AO World plc

Good morning, everybody. Thank you for joining us today. So we're going to start with the numbers and the key drivers behind them, and then I'll hand over to John. So we've continued to make progress against our strategy. During the first half, we've delivered double-digit growth in our main B2C channel, the core of our business. Gross margins have been strong, reflecting the work we've done over the last few years across product and channel mix. We previously discussed the re-engineering in mobile, and I'm pleased with the gain we've made in margin, which is helping here, but it has had an impact to revenue, which I'll come to shortly. Free cash flow of £14 million is broadly in line with profitability and EPS was up nearly 20%. Profit slightly better than we'd anticipated with the rest of the numbers demonstrating the continued resilience of our business model. From today and going forwards we've updated our revenue split to reflect how we report internally and help you understand the main channels of the business better. Overall revenue was up 6.3% on last year. Mobile and B2B revenues were down year on year, which I'll come back to. And it's not our specific strategy to grow the revenues of our logistics or recycling businesses. I'm pleased that our core channel of B2C has returned to double digit growth as we'd anticipated. And this is despite the value of selling prices in the MDA market being down about 4% year on year. We're starting to see the compounding benefits of 5-star members, repeating and buying across categories, as well as the positive impact of expanding our range. The tumble dryer market grew by almost 100% in some months through summer, which helped solve the problem of the fridges and air conditioners that didn't sell at their normal run rates. But we're mindful of the forward impact, both later this year and in future years, of those tumble dryer sales. In our B2B channel we've continued to optimise profitability with minimum margin requirements and dropping customers who require costly complex solutions and as such we've seen our B2B revenue decline year on year and we expect that to continue into H2. Our mobile journey continues to make progress. As we exited 2023 making losses, our transformation required materially improved gross margins and lower traffic acquisition costs. This would always come at the expense of revenue, and it's compounded with the fall in the post-pay market, and we can see the result of all that here. Whilst we're still part way through the process, and although improvements in margin and acquisition cost have largely been achieved, there is still a gap to the revenue we need, and any further reduction in the market over our forecast will likely result in a goodwill impairment. Gross margin has improved against the same period last year, and despite the inflationary headwinds in logistics and deflationary headwinds in retail product pricing, we're pleased to report improved gross margin of 24.4%. I've talked about that re-engineering in mobile and revenue has declined but a big improvement has been in gross margins where we now earn a healthy return for every handset we sell which gives us a sustainable base from which to grow this business again. Product protection plans have continued to perform well through the period with cancellation rates below the long-term average as now more than ever customers value that peace of mind that they provide. As expected, the inflationary cost of people and the uplift in rent and rates has fed into warehousing costs. We've continued to spend on marketing at a broadly flat rate to sales through the period, but this year we've seen better results on direct channels than on TV. Other admin costs have been hurt by recent high levels of wage inflation, which we do expect to see come down into the future, but we will continue to drive for efficiencies and to minimise growth in these costs as we grow our revenue line. Okay, so we've talked through revenue, margin, and cost lines, and I'm pleased with the output profit that's grown ahead of sales at over 30%, 17.1 million. The adjustment to PBT relates to the cost of the transactions of Music Magpie. Unlike some of our competitors, we don't expense actual ongoing costs. We're very aware of the impacts of the labour budget, though, on our cost base. And we're going to have to work very hard to mitigate most of the increase. But we do expect this to be an industry-wide issue, affecting some of our competitors maybe more, and likely to drive price inflation for customers. Okay, so profits have converted to free cash flow. We've invested in inventory across our MDA and SDA ranges, and so stock days have increased slightly to 44. Our EBT purchased 10 million shares in August, broadly to satisfy incentive plans granted over the last three years, and so this is not an annualized amount, although we may well fund the EBT to purchase further shares on an annual basis. During the first half CAPEX was about 7 million and that's the continued refresh of our delivery vehicles and further investment in the recycling plant. The addition of an extruder is the last step in our plastic recycling process and John is going to talk more about this later. We expect CAPEX for the full year to be about 11 million with H2 being more vehicles and the balance of the extruder. Post the period end, we upsized our RCF to 120 million, lengthened to a four-year tenor. And I'd like to thank Barclays, NatWest, HSBC for their continued support, and I look forward to working with Santander as a new lender. We'll talk more about FY26 in June, but to alleviate concern, we think the direct impact of the October labour budget in NICs and minimum wage is about 4 million a year. Thinking about our indirect costs where we'll get some of this passed on to us, it could be closer to 8 million. As I said a moment ago, we're going to work really hard to mitigate these costs, as we will with other inflationary pressures, and we're really, really mindful of the wider consumer environment and our price promise to customers. We expect group revenue for the full year to be between 1.09 billion and 1.13 billion, and that B2C revenue will grow in excess of 10%. As a result of the strong first half and continued momentum we're seeing, we're again upgrading our profit guidance to deliver group adjusted PBT at between 39 and 44 million. And on that positive note, I'll hand over to John.

You couldn't help yourself, could you?

No. OK, thanks, Mark. Good morning. We appreciate, as ever, you guys joining us. And it's nice to be bringing you the ninth, I think it is, consecutive, reassuringly boring upgrade. I think one more, we get a set of steak knives. So in a nutshell, the first half has played out broadly as we expected. Continued progress on profit performance, double digit B2C revenue growth. But that said, let me paint a little more colour into the financials that Mark's just covered. Because underneath those positive headline numbers, it has been what I'm now terming a bit of a Morecambe and Wise summer. So all the right level of total sales, just not necessarily in the right order or the right categories. The summer was a lot wetter than usual so we sold far fewer air conditioning units and fridges than we planned to and conversely as Mark mentioned many more tumble dryers than we expected to. Broadly it played out as a score draw on overall volumes but behind the scenes the trading and supply chain teams have done a fantastic job working with brand partners to make sure that the peaks and troughs that we've been through were thoroughly uneventful for customers. Most importantly we've continued our momentum to deepen our relationship with customers as we move from a more transactional to a more subscription based business. I explained at full year results that we've been building this strategy now for several years on top of our foundation of being brilliant at the retail basics that we've been disrupting the market with since 2000. We're now starting to build our two-year member base as well and we continue to make great headway in giving members more and more reasons to shop with us across more categories. I'm also pleased with the progress that we're seeing increasing our share of wallet which is really what it's all about from our members. And we continue to have a laser focus on costs and efficiencies that means, as we've planned, profit is growing faster than sales on the growth that we've delivered. Ergo, in simple terms, the model is working. And for the avoidance of doubt, and people have questioned us on this before, we are not driving our growth by blowing our brains out on marketing, as you can see in the numbers that Mark's taken you through. Building on what I said at full year, our mobile business continues to represent a significant growth opportunity. In the last financial year we undertook the strategic reassessment of the mobile business and we entered this year with a revised approach to the model. We're now well on the way to returning that to profitability with lots of gross margin improvement and year on year the unit acquisition costs have reduced as well. As Mark explained, we've now chosen to report the different segments of the business separately to try and be helpful for the first time, which enables you to see the sales that we've removed from our B2B business that didn't fit our profitable growth, no grit criteria. We'll continue to assess the areas across B2B, but I suspect that the bulk of that work is now complete. Safe to say that since the end of the period, Homebase, where we were the exclusive provider alongside their kitchen business, they've kind of self-selected through administration, so obviously we don't expect that business to continue. I'm pleased to report that we have just passed the latest milestone as well on our mission to produce new fridges from old recycled fridges. We're continuing to work closely with one of our manufacturing partners on this and in the last six months as Mark mentioned we've also added an extruder to our plastics plant and this means we can further refine old plastics which means we can capture the maximum amount from the value chain. So there is now a very real possibility that we will be selling brand new fridges made with our old fridge plastic at some point during the next financial year. It shouldn't be underestimated the amount of work and thinking that has gone into this and it will be the culmination of a seven year blind faith journey. We're not there yet. Unsp Plc Unsp Plc Unsp Plc Unsp Plc which we hope will complete before the end of the calendar year and this should set us up well on our ESG journey for the newer categories that we're now building nicely as we turbocharge their expertise into our website with enhanced trading offers and capabilities. Our Trustpilot reviews now stand at over 600,000 reviews and we've maintained our world-class most trusted 4.8 out of 5 rating. This is something that I will never tire of telling you or take for granted. It simply does not happen by accident and it requires obsessional focus on the brilliant basics every day. This is a critical part of our ability not just to remain the most trusted electrical retailer But also to grow our profitability given how expensive it is when you get things wrong both in the short term to fix it but in lifetime customer value terms as well. It's difficult to get big and build scale in a low frequency category. In fact, until AO, it's been impossible to deliver this level of trust pilot reviews, brand relationships, and critically, culture in our category. None of these are built overnight. Vertical integration and structural economic advantage take time and blind faith at times as well. Now all these boxes are materially ticked. Our strategy is clear and I have never been more excited about the journey that we have ahead. So to summarise, it's been another solid six months of progress on our journey. As we expected, sales are growing again and we continue with our medium term journey to delivering over 5% PBT with double digit revenue growth, while sharing the economics with our members along the way to fuel future growth. I'd also like to thank all AOers that will be watching this and in particular a shout out to our drivers. It's actually sunny here today but I'm sure they often wish that peak trading coincided with summer weather instead of the wind, the rain, the snow and the floods that they're currently having to contend with. And yet, they still find a way, they still find every opportunity, not only to deliver the product, but also their pixie dust that they deliver in the moments that matter. The fact that so many of them choose to dress up at this time of year in Santa outfits for what is a very physical job, for me it tells the story perfectly about what makes AO unique. We're back to double digit growth in our retail business, and profits are growing faster than sales, which is why we're able to upgrade profits yet again today. Simply put, as I've said, our model is working. So thank you for your time. Mark and I are happy to take questions, but please take a microphone before asking, stating your name and organization so that anyone that's watching can hear as well. John, do you want to kick us off?