Cazoo Group Ltd (CZOO) 2021 Q4 法說會逐字稿

Greetings. Welcome to Cazoo's Fourth Quarter and Full Year 2021 Earnings Call.

(Operator Instructions)

Please note, this conference is being recorded. At this time, I'll now turn the conference over to Robert Berg, Director of Investor Relations and Corporate Finance. Mr. Berg, you may now begin.

Good morning, everyone. Thank you for joining today's call and webcast to discuss our Q4 and fiscal year 2021 results. You'll be able to find today's press release and accompanying presentation on our Investor Relations website at investors.cazoo.co.uk.

We appreciate everyone joining us today. With me on the call is Alexander Chesterman, Founder and Chief Executive Officer; and Stephen Morana, Chief Financial Officer. Before we get started, I would like to remind you of the company's safe harbor language, which I'm sure you're all familiar with.

Management may make forward-looking statements, including guidance and underlying assumptions. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially.

For a further discussion of risks related to our business, please see the filings of Cazoo Group Limited with the SEC. Now I will hand over the call to Alex.

Thanks, Rob. Good morning, everyone, and thank you for joining us today. I continue to be extremely proud of what our team has achieved, both since launch and particularly over the last 12 months.

2021 was a landmark year for Cazoo, our second full year of operations, and a year in which we made huge strategic strides towards achieving our mission of transforming the car buying and selling experience across the U.K. and Europe.

Along with listing on the NYSE last summer, we achieved a number of our key strategic goals last year, including bringing our U.K. vehicle reconditioning in-house and launching our own in-house car buying channel, where we now purchase a significant volume of cars directly from consumers.

We also launched our subscription service and already have over 10,000 subscribers across Europe. And in December, we launched Cazoo into France and Germany. We continue to put all the strategic building blocks in place to enable us to execute on our ambitious growth plans whilst also creating significant moats around the business.

Whilst we've accomplished an enormous amount in just 2 years, we're still just at the start of this very exciting journey. We're more excited now than ever about the future opportunity for Cazoo, and our ability to capture a 5% or larger market share of the huge GBP 300 billion addressable market that we currently operate in.

Our customers love the Cazoo proposition and consistently tell us that they will only consider using us for their next car transaction, which is reflected in our market-leading Trustpilot rating of 4.8 stars. And this continues to give us increased confidence in both our strategy and the growth opportunity.

Before we discuss recent trends, I'd like to quickly recap the significant progress we've made in the 2 years since launch. We spoke about this in detail on the recent fundraising call, so I'll just summarize the key points today.

When we launched in December 2019, our mission was and remains to transform the car buying and selling experience across the U.K. and Europe. As you can see on Slide 4, in just over 2 years since then, we've established a market-leading platform, brand, team and infrastructure, and have already sold over 60,000 retail units in the U.K., putting to rest the question of whether consumers are ready to buy a car entirely online.

We've built a highly trusted brand across the U.K. with over 80% national brand awareness. And we now have a world-class team of over 4,500 employees working tirelessly across the group to deliver a materially better car buying and selling experience for our customers.

We've started to replicate our success in Europe, having launched in France and Germany at the end of last year and the recent acquisitions of Swipcar in Spain and brumbrum in Italy have provided us with strong local teams, infrastructure, capabilities and relationships which will expedite our launch into those markets in the coming months.

Combined with the U.K., those 5 key markets we're focused on have an addressable market of over GBP 300 billion a year, which we expect to become the largest player in.

On Slide 5, you can see that a significant amount of this progress took place during 2021. In July, we launched our in-house car buying channel in the U.K., where we now buy cars online directly from consumers.

It's been performing well ahead of expectations so far and has materially increased our sourcing capabilities and diversified our buying mix, which will have significant long-term benefits to our GPU.

We've also recently added service plans to the suite of additional products that we sell at checkout, and that now includes consumer finance, warranties, paint protection and insurance. And we're very encouraged by the growth in attachment rates that we're seeing on these products.

In addition to our used car retail proposition, our new car subscription service is resonating extremely well with our consumers. And with over 10,000 active subscribers, we are the leading consumer car subscription business in Europe.

Importantly, however, whilst we're driving forward very fast, we continue to maintain extremely high levels of quality and customer service and are incredibly proud of the exceptional feedback that we receive from our customers every day.

Our Trustpilot rating of 4.8 stars, with 95% of our customers rating us as either excellent or great, is the highest of any player in our sector globally. Perhaps the biggest strategic step that we've made over the past 12 months is bringing U.K. reconditioning in-house, a challenging process for sure, but one that has significant operational and financial advantages.

We now have 11 in-house reconditioning sites across the U.K. and EU, up from just one at this time last year. Our U.K. vehicle preparation sites concurrently recondition over 120,000 cars a year, and we have the potential to double that volume from those existing sites over time once they are optimized.

We now operate 21 customer centers across the U.K. for collection, distribution, storage and servicing and have a fleet of over 250 car transporters for deliveries.

The investment we've made in our in-house infrastructure will be pivotal to our ability to grow materially over the coming years, whilst maintaining the high-quality experience that our customers love.

As a reminder, earlier this year, we also announced the news of our significant additional $630 million of convertible notes funding, a transaction which was further endorsement of our business and strategy from both new and existing investors who are extremely excited about our progress to date and the huge market opportunity ahead of us.

We are now very well funded for the coming years to continue to capitalize on the huge future opportunity I'm about to remind you of. As I said at the start of this call, whilst we've achieved so much in just 2 years, we're still just at the start of the journey.

As you can see on Slide 6, we are addressing a massive market opportunity. The U.K. alone has a used car market of around 8 million transactions a year with a value of over GBP 100 billion annually.

We're now live in France and Germany and plan to launch into Spain and Italy later this year. This increases our addressable market to around 26 million transactions a year, with a value of over GBP 300 billion annually.

Not only is this a huge addressable market with one of the lowest digital retail penetrations but it's also an extremely fragmented market with no dealer having more than a 3% market share, which means that we have a significant opportunity to build a leading brand across Europe in this space.

Customers are embracing our offering, and we fully expect to continue to rapidly grow our market share over time. That said, as you can see on the right-hand side of the slide, the market opportunity is so large that with just low single-digit market shares and prudent medium-term GPU targets of GBP 1,500 to GBP 2,000, we would have an enormous business generating meaningful free cash flows.

Our long-term target, however, is to capture a 5% or greater market share with GBP 3,000 GPU, which is why we are extremely excited about the future growth opportunities. I will now pass over to Stephen, who will run through the details of our 2021 performance and future guidance in a little more detail.

Thank you, Alex, and good morning, everyone. As you can see on Slide 7, in 2021, we achieved group revenues of GBP 668 million, which were up over 300% year-on-year. Growth was driven primarily by U.K. retail revenues which increased 234% but also by strong performances from our wholesale and other revenue streams.

During 2021, we sold 49,853 cars, 233% year-on-year growth, including 34,731 retail units, 187% year-on-year growth. This growth in retail units came despite the move to transition our U.K. reconditioning in-house, which had short-term impacts on our available inventory and hence sales.

Bringing reconditioning in-house is a huge strategic benefit, and we believe well worth the short-term pain experience during the transition. We are now already starting to see the benefits of this investment as we are no longer reliant on third parties for any of our key processes. And I've seen our available inventory numbers grow to over 6,000 cars, up from 2,000 in October.

To be clear, our inventory challenges at the end of last year had nothing to do with the supply of cars, where we have not seen any issues, but it was all about our ability to reconditioning cars to the right specification and quality at the speed required.

The increase in website inventory has helped lead to a record start to 2022, as expected, with unit sales of both sequentially and year-on-year. U.K. retail GPU was GBP 427 in 2021, a significant improvement compared to the loss of GBP 229 we made in the prior year.

Now I do think it's worth taking a bit of time to go through GPU in a bit more detail than usual and try and give a little more insight into the short-term quarter-on-quarter fluctuations you will see in an early-stage business like ours which is making some big strategic decisions for the long term.

We have stated we see a clear path to GBP 2,000 retail GPU in the medium term, and we remain confident of reaching this level and beyond given the steps we've taken in 2021.

To get there requires a number of small ongoing operational efficiencies, together with some big strategic steps forward. In the second half of last year, we cleared 2 of the major strategic hurdles to get our long-term GPU target.

The ability to recondition all our cars in-house and the ability to source a large proportion of cars we sell directly for the consumers. Both of these have a significant positive impact on costs and hence, medium-term GPU.

Reconditioning all our cars internally allows us to control costs, man hours per car, logistics and stock term much more efficiently going forward. And as Alex said, we launched our car buying channel in July 2021.

As a reminder, before then we only sourced cars from consumers as a part exchange, which accounted for around 2% of the cars sold in any month. We initially set ourselves a long-term target of getting to 30% of the cars sold coming from this route, and we now believe we'll get to that level much sooner and significantly exceed it over time.

We're very happy with the progress we're making, but to deliver these 2 key strategic goals, there has to be a short-term cost, some of which will flow through OpEx via GPU. You can see on Slide 8 the investments we've made in both these areas way on our Q4 '21 and Q1 '22 U.K. retail GPU, from which we believe we will start to enjoy the benefits from Q2 '22 onwards.

On the left-hand side, you can see the short-term impact on our metal margin, which is the amount we make on the car itself due to the launch of our car buying channel. This purchasing channel has 2 long-term benefits, minimizes the risk and reduces the cost of supply.

To launch this channel in a competitive market, we've deliberately overinvested to build the brand and proposition (inaudible) customers, largely through competitive pricing. So the launch costs for the first 6 months largely come through the GPU line rather than through a large marketing or CapEx spend.

This resulted in (inaudible) cars with a suboptimal gross profit profile, which have worked its way through our inventory, negatively impacting our GPU in Q4 last year, but having more of an impact in Q1 of this year.

As a reminder, there's typically a 1 quarter lag from purchasing and reconditioning through to the sale of any vehicle. So car purchases in Q3 impact Q4 and so on.

This is a short-term impact of launching a new product line, which in context, could have had a marketing budget of GBP 5 million, but instead had a GPU impact of a few hundred pounds per car.

As a reminder, each GBP 1 million of cost on 10,000 units, for example, although fairly small in absolute terms, equates to GBP 100 of retail GPU. The long-term benefits are significant. The consumer feedback has been fantastic, and we've been blown away by the consumer interest in the proposition.

We're already at almost 30% of cars sold being sourced directly through consumers and now believe we can double that figure over the long term. On the right-hand side of the slide, you can see the effects on our reconditioning cost per vehicle as we brought it in-house.

Let's recap what we did here. Originally, we outsourced our vehicle reconditioning to a third party on a single site. Within the past 12 months, we have fully internalized this and now operate 10 of our own vehicle prep sites across the U.K.

This has resulted in some short-term additional operational costs as we work to optimize these sites as well as the obvious CapEx requirements. Combining these 2 strategic initiatives in H2 last year has had a double whammy effect on costs, which continued into Q1 this year, given the typical 1 quarter lag in purchasing and reconditioning through to sale.

We believe the impact from investment in the car buying channel and high reconditioning costs will be highest in Q1. Looking at Q2 and beyond, we have clear visibility on the more recently purchased and reconditioned inventory at lower cost.

So we expect to see a notable increase in GPU for Q2 and beyond. We have lots of further improvements in place, which will also continue to drive GPU growth during the year. So let's just highlight a few of these, many of which can be seen on Slide 9.

First, thanks in a large part of the data we required organically since launch and notably through the acquisition of Cazana in September '21.

We're continuing to enhance our buying and pricing strategy. Taking learnings from the 60,000 cars we've sold since launch, we're now able to make far more accurate assumptions on vehicle depreciation, desirability, fuel type and the like, at a car-by-car level in order to better predict margin and speed of sale.

In addition, from the data we've sourced since the launch of our car buying channel, we're in the process of making specific enhancements to our purchasing model, allowing us to take a more nuanced approach to vehicle condition while continuing to operate this as our largest single acquisition channel.

We're also using our increased scale to evaluate our relationships with a number of existing buying channels. We believe these changes will have the biggest near-term benefit to our retail GPU.

Second, given we now bought vehicle reconditioning in-house, we're in a position to implement a number of efficiency driving measures across all our production sites in parts and paid supply, staffing, systems integration and processes.

Each of these is expected to reduce vehicle preparation costs and increase capacity. Finance and ancillary revenues have both performed strongly in recent months. There are, however, a number of enhancements to both our finance and car care propositions planned for Q2 and beyond.

And we believe these have the advantage of it, but like purchasing or vehicle production, once launched, the benefit is expected to be felt immediately both by the consumer and in our GPU performance.

It's worth touching on the current dynamics of the U.K. used car market and the impact on retail GPU progression through the year. As you'll know, used car pricing has been robust for some time now, thanks to strong demand and a continued shortage of new vehicle supply.

2022 year-to-date have seen low depreciation overall, but our U.K. retail GPU forecasts factor in that depreciation will normalize as the year progresses. While moves in car prices have limited impact on GPU over a period of quarters, as the wholesale market moves in tandem with the retail market, there can be an impact within a particular quarter.

We are, however, taking proactive steps to try and minimize the near-term impacts from moves in used car prices by continuing to invest in faster vehicle reconditioning and in acquiring the most desirable cars.

Taking all this into account, while our U.K. retail GPU is expected to be sequentially lower in Q1 2022, we expect to see material improvements through the rest of the year. With headwinds falling away and the benefits from actions I've just described, we believe the GPU will be up significantly in Q2 '22 versus Q1 '22 and will approach GBP 900 for the full year.

Looking further ahead, as we previously detailed, we have a medium-term GPU target of GBP 2,000 per car. And over the longer term, if we can bring consumer financing in-house, we believe this would expand to GBP 3,000.

Turning to Slide 10. We have no change in overall guidance to what we've already said. We're targeting total retail sales of around 100,000 units for 2022, which, when combined with the ancillary sales and wholesale business, we believe should drive revenues -- total revenues towards GBP 2 billion, with year-on-year growth approaching 200%.

As discussed, we believe we'll see continued GPU improvement during the year, with Q1 being our low point, and expect annual U.K. retail GPU approaching GBP 900. The quarterly GPU will always be impacted by strategic decisions.

As a reminder, we'll not be giving any guidance on EU GPU at this stage. We expect it to be negative for the first year in any market in much the same way as our first year in the U.K. as we grow that business.

We are aware of the inflationary pressures facing the U.K. and EU marketplace at the moment. And whilst we do not believe they should impact top line growth given our current market share, there are obvious risks to short-term GPU if we see that cost inflation coming through.

Finally, I just wanted to take a moment to highlight our sound balance sheet. In February, we raised $630 million from the issuance of convertible notes to an investor group led by Viking Global.

This transaction is a further endorsement of our business and strategy from both new and existing investors who are excited about our progress to date and the market opportunity ahead of us. Combined with our existing liquidity, we believe that we're now very well funded to continue to capitalize on this huge opportunity. And to execute on our ambitious growth strategy over the next 24 months, by which stage we expect our U.K. business to be reaching profitability. Alex?

Thanks, Stephen. So in summary, the team has accomplished an incredible amount in the 2 years since launch, establishing a market-leading platform, brand, team and infrastructure in the U.K. and a strong presence now in the 4 biggest markets in Mainland Europe.

We believe that we are very well positioned and well funded to capture the huge opportunity across both the U.K. and the EU. And we believe that we've put all the strategic building blocks in place and have seen great momentum so far in 2022, which we expect to continue throughout the year and beyond. I will now pass the call back to the operator who will open up the line for Q&A. Thanks.

(Operator Instructions)

Our first question is coming from the line of Rajat Gupta with JPMorgan.

Just for the initial question on contingency planning for this year, there's increasing concerns around inflation, affordability, maybe recession. Now if the macro environment don't deteriorate -- and the slide at the back of the deck on the prior cycle was helpful.

But maybe you should think like could be different this time around, if there is a downturn, can you talk about like the levers you might have to protect GPUs, expenses and maybe cash flow? And I have a follow-up.

Yes. Thanks, Rajat. I'll make a couple of comments on that, and then I'll let Stephen add to it. So from -- in terms of inflation, we don't think that there's going to be a material impact on GPU.

There are certain other cost areas of the business that could see inflationary pressures, but unlikely to have a huge impact, we think, on GPU. But it's unpredictable, obviously, depending on which areas are hit.

I think if you look at the sort of the macro recessionary potential, used cars have historically performed relatively well in a recessionary environment. New cars tend to be much more affected as a discretionary or luxury purchase, whereas used cars are functional and you see that in the slide you referred to in the appendix.

So we think, as Stephen referred to, from a top line perspective, given our very small market share and strong growth trajectory, we think top line is unlikely to have -- be materially affected by a downturn.

And we have a number of ways. We raised a significant amount of money earlier this year, as you know, which gives us a very long runway. And we have a lot of levers that we can pull in terms of cost savings, if things -- if that's required. So I think we're in relatively good shape to weather any potential storm that may come. Stephen?

Got it. Maybe on the cost side...

Yes, I think nothing really to add from my side.

Maybe on the cost side, any color you can give us around today, what's the fixed versus variable component like? Just to understand like how much flexibility there could be?

Well, a significant portion of our spend obviously is in marketing. And Stephen, you might want to talk to some of the other areas?

Yes. If we just look at the cost of sales line, obviously, the biggest spend itself is the cost that we buy the metal cost of them, and any inflationary pressures on them you'd argue would flow through into the sales price that we generate.

So we don't see -- inflationary pressures on car prices shouldn't really impact us. Obviously, the cost of sales line includes the work that we do on cars, the refurbishment cost from the people perspective, from the parts, from a paint and they could be obviously under some inflationary pressures over time.

As Alex said, marketing a big spend, a lot of our costs are prebooked. I wouldn't expect many inflationary pressures there. But it's hard to predict at the moment. I think as an industry, we're in relatively good shape.

And as a business that's pretty nascent as we are even if the industry contracts, we don't have that much concern because we think we're still taking significant market share from a low base.

So I think it's more around individual cost lines where there could be some movement in the short term, but we'll just have to see how that plays out.

Got it. And in terms of like some of the SG&A components like the administrative expenses and -- that's a pretty healthy expense item. Any sense of how much of that is like fixed versus variable?

Sorry, I struggled to get that. Can you just repeat the one again, please?

Yes. So within the cost structure, within the SG&A expenses, the administrative expenses is a pretty big bucket of those expenses. So I was curious if there is any color you could give us on the fixed versus variable expense component of that?

I'm just trying to get a sense of like how much flexibility that reflects that cost bucket if there is some pressure or like...

Sure. So a lot is heads -- apologies, yes, a lot is heads. So on the SG&A line, a lot is heads. A lot is marketing, and marketing really splits into 2 amounts. The book of the line, which is relatively fixed, deals that have already been in place, sponsorships that are in place, where there won't be inflationary presses in the short term.

And then your PPC, your specific targeted marketing for which that could be inflationary pressures. And then all those kind of SG&A costs, some of the logistics could come under pressure as well in the short term, if you're looking at kind of energy, energy costs as well, cost of oil, et cetera.

But they're a smaller proportion of our overall SG&A line. Bigger proportion is marketing and its heads.

Our next question is from Sayem Syed, a private investor.

I suppose my first is about the 60,000 retail units sold up until now, figure. I just want to correctly interpret that. If that's as of April, I guess that implies a floor of, say, 13,000 retail units that were sold in Q1 2022.

If you subtract 60,000 with cumulative units sold up until Q4 '21, so that's around about a 50% quarter-on-quarter growth rate. I'm just curious to understand how do you expect, say, the quarter-on-quarter growth rate to progress during the year, if you want to say, achieve that 100,000 retail unit target in 2022?

Secondly, it would be quite useful to understand that in terms of the 250,000 capacity figure you've given for the U.K. and 120,000, that's actually usable. Any idea of when do you expect sort of phase your investment to get to that 250,000 figure?

And finally, in terms of the U.K. wholesale unit mix, in Q4 it's sort of nearly 50% versus retail. And I guess in Q3, it had also risen to 30% versus 20% earlier. Longer term, can we expect to sort of stay at 30%? Or would we expect it to go back to 20% that we saw in earlier quarters?

Great. Yes. Let me pick up on some of that and then I'll let Stephen jump in. So I wouldn't read too much into the 60,000 retail units number. It's a round number that we've just generally typically -- we're not announcing an actual number there.

So I wouldn't use that number and make any subtractions from it. We're saying that we've sold well over 60,000 units since launch as opposed to giving a specific number that you can reduce Q1 from.

In terms of the reconditioning capacity growth from the doubling from the 120-plus thousand a year in the U.K. to 250,000, that is a month-on-month increase that we've been seeing throughout this year, and we'll continue to see as a number of things happen as we reorganize the sites and remove the third-party partners that were on those sites when we bought them.

So they were at 100% capacity for non-Cazoo work 6 months ago when we bought one of those businesses in September. And in 6 months' time, there'll be 100% dedicated to Cazoo as we line up end-to-end processes at all those sites, as we add additional shifts.

So there's a lot of optimization being implemented on those sites. And so there's no one thing and there's no one site. So that's happening across all 10 U.K. sites and just taking steps in that direction continually.

Wholesale mix in Q4 was higher than we expected to be long term. We deliberately, for reasons that Stephen alluded to earlier in terms of the reconditioning constraints that we had in the latter half of last year, we decided not to continue to sit on inventory for too long.

And therefore, we sold more through wholesale than we ordinarily would. I would expect the long-term number to be in the 20% to 30% range, not in the 40% to 50% range.

Got it. And if I may just have another quick follow-up question. If we were to say, look at retail average selling price and wholesale selling price, it increased quite significantly in this quarter.

Would you be able to give us an idea of how much of that is due to general used car inflation pricing increasing, and how much of it was due to sourcing more from consumers?

It was more mix than general price appreciation. I mean, we saw some appreciation in the second half of last year, as everybody knows, that's been a global phenomenon. We're starting to see the air come out of the tires a little bit now.

And so with a little bit of price deflation, as Stephen said, we've built out sort of depreciation on retail price into our model. So expect to see that happening a little bit throughout this year. But no, it's more related to mix of what we were buying and selling than there's an element of market in it, but that's not the lion's share.

(Operator Instructions) The next question is from the line of (inaudible) with Citi.

I had a couple of questions, and then I will jump back into the queue. My first one was on your view on the outlook for markets for time pricing just because I feel that we started to see it stabilize at an elevated level?

And the second was around web traffic because we've kind of seen it soften. Have you seen any change in your demand from consumers?

So I'm not sure I entirely heard the first question, but if it's related to sort of retail used car pricing, which I think it is, then I would say, we've seen a continuous increase in pricing for the last 18 months.

Again, as Stephen mentioned, mostly related to excess demand because of shortages in the supply chain and new cars. That continued a little bit in Q1. We're starting to see that trend reverse.

And I think there's potential for further supply chain issues in the new car market. So we don't expect the market to give back all of its gains this year, the last 18 months gains. But we certainly expect it to normalize over the next 12 to 24 months, and we think prices will get back to a normalized level.

In terms of web traffic, that's really a factor of the mix of the marketing and seasonality that we do and no impact on retail units and sales. And we've had, as we said, very strong momentum and hitting record levels so far in '23 in terms of sales.

I would just like to take a moment to mention that Syed is from Berenberg, my apologies.

And we do have another question coming from the line of (inaudible) with Citi.

So my next question was -- in terms of the bottleneck on refurbishment, do you feel like you're fully coming through that? And what do you see as the main challenges over the next 6 to 12 months?

Yes. We do feel like we certainly overcome it. If you look at our website inventory, which is the best reflection of how quickly we're able to recondition cars to keep up with the demand of selling them. If you think about how our business works on any given day, we have to recondition as many cars as we sell just for our inventory to stand still.

So what happened between August last year and October last year is we were selling more cars every day than we were able to recondition and we saw our inventory slide from about 3,500 cars in the summer to about 2,000 cars in October.

Now that didn't mean we weren't reconditioning a lot of cars, we were. We were reconditioning 3,000-plus cars a month. We were just selling more cars than we were reconditioning on any given day.

If you look at what's happened since then, we finished December with about 4,500 cars on the website, up from 2,000, in early October, which shows that we were able to keep pace with sales and add to inventory.

And if you look at what's happened in Q1, we've grown from 4,500 to 6,500 whilst also setting record sales levels. So not only have we been able to keep up with our highest level of sales in Q1, but we've also been able to add to inventory.

So I think that sort of is the best indication of the bottleneck is largely through. Now we're not where we want to be because as we've said, we want to be at 250,000 cars a year rather than 120,000. But we don't need to be there yet. So I think that bottleneck has been solved. So I'm not sure if there was a second part of the question.

Yes. That was my first question. I actually had 2 more questions, if that's okay. The first is on -- in terms of how we expect unit growth to go across this year to get to 100 units, how is that going to be phased through the quarters? And do you see any like major risks to that?

So it's obviously growth quarter-on-quarter in line with our growth in reconditioning output. And what we see and the reason we have are seeing record sales is because if we have the right inventory and we price it sensibly, we're able to sell it.

And we've said this many times before, we have not seen any demand constraints within our business. If we have great cars, we price them sensibly. Consumers love the proposition and offering. We sell those cars.

So as you can see, the reconditioning capacity grow month on month. So the inventory on site will grow month on month and the unit sales will grow. So you would expect to see obviously a significant quarter-on-quarter uptick and the second half of the year much stronger than the first half of the year.

And we don't see a lot of sort of risk to being able to produce those cars. And neither do we see a lot of risk to being able to sell them despite the macro issues that we've discussed because of the resilience of the used car market sensible pricing.

So we are -- that's why we're sort of increasingly confident of not only our guidance but also our medium-term market share and retail GPU opportunity.

I have 1 last question, and then I will be quiet. It was just around -- I know now you're in all of the major European markets, but did you have any further M&A requirements?

And is there anything else you need to -- you feel like you might need to do to establish your footprint in Europe?

Yes. So that's a great question. And I think sort of the key word there is -- do we have any M&A requirements, anything we need to do? And the answer is no.

Whereas historically, all of the M&A that we did, we did need to do in order to establish the infrastructure across the U.K. organically to get to 10 reconditioning sites in the U.K. would have taken us a very long time. So we needed to do M&A to take reconditioning in-house in order to launch this year into Italy and Spain to have teams on the ground and to be able to get that. It is all we needed to do, M&A to do that.

So no, we have, with those key markets in the 4 biggest markets, France, Germany, Italy, Spain, in Mainland Europe, plus the U.K. are the 5 markets that we're focused on. We have the infrastructure that we require.

We have the teams that we require. So we don't need to do any M&A. And I don't expect us to do M&A at anything like the pace that we did over the last 18 months. It's not to say we won't do anything. We're always exploring opportunities to accelerate growth and enhance infrastructure and things like that.

But certainly, we wouldn't expect the volume of M&A transactions to look anything like it has over the last 18 months as we were putting those building blocks in place. Now we have them largely in place. So there's nothing more we need to do in Europe.

We do have a question from the webcast coming from David Reynolds at Davy. He asked how has the competitive dynamic changed through 2021 in both the U.K. and Continental Europe?

Thank you for that question, David. So actually, the competitive dynamic has remained largely the same, in that there is one other key competitor in the U.K. and one in Mainland Europe. Cinch in the U.K., AutoHero in Mainland Europe. But as we've said many times before, it's really not that -- that's not the competition because all of these businesses are sub-1% market shares.

And all of these businesses are going after the 99% opportunity. And so they're not really competing with each other, they're reinforcing each other's message of the sort of the new way to buy and sell your car.

But as we've seen, this is a complicated business that requires multiple different skill sets and incredibly deep pockets in order to execute very well and build the brand and build the infrastructure, et cetera.

So we haven't seen sort of new competitors emerge and we continue to think that it's helpful to have a couple of other players in each market, but we're going after these 150,000-plus off-line dealers is the opportunity for us, the 26 million transactions across those 5 markets, the fact that another player has first year of 40,000 or 50,000 of those 26 million transactions is not relevant from a competitive standpoint.

The next question is how do you see interest rates affecting the debt-heavy model? Will this affect the stocking loans?

So interest rates have a number of impacts. Stocking loans -- yes, as interest rates go up, the cost of carrying a car goes up marginally, but it is very small. We hold the cars for days rather than months or years, 30 to 60 days.

And I always say sort of slightly flippantly, but it has been true that we spend more on the predelivery valet of the vehicle before we deliver it to the customer than we do on the stocking -- on the financing of the vehicle during the period, that we stock it. So it's not a material number.

The other impact of higher interest rates could be on consumer finance and attachment rates. But actually, what we've seen is very strong finance rates during the -- so far in 2022, and we think again, looking at sort of historic numbers, as you have a cost of living increase and a squeeze on consumers, they tend to buy more on finance than otherwise.

So we think that there's a potential upside in terms of consumer finance attachment rates through -- with inflation and cost of living issues, et cetera.

Our next question is from Rajat Gupta with JPMorgan.

I just had 1 follow-up on the 2022 guidance, on the GPU? Is there any way for us to bridge how much of that is just a metal margin versus the financing and service contracts, et cetera? Or maybe like if you can bridge the 2021 to 2022 in terms of how much of those individual components contribute?

I'll leave that one to Stephen.

Look, we don't break out specifically the difference between the metal and the nonmetal. Over time, when we say getting towards [GBP 2000], you'd expect it to roughly 50-50. So I think for now, the non method will be higher than the metal element. I think metal will grow more during the course of the year for all of the reasons we touched on.

So the strategic initiatives of last year, bringing refurbishment in-house and launching the cazana and a buying channel direct from the consumer will mean that quite a bit of the growth towards the second half of this year will be coming through the metal line.

At this time, this will conclude today's teleconference. We thank you for your participation and for joining today's webcast. You may disconnect at this time. Have a great day, everyone.