AO World plc

Okay, good morning. So today we're gonna do things a little bit differently. Given there are no surprises in our first half numbers, I'm gonna focus most of my time today on the strategy of where we're going rather than where we've been. Mark's gonna run through these in more details later, but the headlines, as far as numbers are concerned, are as follows. Group sales in the first half are 586 million, which on a like for like B2C basis is an increase of 12% and total business increase of 14%. Corresponding profit with this performance for the first half is a PBT of 18 million which is an increase of 10.4% despite the government's best efforts to constrain growth and add cost which for us was about 4 million in the period. We've ended the period with 57 million of free cash flow and about 200 million of available liquidity. This highly positive position has enabled us also to commence a 10 million pound share buyback. And this has all been delivered whilst maintaining our globally leading Trustpilot score of 4.9 out of 5 on over 850,000 reviews. One could say that the first half of this year continues our theme of being reassuringly boring. Looking forward, you won't be surprised that we expect to be a growth business. And today, we upgrade our profit guidance to be around the top end of our recently narrowed range of 45 to 50 million of profit before tax. Operationally, the business is in the best shape it's ever been in. And the strategy that we set out in June, which is summarized by the animation that we shared, is all going to plan, and we are better joined up than ever. That's why my big message today is quite simply, we're doing what we committed to do, our strategy is working, and we'll continue to deliver against that. For anyone that hasn't seen the strategy animation, it's on our investor website, and it is essential viewing if you really want to understand our direction of travel. This image is the conclusion of the animation. And I believe that this strategy will serve us well for a long time and it's one that we can continue to obsessively invest in. In the interest of expediency today, let's take our brilliant retail basics for granted and let's assume that our high performance culture that serves customers brilliantly and makes us the most trusted electrical retailer in the UK is in good health. Because it is. As an output from the strategy animation, we've been asked several questions repeatedly. So I wanted to use this time now to answer these head on because they'll help to inform how you think about our future performance. So let's start with membership. Now, I know how unhelpful it is that we haven't given you all the commercially sensitive building blocks so far. And for this, I am genuinely sorry, and we know how unhelpful it is. But they do continue to be exactly that, which is commercially sensitive. So we don't plan to change our approach. But what I can tell you is that membership is central to our flywheel, as you see in the animation. Member numbers are higher than ever. Share of wallet continues to improve, as do member retention rates. You can see all this as an output in our sales and profit numbers as we continue to grow share. The compounding effect of all of this means that I am delighted with the progress of our membership offer. At full year, we still had two big pieces of the sticky chicken jigsaw to launch. So I'm delighted to say that yesterday, we launched the first of these, which is Switch 24 on Apple iPhone handsets, which is referred to in the animation as PCP Mobile. This means that members can now get an iPhone 17 from only £17 a month and have it upgraded every two years to the latest model. It is a first for the UK market. I'll say that again because you probably didn't think you heard it right. An iPhone 17 from only £17 a month. Clearly, it's only been live for a short time. But it has been a five-year journey of investing in it and inventing the capability to deliver it. And I genuinely expect this to now forever change how mobiles are bought in the UK. To confirm, we're also on track to deliver the second big piece, our MBNO AO Mobile, from around the end of the financial year. That will then complete all the key pieces of the strategic flywheel that we've been building, which we can then drive for a long time to come. So what's the latest with mobile? One of the biggest misunderstood areas in the business is that of mobile networks, their corresponding economics and their strategic impact. So please indulge me while I go into more detail than I usually would. This has been a turbulent journey for us as a business and a very unpredictable one. The mobile category is one of the most important to our customers, with one of the highest frequencies of renewal. So we have invested a lot in it. To make it a success, we've had to reimagine and re-engineer how the whole thing works. We must be clear, though, about what drives our flywheel and what doesn't. What we're prepared to commit to and what we're not. But first, it's important to understand a few things on how the mobile market actually works. So I'm going to do this at a very high level, but I'm very happy to take questions at the end if there's any appetite that's left. In what I think of as the old world, you used to go to a car phone warehouse, phones for you, or a network shop, and choose a handset with a contract, and then pay a monthly amount for one or two years. At the end, you owned your handset, albeit it was pretty worthless, and could upgrade to the latest model. Over time, handsets have become more expensive and tech less transformational. So refresh cycles have elongated and the term of contracts have increased to maybe three or even four years in some cases to keep the corresponding monthly cost of the handset affordable. There's actually been relatively little innovation in how you buy mobiles beyond lengthening the term of the contract. In parallel, networks and handsets have become increasingly unbundled, and SIM only has grown, and mobile virtual network operators have taken increasing share. There's also been consolidation across the networks with now only three primary mobile network operators in O2, Vodafone 3, and EE. In super simple macro terms, those mobile network operators are highly geared businesses, so incremental customers are incredibly important to them. In the indirect space, the networks would agree minimum targets with retailers, including severe financial penalties for missing those targets. These targets grew each year irrespective of the aforementioned changing market dynamics. So gradually that indirect channel has nearly ceased to exist as one retailer after another has either gone bust or closed. So we've worked really hard in partnership with the networks over the last 12 months particularly to build an agreement structure that is mutually beneficial. Profitable or not, it does not drive our membership flywheel. So it is simply a tactical commercial opportunity that currently makes sense for us and the networks. If at some point that were to change, we would close our post-pay business, which following the re-engineering that we've done this year, would have no material cost impact for us as a business. Our own plans for AO Mobile, the MVNO, do drive our flywheel. It is strategically very important to us and it is exclusively focused on sharing scale economics with our members. We've worked very hard to engineer as much of the cost out of the supply chain to bring the best possible value for our members, just as we have with the Switch24 offer. Economically, our starting premise for our membership mobile offering is that it will not lose money, but it will drive our flywheel, share of wallet and become another reason to renew membership. We'll only know whether it will make money once we understand the dynamics of the base that we're going to grow. So there is potential for lots of upside, but please think of that upside as more budget for chicken to give back to members. Priorities 1, 2, and 3 for our membership mobile offer is value for members. More chicken in the chicken soup. The more handsets we have on Switch 24, the more hair dryers we will sell. The more SIM cards we sell on the MBNO, The more stoves we will sell and the easier we make it for members to buy all this on finance, the more fridges we will sell. Our objective is always increasing total share of the electricals wallet from our members and to have them delighted to renew each year. This section of our mobile business is totally within our control. It does drive our flywheel and we are very excited about its future. The two entities operate completely separately and independently, but clearly we do get some group synergies on the backend elements and some of the purchasing. Another question we get asked a lot is, why AO bought Music Magpie? Music Magpie has been a very valuable, but also misunderstood addition to the group. So hopefully I can clear that up now. I've just told you about the transformational iPhone 17 from £17 a month. And the capabilities of Magpie are absolutely fundamental to have in-house to deliver that level of value to our members. The Switch 24 model is about the customer paying for the handset depreciation rather than its full value. So maximising the residual value, as we're able to do with Magpie's capabilities, enables us to deliver this outstanding proposition for our members. In turn, this will also make it incredibly difficult for our competitors to break customers out of their two-year renewal cycle, which keeps them as members and means we get their share of wallet right across the full electricals range. So what did we buy in Magpie? We bought one of the leading e-commerce companies in the UK, which incidentally just won the Lifetime Achievement Award from eBay as the most successful eBay seller ever. It's quite a capability and knowledge base to buy. The business was losing 6 million a year at PBT level when we bought it and in less than a year it is now run rate profitable at PBT level. We paid 10 million for the equity and a further 22 million to pay off the debts and transaction fees. The business was about 100 million of sales including 35 million of legacy trading media like DVDs, CDs, etc. And we still trade just under a million of these units every single month. For clarity, this area is profitable and it is an important part of the Magpie model, but it is not our focus for sales or profit growth. Our focus is tech trading and that part of Magpie that the team have been learning and building for the last 13 years. And they are one of the biggest buyers of secondhand tech in the UK. As a result, they have vast experience in this market and understand the dynamics and the nuances deeply. This is the capability that we chose to buy rather than build. And I think we got incredible value, speed, and it's also a perfect cultural fit. We have yet to fully realize the opportunity of integrating the Magpie capability across the group. But this is all more upside for the next year or two. Priority one was getting to profitability and enabling our Switch 24 offer that we've talked about today. Another question we get asked is what's AO's structural difference that's going to enable us to make 7% PBT in the medium term, which is significantly higher than our industry peers? So in other words, is the AO margin target achievable and sustainable? As you'll see from our profit guidance for the full year, the business is currently performing at about 4% PVT. Our medium term plan is to get that margin to around 7% and to invest everything over this into more fuel for the flywheel for customers. I thought it was worth setting out quite how achievable that goal is by highlighting just two key areas. First, our central overhead is very well invested and leverages with growth. It currently stands at about 11% of sales and we believe that around 2.5 billion of sales this drops to about 7-8%. This is within our control to deliver with cost discipline and growth leverage. Secondly, it costs us around 9% to generate, process and deliver an order. And we have a clear path over the next few years to reduce this to around 6% through AI and automation, as well as leveraging our sales mix into our growing member base. Critically, this is not about leveraging scale into our trading partners. There will be other opportunities as well, but for simplicity, We can see 6-7% of extra PBT from simple self-help and growth through driving our flywheel. This creates significant structural competitive advantage, delivering 7% PBT that converts to cash while also making meaningful investments in ever deeper, wider moats. It won't happen overnight. And our commitment to the principle of shared scale economics means we will give back about half the incremental margin that we create back to members in one form or price discount, added value or service on that journey to 7%. And naturally, none of it will be a straight line, and we don't live in a vacuum. But relative to our major competitors, in our opinion, we have the lowest overall cost base, the biggest opportunity for growth, and the clearest right to win. We're also asked what happens to AO should consumer sentiment change. Look, clearly, if the consumer were to be feeling upbeat, affluent, and positive, if that were to ever happen, all boats would rise. So obviously, we would be a big beneficiary of that. However, we've always thought that Noah was right to build the ark before the rain came. And so our planning is around our resilience in a down market. We've lived through a few recessions and roller coaster rides over the last 25 years. And what was proven each time is that our business normally grows through them. The reasons for this are as follows. First, the vast majority of what we sell is as essential to customers' daily lives as it is unappreciated. You don't think about it every day, but you rely on all the key things we sell for the vast majority of our customer base. It is a question of priority of spend, not necessarily ability to spend. If your fridge freezer at home breaks, you will replace it. You won't ponder whether to do it for four months. If your phone stops working, it's like having your arm cut off. If the TV in your lounge stops entertaining you, you will buy another. You might sacrifice a meal out or the outfit that might have gone with it, but few people will live for long, let alone stay married, without the key products that we sell them. What people do seek out, though, is better value for their spend. And this is where we tend to benefit, because our service is better and faster, our prices are at least competitive or, if you remember, cheaper, and we have the most trusted brand in electrical retail. You don't build any of that through cost cutting in a downturn. We already have it, and it's incredibly well invested. In my opinion, it's not necessarily about macro sentiment, but who is going to win within each category and what is their right to win. Not all electrical retailers are built the same. And overall, the market is huge. Given the pace and scale of change of AI developments, a number of people have asked, how will it impact online retail more broadly and AO more specifically if or when AI is making the decisions on what to present to customers? Added to this is the question of how far the service that a Gentic AI might offer from products and retailer selection as a shopping assistant through to transaction and who gets commoditized or marginalized through the process as a result. Well, this is where our depth of long-term belief and investment in the fundamentals of the business and its service really matter. And it's difficult and it's complex and it will pay dividends. When AI is giving advice, it bases its recommendation as a formula on who is the best price? Well, we are. Who offers the best service? Well, we're the most trusted electrical retail with the greatest scale of reviews on Trustpilot. And how quickly can it be delivered? Well, we win there, too. Our membership program also provides an inherent hedge to this, given that whilst we can serve the member pricing to the AI algorithm, our members also get the best experience when they're logged in. And members are already invested in AO as their destination for electrical purchases. And this is, of course, the defense argument. Clearly, the opportunity is enormous as more of these facts are surfaced more effectively to customers and potential customers where, maybe for legacy brand reasons, we might not have been top of mind. So we actually see huge potential upside. And we expect this form of shopping to simply amplify the truth to more people, which will accelerate the fate of winners and losers. It's a classic story for us of heads we win big and tails we don't really lose. So in summary, there are a lot of reasons to be cheerful and hopefully what you've heard today so far gives you more confidence that we are in control of our own destiny and have the right strategy. It's five years since the massive COVID sales spike, and we're now getting into the replacement cycle as well for products that are being used more than ever given the work from home trend. We have an incredibly exciting runway of new things to deliver for customers, some of which you've heard about today, and we have real clarity in our plan. So to conclude, I'll go back to where I started. Our strategy and model are working, delivering double digit growth and strong profitability, all the while driving further efficiencies from our cost base while maintaining record service levels to customers. Therefore, our plan from here is to keep doing what we've been doing. It might all sound straightforward, but none of it happens by accident. So I'd like to thank everyone involved with AO, our people, our suppliers, our trading partners, our investors, and most importantly, our customers. It makes me really proud to share these record results with you. So thanks for your time today. I'll now hand over to Mark to run through the first half, and I'll see you back for questions at the end. Thank you.

Good morning, everyone. So John's giving you the headlines and talks us through our strategic progress. So I'll paint a bit more color on the numbers and some of the operational detail behind them. And then I'll explain the outlook for the rest of the year. We'll then take questions at the end. So we performed well over the first half. Group revenue numbers now include magpie, which we obviously see the benefit of in H1, and more than offsets some of the deliberate reductions on mobile and B2B. And so overall for the group, we're up 14.4%. In our main retail business, despite the consumer sentiment challenges, market data shows the electrical market has grown year on year. The MDA market grew about 2% in value terms, although that volume growth is slightly more than that. But we've seen customers trading down and a bit of a reduction in average selling prices, which we think is a market-wide mix issue. We've continued to delight customers, attracting more members, and have delivered B2C revenue growth of 12%. The membership program continues to be a key differentiator, driving increased share of wallet with increasing renewal rates, and the base continues to grow. We're winning market share across all our key categories, MDA, SDA, and audiovisual, and we're doing it by focusing on the fundamentals. We've expanded our product catalog by over 10% since the year end, now offering more than 10,000 SKUs across all categories. Our proposition from product availability, finance payment options, product protection plans, great delivery and installation, and membership benefits has never been stronger. Underpinning all of this is a brilliant customer service, which will always be a cornerstone of our business. As I mentioned in our update this time last year, we implemented minimum margin requirements across our B2B business, resulting in the removal of sales that required costly, complex solutions, and this included kitchen furniture manufacturers. The revenue decline in this channel reflects the annualization of those strategic decisions taken in FY25, and as such I don't expect the decline in sales in B2B to be as large in H2. As John has spoken about, the transformation we've undertaken in our post-pay mobile business has materially changed the profitability performance. Part of the changes we've made is to focus on a smaller, more profitable segment of customers, and so network commission revenues have declined. Recommerce revenue in the prior year represents the sale of reconditioned MDA products, sourced from our own ecosystem. But the current period now sees the addition of the Magpie business. And whilst this year has seen the integration of Magpie into the wider group, there's still considerable opportunity ahead, and the first of this will be supporting the backend of the Switch 24 product, which John spoke about earlier. But there will be more to come too. Gross margin percentage is up year on year. The majority of this is the mix of magpie sales, but margins have increased slightly in the main retail business too, and this offsets the average selling price reduction that I mentioned earlier. We've now completed the transformation of mobile. Margin was lumpy and bumpy through H1, but we expect to see a much improved position in the second half. In our recycling operation, metal prices have been under pressure. Particularly steel, which has acted to reduce overall gross margin. And based on current future prices, we don't expect to see a recovery in H2. We've increased marketing spend as a percentage year on year. This was the dynamic of the addition of Magpie, the AO at home brochure, and more acquisition costs where product unit economics now allow us to push harder in some of these channels. This is offset by an improvement in mobile, where we've focused on those fewer, more profitable sales. There's been an 8 million increase in warehouse costs. And while some of this is the magpie operation, the big challenge has been the government-driven inflation in labor costs. We've also made good progress in addressing the debt in our technology stack and modernizing our infrastructure. This period saw about 2 million invested in our warehouse management system as part of the broader, ongoing, modular ERP implementation. We've also successfully rolled out a new telephony platform which offers the latest functionality and enables AI driven features that will drive further efficiency and service improvements in the year ahead. These investments are essential to future proofing operations and they'll continue as we go through the year. We've made strong progress in our offshoring programme. We now have over 130 colleagues based in South Africa and so far we've been pleased with the results. To be clear though, we will never take a cost saving in return for an inferior service that might jeopardise our 4.9 out of 5 Trustpilot rating and position as the UK's most trusted electrical retailer. This initiative will deliver medium term improved profitability and is also helping us to build our capability in managing offshore roles more generally. Whilst we have learned that it is not easy or simple to replicate our quality of culture and that it is definitely not a straight line to get there, it is possible. And it gives me encouragement that we have solutions to any anti-business developments that the government might take. To summarize, the impact of all this, underlying profit margin has fallen slightly year on year from 3.3% to 3.1%. And this is broadly due, in equal measure, to the government-driven employment cost increases and the inclusion of magpie in the overall numbers, with slight increases in advertising being offset elsewhere in the P&L. So we ended the period with 200 million of available liquidity, up from 147 million at the year end, and that's as a result of the strong operating performance but also some working capital wins. We saw a slight reduction in inventories, with an increase in the core retail business as we expand our range and availability, offset by a reduction in mobile as part of our pivot. A working capital inflow of about 39 million comes from a timing quirk of stock receipts and retail sales in August and September. and we do anticipate that a significant part of that will reverse into H2. Given the group's strong cash generation and the board's ongoing confidence in future performance, we commenced our first ever share buyback programme. During the period we purchased about a million shares and we expect to spend a further about £9 million in the second half. During the period we also funded the EBT with £4 million to purchase shares to satisfy incentive schemes. As we noted at the year end, we have moved from financing vehicles from traditional operating leases to purchasing vehicles using asset finance. We acquired about 13 million of assets in the period, of which 11 million related to vehicles funded in this way, hence increasing net debt with a further 2 million of cash capex in recycling and technology. CapEx and H2 will be about 6 million with the vast majority of it being the purchase of logistics vehicles along with a bit more investment in our recycling plant and we expect to put asset financing in place for the expenditure. As we look forward to the second half of the year, we expect recent levels of consumer confidence will not get worse and that the reduction in average selling prices have now evened out. We also think that metal futures, based on metal futures, sorry, that commodity pricing will remain at current levels, but there is some opportunity here if they do improve. Delighting our customers has its foundations in being thoroughly efficient for them, getting things right first time. This mentality helps us as we obsess about keeping costs as low as possible, which we'll continue to progress with, whether that be in tech investment, automation, AI, or offshoring where appropriate. But I repeat my earlier point, that cost savings will only be delivered where the customer service is in line with our position as the UK's most trusted electricals retailer. Driving our membership base will always be a key part of our growth and we're excited about the recently launched Switch24 product and our own virtual mobile network proposition which will follow at the end of the year. Both of these will create more value for our members, more chicken in the chicken soup you might say. The government will announce its budget tomorrow, and we're hopeful that it's not materially to the detriment of the wider economy. I do say we're hopeful, and the consumer specifically. But if it is, the built-in resilience of our core categories should see us right. And as John has said, we now expect the result of all of this to land us around the top end of our previously narrowed guidance of 45 to 50 million with full year free cash flow of about 50 million. We continue to make progress towards our target of 7% PBT with a business and a balance sheet in good shape. And so with that, we'll now take questions. As a point of housekeeping, please can you take the microphone and state your name and organization so that anyone watching can hear. Who'd like to go first? And John has already got his hand up. You can stay there now. I'm going to come and sit down.

John Stevenson at Peelhunt. I appreciate, obviously, you don't want to dive into the KPIs on membership. Maybe try a different approach this time. A couple of areas would be quite interesting to hear more about. One is maybe if you could talk about the performance of some of the worst performing categories traditionally and how that's changed now you've got membership and now you've got obviously the range increase as well. And secondly, maybe I don't know if you're willing to talk about the level of OEM support you see these days for sort of deals and events and if you're able to do more stuff now membership is increasing in its capability.

So beautifully crafted, John, but we still view it as commercially sensitive. I think the best way to answer both of those questions is that if you think about the categories, our total market share is is a function more in our member base than it is in our non-member base, and particularly in newer categories where we have the biggest opportunities for growth. So if you think we're just under 20% total market share in MDA, we will be single digit market share and low single digit in most of the other categories. Unsp Plc Unsp Plc Unsp What we're able to do with the value that we deliver for members is to polarize and focus more sales into the offers because naturally they are better value for members. So we're able to invest some of our margin into it and at times the OEMs want to invest some of their margin into it. It isn't a case that the OEMs are paying for all the discounts. We are funding quite a lot of the margin into those as well. But as you focus more sales into a smaller range and polarization in the SKUs, we engineer the supply chain to get savings out of that that we then keep giving back that value to members. And so brands unquestionably see the value of that. As we're a as we're able to make more and more decisions around and it's similar to Black Friday Where you know, we will have the Black Friday deals. Well, you've sort of got that for the brands Going all day every day if you like And so we have promotional calendars that we now build with the brands and you'll see that in the offers that we have on-site Brilliant.

No, thanks for that. I'm just sorry Just on the music magpie. When do you think those capabilities will come into the website? I The main website over the next couple years.

Morning, Caroline Gulliver from Equity Development. A couple of questions on marketing, please. First of all, can you give us any color on the marketing campaign for Switch 24? And secondly, as we come into sort of peak trading, are you happy with sort of awareness of the cross-sell opportunity, sort of in terms of people buying into more discretionary products? Are you happy with where brand awareness is on the full offer that's available at AO now?

Yeah, so that's a continued journey. So Mark talked about the investment in the brochure. The brochure is about education of we sell more categories than than white goods, and we just see that continuing to progress. You really are only thinking about it when you're in market. So you know, so it is a an always on drip drip educational process with customers. There's no step change like Switch moment that I expect with that. I think it's just a continued progression. As far as marketing investment with Switch 24, we don't have any great plans for a big marketing investment into it. I think the scale of the value in that offer is deafening. I mean, it is. An iPhone 17 for 17 pounds a month. I mean, you know, if you go on the Apple website, that's 33, 34 pounds a month. So, you know, in our experience, when you put such a sensational offer out into the market, people will talk about it and we think customers will do the marketing for us.

Actually, just on that, how confident are you you have enough stocks to satisfy demand?

Stock's always a challenge on Apple products, but we're working really closely with Apple on that. We would expect stock to be a challenge.

I had a second question just on cash. You're generating a lot of cash, particularly going forward. You've obviously announced the first 10 million share buyback. Do you have any other plans? You've got a lot of liquidity, as you mentioned in the presentation.

I'll defer to Mark on that. In the last 25 years, what to do with cash has never been a major strategy for me.

Yeah, so I mean, we've obviously still been on a journey of strengthening the balance sheet to see us through, you know, whatever might sort of come at us. And I think we're still in the process of that. We are about halfway through our 10 million buyback as of today. And so, you know, we expect this to continue into the new year and we'll see how things go and update in due course. But I think we sort of set the direction of travel for what we might do with some of our cash.

Thank you.

Thanks. Hi there, Andy Wade at Jefferies. First one, just in terms of your strategic overview piece. Obviously, we saw the video previously. Just interested, because you've talked on a few occasions about how things are never quite a straight line. Has there been any sort of nuance or change around any areas within that where you sort of just changed slightly your perspective on it? Is there any nuance in that, or is it just development along the way? You're launching Switch 24, you're launching AOM, VNO, and so on.

So yesterday was a big day on that going live. And we can only deliver an iPhone 17 for 17 pounds because we bought Magpie and we have that capability in-house. That was a multi-year journey that was a very inexact science on exactly when we were going to do it, how we were going to do it. And so we've now delivered on that. And the last piece of the jigsaw is our MVNO. After that, we see all the pieces on the board. And the strategy is super clear. And then it is just drive it as hard as we can and keep reinvesting that back in the flywheel.

Thanks. And the second one, you refer to it in the statement around the ASP decline because of shifting consumer choice towards the sort of lower-priced Chinese models or Chinese manufacturers. I'm so interested in digging into that a little bit more. Presumably, that's hurting everyone, not just you, wasn't it? First of all. Secondly, is there a bit of risk around this in the sense that You know, you talk to the potential COVID tailwind coming through now. This should be a really good bit of the cycle, but it's kind of only an OK bit of the cycle because we're seeing that trading down. Is that going to be an enduring feature that when the market gets a bit tougher, we're still seeing the trading down? I'm just interested as to how you're thinking about that and how it plays out through the industry.

Yeah, I mean, I think it's worth saying that it's a pretty small reduction in ASPs in the overall mix, but it's noticeable, but it's small. And it does reflect as you sort of surmise a shift in sort of brand mix particularly. And so we've seen some manufacturers being a bit stronger and sort of some of the legacy manufacturers being a little bit weaker at sort of different price points. I think it reflects where the market is. We don't know what it means for replacement cycles. Do they get shorter? Is it an inferior quality product? Does it have a shorter life? We've no idea. I don't think it's a big thing, but it is when you're looking at what percentage of that is your percentage gain or loss in revenues in the period. Actually, it is a sensible number compared to that, but not in the overall mix.

is not unhelpful from a margin perspective. Correct.

And so when we've seen that slight reduction in ASPs, we have seen an offsetting slight improvement in percentage gross margins. And so the cash margins per box are pretty similar.

And I think it's important to say on a relative basis, we don't operate in a vacuum. This will be the same for all our competitors. And when you've got the structural cost advantage of having the lowest cost operating model, Actually, it's not bad news for us. Yes, it certainly seems to be affecting at least one of your competitors more than you.

And the other bit, the final one from me was, obviously you've got your 7% PBT margin target, but again, sort of interested how some of the newer elements, so Switch 24, AO, MVNO, because you've sort of talked to the MVNO in particular as being So we don't know whether it's going to be contributive or not, but it's going to be revenue associated with it. So to get to that 7% PPT, you've got a bit of a headwind from categories that are going to contribute revenue, but not a lot of profit, potentially. So I guess that's even more positive about the core business. Is that how I should be thinking about it?

Well, you should definitely think about it positively. And what I was flagging is, I don't know. MVNO might be a tailwind. We don't know. Switch 24 might be a real tailwind. We don't know. It went live yesterday. So when you've got a proposition of that strength on a product that is so fundamentally important to pretty much everybody in the country, what will it do? I don't know. Caroline talked about stock availability. I don't know. What forecast do you put in? We were having these conversations yesterday with the board. I don't know. So we've made our best guess internally of what we're going to do. You know, we'll be able to answer those questions in the coming months as we go. But as ever, I'd back ourselves to trade our way through that. And what I wanted to flag is that We're not running any of this as a loss leader. We're looking at it very much as more chicken in the chicken soup with reinvention and reimagination of how to buy the category. Exactly what the dynamics will be, exactly what the product mix will be, exactly what all the take-up rates, exactly what all the usages will be. I'll tell you over time. I'm not thinking of that as a big headwind.

I'm sorry, I appreciate I've asked way too many now, but this is directly relinked to all that, and it just came to me during it. And I've forgotten it, so good. That's a good time to hand on to someone else, I think. I'll ask you later if I remember it. Thanks. Bruce.

Thanks, Bruce at Lancaster. Circling around that, can I ask two sequentially? The first one is very simple, is when your customers choose to trade down to these newer Non legacy brands is, does your pound profit change as a result of that? Do you care? Obviously your revenue is going to be a little bit lower.

Yeah, so broadly at the bottom line, the cash profits pretty similar. Thank you.

And one of the remarkable things about such a highly competitive industry as retail in its broadest sense is whenever there's an externally administered shock, be it government inflation or FX, is the industry tend to react rationally and pass through. Is that, in your words, a sort of sense of what the response has been? Can you just give us a thumbnail sketch of how you see the lie of the land competitively in your broader markets?

Yeah, I mean, so I think you're absolutely right that where you get sort of industry wide shocks, whether it's on shipping rates, whether it's on FX, whatever they are, that actually the industry moves to reflect those increases, those changes in pricing in either direction to customers relatively efficiently and quickly. You know, it's not an industry that's got enormous margins where you can absorb these things for a period or Or conversely, where you can be out of line on price and that doesn't hurt your top line very, very quickly. And so the industry tends to move relatively quickly to reflect those changes. And I think we've probably seen over the last 12 months since the last budget that the cost increases that have been forced on us have effectively been passed through to customers.

And I think, Bruce, For me, it continues to play to the fact that having the structural cost advantage of being the lowest cost operator at scale on a unit basis is just the fundamental advantage that will keep driving home. I've said many, many times that costs walk into businesses on legs, and the government is only making those costs more and more expensive, which gives us ever more structural advantage, in my opinion.

Hi, David Hughes from Shore Capital. A couple of questions from me. Firstly, in terms of the product range that you have, obviously a few years ago you talked about trimming down products, getting rid of things that weren't profitable. Last year we talked about kind of increasing the numbers and growing the range, and you're saying now that actually you make cash profit kind of across the board. Where do you see that going forward? Is the range in the right place now, or do you think there's still more to add into that?

I don't think we took out much out of the range. It was more where we were selling that. So there were sections of our B2B business, for example, where we weren't making money, or we weren't making enough money, or it was too much grit in the machine that we made conscious decisions to stop doing and simplify the business. Similarly, within our mobile business, we've made conscious decisions to shrink that down rather than to stop selling Specific products in those categories So I think the range is broadly where we would want it to be Our gap is education that we are better value for our members on the vast majority of those products But even members that have bought TVs and washing machines from us Doesn't necessarily mean that we are top of mind when they come to buy a MacBook for example So which is, you know, to Caroline's point on how do we keep educating those customers? And you'll see us do margin investment into kind of what I think of if you think about the I was in the Costco Middle Isle, if you like that, the treasure, the treasure trail of going into Costco, you know, not many people at this time of year, you're going in the amount of people that are walking out with a six foot garden gnome that lights up. For 160 quid that weren't planning to buy We're doing lots of those surprise and delight type things for customers so that we can Basically educate them and put them front put us front of mind so that when they do buy a MacBook they think oh I should check whether a oh I've got a member deal on that product and Just keep educating and keep investing in those deals for members

Thank you. And then secondly, just on kind of the market dynamics, we see post-COVID there was a shift from online back to in-store. Data that I'm seeing is suggesting that that is slowly going back with online penetration growing again. Does that kind of tally with what you're seeing and how much you expect that to be a tailwind going forward?

I haven't actually seen that data, but online is fundamentally a much better way to buy this category.

So we do agree with that sort of sentiment and analysis of the data and we do expect that over the long, long term the direction of travel continues to be increased internet penetration in our categories.

And it's a bit to the AI point that we were making earlier of there's just more and more innovation that drives more information and more quality of confidence for people to make those purchasing decisions without having to get in a car and drive to a Out of town retail part.

Thanks very much.

Thanks. It's Mark Power from Phoenix Asset Management. John, you talked about scaling the business in theory up to 2.5 billion run rate, let's say, and the operating leverage that would come with that. Could you talk about the capital side, what capital might need to be spent to get to that size of a business, and how much capital would have to be retained That's kind of in your fortress balance sheet mindset at that size business.

Yeah, I mean, so we've traditionally been a very capex like business sort of bar our recycling operation, which is much smaller, but probably a little bit more capital intensive. And I guess, you know, as we go forward, we probably see ourselves bringing more vehicles into sort of our capex and with sort of financing leases rather than the sort of traditional hire arrangement. But the By putting debt in place, the capital efficiency stays the same. I think the question is, what might we have on the horizon? I think the balance sheet being in about the right place, I think we're getting to that point now where actually the The dynamic with how do we make sure that we can, you know, offer protection to creditors through sort of whatever economic trading we might come to. I think we're probably broadly at that place. And so so the balance sheet sort of there. And, you know, as we look forward, our sort of capital requirements are as they've been historically. So, you know, we would expect to continue to drive sort of free cash flow as we as we go forward.

We've talked about things like automation, for example, but automation in our context from a fulfillment perspective with that isn't, I always think about When you talk about automation, people think sort of an Ocado warehouse and all that fixed capex investment. Even in that context where it's pretty low and pretty flexible, it's more QR codes on the floor and robot vacuum cleaners running around. rather than massive conveyor belts and hundreds of millions that are pouring into something like that but you know we will look at how you know I've talked about it on operational efficiencies you know we're currently across I think seven physical sites in and around the crew area how do we optimize that and how do we make that ever more efficient is something that we will continue to obsess about and you know and I've talked about it on how we get that nine percent to receive and process and deliver an order down to more like six but it's not there's no massive sort of structural step changes and certainly from a P&L perspective you know we will we'll do things that make sense on a you know on an ongoing basis

I did remember mine, which is good. So we talked about sort of not knowing at the moment what the profit shape of the MVNO and Switch 24 would look like. Just interested as to what the swing factors are on that. Is it largely just scale and take up, or presumably there's a bit around residual values and so on?

Yeah, just interested in what the swing factors are. Yeah, I mean, so with switch 24, the dynamics are clearly much better known and sort of shapes its volume that's more uncertain, but you are correct that the swing is what is the residual that we that we achieve MVNO it sort of comes down to how much data the customers use. Until we get live in anger, our mix of that, we can model lots of market norms and everything else, but until we actually get what do our subset of customers actually consume, then the profitability swing on that can be...

Understood, thanks.

I would just add to that, Mark, that the reason that we're doing Switch 24 and the MVNO isn't Per se, the biggest swing factor is, what does that mean for acquiring members? What does that mean for share of wallet? Those, for me, are the biggest impacts, and we've no idea. Completely understood. Thanks. All right. Well, great. Thanks, everyone, for coming along. And if you only take one thing away today, I'm sure it'll be that you can now get an iPhone 17 for 17 quid. Thanks, guys. Thanks.