Ao World Plc Unsp/Adr

A couple of minutes late, for which I apologise. Usual format this morning. For those that don't know me, I'm Geoff Cooper, Chairman. I'm just going to do a few words up front, and then I'm going to hand over to Mark, who's going to go through financial performance, talk about performance in our last financial year. Then I'm going to hand over to John, first time back as our Chief Executive, to address you on his view and his priorities. And he'll say a bit more about that later. As always at AO, it's very, very busy. Lots goes on. One of the most important things we're always careful to watch out for is whether or not the propositions in the various parts of the AO ecosystem actually find favor with customers. Are we competitively positioned well? Do customers prefer what we have to offer to the offers of our competitors? I'm pleased to say we continue to see that across our business, and that's the true test of whether or not we've got good, strong business with growth potential. And we've seen further growth, which Mark will illustrate in the numbers that you'll see later on. But more importantly, we're beginning to leverage the competencies right across the AO ecosystem and see those working together. Again, John will talk quite a lot about that and illustrate with some examples of how that's adding benefit and creating value for shareholders. Very significant activity for us during the year was the acquisition of Mobile Phones Direct. It obviously adds a very, very key component of the overall market product set to our armory. It gives us, we think, some strategic advantages and leveraging across our customer base for the future and is really exciting as a development for us. And again, John can talk a bit more about that. Obviously, one of the big events we've had very recently is the change of chief executive following Steve's decision to relinquish that post. During his tenure as chief executive, the business continued to do what it had done over the previous 15 years, which is push very commercially and aggressively and then in back of house grow up. And Steve led the effort to make sure that there were solid foundations to the business in terms of organization systems and processes. I think it's fair to say that what that meant was that over Steve's tenure, we probably weren't on the front foot commercially. That was something which the board was beginning to talk about. The change from Steve to John has really been a marker to signal a very significant change of pace in that direction. So the foundation's been built. And John will talk particularly about what we now think we should be doing, how the mindset in the business is orientated towards growth, and as part of that, taking a fresh look at how we're developing our operations in Germany. So he'll go into a lot of detail about that, but obviously very significant for us, very exciting, and lots of new, fresh things which will continue the growth of the company. So Mark, over to you.

Thank you, Geoff, and good morning, everyone, and thank you for taking the time to come to our results presentation this morning. So I'm pleased to report for the financial year ended March 19 that our UK revenue was up by 10.1%, and that's 5.7% on a like-for-like basis, excluding the acquisition of NPD. In Europe, our revenue was up just over 32% on a constant currency basis. Our group losses at our headline adjusted EBITDA level improved slightly to 0.4 million. And that came from an improved UK profitability of 27.4 million. And our European losses worsened slightly to 31 million euros. During the year, we also incurred exceptional costs of £7.3 million. They largely split over three main categories. Firstly, the ERP scheme that we've seen for a couple of years in our adjustments. This is the final year of that scheme, and so there will be no share schemes in our adjustments moving forwards. Also in there are restructuring costs and an onerous contract following John's reappointment as CEO of about $2.5 million. And then costs relating to the acquisition of mobile phones direct of about $2.5 million. So that's the exceptional costs. In terms of the contribution from mobile phones direct in the period from acquisition, that contributed $30 million to revenues and $1.5 million to adjusted EBITDA. Okay, so if we look then at our revenue growth, so the group as a whole grew by 13.3% to £902 million for the financial year ended March 19. European revenue growth, which we've spoken about, grew by 32% to €173 million. And in the UK... our business grew by 5.7%, and we were probably a little disappointed with revenue growth in AO.com, which fell back very slightly in the year, as the TV advertising campaign that we undertook in the first half of the year didn't deliver the anticipated growth in customers and revenues that we'd expected. From a gross margin perspective, the UK has performed well. We've seen good growth in all of our product categories. However, our B2B business and our newer categories have an overall dilutive impact on our gross margin measure. And we've seen that over the last couple of periods. Profit margin has increased across all categories. MPD, importantly, does have a dilutive effect on gross margin overall. And as we model in a full year impact of MPD into FY20, we should expect that to increase. The progress we made on product margin in the first half of the year slowed in the second half, and the manufacturer support that we had expected to receive, we didn't get. And we also discounted product too heavily in the second half to drive volumes, both of which impacted the product margin in that territory. We've spoken about the driver issues at half at our interim results that we had in the first half of the year. But we have since the year end bought our pricing strategy in Germany in line with the rest of the group and we are on with negotiations with manufacturers. In the UK, then, on our sales and general admin costs, we've seen a reduction in marketing costs year on year, and that reflects stopping TV advertising in the second half of the year. So you can see that reduction from 4.2% to 3% in advertising costs. Warehousing costs as a percentage of sales have gone up slightly and so in cash terms have gone up slightly too and that reflects opening three new outbases in the first half of the year and the full year impact of that. You will recall that as we open outbases there is a corresponding credit that effectively is happening in gross margin where we're reducing the stem mileage of our deliveries. Another admin cost increased to 10.5% of revenue. And this is where we've continued to put investment into the business to support new categories and also adding some costs in to generate revenues and gross profits in our recycling business. As we move forward, we see this as a key area of focus for us to leverage this particular cost line as we gain scale. In Europe then, with the rapid revenue growth, we can see leverage coming across all of the three key cost categories. And so whilst advertising costs have gone up in cash terms, reflective of acquisition costs, they have come down as a percentage of sales. We've continued to leverage the outbase and warehousing structure we have, albeit putting more outbases into that structure. And admin costs, as we grow and gain scale, we are leveraging those in our European operations. As we've talked about earlier, from an adjusted EBITDA profit perspective, we have improved slightly from the 3.4 million adjusted EBITDA loss in FY18 to a 0.4 million adjusted EBITDA loss in FY19. From a cash flow perspective, we can see an outflow in working capital. So as John has spoken about before, as we move towards the end of the period, we increased our inventory levels to help us to protect against a hard Brexit. We are currently working that inventory through the business. We don't see that they'll be able to... any impact to that in the longer term, and also planning for building those stock levels again as we get towards our peak trading period and also an uncertain Brexit position. But that does have an impact on our working capital. Capital expenditure in the year continued with investments in our recycling plant and fit out of new premises at our head office in Bolton to give us additional capacity for people as we move forward. The £5.9 million outflow regarding the MPD acquisition reflecting the cash consideration, less the cash acquired, and the financing activities of £24 million was the new loan to fund that acquisition of MPD. At the end of the period, we had total liquidity headroom of about £85 million, reflecting the cash balances the group has plus the undrawn revolving credit facility that we have access to. So as we move forward into FY20 and look across our UK business, I think that the expectations of the market are largely appropriate for the expectations that we have for the business. So continuing to grow in the UK and continuing to improve our profitability. As we look towards our European business, and John's going to talk more about this in a second, we're refocusing how we think about product margin and also how we think about revenue growth and the cost for that revenue growth. And so we are looking at how we acquire traffic and how much that costs and changing some of those channels that traffic is acquired from. And so in the short term, we could see negative growth in our European business in the first half of the year and returning to growth in the second half of the year. From a profitability perspective, the run rates of profit that we have seen through the second half of FY19 would expect to continue largely into the first half of FY20, but we would expect to see some improvements in that run rate of profitability as our actions start to take effect, whether that's on product margin, on cost of acquisition, and efficiencies through that business. From a capital expenditure point of view, we've committed to and are on with our plastics recycling site in our recycling business. We will also have some normal replacement capex in the business and in the group. And we're also investigating and formulating plans for a second recycling site later in the financial year. If we continue with those plans for that recycling site, I would expect our capital expenditure in the year to be similar to FY17, albeit that significant items of capital expenditure we would expect to put debt finance in place for, from a cash perspective. Okay, so thank you very much, everybody. And with that, I will hand over to John.

Thank you very much. Okay, good morning everyone. It's nice to be back and to see so many familiar faces and some new ones as well. So I've been back in the business now for about four months and Cracky, what a whirlwind four months that has been. The most important thing as a headline is to report that AO is very still, firmly an amazing business. And we've got a plan that we've built over the last few months with the team that I'm going to take you through of the areas of focus that we're going to be looking at. But before we do that, I just wanted to indulge me a minute to take you back a little bit to February 2014 and our journey from our IPO. So back in 2014, what were we and why did we do an IPO? So what we were, we were a single country, single category, profitable e-commerce business that had been built from a startup over 14 years. And so why did we do an IPO? Well, the reason for doing the IPO was to fuel our ambition and our proven model to then grow into more categories, more competencies, more vertical integration, more countries. And we said we would deliver that through having a disruptive growth culture. So where are we now when we look back at what we said we would do? Well, in the UK, we are now over 10 categories. And we have built competencies in a recycling business, a multimedia business, a logistics business, a financial services business, to name a few. And I'll come on to it in a minute. But they give us a compounding ecosystem of businesses. to leverage both for our own opportunity for structural advantage and to monetize with external profitability as well. And of course, our international ambitions, we have expanded into Europe. So we've built businesses in Germany and the Netherlands from a startup to an engine of businesses with over 150 million of sales to drive. And inevitably in that journey, we've learned a lot of lessons along the way. Some elements of that plan have taken longer than we might have hoped that they would. But I think that the key thing for me is that the scale of the opportunity that we set out at the IPO remains exactly the same, if not bigger than it was then. And through that journey of all the things that we've achieved, we've seen no change whatsoever in the competitive threat that we had in 2014. Meanwhile, we've taken out a huge amount of the executional and operational risk that was inherent in the proposition that we set out at the IPO. And so we still have a huge total addressable market and all the customer direction of travel is coming towards us. So the strategy of the business remains very firmly the same, which is to grow our business into more categories and more competencies in more countries and develop and leverage our ecosystem. But we will only realize that if we drive it with a disruptive growth mindset. And to do that, we need to have an obsession with customers. And if we do that, will make our mums proud. So the plan has four key areas of focus. The first one is a growth mindset. I believe that a mindset is at the heart of absolutely everything that we do right across the business. We have to make things happen. I always joke with the team that there's three types of people in life. There's people who make things happen, there's people who have things happen to them, and there's other people who sit around wondering what on earth happened. And we need to fill our business full of people who make things happen. We need people who will just find a way to make that happen. We need people that will dream. People that will invent for customers. To make that a reality, we need candour at the heart of that culture. I believe that the right people respond better when they know the facts, whatever those facts are. We need our business units that we've created to work together with a common goal without being precious or protective, and we need them to do that with a large degree of informality. We've built huge structural advantage. And we need to now really leverage that. We need to behave as one business with one North Star, whether that's in business units or territories or teams. Everybody's got to come together for what's right for the business. And so if I take the two then geographic areas, obviously our UK business is our proven engine over the thick end of 20 years. And within that our MDA business is our real engine that drives everything else. And so I am very clear that our core UK MDA, major domestic appliances, white goods, cookers, fridges, the MDA business will return to growth. And our newer categories will compound that growth. So for now, our mindset will drive this, and I'll update you on specific outputs of the actions, the tactical actions that we're taking at the half year. But to be clear, it's unlikely to be a straight line. We're already driving lots of new initiatives that I'm really excited about, but quite exactly what we'll do, what, when, Standing here today, it's too early to say, but I'll paint a lot more colour in for you on those things at half year. But as an indicator, I am pleased to share with you that MDA is already back to growth. And as a result, the total business is already back to over 10% growth on a like-for-like basis excluding mobile phones direct for the first two months of the new financial year. So moving then to our focus on Europe. To be clear, accelerating our journey to profitability in our European business is our number one priority. We've built a business from a startup that now has over 150 million of sales and it gives us a great engine to drive. These engines don't happen overnight. We've got a net promoter score output of that business of over 90. So not only have we built an engine, we've built an extremely high quality engine. And a key point to note here is that this is a journey that we've made before. It's a journey that we've lived through in the UK. And we understand the key disciplines deeply of how to make the dynamics of an e-commerce business in our space work. So I also want to be very clear, given all that, about in truth why we haven't made quite the progress that we should have done. And I focus on the single biggest mistake that I think that we've made. Because there have inevitably been a few made with all the best intentions and I think the biggest mistake that we've made was to devolve too much responsibility too early into a business that was too young for that responsibility. And we have moved to correct that and we have corrected that in the last few months. We have a huge capability and understanding in the UK and deep knowledge of how to operate our business. And so we're now leaning that experience into our European business at Pace. And I'm delighted by the reaction from the UK team that are being asked to do that and from the European guys who are absorbing all that into their business. And so everybody now knows where we are and what it is that we need to do. So I look forward to updating you at half year on progress. But to be clear, my target is to accelerate our journey to profitability on the ambition that we set out to be in profit during FY21. And I'll know more once I've had another six months of the actions that we're taking getting traction on exactly what is possible and when. So I'll update on that at half year. So as Jeff mentioned, I said I'd talk about the ecosystem. Our ecosystem of business is so interchangeably compounding that it creates value that in truth sometimes we don't even know that it exists. And lots of that wasn't even intentionally built. Our job is not just to create the business units in a very logical way that we have been doing, but to find the value that they create by working together. To unlock it and then to drive it. Ultimately, our responsibility is to create the environment where magic happens and then allow our people and their mindset to take over. And because of this it actually makes it very difficult to draw out exactly what the ecosystem looks like. But this is our current best effort at that. And I'll talk you through some of the examples within it. So if we look at house builders, for example. So if I think about where the house builder market is in the UK today, it's still stuck in what it was doing 20 years ago. Any of you as a customer on our website will get an infinitely better service than any of the major house builders spending 20 or 30 million pounds a year on appliances. And so what we can do because of our ecosystem, operating it in the AOA, we can lean in the technological developments that we've got of apps, of the ability for you to track your order, the fact that you can change that. So very often in the house building world, the sites will change the days that they want those products delivered. The guys on the site can just do that straight from the app. They normally get a five to seven day delivery service. Well, next day is just a standard to us. We also, within our premium fleet, within our logistics business, not only do we deliver, but we deliver and install at the point of delivery. And we do that seven days a week across all postcodes. And so by leaning this in, in our trade business for new house builders, what we can do overnight is we can give them a proposition that saves them a huge amount of money in administration, gives them a much better proposition, and leverages our infrastructure to open up a whole new section of the market with microscopic incremental investment from us. If we look at rental, where there's been a reasonable amount of press coverage recently, We're leaning our capability in here to transform another whole sector. And so if you look at this through a customer lens, so in the rent-to-own sector for a washing machine, you would normally pay, let's just say all in, circa £10 a week. So do we think £2 a week is going to resonate? Well, you won't be surprised to know that's resonating pretty well in that space. And then the other issue in that space is the rate of default and the cost of default in that sector. Well I see that as a very self-fulfilling prophecy that I'm not surprised people default when they're paying £10 a week for a washing machine. So actually at £2 a week we will just inherently by making it so affordable we'll take a huge amount of the default out. But what happens when a customer defaults? You have a cost to go and get the product. Well, guess what? We've got a vehicle driving past, in every postcode, driving past their house. So our incremental cost to go and get that product is tiny. And then what do you do with the product? Well, in our recycling business over here, the purest form of recycling is, of course, reuse. So we have a rework facility in here that brings a product back and gets it back into a saleable product to realise net asset value back in the product. And then, of course, in our retail business, we have a clearance operation that actually realises that net asset value. So we're able to be bold on the proposition that we're putting in here to totally transform a market... And then actually we can do that with confidence because our ecosystem protects the downside if it does go wrong. But if fundamentally we make it affordable in the first place, its propensity to go wrong is dramatically reduced. I've talked a bit about the logistics operation. And so third-party logistics is something that we're going to be spending a lot of time focusing on this year. Because if you think about it in the context of putting a washing machine or whatever it is, a box on a flatbed truck that's going from A to B, the incremental cost for us to do that is relatively small. This is already a scale business with hundreds of vehicles and we're in every single postcode. So if I look at the macro market of big and bulky products, the direction of travel for that is more of them are being bought online. And most of those e-commerce retailers that are selling those products don't have their own logistics operations. Unfortunately, the two-man home delivery market sets the service bar, frankly, pretty low. And I think it's broadly accepted that we have an outstanding reputation for the quality with which we do two-man home delivery on last mile. And so there should be huge opportunities, and we're already seeing a real engagement in that space on third-party logistics. So we'll be spending some decent time on that. I've actually just stuck this out here on Take Back to just highlight the challenge of where you quite put these things in the ecosystem. Because Take Back is a derivative ultimately of our recycling business. We've made this very bold investment in recycling. We're the only business in the last 10 years to build a new fridge recycling plant. And so if you look at the market, there's about 3 million fridges come back in the UK to be recycled each year, about 1 million for very round, broad numbers for context, about 1 million come back through retailers that are selling and delivering products, and about 2 million come back through councils, whether they're being collected on a proposition of £30 to £70 collected within 7 days, or whether that is being returned through a council tip. And so the fact that we've got a retail business here, then we can use our deep expertise on things like Google to connect with customers that are trying to find a way to return their products, not where we've sold a product. And then, as I've said, we've got vehicles that are driving by 50% to 60% empty, and we can fill that space with the product that people want to send back to us. And then we've got the recycling business that we've invested in, that we can then derive a revenue out of at the back end. So quite where you then sit that as a concept in the business, the key thing from a cultural mindset perspective is that we need to seize that opportunity and we need the leaders of all these different businesses to work in an informal way with one vision to do the right thing to realise the opportunity that the ecosystem creates. And then I also, Jeff said I would touch on mobile because in truth, I don't think we've told the story brilliantly of why did we buy a mobile phone business at a time when most mobile phone retailers seem to be having such a hard time. Well, I believed in the strategy to start with, but now I've got into it in really some depth. I'm really excited by the platform that it gives us. And it's a great example of us applying our learnings. So it's a new category in the electrical space. It's a huge market for us. And one of the biggest things that we've learned as we've gone into new categories and new territories is just the frustrating pace of build. So overnight, we have scale. with all four networks and scale with handset manufacturers. We are immediately the number two player in the market. Oh, but with no stores, because I don't think there's a huge amount of value these days in going to a store. It's not 20 years ago where we needed all the different handsets to be explained to us. One piece of glass actually when it's turned off looks very much the same as another. So we don't have a store infrastructure. We don't have a legacy infrastructure around that in terms of systems. We've got no great historical headcount to deal with. But we do have an AO customer base with over 6 million people loyal to our brand that probably all have a mobile. And I was asked in a BBC interview very recently about the issue, yeah, but now people are only renewing their phones every two years, and that's a structural problem because that used to be every year. But actually, I view that as a huge opportunity because what we get is then a monthly billing touchpoint. We have a monthly reason to communicate with our customers and remind them of the value that we're giving them. And frankly... I've spent my life selling people washing machines and fridges and they only change those every seven years. So every two is a gift. So it's all upside from my perspective. And if I look at the macro picture and plugging that into our ecosystem of opportunities through a customer lens, fundamentally will people in five years be more or less connected? And in five years will people have more or less devices connected? And in five years will people require more or less help with the more devices that they've got more connectivity on? And actually does 5G now mean that you'll connect more devices and does it mean that you will consume more data? And so I guess the ultimate question that I look at it through is, will mobile and connectivity be more or less central to our customers' lives as we go forward? And I also think it's a great platform for us to leverage the fact that we've got a scaled national network of premium fleet engineers. And they're in people's homes every day. And they can do all this help for you in your home to suit you without you having to take anything to a store. It seems like a direction of travel to me that a customer would vote for. So I can't wait to launch AO Mobile and I'm delighted to be able to tell you today that we will be doing that before Black Friday. So, in summary... To our very core, we are a disruptive growth business. We need to disrupt ourselves as much as the market. And critically, we need to drive the migration online and not hope that it will happen. In 10 years time, will people buy the categories that we sell more or less online? I believe more and I also believe that they will want more services to go with those products that they sell. Our investment in ecosystem really does have us uniquely placed to deliver that service in the AO way which I think will cement the customer loyalty that we have. Our total addressable market here and in Europe remains huge. All the products that we materially sell are common across all our markets. A Samsung TV is a Samsung TV. An iPhone is an iPhone. A Bosch washing machine is a Bosch washing machine. The way we sell them is common across all our markets. The way customers shop them is common across the products and all our markets. And the way that we physically deliver them and the challenges that we face in the two-man home delivery are common across all our markets. So therefore, it makes sense for us to leverage all the investments that we've made in proprietary systems, technology, website usability and infrastructure in a common way. And we have that infrastructure now to leverage that we committed to build back in February 2014. We are structurally set up to capitalise on all elements of the market direction of travel. And so this year is where we will capitalise on that investment and we will deliver for those that have invested in us. And that is what we intend to do. And we intend to do it at pace. So thank you for listening and thank you for your continued support. I'm very happy to take questions from the room. But before we do, we are a digital disruptor. So we're also trying something else new today. In order to get the AO story across to the widest possible audience in the way that we've just explained it to you, last week, Mark and I spent about an hour being interviewed by Declan Currie, the ex-BBC business editor. And so you can now watch that interview live or It's now live on the investor page of the AO World website. We will continue with the in-person format of presentation for full and half year. But I do hope that the digital content that we will be creating will form an increasingly important and informative part of the communications that we have with the equity markets moving forward. And given the nature of what we're trying to achieve through an organic growth strategy, our daily and weekly results can be volatile. So I'd rather that we focus giving you this rich information at the half year and full year, and so we'll be moving away from quarterly reporting. Because I think it's an admin burden the business doesn't need, and I don't think that it aids your understanding of our business. Okay, I'm happy to move to questions.

Right, we're going to move to questions. We've got a roving mic, so that will come round. Now, I know who all of you are, of course, but before you ask your question, could you just explain to Mark who you are and where you come from? Caroline. Caroline.

Good morning, Caroline from Jefferies. Can I kick off with a few questions, please? The first one is on the UK TV campaign delivering tomorrow. In the past, obviously, you've talked about trying to get the message out to more people who don't currently shop at AO in the UK about the service proposition. And I know, John, you obviously was involved in this. Can you explain a bit why it didn't get the response you were hoping for? And subsequently, what's driven the growth in the past couple of months in MDA?

Yeah, so taking the TV question first. So I don't fundamentally believe TV is the right medium for us to tell our story. So the simplest way for me to explain that is that if I tell you that I'm cool, by very definition, I'm not cool. So in terms of what we're trying to communicate to a customer, we're trying to not communicate the what of what we do, because next day delivery, although we invented it in our space, is no longer revolutionary. How we do what we do is a much more difficult thing to do on TV advertising. And so I think there's a much more effective way for us to unleash the deep truths in our business around storytelling of just quite how we do treat every customer like our gran and how everybody across our business truly does live to their core, making their mums proud. Because those two things... are actually what drive the how. So that isn't something that you can just train in or tell people to do. That's the way a business operates. And so we've got to be a lot more awake to that and we've got to bring that out, whether that's in social media or whether that's in PR or wherever it is, that's how we've got to tell that story. And, you know, rental, for example, is another way. Recycling, I think, you know, so we invested in our, we made our decision in recycling way, way, way before Blue Planet blew the lid off plastics. And so we're quite in tune, I think, with what customers really care about and what's the right thing to do. But I don't think we've told our recycling story well at all. But I think customers really will care about that. And that's a real differentiator between us and other retail brands. And I think there's a real direction of travel along the softer issues with customers. So this isn't a case of us cutting marketing spend. This is a case of us investing in storytelling and also investing in website usability. And I don't think we've done enough of that over the last few years, so we're going to be leaning some of that spend into just making the journey fundamentally better, the way we tell product stories better, and making the whole customer journey better, rather than shouting at you that we do next day delivery. The second point. Yeah, so the second point, we're doing lots of things. And it is very much the attitude of, well, if you were going to do it next week, do it today. If you're going to do it next quarter, do it tomorrow. And when we get everybody across the business and all that whole ecosystem of 3,000 people thinking like that, there isn't one specific thing that we've done. But we are trying lots of things, and not all of them are working. So there's ups and downs within that. So it would be inappropriate for me to start listing things that we're trialling at the minute. But at half year, I will pull out a few key things, and I'll pull out a few key things that have probably not quite worked as well.

Okay, that's great. Can I now move on to Germany and just clarify, Mark, some of the points you made in the presentation? You talked about the fact that sales could fall back in the first half of this year as you pull back on discounting. But then you said that profitability might also continue the same trends, I think. You had a negative gross margin in Germany in the second half. Even if you pull back on discounting, do you expect to have a negative gross margin or is it just the operating deleverage? of potentially lower sales that's going to hamper growth?

Yes, I think the answer to that probably comes in a couple of parts. And so if we're kind of looking at the first half as a whole, inevitably some of the actions that we are currently taking won't have an immediate impact on the P&L. And so things like manufacturing negotiations, which we expect to have a positive impact on the P&L in the medium and longer term, They won't happen overnight despite our best efforts and whatever agreements we're able to make. We'll take a bit of time to feed through. In terms of pricing, again, there will be a fundamental, okay, we've reset our pricing strategy. That's happened at a period of time through the first half. And so what the weighted average mix of that is through that six-month period, I think remains to be seen. But I do probably think that will be either negative or close to zero in the first half. We may do slightly better.

Just to elaborate on Mark's point there as well, I made the point we've got deep learnings over 20 years of how we understand our business and we've built all these things from the ground up. And so one of the things that we're going to be doing very practically is taking the decisions that we believe to be right from a proposition point of view. and right through a customer service lens and we're gonna so setting the criteria for what we believe to be the right things not short-term tactical things long-term strategic absolutely making the right decisions and we are just very clear that we're uncertain exactly what all the outputs of those will be because we are in the throes of taking those actions but in terms of the fundamentals of germany Absolutely. Customers voting for it, the competitive bar is lower in Germany. So the flow through of it, we've got a lot of confidence around, but it's too early to give any guidance on what they might be.

Okay. Who's next? Great. Frank.

Hi, morning. Greg from Shore Capital. Just following on the gross margin in Europe, I think you put in the presentation that you got lower than anticipated manufacturer support. Can you just give a bit more colour to that? Given that you're growing at kind of 30%, why are you not getting manufacturer support?

There's a misnomer, okay? So let's just dispel a myth. So just because we're growing at 30% doesn't mean you get more gross margin. Just fact. You can go and spend billions with Apple. They won't just start changing their trading terms for you. And it's not sort of collegiately the way that we've built the relationships with our supplier partners over the years. And so, frankly, the increase of that within Bosch's business as a whole makes no difference. It's much more strategically how we fit for them as a trading partner. And so that's going to be more of what we're doing with them We've got world-class multimedia content that we have in the UK, and brands love that. Brands love their innovation stories being told, and they're happy to invest in those areas. If I just went along to Bosch and said, I'll spend another 20 million with you this year, or I'll spend another 50 million, the misnomer that I bang the table and demand another 2% because I've got a bit more scale, it's just wrong. So what we need to do is we need to go back to fundamental core basics. We have a scaled business, but there's no marker that says that if we go from 150 to 250, that means we're going to get another 5%. So this is a more intelligent journey of how we build that margin journey with the brands. And those are the discussions that we're going. And we're very encouraged by the way that the brands are receiving that discussion. And as I said, it's exactly the same journey we've lived in the UK. It took me seven years to convince Mila to even open an account. We were Samsung's biggest customer in white goods in the UK in 2014 and they started selling TVs and it took us four years to convince them to even let us buy curved TVs. So this is not about volume per se as a big stick that people have it in the mind that you walk along and and demand these terms. This is a journey, this is the art rather than the science of our business. So it is not necessarily a linked formula that says, even if we're flat in the first half on sales, That doesn't mean that margin is going to reverse because we've lost scale. So this is about making the right things to grow our business in the right way in line with our manufacturing partner strategies as well.

So just listening to that then, the road to profitability then is just by leveraging the operating costs in Europe.

So the road to profitability in Germany is multifaceted as it is in the UK. And it's relatively simple. We need to drive traffic into a website. And we're pretty good at performance marketing. So we need to lean those disciplines in. And we haven't done that to the extent that we should have done. We've then got a website that operates on desktop, tablet, and mobile. And we need to repeat the customer journey around that. We need to lean in all the experience of what creates conversion through that journey. I've already touched on multimedia. So multimedia isn't something that we've rolled into the European operations at scale. So that'll be one of the things that we will use to drive conversion. And then from an operational point, obviously we've got to buy the product. And then from an operational point of view, we are then much more into the science that that is a purely volume-driven business. And we know that at volume X, we know what our broad cost to deliver should be. We're running it on the same software that we built for our UK business. and trucks don't know where they are, and warehouses don't know where they are. And I don't say that to be facetious. It's a much more scientific model that's volume-driven when you get to that. So they work in concert. It's a bit like a golf game of driving, chipping, and putting. We get them all right, we might win the Masters.

Okay, who's next? Simon? Simon?

Morning. Simon Bowler from Numis. Three questions, if that's okay. I'll tell them in turn. First one, just for you guys, you spoke around communicating and storytelling. I think that was largely a UK-based comment. How does that differ when you think about communication and storytelling in Germany and across Europe?

Well, it will be the same. We're going to learn the lessons in the UK and then we will apply them across. I think we're incredibly lucky that the vast majority of what we do across pretty much every discipline in the business translates across. So we, as a core discipline and learning, that's exactly what we're going to be doing. And also, all the content repeats as well. So telling a recycling story, once you've captured all the footage and everything for it, it all repeats across. So they will be exactly the same disciplines.

Okay, very clear. And then secondly, just on the mobile piece, do you anticipate any kind of change in the structure of the relationship with networks, the way that you're remunerated versus how MPD is historically operated?

Yeah, so you can answer the detail, but there's a huge opportunity for the networks.

What we don't see, though, is replicating the model Carphone have had and some of the challenges they've had with working capital historically, so we're not exploring down that line. But we do, and when we bought the business, we did talk about the fact that some of the network agreements were fairly historical in nature and that actually as we go forward we would be looking to enter into longer term agreements with those network partners so we will look at the relationships but it's not that we expect some big balance sheet change as a result of it Okay, very clear and then finally there's a couple of comments within the same thing with regards to credit insurance I was just wondering if you could share a little bit of colour on that area Yeah, so, I mean, we see the credit insurance that our suppliers tend to use, that the credit insurers risk appetite in the UK, particularly in UK retail, with the consumer landscapes it is, we do see that that sentiment is largely negative. And so, you know, we are very mindful that... changes in their sentiment can have impacts to our suppliers. And so we continue to monitor that and continue to have dialogue with those credit insurers.

Okay, any other questions? Georgie?

Thanks. It's Georgina from JPMorgan. Just a really brief one, please, for Mark, I think, just on working capital for next year. Can you just give us some help in modelling that, particularly for those of us who are perhaps less familiar with the mobile phones side of the business? Because obviously there was a large swing this year.

Yeah. So in terms of our sort of run rate view of working capital and mobile phones direct and so that element of the business, it should run a broadly neutral working capital model and so effectively the handset purchases are typically on 60 days credit and that corresponds with the accrued income booked at the time of selling the contract. So those two things should largely offset. So That's how we'd expect that to go. In terms of our UK and European businesses, we are mindful of the challenges that credit insurers pose and so mindful of our ability to grow creditors in line with revenues as we would ordinarily expect to be able to do. And then we've got our usual when is Brexit and what do we need to do about stock increases that may affect timings of results, particularly as we run up to interims. Tony?

Yeah, just a sort of general question. You sort of made references to sort of disruptive behaviour at various points. And I can sort of see that in the context of... sort of how you're sort of organising yourself internally and also in terms of how you know when you enter a new market and do things a different way it sort of disrupts the existing market I just wondered if you're I sort of had the impression your comments were probably more related to your existing core market and that we might expect to see some difference in the way you approach that market At the moment, it's a sort of service-based proposition, a bit on price, a bit of a change in communication method. As a customer, would I feel disrupted by any new approach that you're planning to take?

You'll enjoy the experience. You know, I mean, the core fundamentals are that it is a much better way to spend a Saturday morning than traipsing around a retail store. The vast majority of people start their search online and so... disruption will come in the form of how we help you on that website journey so there's a there's loads of tech now we've got machine learning and ai that we've got some projects in that we're looking on how we can help you through personalization we can make that journey a lot richer and a lot better for you as an individual from a proposition point of view you know the the in in one man in food service delivery you can see the convenience battle being played out So we see convenience and services as the next battleground and how we play that out. And so the investments that we've made in things like premium fleet play to that. So we've got a whole range of things that we can now do for you. And I want us to be the trusted brand that you think of as in the space of connected devices. The Internet of Things, for example, has been spoken about. over the last six or seven years and normally with these topics there's a lot of hot air before there's any reality uh you know and if somebody had said 10 years ago you're going to be asking something on your on your kitchen worktop what the weather's going to be people would have laughed at you but obviously that's now starting to become normal and devices are becoming more connected and we're amazingly well positioned to really compound that One of the differences we made last year was we made that fleet branded. So what we were doing three years ago was we were turning up in a white van with no memory and no brand resonance of the amazing service that we're providing. So So I think there's lots of areas. I don't think there's one major silver bullet because we're already the cheapest. We already deliver it the quickest. We already deliver it with the best level of service. So this is a now. How do we make it easier and take friction out of lots and lots of other touch points?

And I think one of the things we are doing, though, is if you look at the rental model trial that we have going with housing associations, that is disrupting how those people are able to access white goods, for example. Whether it's the take-back scheme and actually you can go on our website and order a collection of a major domestic appliance without buying one. I do think these are things that are disrupting to the market and for our customers that they will see as different than our competitors.

And I think, Tony, importantly, one of the things for us as well is, from a mindset perspective, is to challenge everything that we do. So we've got to disrupt ourselves because I think it would be very arrogant of us to sit around and think that there isn't somebody somewhere having a one-pound bet with somebody, with one of their mates, thinking that they can do what we've achieved. And so we need to keep disrupting ourselves, and the way that we inherently do things doesn't give us any great protection.

And if I'm a disruptor working in Bolton, and I've got an idea that's different from your idea, how are you going to encourage me to say it? How am I going to... Encourage you to express... me to express that view?

Well, so in our business, this is not a John Roberts ideas factory. I mean, it really isn't, is it? The ideas come from across the business. One of the questions that I ask most is, how can I help? So how can I help turbocharge what you're thinking about? How can we remove barriers? And so we challenge people to dream the impossible and then say, okay, how do we make it reality? So what are the things that we're seeing across all the different areas of the business? So Take Back is a great example of spending time in the recycling business and thinking, tell you what, let's go and have a look at how many people are searching for that right now on Google. Well, we've got some core expertise over there. We can lean that into that. So from idea to conception, we can make that happen really quickly. And it's back to good old-fashioned stuff like picking the phone up and having conversations with people and people not being precious about things and people being energized about making things happen. And it creates its own momentum as well.

Okay. Any more questions?

Yeah, I'm Charles Allen from Bloomberg Intelligence. Given what you're saying about things like the Internet of Things, what do you expect your sort of average delivery time to do over the coming years? Do you expect it to get longer? And are you confident that you'll be able to monetize what people are going to do, what your people are going to do in people's houses?

Absolutely, so we're already doing that and our premium fleet business is a great contributor to the business. In terms of what's going to happen to our delivery time, in terms of lead time, You mean time in home? I mean time in home, yeah. But in terms of lead time, I think that it might narrow a bit. I think we've taken most of that out. I think the most important next battleground is actually on the convenience of a time window. So if you think about grocery now... you know, an hour window is pretty dearly good in that environment. In terms of the time that we spend in the home, I think most people are happy to pay a fair price for a great service. And so that then comes down to the unit economics of how efficiently can we effect that time. And if we're spending most of our time driving, So we basically, if you think about in an airline terms, they make money when the wheels are up rather than on the ground. We make money in that context when we're providing a service in the home rather than driving between homes. And so with greater scale, we have greater density and we're therefore spending more time in the home. And that is a very expensive network to grow and to learn how to train all those people You know, we're delivering gas range cookers and delivering them at the point of installation. That's a whole different level of training to dropping off a book or an iPad. And so we already have that in our ecosystem. So we're extremely well placed to grow that out.

Okay, any more questions? Okay, well obviously the team will be here to talk to people individually afterwards. Thanks. Thank you.