, principally driven by the increase in creditors against that inventory. Finally, the net liability for defined benefit pension scheme obligations has reduced from GBP 23.6 million to GBP 2.6 million at the end of 2022. That improvement comprises contributions of GBP 13.1 million from the company and a net actuarial gain of GBP 8 million. We also completed the triannual valuation of the company's pension scheme during the year, as at the 31st of December 2021. That exercise concluded that the funding deficit has reduced from GBP 117 million when we last did the exercise in 2018 to GBP 33 million as at December 2021.
The company and trustees have agreed to continue the current level of contributions into the pension scheme until the end of 2023, at which point the actuarial deficit is expected to be met. At that point, we're moving to a long-term funding target, but contributions will reduce by GBP 10 million to three and a half million pounds per year. That target we've met in 2026. I'll now pass back to Bill, who will cover the operational and strategy update.
Cheers, Mark. Next to slide 13 to look at the operational performance of the Motor division before I move to cover our strategic initiatives. We have revised the way we look at our used car strategy. It now reflects our group-wide omnichannel approach to used car retailing. As the market has continued to evolve, we have adapted our strategy away from a standalone proposition to a group-wide proposition, ensuring we maximize the advantage of our entire used car inventory, our physical assets, and our digital capabilities. To achieve this, all of our used inventory now is listed on a fully transactional platform, carstore.com, with in excess of 12,000 vehicles currently online.
We remain focused on maximizing our performance in the important new car business, and we made significant investment into a number of our premium brands, in particular for 2022, including major remodels at Porsche, BMW, Mercedes-Benz, and our new Land Rover location in Mayfair. In addition, and in line with our plans announced back in 2020, we have now opened two 2 new format CarStore locations in Chesterfield, with the addition of after-sales facilities completed in 2022 and a brand new site in Warrington. As a result of the supply challenges which impacted the whole market and persisted throughout the year, volumes were down 6.1% in new cars and 8.7% in used cars.
Our order bank for new vehicles, however, has remained incredibly strong. We came into 2023 with in excess of 20,000 orders in our motor division. We are confident we are well-placed when supply eases. In used cars, we are in line with the market overall for the year. Following the launch of our new used car proposition in May, we outperformed the used car market over the course of the second half by 600 basis points. Excellent new and used GPUs, which I will cover on the next slide, together with a strong performance in aftersales, again supported by strategic improvements, all underpinned an overall improvement in gross profit of GBP 18.4 million on a year-over-year basis.
Mark has covered drivers of cost increases, the impact of those cost increases offset the growth in gross profit, resulting in an operating profit of GBP 69.1 million. Coming back to look at gross profit per unit performance on slide 14, our strategy to implement changes on the way we operate in order to improve used car gross profits, GPUs, is having demonstrable results with a used car GPU of GBP 1,607 being well above historical levels. From 2011 to 2018, our used GPU averaged GBP 947. The 2022 GPU is in excess of 600 higher than this, the initiatives we have focused on since 2020 have underpinned this growth.
A focus on maximizing new car margins where supply is restricted re-resulted in a record new GPU of GBP 2,719, which is 808 better compared to full year 2021. Turning next to slide 15, against the strategic objective accelerating digital innovation, the group enabled by Pinewood has made excellent further progress to strengthen its omni-channel capabilities in FY 2022. Sales Plus is a DMS application that enables store associates to seamlessly manage the sales process across digital and physical channels. Addition to this app in the year have included the automated inclusion of insurance products and customer offers, which is driving penetration improvements year-over-year. Associates and customers using the same system and process, whether in-store or at home, can now amend in real time finance type, deposit, term, annual mileage, and insurance products.
The increased levels of transparency and optionality have been well received. F&I menus, shown on the right side of the slide, as well as the sale of insurance products, not at the point of purchasing a vehicle, are currently in development and will be scaled across the group in FY 2023. We expect these developments to deliver further penetration improvements and incremental sales. Second, our market-leading digital F&I capabilities have been strengthened throughout FY 2022. Variable APRs by balance to finance are being utilized for BMW, Mercedes-Benz, and JLR on used vehicles. The dynamic and real-time capabilities to compare lender offers and associated variances in residual values has been scaled across the group to maximize customer value. Data capability has been built in to monitor the equity position of customers purchasing used vehicles or on finance, in addition to automated communication tools.
We are trialing this capability at present with positive early signs for customer retention and unit volumes. The sum of these F&I initiatives has driven a 5 percentage point improvement in finance penetration worth approximately GBP 8 million in FY 2022. Looking forward, Rate for Risk capability is currently being developed. Personalized finance rates based on a soft credit check will be surfaced to the customer in FY 2023. The group-wide vehicle acquisition, management, and pricing platform is focused on optimizing both the turn speed and margin of used vehicles. Market-based pricing has been furthered with the inclusion of internal demand and vehicle supply indicators in 2022. Improved levels of automation and a cloud-based solution have reduced the manual inputs, driven unit economics, and accelerated turn speed. The total benefit driven by pricing revisions totals approximately GBP 4 million in FY 2022.
The teams have redefined the part exchange and sell your car journeys so that they're seamless for customers both online and in store. To complement these journeys, Sales Plus has been further developed to include proprietary appraisal and valuation capabilities. As a result, the reliance on third-party systems has been removed. Workflow into customer and associate journeys has been built. Finally, visibility of expected virtual actual costs and preparation has been driven to further fine-tune customer evaluations and optimize margin. Looking forward, data science modeling with the application of machine learning is in development to maximize the cloud-based pricing solution. These market-leading capabilities will be used in part to support objective of doubling sell your car vehicles given the favorable metal margin dynamics versus other used vehicle channels. A program targeting reconditioning delivered good progress in FY 2022. The right used cars are getting to the right location faster.
Revised stock allocation frameworks coupled with process automation to stop the reliance on vehicles being manually brought into stock has improved turn speed. The team are now re-reviewing cosmetic preparation processes and capabilities to identify further improvements. The aftersales performance announced today has benefited from a number of developments in the year. Technicians have a revised in-incentive structure which has reduced churn and driven productivity improvements. Vehicle health check conversion and performance has improved year-over-year, underpinned by revised local reporting and dedicated operational focus. A first-half trial of offering interest-free finance for vehicle health checks has been scaled across all UK Motor locations in the second half. VHC improvements have driven approximately GBP 4 million worth of benefit in FY22. For FY 2023, opportunities to improve service pricing across our channels, service plan penetration, and utilization of our own label parts will be explored.
Used vehicle warranty products. Record levels of penetration and margin for the group were driven in the first half of 2022. I'm very pleased to state that this performance is furthered in the second half. Since launch, used guarantee penetration has improved by 5 percentage points, and approximately GBP 3 million of benefit has been recognized to date. The next iteration will be dynamic pricing for individual CAP codes. This will unlock strats on vehicles that do not qualify for OEM warranties and drive further upside across the business. Taken together, all these operational improvements and strengthened processes have contributed towards the margin improvements we have seen in UK Motor. Moving to slide 18 in BYD. I'm very proud and pleased that Pendragon are BYD's lead launch partner in the U.K. BYD is the world's largest new energy manufacturer.
They sold approximately 1.9 million new energy vehicles in FY 2022. Year-over-year growth of more than 200%. BYD has substantial plans for the U.K. market, targeting 5% new vehicle market share in the next several years. The first model line to launch in the U.K. is the ATTO 3. The ATTO 3 is a C-segment SUV with a fully electric powertrain and a range of over 260 miles. Moving forward, the product roadmap is impressive, with three further models set to launch in the U.K. in 2023. Last week, we opened our first two locations in Birmingham and Milton Keynes. The initial customer reactions have been positive and has shown the vehicles to have a high quality and innovation. We have already started taking orders on the ATTO 3.
Going forward, we have six further locations planned for the year, including BYD's U.K.'s flagship location in Mayfair, London. BYD is the first new partner against our objective, enhancing new car representation. We are delighted to partner with BYD in the U.K., the world's largest manufacturer of new energy vehicles. Our new used car strategy. CarStore's mission is to empower customers to buy, sell, and take care of their car needs the way that they want. From a traditional walk-in journey to a full online transaction with no as-associate interaction and everything in between. CarStore's proposition is truly personalized and seamless across digital and physical channels. Further revisions have been made to the proposition in the year. All group used stock, some 12,000 vehicles currently, is now transactional via the CarStore.com website and supported by revised image standards.
12,000 new vehicles gives us greater scale than any other digital disruptor going forwards, CarStore will be the used car brand and platform for the group. In the second half of 2022, SellYourCar.com was launched and now is driving incremental used vehicle acquisition for the group. The revisions we have made to your Sell Your Car journeys place us in the forefront of the market and enable us to capture disproportionate share. They have also supported the gross margin resilience across the group versus FY 2021 and the unprecedented market tailwinds at that time. All Evans Halshaw locations are enabled with the carstore.com omni-channel proposition in FY 2022. CarStore will be the group's used car platform and brand going forward. The first standalone concept store to support the omni-channel pro-proposition and to test and learn launched in Chesterfield in April.
The store has been very well received by customers and now acts as the blueprint for future expansion. As referenced at the first half, the next door to come online in Q4 was Warrington. Warrington is a circa three-acre lot, displaying approximately 400 used vehicles. Again, the store has been well received by customers. Looking forward, we are targeting two new CarStore locations in FY 2023. The number of small format locations branded as CarStore Direct has scaled during the first half of 2022. 10 new locations are now live across the U.K. These locations support the SellYourCar.com proposition, as well as adding points for click and collect and vehicle delivery. A full launch of the proposition supported by integrated omni-channel campaign began in May 2022.
In addition to primetime TV advertising to drive awareness of the repositioned brand, we partnered with leading touring car team, Power Maxed Racing, earlier this year. The impact of the proposition launch has been positive. Digital traffic to carstore.com is up more than 60% on a year-over-year basis. New customers are being attracted to the brand. The full year reputation.com score has marked a market-leading 4.7 out of 5, up 2 basis points year-over-year, and with Trustpilot scores also strong at 4.6 out of 5. This was a contributing factor to our market outperformance in the second half of FY 2022. I presented this slide at the half year to highlight the market-leading omni-channel capabilities that underpin our omni-channel customer proposition. During the second half, we have continued to maintain our digital and physical advantages versus the competition.
We have greater levels of opportunity as others have exited. We have industry-leading Trustpilot scores. Our scale of inventory is greater than any other digital disruptor. I'm confident that the digital and physical changes coming in 2023 and beyond will continue to drive customer satisfaction, scale, and differentiation versus the competition. Turning to slide 23 in Pinewood. Pinewood continues to be a fundamental to the pace and scale of change that we are delivering. Pinewood's evolving technology is powering our UK Motor business and ultimately will be to the benefit of Pinewood's external customers, which make up approximately 80% of Pinewood's customer base. Pinewood delivered a strong second half of the year with a total user growth of 4%, resulting from new users added during H2.
Pinewood now serves approximately 32,000 users across 19 different countries. International user growth was up 13% during FY 2022, taking the international user count to a record high of approximately 6,400 users. The second half has also seen Pinewood entered into two new international markets in Singapore and the Middle East. Finally, on the international front, the customers in Asia-Pacific were transitioned onto a direct sales relationship with Pinewood, U.K. improving the margins achieved in this market. There remains a strong pipeline for international expansion, both directly with retail customers and through engagement via Pinewood's strong OEM relationships. Approximately 90% of Pinewood's DMS revenue is on a reoccurring basis, an important metric for a SaaS business. Coupled with this, Pinewood benefits from a strong customer retention model with net user churn below 1% in 2022.
In order to accelerate its growth, Pinewood is investing more into development and operational resources, with costs increasing by GBP 1.7 million during the year. Despite the revenue growth, the cost investment resulted in a reduction in underlying operating profit to GBP 11 million. We are confident that this investment will drive returns in the future. A number of important strategic enablers to the UK Motor division performance were developed and delivered by Pinewood during FY 2022. I covered these in more detail during the Motor division review, as a reminder, all the modules that I mentioned, including open banking payment developments, Sales Plus enhancement, the progress with our acquisition management and pricing platform, and the strong performance in F&I were all powered by Pinewood.
The speed at which we have been able to develop, test, and launch these capabilities has been an important advantage to us. There is further strong development pipeline in place for 2023, including insurance menu pricing, stand-alone product sales capability. In addition, further after-sales enhancements and new finance models such as Rate for Risk are under development. On a stand-alone basis, looking forward, Pinewood is targeting double-digit % growth in total users in 2023 and is making good progress with this aim, with approximately 200 new users added year to date and orders of approximately 1,600 users currently in place. Finally, the sales pipeline continues to build strong given the digital assets and capabilities of Pinewood that are unrivaled on a global basis.
Looking at PVM on slide 25, Pendragon Vehicle Management, our leasing business, also performed very strongly in the period with a 13.7% increase in operating profit to GBP 19.9 million, up from GBP 17.5 million in 2021. PVM's growth continues to be driven by profit on disposal of de-fleeted vehicles, where the residual values for disposable vehicles were set three to four years prior. These disposals, therefore, continue to benefit from the increase in used car prices we have seen since late 2021. The fleet size, like much of UK motor retail sales, is being restricted by supply. PVM is continuing to focus on generating orders and currently has an order bank of over 2,000 orders, substantially higher than pre-pandemic run rates.
We also believe there continues to be exciting opportunity for fleets looking at electrification and the benefits that will bring to their employees from a tax perspective with support for future growth. Our relationship with BYD gives an opportunity to grow in this space. Over 40% of our current order book for PVM is for either a hybrid or pure electric vehicle. In summary, I'm delighted with the scale of delivery across the group in 2022. I consider our omni-channel capabilities to be market leading, and we continue to obtain a high pace of change. There's still a strong pipeline of strategic opportunity, and we are confident in how we are positioned to deliver these opportunities in evolving landscape. We have continued to invest in driving growth in the business, and you see the evidence in our performance in the UK Motor and Pinewood.
Pinewood, in particular, is a part of the business that we're very excited about. With that in mind, we plan to host a capital markets day for investors and analysts this summer, which will include an update on Pinewood. 2023 has started well with good volume growth in January and February, driving operating profit ahead of 2022. Last week, we opened our first BYD locations in Birmingham, Milton Keynes. We entered the year with over 22,000 new car orders across Motor division and PVM. While we expect supply to remain below historic levels, there are some signs and improvement in vehicle supply as well. We remain mindful of the potential headwinds from challenging macroeconomic conditions. However, we continue to expect our ongoing operational initiatives and growth opportunities to more than offset operating cost inflation within the business this year and beyond.
The board remains confident in the prospects for the group in 2023. Lastly, on a personal note, I would like to thank all 5,600 of our associates for all their hard work and dedication. Thank you. Mark and I will now take any questions. Mike, fire away.
Sorry. Hi, it's Mike Allen from Zeus. A couple if I may. Just on goodwill, the slight reduction there, am I assuming that's JLR-related?
No. As I said in my comment, all of the goodwill impairment is because we've disposed of the DAF business, we're writing off the goodwill associated. All of our other goodwill is still held at carrying value.
Yeah, so confident, no kind of write-downs, has been tested?
Yeah, I think if you're thinking about what does Jaguar look like...
Yeah.
... you know, we're confident with the outlook that we've got there that we won't be impairing.
That's good. All that hasn't been finalized yet, so we won't know that until later in the year, what that proposition looks like.
Yeah, no, that's good. Maybe just some updated thoughts on agency post Mercedes taking that decision and how that's gone and how you think it might develop.
I mean, so we're in our really, really early stages. You know, I think if anybody's gonna be able to figure out the agency model, it's gonna be somebody like Mercedes-Benz. It has been well received by the customers. Obviously there's a big change. It went from one day doing the traditional model to the next day going on the agency model and stuff like that. I think with some of the supply constraints, maybe that's somewhat benefited from them. We still have a large order bank with Mercedes-Benz. Like I said, the customers have been receptive. We're working through it. I think it's really...Too new to rate.
You know, what I think is that the way it looks today won't be what it looks like in six months or a year from now.
Yeah.
I think it will continue to evolve.
Yeah.
As others come into the marketplace, I think everyone will have kind of a different version of it. It'll just kind of be able to find a new norm at some point in time. To me, the way it's currently set up, I think ultimately could be additive-
Mm-hmm.
...to the current dealer base and dealer body.
Yeah.
I don't see it as any type of a negative. If anything, I see it as an opportunity for us to grow when it comes to used vehicles. You know, hopefully a better customer experience. Then, you know, you know. One of the key things is you get a little bit more control of your initial marketplace and stuff like that, so better retention once again. We think of it as a positive.
Yeah. Then just last one for me, just on, I mean, there's a plethora of Chinese brands expected to come to the U.K. market. You're clearly in a strong position-
Yeah.
...with BYD, but will you consider new Chinese brands as well? Will you rule anything out or-
We're equal opportunity. We'll take anything and everything. You know, there's lots of them that are coming in, not just, you know, coming in from China, from different parts of the world. I mean, we look at our current, you know, footprint, where we're best at in the, in the type of things we sell. Some of the entrants are coming in and they're specializing in LCVs and stuff like that. Definitely with PVM, that could be a huge opportunity. We're in talks and engaging with just about all of them. Like you said, there's quite a few coming in, and we'll find the ones where we feel, you know, kind of their, you know, methodologies and ours align, and we look to grow.
You know, that's a huge opportunity for us to be able to grow. You don't often have. You and I have been doing this for a long time. You often don't have a brand new OEM come into a marketplace. On that end, it's pretty exciting.
Yeah. That's great. Thank you.
Morning, all. Michael Benedict from Berenberg. I have a few. You can go one at a time, both. Firstly, on Pinewood, it'd be great to get a bit of color on your growth outlook for the year ahead in that business. Given the sort of additional costs, is the GBP 20 million of profit still achievable in FY 2025 for that business?
First off, we said in our thing here that we're looking for double-digit growth overall. We're off to a very good start. I just said it earlier. We've already put 200 new users on. We've got 1,600 in the pipeline and a very high amount of people that we're engaged with and in intense discussions with. When it comes to a SaaS business like this, you know, growth is key. You know, we haven't revised our target for 2025, but where there are opportunity to invest more money into it to, you know, grow faster, we're always gonna weigh out those balance points in there right now. The things that they built for us.
Mind you, when they build something for UK Motor, UK Motor actually pays for that, it's not ad hoc or anything like that. There's actually a revenue stream for them. Those things ultimately will be pieces that they can sell through the system. When you look at Pinewood, you're gonna see growth in a couple different ways. Traditionally, it's always been user count, you'll see that going on there. We have great, you know, product lineup or, you know, production lineup when it comes to, you know, international marketplace. Now you're gonna start to see us being able to sell vertically through the different pieces.
The things that I talked about, whether it's, Rate for Risk, F&I menus, used vehicle management tools, the enhancements that we've made to Sales Plus. Even the transactional website, which was, developed and built by them ultimately, will be able to be sold through that system. You'll see user growth, continue, and hopefully, accelerate over time. You're gonna see other revenue channels develop, over the years to come.
I think just for context, Mike, when we put that strategy out in 2020, we talked about the GBP 20 million coming from user growth, not from those incremental revenues. That was always something that we had to upside on that as well.
Brilliant. Thank you. Second one, just on marketing investment, so stepped up in FY 2022. I guess what should we how should we think about that moving into FY 2023? For example, you know, doubling the Sell Your Car penetration.
Yeah. I mean, listen, that's always fluid and based on market conditions, you know, we will constantly revise that. We spent an extra, I believe it was GBP 10 million last May or not just in May, but we started in May to go drive that proposition. It was a huge success. The transactional website, the marketing campaign, that came to it, which I think was just really ingenious, really played out well. If you look at the second half of the year, we outperformed the market by 600 basis points, 6 full percentage points. That's very difficult to do. If you do really good, you might be able to beat by one or two to beat by that level.
It was a combination from the operational side, obviously, our new used car strategy, carstore.com. As we go into this year, we already have that momentum behind us, so we'll strategically look as inventory builds and opportunities to go out there and continue to drive, you know, additional traffic in. Right now with used cars, it's, you know, he or she who has the car wins. The, you know, being able to acquire the vehicles is key. That comes to our sellyourcar.com proposition, which now, like we said, is a sub-brand. We're really happy that we're able to get that URL and now be able to market that in addition to it. Prior to that, we had Sell Your Car links on everything, but that just went into a system.
We actually now can go out there and market that as a URL and bring people in. We'll look throughout this year where opportunity comes in to maybe go out there and drive that even farther. Mark talked about it. We take a vehicle, and we buy it directly from a customer. We get higher margins, faster turn rates, so there's nothing bad with it. At the end of the day, it's a low-cost channel to bring additional used cars in. We'll ebb and flow based on market conditions, but we will start to really push on the sellyourcar.com proposition.
Brilliant. Thank you. Then last one from me. Clearly net debt well down. You said you're reviewing cash allocation policy. Any color on sort of what your preferred methods of shareholder returns would be? Would be great.
I... Listen, you know, especially right now with rates going up, having little to no debt is good, especially with some of the numbers that came out today and, you know, who knows what the different central banks will do and how that can affect you. To me, you know, you know, capital allocation kind of can go one of a couple ways. In 2020 we talked about our capital allocation being to grow the business, investments in BYD, investments in our new used car strategy, you know, our standalone used car propositions and the such. To me growth is always out there, but you always have to balance that off with shareholder return and what's best for them.
For us, we look at trying to grow our proposition first and foremost, always with, you know, in the back of our mind, what's best for shareholders, then how do we, you know, allocate any additional cash that comes out that way, whether it's a dividend or a share buyback. We've had discussions with the board, as the year progresses and we see where our cash position is, we'll definitely look at either a dividend or a share buyback. Personally, I tend to favor share buybacks. Historically they've had a greater return for us. As the year progresses, we'll come back to that.
Yeah, I think context is important, right? Back in early 2020 the tangible net assets on the balance sheet were negative. Having changed that position around now, having a stronger balance sheet, GBP 280 million net assets, we just mindful that it opens up different opportunities.
Morning. Andy Wade from Jefferies. A couple from me. First one, when you mentioned around, in discussion with other brands re opportunities in electrification, was that more around new entrants, or are there also opportunities there in terms of-
Um
...you know, existing, putting sites down with existing brands as well?
No, there's huge opportunities with existing brands. While we have a good core set of OEMs and very happy with the OEM relations we have now, there are several key brands that we don't currently represent, VW, Audi, Toyota, Honda, and the such. We definitely, you know, are engaging with those groups and seeing if we can go that way too. The thing about BYD and some of the new entrants, that doesn't happen too often. I've been doing this for 35 years. I think I've seen one or two pure new entrants into that space, especially through a retail dealer network. So I'm not counting the, you know, Polestars or Teslas of the world to see something completely come from the ground up.
That partnership with BYD, I mean, it's like the largest electric car company that nobody ever heard of. I mean, they're the biggest in the world, and I guarantee you most people don't even know they exist right now. The quality of the car is exceptional. It's well built, it's well designed. I think it's gonna be a huge success here, and like I said, they're the biggest and the best right now, and we're just happy to be part of that.
Great. The second one on motor side, you sort of used the phrase a substantial progress has been made sort of across those, all those areas through [per and buy, sell margin and F&I and all those sort of elements. You know, obviously it's a bit of a moving feast where you think you can get to. There's always iterative. Versus where you wanna be right now, how would... I'm not gonna necessarily, I'm gonna ask you for a number- Although you probably won't give me one.
I won't give you a number.
Are you sort of 75% of the way along there? Are you only halfway?
Uh-
How much-
Andy, it's an impossible question 'cause it's a journey, not a destination.
Yeah, yeah.
Right? There's always room for improvement. You know, if we're at GBP 3,000 margin on used cars, how do we get to GBP 3,100? If we're at GBP 3,100, how do we get to GBP 3,200?
Right. Right.
I think the opportunity is, you know, four or five years ago, we were probably at the very bottom end of the peers when it came to some of those metrics and stuff like that. I'd say now at the very least, we're on par. In a lot of cases, especially, over the last 12 to 18 months, we've actually come to the top of those metrics. You know, once again, the performance in used vehicles for the last half. Our new vehicle GPUs right now. This has taken advantage of a great staff that we have that goes out and executes this. Using Pinewood to the fullest to help be able to run drive listings just gives us a really unique competitive advantage.
Great. One which I wouldn't normally find myself asking, but you sort of talked about your, revising your approach to the people side of things. You know, the, you know, whole new sort of approach to that. Can you give us some idea of what. Obviously, you've got a huge amount of employees across all your showrooms...
Mm-hmm
...and so on. Having them guys and girls, sort of pointing in the right direction could have a big impact on the business. I'm interested as to sort of what you think the benefits of that could be.
Mark and everyone has always heard me say this, you know, we have some great facilities and some great brands. You can have the best brand and the best facility, and the cars don't sell themselves, they don't fix themselves. It really comes down to the people. At the end of the day, while everybody's important, you know, you have key people that engage with customers and do that. I mean, for Mark and I, we're nothing more than support. You know, I can come up with the best idea in the world, but others have to go out there and execute it, and that's the hard part.
You know, I don't think, kind of back to what I said about some of our performance, we're kind of on the back of the pack, you know, when it came to how we compensated people. Some of the, you know, underlying benefits, we just didn't prioritize that maybe as much as we should have. We've made a concerted effort to revise those things. We did a lot of work last year on that, whether it was, you know, paid time off, whether it was, you know, health benefits, whether it was, you know, pension contributions and the such, and we made sure that we were rewarding our people, you know, comparable to the market at the very least.
Even this year when we're looking at, you know, how we, 'cause that's an evolving thing, and we're just now really prioritizing our people. 'Cause once again, at the end of the day, they're the ones that make the difference. All these things sound great, but it's the 56, or 5,598 of them that do all the hard work and Mark and I just sit here and get to sit here and talk to all of you guys, so.
Great stuff. Thanks very much.
Okay. I think that's all the questions. Thank you all for your time.
Yeah.
Appreciate it.
Thank you, everybody. See you again next time.
Bye.