Ao World Plc Unsp/Adr

Good morning and welcome to AO's full year results presentation. It has definitely been a very different year for all of us. At AO, we've seen significant strategic, operational and financial progress. A real step change year. And we're updating you differently today as well. We think understanding the AO journey is really important. So Mark will run you through the financials in a moment and then you'll hear more from me. At the end of the presentation, we'll be hosting a Q&A. So please stay on and don't be shy with your questions.

Good morning and thank you, John. This has been a phenomenal 12 months and one that has accelerated the strategic and market progress we've made over the last couple of years. Total group revenue grew by 62% to £1.7 billion. This came mainly from product sales, which increased as we all switched to online shopping when non-essential stores were shut. The mix of products in high demand changed through the year, with freezers being the first hot product as COVID hit, through to gaming and consumer electronics, and major domestic appliances in the run up to Christmas. I was incredibly thankful to all our IOWers, particularly those in our logistics business, who stepped up to the plate in the early days of COVID and continued to deliver for our customers. Our UK business grew at 59%, generating sales of over 1.4 billion. Our newer categories including small domestic appliances, audio-visual and consumer electronics all more than doubled their sales. Gaming, DIY and mobile handsets also had a great year, although from a smaller base. We saw strong growth in Germany, where our market share doubled to over 3%. Revenue grew 81% to £226 million and we achieved a break-even adjusted EBITDA run rate through our peak period. This is a great milestone and shows what we can accomplish with our 1A0 model. More broadly, on a group basis, product revenues grew by 74% as the electrical market shifted further online. Service revenues comprising installations, premium delivery and so forth were up by 51%, slightly behind product revenues as COVID restrictions on entering people's homes and social distancing meant that we had to pause these services at certain times over the year. Commission revenue grew modestly, but was impacted by adjustments in warranties and issues in mobile, which I will come back to explain in more detail later. In third-party logistics, we prioritise deliveries to our regular partners and AO customers during COVID and put new growth on hold. Recycling volumes were particularly affected by COVID restrictions, about which John will speak shortly. Despite the volume volatility, recycling reported a 32% increase in revenues. Operationally, we opened our plastics recycling facility during the year, further increasing our credentials in this area. Whilst this has been a great year for us, don't forget we've consistently reported double-digit growth of 25% since IPO. And over the past five years, Germany has grown at 37% on a compound basis. So our high growth strategy has been successful through many market cycles, and this shouldn't be seen as a one-off year. Moving on to gross margin, which remained consistent at 18% for the group, it's in the business units where positive movements become clear. UK gross margin fell slightly as a result of category mix, with newer categories typically having lower gross margin than mature categories, and this was compounded by the challenges in mobile and warranties. Despite this mixed effect, margins in all categories on AO.com improved during the period. The huge inflection point is in Germany, where gross margin has moved from a loss of 2% to almost a 9% positive margin this year. This mainly came from the steady improvements in our supplier terms, aligning pricing with the UK, and the increased product sales driving scale efficiencies through our logistics operations. What does this mean for the bottom line? Our primary focus remains revenue growth, but adjusted EBITDA has continued to grow, doubling at group level from 2% last year to 4% of revenues for this financial year, or £64 million. We've seen headwinds and tailwinds throughout the year from COVID, so we won't try to quantify them all. That said, to call out just a few, in the UK we've increased our warehouse capacity by over 80% with all the associated costs to mitigate supply chain disruption and serve customer demand. We've created 1,200 new roles across the group to meet this elevated level of sales and to bring in the skills helping us to achieve our next phase of growth. Our margin and marketing costs benefited from capacity restrictions in the market when stores were closed. And finally, we saw lots of new customers buying our category online for the first time, whom we hope will repeat purchase time and again in the future. UK EBITDA was 67 million, an increase of 68%, which was a great performance given the mix of headwinds and tailwinds we managed through the year. Losses have reduced further in our German business as gross margins improved. We've also reduced overhead costs and improved marketing effectiveness. In the third quarter, our breakeven run rate performance demonstrates the potential of the business to deliver profitability and underlines the confidence we have in our model. As we looked through the key line items in SG&A, we saw marketing costs increasing as we ran a number of campaigns to build longer-term brand awareness. We welcomed 1.9 million new customers to the website and increased traffic by over 80%. As I've already mentioned, we added around 600,000 square feet of warehousing space, which worked to our advantage when supply chain disruption hit and customer demand soared. We were able to support our supplier partners as we took on their stock in transit when stores closed, and we were able to meet demand for our customers who relied on our next day service of essential electricals. The increase in other administrative costs were primarily related to the recruitment of staff across our IT and people functions to support the continued growth of our business, as well as an increase in incentive payments, reflecting our performance and the introduction of the value creation plan. As a percentage of revenue, these costs overall reduced from 10% to 8%. The strong growth helped us to achieve Group Adjusted EBITDA of £64 million, up over 190% on the previous year. Although this has generally been a great year for AO, there were some challenges. As previously reported, our mobile phones direct business was impacted by shifts in customer behavior during the year under COVID, with much higher levels of cashback redemption and contract cancellations than our model predicted. We acted swiftly to move to a higher upfront cost model, which reduced monthly network costs for customers and removed cashback as a sales proposition. we've seen an increase in warranty plan cancellations, partly due to household financial uncertainty under COVID restrictions. Following a full review of the customer contract base, we have made a cumulative adjustment to reserves at year end of 11.1 million, with a one-off charge in the current period of 8.1 million to align our ongoing assumptions and estimates for the warranty contract asset. we finally ended our onerous contract with Payback in Germany, resulting in a £2.2 million adjustment to EBITDA this year. Moving on to cash flow, EBITDA delivered in the period was a key driver of our strong performance. Working capital inflow was then partially offset by the repayment in the ordinary course of borrowings and lease liabilities of £45 million and capital expenditure of £9 million. During the year, we refinance our debt facilities by consolidating our £60 million RCF with the £20 million term loan into a new £80 million RCF. This matures in April 2023, resulting in total liquidity headroom of £143 million at the year end. Looking now at working capital, as you can see from this chart, inventories have increased significantly to serve strong customer demand and mitigate supply chain disruption. Stock holding in both the UK and Germany roughly doubled compared to last year. Inventory days increased slightly to about 30 days versus 28 previously. We anticipate that stock levels will remain higher than normal until our supply chains normalise. The increase in trade payables reflects higher revenues compounded with increased credit limits from manufacturers. Commercial income, mainly rebates from suppliers, has increased with revenue. Looking forward, our plan is to build on the strong momentum within AO and invest in our long-term vision. Over the next 12 months, we aim to lap the volatile COVID comparatives with double digit growth. We will invest further in marketing and digital content, particularly in the UK, with a total of about 30 million incrementally planned for FY22. About 5 million of this is capital. We will invest about 30 million in support systems and process improvement. Roughly two thirds is capital. We continue to investigate a mega recycling centre. The capital costs would be in the region of 20 million. we will continue to grow our German business as quickly as we can at roughly break even plus or minus 2%. We will invest sensibly in our UK business for growth, but we'll constrain these investment opportunities to within plus or minus 1% of revenue. Our firm view is that the shift to online retail accelerated by COVID will continue, but we're conscious that markets are volatile and forecasting the next 12 to 18 months will remain difficult. We continue to focus on revenue growth and taking market share, becoming the recognised category leader in electricals and giving us real scale. To sum up, we have a strong business model built up over 20 years which is underpinned by our vertical integration, our 1A0 centres of expertise and our clear vision for high growth potential in newer categories. We're continuing to build scale which drives our profitability and our flywheel. It is these factors that give us confidence in our strategy and our vision. We remain cautiously optimistic about the coming year. Finally, our people have done a great job this year under extraordinary circumstances and I would like to thank them for all their hard work.

So, I'm delighted to talk to you today about what we've achieved. But more importantly, I wanted to talk you through our strategic plan and why we're just so excited about the next chapter of the AO story. Our mission is to be the global destination for electricals and the migration to online is firmly in our favour. The plan I'll set out later will bring some scale to the opportunity ahead of us. and we intend to realise it. In five years' time, we will aim to have expanded into five territories with a turnover more than double what it is today, and we'll be operating in a total addressable market of some £118 billion. But before I explain more about the strategy to get us there, let me take a second to remind you quite how far we've come since Christmas 1999, when I bet my friend Alan Latchford that we really could sell washing machines on the internet. Five months later, we were registered with the company's house and selling our first few products. More than 8 million customers have now experienced the AOA since launch, with 2 million choosing us in the last year alone. We make around 14,000 deliveries a day across the UK and Germany, and we've got about 1.8 million square feet of warehousing. We employ around 4,400 AOAs and have about 1,000 vans a day out on the road. We recycle hundreds of thousands of appliances and we sell products across nine categories while maintaining industry-leading net promoter scores well into the 80s, both in the UK and Germany. It really has been an incredible two decades. As I said before, this has been a significant step change year for AO. We're proud to have risen to the challenge for the people that really matter most to us, our customers. And we've relished the opportunity to impress those two million more of them. Testing times are always an opportunity to deepen relationship. And of course, our trading partners who've been shoulder to shoulder with us throughout. This year has also been one of uncertainty for all areas of life and business. Our immediate response to the pandemic was to invest early and boldly to seize the opportunities created by the temporary closure of physical retail during the pandemic and prove to new customers that there really is a better way to buy these categories. The investment in our capacity, infrastructure and people set us up to serve customers brilliantly when they really needed us most. Our culture is to treat every customer as if they were our own gram and to make decisions that would make our mums proud. We live this in spades and at times it had meaningful costs attached to it. But we view those costs as great investments in customer lifetime value. It was certainly a time to have a well-invested culture and not a time to start building one. Our swift response to COVID and our platform that's designed for scale leverage delivered transformational results on growth, cash and profit. Our group revenues were up 59% and profits were up 191%. In the UK, we made an incredible 8% market share gain in major domestic appliances, giving us an average of 23% share across the year. Our share in small domestic appliances was 2% pre-pandemic and rose to peaks of over 5%, albeit settled back a little since. And consumer electronics was a very similar story. But this shows the sheer scale of opportunity here and that customers will vote to buy these products in some categories that are new to AO when they're given the right range, price and delivery proposition that we are always working to improve. Mobile remains a great opportunity. Frankly, a more dysfunctional market I don't think I've ever seen, but the fog is clearing and the customer direction of travel is firmly towards disaggregation of handset and sim, as we hoped, and away from contracts. In Germany, we reached a profitable run rate and we expect to maintain this level, give or take a couple of points of margin tolerance as we grow. We deepened relationships in Germany with suppliers and our input prices there are now near parity to those in the UK. We reorganised our logistics in Germany to operate on a model that we've proven in the UK with the financial output that will now drive scale efficiencies as we grow. Our centres of expertise, led from and largely based in the UK, now deliver virtually all the marketing and e-commerce operations to increase sales while reducing marketing costs. We removed or prevented complexity and management layers to the tune of about 5 million of overhead annually. At group level, we accelerated our investment in tech, innovation and improving the customer journey, including a full site-wide rebrand and the launch of personalisation, with the benefits of that are going to be realised in the second half of this year and, of course, in the years ahead as well. We've refined ways of working that will allow us to repeat and scale our model from Germany into more European territories. We've created around 1200 new roles and built a programme of leadership training and development as we reinvigorate a high performance culture. The leadership team has also discovered new ways to operate and to integrate the new talent that we're bringing in with deep experience. The challenge of COVID, of course, brought with it headwinds and tailwinds. But one of the most important aspects was the speed with which the world, governments, customers and business had to adapt. This just wasn't like a huge peak trading or a Black Friday that you plan for all year. This was several Black Fridays, one after another, with very limited planning. We saw about 10 years of change accelerate into the last year on all levels. And the overall shift of customers online, I believe, will stick. I believe that a tipping point has been reached and we expect it to settle at around 60% to 65% on UK MDA market share and then start to grow again, frankly, as it has for every year in the last 20 years. there's still loads of opportunity to show people a better way to shop. I also think working from home is here to stay for lots of people. And if you think even just one day a week is a significant increase in appliance usage. we're anticipating more and faster replacements and product upgrades, while investments in home improvements and a reinvigorated housing market will also fuel that demand. However, COVID working practices have been expensive to operate, particularly in our logistics business, but our structural investment has created long lasting scale advantage. Our recycling business in the early stages of COVID suffered from famine, followed by the expensive indigestion of feast when we were able to resume normal collection services. But it could have been much worse and more costly as well if we didn't have that operation in-house. And changing legislation in recycling is also creating lots of opportunity for the future. And as such, we now need to invest in bigger capacity with a long-term time horizon in mind. Global manufacturers, and many of whom had resisted the migration to online for the last 20 years, they're now viewing the world with a digital first lens. And we are passionate, as we always have been, about being their long-term partner of choice. And of course, there's still uncertainty and there will be volatility, but the direction of travel is firmly with AO and the business model we've spent more than 20 years building. It's worth remembering that the store shopping experience is about as good as it's ever going to get and the online experience will never be worse than it is today. I expect with our growth mindset and focus on scale, we'll continue to be a double-digit growth business in this year ahead, even as we lap the early stages of volatile COVID comparatives from last year, and of course now with physical retail having reopened. We have an opportunity to continue to drive further growth and the ability to reinvest in our flywheel and a firm belief in the scale we can achieve. And scale matters because centrally, we're actually a high fixed cost based business. And our structural advantage is our ability to leverage that investment over a greater addressable market. We are already proving our ability to leverage our capability and retail platform very effectively into new market segments such as house builders, B2B, social housing, SMEs, even kitchen retailers. And we're also able to test convenience stores within Tesco as well. The same is true with our logistics model where we now make deliveries for a whole host of other companies. They're proud to have their goods delivered on an AO green van because of the quality of that service and the efficiency that it represents. We're also proving this in Germany as well, where we've repeated our relationship with Aldi from the UK and we're also now making furniture deliveries for other retailers. And I think it's an important evidence point that our logistics infrastructure is not just regarded as best in class in Germany for quality, but that we've now got the economics right such that we can serve these contracts profitably. Every one of these opportunities leverages our infrastructure. It drives our flywheel. And if we're successful, there'll be repeatable playbooks that we can roll internationally. Scale doesn't happen overnight. It needs investment in capability and time and the experience to learn what works. So, to our strategy. First, a reminder of the opportunity. I've been saying for more than 20 years that the market is going to migrate online. Even before the pandemic, we were growing at 9%, and that's just been turbocharged recently. In the UK and in Germany, in fact, globally, we've become ubiquitously connected. Importantly, that also includes demographics that might have been much slower to adopt online shopping pre-COVID. And so we are truly blessed to have such a long runway of opportunity ahead of us. And crucially, we'll realise that by repeating and scaling what we already do. It enables us to continue to invest aggressively to expand and leverage our customer base, brand and infrastructure. We've worked hard to create a business model that is cash generative and very capital efficient. The opportunity in the UK and Germany is huge. But we believe there's also a huge opportunity for us in Europe, right across the electricals categories, well beyond the bedrock of MDA. The AO Flywheel is the reason we're able to do the things we do. and do them brilliantly, with confidence. It makes us uniquely placed to grab the opportunity ahead. By obsessing about customers and making things ever better for them, by innovating and investing bravely, we increase sales at strong growth rates in each of our markets. We grow repeat and recommendation business to build lifetime value while also finding ways to reach and delight even more customers. And through that growth of sales, we get operational gearing, we get scalability, we get efficiencies. And because we're vertically integrated, that flywheel really does start to turn faster and faster, and it makes the business more profitable. And that profitability gives us choices. And in those choices, well, who comes first? Well, of course, the customer. So we obsess about how we reinvest those profits for our customers, and we drive to grow sales. We believe deeply in sharing that lifetime value that customers help us to create with them, always with the long-term in mind. And this takes many forms, but our focus broadly is to be quicker, easier, cheaper, and more convenient. Of course, all with a cheeky little AO smile. And what I love about all those ingredients is that there's no destination. They will never run out. They can always be improved and always giving us greater advantage and we'll continue to invest to realise that long-term prize. By driving sales harder, we'll grow a bigger business over the long term, which will mean we'll choose to invest profits in the short term. We're investing to reinvent the customer journey with a focus on how capabilities like AI and machine learning can leverage our vertically integrated supply chain, providing a totally personalized experience. We're also investing in bringing products to life and being the true global leader for customers to explore products. And of course, for global manufacturers to best present those products. We'll be opening a new London-based creative centre with the brief of doing to product content what Pixar did to animation. We're going to start that with a commitment in the year ahead of about 15 to 20 million pounds. And my belief and hope is that manufacturers will love what they see through their now digital first lens. For now, this is an investment that we make alone, but my expectation is that over time, this will very much be a foundation of our partnership together. We're also making significant brand investment of about £15 million in the year ahead in the UK. Unprompted brand awareness is only 37%, and yet our share of the MDA market has averaged 23% over the last year. The opportunity here is clear and we've learned a lot of lessons over the past few years and probably the biggest is that there's no quick fix. But I believe deeply that people forget what you tell them, but they remember how you made them feel. We want customers to love AO as a brand and that is going to take time. And it will, critically, require customers to experience the AO way or to have it recommended to them. And we've got a number of exciting plans in this area that drive engagement and activation and all having a long-term lens. We're excited about the platform that the AO Arena gives our brand. And Bear, the AO Teddy, has been received really well by customers. And our drivers are creating thousands of moments of magic every day as they hand them out. But critically, the kids, the target audience, they absolutely love them. We're driving the customer proposition hard through the benefits of our new scale, especially in logistics, premium fleet, faster deliveries, more convenient delivery time slots. We're also innovating with our B2B channel offer, as I mentioned earlier, and we see significant opportunity ahead with house builders, kitchen manufacturers and retailers and housing associations as well with our rental model. And we also look forward to repeating those lessons from all these areas internationally as well. For those customers who don't shop online, well, we'll find a new and different way for them to experience the AO way. An example is our trial of a five-store store within a store partnership with Tesco. And although the stores have been largely closed during the COVID period, the trial is raring to give customers the convenience of browsing and ordering large appliances for delivery while taking away with them small appliances with their grocery shopping. Customers are just going to be met by the same passionate AO customer service experience that we're known for online, but with the convenience of being located where they are already shopping. We think this is a far superior cost dynamic than a standalone store. I'm super excited by the capabilities that we're building whilst also investing significantly in our foundation system technology to the tune of about 30 million a year for the next three years at least. This is about building bulletproof, stable back end systems that enable new geographies and allow us to plug and play the elements we need with improved internal tools. This will also facilitate more automation right across the business and the ability to scale seamlessly to support our growth ambitions. These foundation systems really are, if you will, the root system of an oak tree, a solid base that grows and strengthens over time. So if you think about the trunk as our flywheel, that drives the capability and learnings into the branches. And those branches are the part that customers see and hopefully value. And they increase our reach and allow us to flex in the wind to meet changing needs and our ability to disrupt on customers' behalf. we'll be able to apply all of that model globally. In some markets, we think this will involve us taking full control as we do in the UK and Germany now. Further afield, that might involve a partnership to enable others to access some of our capabilities to disrupt their local markets for their customers. Our optimism and determination is underpinned by the stat that Mark gave you earlier, that we've had compound annual growth since IPO, which is about eight years ago, of 25%. Europe is still in its internet infancy in many markets. Germany has taught us valuable lessons and now provides a template for expansion. We need to repeat, not reinvent, the UK business in each country. We can leverage our knowledge and centres of expertise, such as logistics, customer service, web platform, e-commerce capability, amazing content, and the consistency of what we sell, how we sell it, and how we deliver it. I mean, the list just goes on. Our ambition is to be in five countries in five years, capitalising on that total addressable market that I talked about. And that can all grow into one hell of an oak tree. Our focus in Germany is now about growth with discipline. And our ambition is to enter the next European territory towards the end of financial year 23. And we'll give you more information about where and when in November at half year. But in terms of European rollout, we believe there's all to play for in the big markets of Italy, France and Spain. We believe that we'll be able to achieve the break-even in approximately three years at a sales rate of around £120 million, with cumulative losses not exceeding around £30 million per territory. And this, for context, compares to our German journey that took six years and over £150 million of investment. And we've now reached a profitable run rate which we expect to maintain at that level, give or take a couple of points of margin on tolerance, as we now grow. The difference now is that we took time to learn the lessons in Germany, where in the new territories we'll just be applying those learnings right from the start. And our approach will be to roll out the proposition by population density this time as well, rather than nationally from day one. And this enables us to concentrate our key commercial dynamics into a profitable business to then drive that forward. It's much more about having a replicable model using proven centres of expertise with a much lower cost base rather than layering in new overhead per discipline for each territory. These investments will give us a capability to really accelerate our growth and therefore the long-term potential revenue and profitability potential of the business. For new categories and territories, we will drive to profit quickly, but sensibly, and then drive for scale at a round break even, continually reinvesting until the scale ultimately drives the profitability from the model. Now let's be clear on where we are. The next 12 to 18 months are going to be really difficult to forecast precisely. And the timing and the impact of what sticks and what doesn't has varying degrees of clarity, as does the lasting impact of the pandemic and the response to it as well from governments, whether here in the UK or in Europe. However, over the next five years, we can be more confident with our predictions and we expect growth on average to be in excess of 20% compound annual growth, with an EBITDA margin of between about 6% and 8% in our UK business. We expect margins in new territories and categories to perform at least as well as the UK once they reach maturity in a market. As I say, we pay attention to what our customers want, need and what they really care about. And they care that we are a responsible business that plays its part on the issues that matter to us all. It's great to see, and I have to say, investors focus on ESG issues converging with that of customers. But because the great news is customers got there first, this is an area where we're already ahead of the game. And we've believed for many years, as many investors now do, that doing business the right way, it's a better long-term investment and it's great fuel for our flywheel. We believe that customers increasingly care about this area of business and the legislative direction of travel certainly now supports the investments that we've been making for many years, frankly, all on the basis that it was the right thing to do and it'd make our mums proud. So in addition to online shopping being more environmentally friendly in the first place, we're also ahead of legislation in our recycling operation and capacity. We're now working with manufacturers as well on using our output recycled plastics in their products to create cradle to cradle appliances. We're working on the efficiency of our vehicle fleet and we launched an ambitious value creation plan scheme to ensure that all AOers share in the value that we create together. We're actively recruiting to encourage talent from all different backgrounds because we believe in the value of diversity and particularly the diversity of thought. What is good for customers is good for our people, and I believe that is good for our share owners too. We'll always take the long view and invest to drive our flywheel harder and faster for long-term benefit, all whilst over time building huge customer loyalty moats right around our business. So that's the AO story and strategy. In five years, we plan to be in five territories with more than double our current turnover. We'll continue to invest to drive the customer offer through range, services and proposition and the territories we can serve. We'll continue to obsess about cash generation forever, which will fuel our growth capability. And that ultimately drives our business forward to deliver brilliantly for customers. All of this positions us to become the global destination for electricals. The choices we make will create incredible long-term value for our share owners. So, thank you for your support. It really has been an incredible journey over the last 20 years and we're only just getting started. Okay, so that brings the formal part of today's results presentation to a close. I'd now like to ask Cecilia to explain how participants can ask their questions.

Thank you. If you wish to ask a question at this time, please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will take our first question from Tony Shirt from Pan New York, Oregon. Please go ahead.

Morning, John. Morning, Mark. Well done. I know you're going to sort of talk a lot on the Capital Markets Day about the international stuff. So maybe I could just ask a question on your marketing. And if you could give us what you think is a meaningful analysis of the Matt Lodge – amount you've spent in the current in the year reported on and how that's going to change with the increased amount of marketing in terms of things like above the line and cost per click and stuff like that thanks.

Yeah, so thanks. Good morning, Tony. So the year gone on marketing has been a real strange one in terms of the normal mix, given that at one point in the year, because of the demand and the capacity that wasn't there, for example, we even turned Google clicks off. So the mix across the year is not particularly representative of a normal year. And the cost of TV advertising dropped by about 50%, but actually that created an opportunity to go and do some, particularly when everybody was at home and with not a lot to do and watching lots of telly. and particularly watching live TV. As we look forward, we would expect the normal mix of marketing to normalize. And so the market around paid clicks, actually we would probably expect to get more competitive than maybe it was pre-pandemic because the world has woken up to actually this online migration is actually real. uh and it isn't going away and it isn't stepping back uh so uh so you know we are seeing people uh increase their investment in that space but we're very relaxed about that you know we've got 20 years of experience on uh on how to do um digital sort of direct response marketing uh where we're going to be making increased investment this year is around activation uh and um and how we engage with customers. One of our big learnings of the last few years, aside from the fact that there's no quick fix on it, is that people really need to experience the AOA. The idea that we can just do a TV advert to tell people that it is a much better experience And, you know, and this point about people forget what you tell them and they remember how you make them feel. You kind of got to feel that to understand it. And that's what we see with our, you know, our industry leading repeat and cross pollination across categories dynamics. And so you'll see us doing things like, more things like the AO Arena, more sponsorship activities, and more things that we can activate through channels like social media, where we can engage customers whether it's new customers or existing customers in the conversation. And really part of that is to sort of wake up or ignite the engagement of existing customers to create recommendation for new customers as well. And that's all built on the fact that we've got globally leading net promoter scores. So we're not afraid to try new things. The teddy bear is an interesting example of that. And go and have a bit of fun with customers and to position the brand slightly differently. Exactly what is going to work in that format. You know, we're learning as we go. But what's great about it is on those things, we can dial those up and dial them down in a really controllable way where, you know, sponsoring something like Britain's Got Talent, which was a lesson for us and a major investment. The major mistake we made there was thinking that the investment was just the sponsorship. And we should have probably spent another seven or eight million on activation to really capitalize on that. So that's kind of how we're thinking about the mix going forward, but all with a medium to long-term lens in mind, rather than a, you know, this is all going to pay back even in the current financial year. But the brand awareness, I believe, still remains our single biggest opportunity in the business.

Okay, thank you very much.

Thanks.

We will now take our next question from Simon Bowler from Numis. Please go ahead.

Morning. I was hoping to just kind of dig into a bit around the support systems investment, which you mentioned is kind of a three-year programme. Can you just give us a sense of what tools that does unlock and how that kind of happens over the course of that three-year period?

Yeah, sure. Morning, Sion. So it's across the whole estate is the reality of that. And that's about making us bulletproof for the future. So when we think about back-end systems, for example, so I think the headline is we're moving from loads of tech that we've built historically and iteratively that The way that we think about it is where it creates a point of difference for customers, we will continue to invest ourselves and differentiate. And where it's pretty much a hygiene factor, we want to go with much more of an off-the-shelf solution, largely cloud-based, that we can plug and play across those to give us a much more scalable platform. uh that we get the updates as we go along on that so so it's not one big bang of change uh it's progressive across the piece uh and uh and and it will cover all areas around things like order management systems uh it'll cover warehouse systems routing systems for vehicles uh it'll cover core web platform uh but then on top of that we will have our product team differentiation with all the different innovation that we put in on the front end. So the simple principle being where we want to create differentiation, we make that investment ourselves, but we do it in a microservices world and we plug it back into an API-driven core services architecture. And that is then something that from a system point of view, we will simply repeat into different categories and different markets rather than having to repurpose it each time we do that.

Okay, that's great. And then just one other question.

Yeah, no, that's great. And then just one other one, I realise it's kind of not the key focus, but in terms of the mobile side of the business, you're kind of still calling that as an opportunity, it's obviously a more difficult year in that category for you. When do you think you're going to be on a kind of a sounder footing to kind of accelerate growth there?

So in terms of being on a sounder footing vis-a-vis the challenges that we've had through the COVID year, those issues are fixed. And so going forward, we carry none of those problems that we've had to deal with forward. Our strategy on mobile phones direct remains exactly the same. That's our distinct contract-based business. Within that, we offer a range of networks. We still have a great relationship as well with Vodafone, albeit we're not exclusive with them. But our core strategy on AO.com is to focus on disaggregation, as we've said before. We believe that the thing that customers care most about in mobile is their handset. And the biggest challenge for customers on handsets is affordability. And so the model that we're building is simply around disaggregation and affordability of handsets on AO.com. And my hope is that by the end of this financial year, we will have really moved that proposition on. And that really was a casualty of how we had to reprioritize through the COVID year. But it's not as though the opportunity has gone away. The handset market for mobiles is huge. We still have the significant tailwind of 5G that is coming along. the fact that the world has become ubiquitously connected and connected on devices where demographics that may not have used things like FaceTime and Teams and Zoom and Skype and these kinds of things, have they been a lifeline for them? And so that's causing people to think about how they upgrade their products as well. So I think the market tailwinds are clear. The opportunity within mobile will remain huge. I think the product will remain absolutely central to people's lives. So it's not as though anything's going away in terms of opportunity. We just have to reprioritize through the year and we'll be improving that proposition as quickly as we can.

Okay, great, thanks.

Thanks, Simon.

As a reminder to ask a question, please press star one. We will now take our next question from John Stevenson from Peel Hunt. Please go ahead.

Brilliant, thanks. Morning, guys. A couple of questions, please. Can you talk about your new cohort of customers and how their behaviour sort of compares with previous recruits? and how effective you are at sort of getting people to repeat on the sort of CRM side of things. Second question, maybe comment on how availability is at the moment. And then, and finally, I mean, I suppose big question, but, you know, can you talk about the lead time and the investment required to open up a new territory in Europe? I mean, let's say you are, you know, looking to open up a region of Spain, you know, what are the implications? How long would it take? And what sort of, what do you need to lay down?

Okay. Yeah. So morning, John. In terms of the 2 million customers, that was our major focus when the pandemic hit was to invest bravely and boldly to be in a position to make the most of this significant step change. And so we haven't seen any major difference in the dynamics of what we've seen in prior years of those customers, and they do cross-pollinate into other categories. And customers that start off buying a coffee machine do go on to buy a laptop, and customers that start off buying a laptop do go on to buy fridges. And we see all customers across all categories cross-pollinating. As we've rolled into newer categories, that helps to accelerate the cycle because when we're just in MDA, the frequency of when customers require products from us is less. And as we've rolled into the newer categories, we're seeing that frequency increase. We don't actually call out any micro detail on that because of market sensitivities. save to say that we're very confident that the 2 million that we've put in is just an acceleration of fuel for future years that would historically have taken us longer to build. So we're really pleased with that. From a CRM perspective, we're good at CRM. We're really pleased with where we're at on that. But I think in truth, I think we can get better in the CRM product content space journey that we offer on newer categories. And that's one of the reasons for the investments that we're making in the creative center to improve those journeys that then further drives that CRM flywheel. From an availability perspective through the pandemic, we've seen significant supply chain disruption. You know, I've referred to it as the sort of Morecambe and Wise effect, if you like, you know all the right product just not necessarily in the right order kind of thing uh and and that's why we made the investments that we did in warehousing you know to be really shoulder to shoulder with the brands that you know as other retailers were cancelling orders you know we were taking whatever product that they would ship uh while it was already in transit uh from a manufacturing perspective manufacturers have seen significant simultaneous global demand And so what they've done to try and cope with that is rationalize ranges and so reduce those ranges and increase the production runs. And again, that's another great example of where scale matters. So, you know, there's only really the scaled retailers that can really take advantage of that, of which we are just one. And so we've invested to make that happen. And customers, not everything is being manufactured across the range. And the extended tail ranges are a bit spasmodic on what's available. But the core range of what customers need, we've got fantastic sort of 90% plus availability of those core ranges. So we're really confident that if customers want a product, then we've got a great range for them to select from and the capacity in the market, therefore, broadly to deliver that. And then the question on lead time for new territories, What we've called out today is that if you draw the parallels that Germany took us six years and we had to invest about 150 million through the lessons over that period to get the business to where it is today. And I think that's one of our proudest achievements that we've stuck with that and we've really made that work. And when we apply all those lessons into new territories, our view is that those new territories will be through profitability within three years with cumulative losses of no more than 30 million. And the key differences of what we're going to do in that is it will be a much lighter overhead infrastructure because we'll be leveraging central capabilities. And so we only localize what we need to localize. Clearly, we need to localize logistics, but that's very much a function of sales. So from a central overhead perspective, the really key thing that we'll localize is trading. And the vast majority of everything else will be run centrally. So that gives us a much lower overhead to cover, which is part of the journey. And then the other two key things out of that trading investment is to start off with the right trading range on the right margin. We've called out today that Germany is pretty much now, you know, give or take commensurate on margin with where the UK is. Uh, and, uh, but that's, that's been a five to six year bill to get to that. Um, you know, we would expect to start much more from that position, uh, from the get go in a, in a new territory. Uh, and, uh, and so from a lead time perspective, the, um, Once we make a decision to go in a new territory, I would expect the lead in time to be probably something like six to nine months. But that's once we make the decision to actually push the button to go. In the very short term, as we've just said to Simon, on the investment we're making into systems, There's a bit of work we've got to do over the next 12 months to just get the systems ready and bulletproof to be able to scale without layering people into that and let the systems take the strain. We have a very clear roadmap of what that is and we're very relaxed about it. And in the meantime, we've got a monstrous opportunity with significant market tailwinds across Germany and the UK. So it's not as though there's any runway running out. We have vast amounts of runway ahead of us. But when we make that decision, I would expect it to be six to nine months. And ultimately, there's nothing then to say we can't start doing different territories simultaneously once you're able to leverage that platform. So, you know, we're really bullish and confident on what that looks like going forward.

Brilliant. Cheers, John. Thank you.

Thanks, John.

As there are no further questions in the queue, I'd like to turn the call back to your speakers.

Thanks. So we actually have got another question from someone struggling with the tech. So we've got one from David Reynolds at Davey, and it is, how does John see the future of sustainability and recycling evolving in MDA and so forth, and how will AO play in that market?

Yeah, well, you know, it genuinely is great to see the investment community waking up to ESG and having the belief that actually running businesses and investing in these things creates a better long-term business because customers care about these issues. And we're seeing that right across the piece. You know, as we said in the video that because customers care about it, we've been making these decisions because it's the right thing to do for some time. So we feel really well placed and don't underestimate the amount of learnings that we've invested in through this period. And so again, we're now in the space of scaling things that we know. The plastics plant that we built to deal with the output materials from the recycling of appliances, for example, It's taken us two or three years to commission, build, learn, refine that. But we're now in the very early stages and foothills of taking that output plastic and processing it to a level through our facility such that manufacturers can take that plastic and buy it from us at premium rates to be able to input it into products on a cradle-to-cradle basis that we're then able to retail exclusively at the front end to customers. You know, that's probably a seven year investment to get to that position. And we're absolutely in the foothills of it. So we're really excited about the opportunity that those investments give us going forward. But I think that output opportunities from basically the core growth story, which is all about migration to online. The recycling is not the thing that's going to step change our business. The thing that is going to step change our business is the real scale of opportunity that we have from growth, from repeating what we do across different markets and different categories. But recycling is something that customers care about, I believe increasingly investors care about, and we're super well placed to have that as a differentiator as we go forward. And so I'm looking at the screen. I don't think there are any more questions on top of that one. So for me, I'd just like to wrap up with a couple of key comments for everybody, which is one, this has been a great step change here. We've only made that happen because we invested bravely and boldly. at the beginning of this pandemic when there were a lot more uncertainties than there are today. So I'd like to thank all the AOers who have made that possible. Germany, for me, is an absolute standout achievement. We are now firmly exporting efficiency, not just football, into that market. And I think that's something, when you look at how UK retailers have struggled in that market, I think that's something we should be particularly proud of. And that's a very exciting platform for us both in Germany and then to roll out thereafter. And to reiterate our guidance that even though store retail is now reopened, we firmly expect to be a double-digit growth retailer, even as we lap the 60% plus increased revenue through the COVID year. So feeling really good about the business and the investment platform that it really gives us to now press on on our international expansion and our commitment to more than double the business over the next five years with the evidence repeating of the UK margin growth as we do that. So very excited about the future that we have ahead and thanks for all your support.