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Welcome to this presentation. Apologies for the minor technical issue, and for the slightly late start. We're very pleased to be joined by Mark Smithson, Founder and CEO, and Josh Egan, CFO of Marks Electrical Group, who published interim results last week. The team will take us through their slide deck, and then we'll have an opportunity to ask questions. If you would like to submit any questions during the presentation, please do so at the Q&A tab. Just a reminder that Equity Development published a report last week following results, which you can see on our website, and we'll be sending around a short feedback form after this presentation, so please do look out for that in your inboxes.
With that, I'd like to hand over to Mark and Josh, please, to take us through the presentation.
Thank you very much. Good afternoon, everybody. Right. Okay, so do you just want to flip to the first slide? Let me see, Matt. Thank you. That's it. Perfect. So, yeah, many apologies for that. Just had four Teams calls this morning. For some reason, my computer didn't like Zoom again. It needed to do an update, so many apologies for that. Sorry to keep you waiting. I don't like keeping people waiting. So, a good, if we just go back one, Matt. That's it, yes. So, a half decent set or a 2/3 decent set of H1 figures. Clearly, the EBITDA was not where we want it to be. The sales growth year-on-year, just shy of 25%, was very good. The cash position, just shy of £11 million, is also very good.
So the sales number at GBP 54 million was decent. H1's always a lot slower, but we just didn't make as much profit as we were hoping for. There was a lot of reasons for that, and we can go into those later through the slide. We made a lot of operational changes, warehouse alterations, etc , etc , which hindered us somewhat. We can discuss those later in the presentation. So Trustpilot rating, still at 4.8, we're nudging 4.9, so we're really working hard on that, and there's no one else in the industry who's got a Trustpilot rating of that score. We've got 40-odd thousand items of products in stock, some 4.5 thousand SKUs. We manage that SKU count very tightly.
We don't want to increase it too much more than it is. And we deliver to 90% of the U.K. population, and we can install to over 70% of the U.K. population. At the time of this presentation, the end of September, we had 250 employees. We've now got 300 employees. Most of 200 of those are drivers and driver installers. Next slide, please, Matt. Okay, so the market. The market's worth, all told, TV, MDA, which is major domestic appliances, so TV, being consumer electronics. You can see there that it's, you know, it's worth. That's the half year. And if you include vacuums in there as well, it's worth nearly GBP 8 billion, so it's a huge market, and we've got a minute market share. We really have.
So the aim of this business is to improve market share. When we floated with Panmure Gordon two years ago, we were floated and depicted as the U.K's. best-kept secret, and we're trying to change that via marketing, and that's the way of getting over your brand name, as we all know, and we're improving our market share, and that is through brand awareness. Also, you can see we've got a very good share. We've got a split into online and the overall market at the same time, so you can see quite clearly what percentage we've got and how we're actually growing, or you can see the growth we're achieving, and that has been achieved through marketing.
The TV market, you can see, is very, very small that we've got, 0.9%, so we really want to drive into that space. We know we've got quite a bit of work to do there. Next slide, please, Matt. Financial overview, so Josh will just take this one. So we'll canter through it, and then we can do Q&A, and we'll go into in-depth into each slide.
Thanks, Matt. So looking at the first half, you can see the revenue grew from GBP 43 million to GBP 54 million. So that was up 24.8%. Order growth was slightly faster than that, at about 30%, so we saw a drop in average order value ever so slightly of about 5%. And we've got our work cut out in the second half to drive that average order value back up. So it's nice having order growth faster than revenue. It's not order in through pricing, but equally, that does have an impact on the distribution costs, which I'll come onto in a minute. EBITDA margin was 4.3%, so not as high as we'd like it to be.
We are still growing profitably, so we've managed to do 24.8% growth while remaining profitable. But the 4.3% is about 200 basis points lower than last year, and that wasn't where we wanted it to be, and again, we'll be working hard in the second half to recover that. Strong operating cash flow through improved working capital led to a good operating cash conversion of 145%. Should be around 100% plus for the full year. And as you know, we've got a good return on capital employed figure.
One of the things we were happy about in the first half was we reduced overheads to 5.9% sales from 6.2% in the first half of last year, and 6.7% in the full year 2023, as we benefited from operating leverage, and we do expect that to improve in the second half as well. Looking at the P&L in a bit more detail, we've given a bit more granularity this time, in terms of how the gross profit margin is split up. So previously, we disclosed gross margin, which was both the product margin as well as the distribution and installation costs. We've now split this out, in line with how some competitors do it, but also to give people a little bit more color.
So the gross product margin has moved from 25.2 to 24.9, which we would consider to be reasonably stable. The reason that we're showing this level of detail is just to show that we're not discounting heavily to achieve 24.8% revenue growth. Gross product margin is broadly stable. The reason for the small 30 basis points decline is driven by the fact that our TV business is growing quite rapidly, over 70% in the first half, and TV typically has a lower margin than major domestic appliances. So a little bit of a mix impact's driving that margin down. And generally, we see higher margins in the second half than we see in the first half, so we should expect that overall gross product margin to drift up in the second half.
Distribution installation costs, that's where we felt the pain in the P&L. We went from 7.1% of sales this time last year, to 9.1% of sales, and that was driven by three factors, really. The first one was the introduction of our own installation business, where we can now provide integrated gas, electric, television installations on a next-day basis with our own team of integrated gas, electric installation engineers. We've obviously invested in the future growth of the business there. It's a really premium service offering that we provide, and it comes with cost. We expect that to improve slightly as the business grows, as we improve density in that service, but in the short term, that had a small impact on the margin that we saw there.
The other two factors are, one, we gave a reasonably large driver pay increase, so that impacted the numbers in the first half. Then thirdly, as I mentioned at the beginning, our average order value was down slightly in the first half, so our order growth was faster than our revenue growth, and obviously that means that our drivers have to deliver more. So we're delivering more product, and the drivers are getting paid more for that, because of their wage increase, and that all had an impact on the distribution and installation costs. Advertising and marketing was 5.6% of sales, which was bang in line with the previous year.
We expect to bring that down to about 5% for the full year, so we tend to spend a little bit less as a percentage of sales in the second half. And then on overheads, this was where we made some good improvements and reduced it from 6.2% to 5.9%. And we expect that to go down further in the second half, and we'll end the year a bit lower than where it currently is, we expect. So some more margin benefit to come from the overheads and the advertising, as well as the gross product margin. Expect the distribution installation costs to remain roughly similar as a percentage of sales. Next slide, please. This is really just a graphical representation of what we saw on the previous slide.
So the EBITDA margin went from 6.3% to 4.3% in the first half. The product margin dilution driven by the TV mix, offset by the operating leverage that we achieved on the overheads, and the real pain in the PNL coming from the distribution and installation costs, as we mentioned, due to those factors. Next one please, Matt. Just a little cash bridge here, just to show how the cash has evolved since the March 2023 closing cash position. So we closed at GBP 10 million at the end of March 2023. We've had operating cash inflows of GBP 3.8 million, which is the profit, plus the working capital improvements. We managed to improve inventory days from 82 days to 64 days, which really helps with driving that operating cash conversion.
We spent GBP 1.4 million on CapEx, which was up significantly year-on-year. CapEx was only about GBP 100,000 in the previous year, in the first half, and it was 1.4, due to a lot of operational improvements that we've made during the first half, which we'll take you through later in the slide deck. All of these operational improvements to position us for our future growth. Lease payments for our current site, dividends as well, obviously, and tax paid, take us to GBP 11.1 million. And then as stated in our various earnings announcements, we have an ERP replacement plan, which is going on in FY 2024 and FY 2025, to replace the back-end operating systems that we run on, and replace those with Microsoft Dynamics 365.
That had a cash cost of GBP 200,000 in the first half, and a GBP 400,000 P&L cost. We expect the total cost of that project to probably be in the range of about GBP 3 million+, and that will run across FY 2024 and FY 2025. Next one please, Matt. A little bit more on the balance sheet and cash generation. A net cash balance sheet, as I'm sure you're all aware, with GBP 10.9 million of net cash. We had a closing inventory balance of just shy of GBP 14 million, which was broadly flat year-on-year. As mentioned previously, we've managed to improve inventory days from 82-64. We believe we can get inventory days down to probably about 50 days, so a little bit more of an improvement from here.
We might not achieve that by the year end, but we're certainly focused on improving those inventory days and getting a little bit more efficient at our inventory turn. We don't want to go sub 30 days, because we believe that you should be well stocked for distressed purchases. If your fridge is broken, you want a new one, and you want it tomorrow. So we feel we'd miss out on sales if we don't have the right level of inventory. Working capital ended up actually being negative, minus 0.2% of sales, which obviously is very efficient. We weren't specifically driving for a negative working capital, and we'll see how that flows in the second half of the year, depending on the inventory balance. But it just shows that if we can get the inventory days from 64-
250, there is a little bit more opportunity to improve that operating cash conversion. Thank you, Matt.
Thanks, Matt. You just flick through that one. Yeah, so here, guys, you can see our expanding geographic presence in the U.K. So the green area is where we've got our installation offering. That's installation of integrated appliances, built-in appliances. So all the other blue areas, whether it's dark blue or light blue, we can do freestanding installation. So all our drivers are all trained to do the installation of a freestanding dishwasher, washing machine, washer dryer, American fridge freezer. The green area is where we do the integrated installation. The dark blue plus the green area is where we can do next day delivery and installation freestanding products, and the light blue area is where we go three times a week, so tri-weekly deliveries to parts of West Wales, Devon and Cornwall, and then Glasgow.
So you can see the reach where our trucks can get to, and it's all our own deliveries. About 5% is DPD, which is things like vacuum cleaners, small domestic appliances, SDA, we call those, so coffee makers, that type of product. But 95% of products are delivered by our own vehicles. Next slide. Here you can see the installation, how it's about a year ago, so August last year, we used to use a third party company for doing installation. In fact, two. The manufacturers use these companies still. We decided that they weren't reliable enough.
There was a lot of problems with the slots they were offering to the consumers, so we decided to go it alone and start up our own installation team, which we did August 2022. Now we've got 40-odd installers, and half of those are Gas Safe registered, which is brilliant. Albeit gas is a slightly dwindling source of energy, and it's more integrated and electrical installations and TV installations that people are going for. But this has proven to be a real jewel in our crown, having our own installation team. So we set that up in August 2023, and now we've got a full-blown team, and that, as you can see there, that arrow's pointing nicely upwards, and that's due to having your own guys that can go and do it the next day.
No one else can actually go out tomorrow and install an integrated dishwasher in, on the South Coast, and we can do that. So it makes a big, big difference having your own guys do this. If you want just a freestanding one, product, that's, again, that's a bigger geographic area. Move on a bit. Also, that attracts a higher average order value as well, obviously, and it cements the sale. We also do Quooker taps, by the way, which is only a very small part of the business, but it's another string to our bow. It's very high average order value, you know, a Quooker tap and something, you know, circa GBP 1,500. And again, it's another great product for us to install.
If people go direct to Quooker's own website, about two weeks before they can do an installation. So it just shows how we can beat the manufacturers at their own game. Next, please, Matt. This is our ME Academy, which we're actually utilizing old showroom space in our warehouse. It's a single site in the middle of the U.K. by the way, so we're five hours from Glasgow, five hours from Penzance. So we've only got this one site, so it's very easy to manage. Everyone's here under one roof, whether it's IT, customer service, sales, all the stock's here, the warehouse operatives, the drivers are here, the routes for the vehicles. Everything's all kept here under one roof, so it makes it a lot, lot easier to manage.
This academy, we decided that with employing our own installation crews, that we needed to get a standardized service, you know, like a silver service, for example, maybe that you would get in a restaurant, where you're training everybody in the same manner. So you see there on that left-hand image, two guys taking an American fridge freezer into someone's house. So that, though it's a bit of an optical illusion, that product will actually fit through there, albeit that is one of the narrowest doors that normally you can get in the U.K. that is. So it's a very narrow door and with a threshold strip, all UPVC, so tricky to get in. So we have to show our guys how you have to take the doors off the product, and then get it inside the house, yourselves, with your own crews.
And we're, we're trained in, you know, Samsung, LG, Miele, Liebherr, LG, AEG, you know, all the major brands. We're not just doing one product category, one, one brand, I should say. So for our guys, teaching them how to install all these different brands is, is not an easy task, but we've, finally made really good headway with it. We're finding that the training academy has been brilliant, and it cuts down on your failed installations, because when the guys get there, it's easier for them to do, they know what we're doing. It's a standard service amongst all our engineers, that we all know what we're doing when we turn up. You know, we ring up half an hour before and negotiate with the consumer. "Hello, Mrs. Smith or Mr. Smith, we've got your, your new, integrated Miele dishwasher in Guildford.
We're 25 minutes away from you. Everything okay?" And the consumer's like, "Please," obviously we have the phone call, then get ready, get prepared for it. And it's training all you guys, so they all have a standard service. And we really are finding that's making a difference. You can also see the TV installation area as well, where we're offering installation with large screen TV, well, any TV, but in particular large screen television. Incidentally, the middle image, that is actually a 98-inch television. So we show the guys in our academy, you know, "This is what you will be delivering." Since we've put one on the wall, they've bought the most.
Not many people will have one on the wall, but it shows them what they could be up against, and it's always best to show all the people that work for you, what the worst case scenario is. But if you're training them properly, it just helps them with the job, and less issues. Thanks, Matt. Next slide. Josh and Mark, have you seen this one? Yeah, you take that.
Yeah. Yeah, so we've been doing a variety of brand building, as you know, for those that have followed us since the IPO, the key really was to grow our brand awareness. So we've improved our awareness across television and radio, across a variety of different channels, with different types of adverts. Some focusing on our installation offerings, some focusing on our television offering, and so on. We've done more radio this year than we've done in previous years, which has worked well. We're partnering with brands on both television, radio, and out-of-home campaigns, and that's going really well. So the brands are, you know, very happy to work with us on the types of products that we want to collectively get out there and market to the customers.
You can see at the bottom picture on the middle, we've rewrapped our entire fleet. So our fleet's now in this bright blue color with the robot on the side of it. A lot more eye-catching than the dark gray fleet that we had before, so that's also additional marketing, driving around the country every day in our very bright colors, which is great. And we've had an increased social media presence over the last 12 months, too, which is again going really well for our brand awareness. We're quite geographically focused on our brand awareness. We've been focused on certain areas in the country, and they've been growing faster than the overall revenue growth, which is obviously showing us that it's working.
And we've got plans in the next 12 months to be reaching out into new areas that we haven't pushed into before, and really trying to grow the brand awareness in those areas through out-of-home advertising campaigns. And having an increased focus in some areas that haven't really heard of Marks Electrical. So that's the plans for the next 12 months. Thanks, Matt.
Thanks, Josh. Yeah, so this one's showing how we're improving our distribution HQ here at Boston Road. And that was done through the majority of the summer, so it didn't help having all these operational changes being done. It sort of took my eye off the ball a little bit, I have to say, with letting the buyers go after lower-value products, rather than pushing them a bit and challenging them a bit more than I would have done normally. When you're dealing with builders, you've got, you know, your living room being rebuilt, your kitchen, your bathroom, your driveway, all at the same time. So for some four months, we actually had the builders on site, which did cause us quite a few issues. We had to restrict stock flow coming into the business, which didn't help us.
You can see there, the top left image is a brick wall with some parking spaces in front of it. Now you can see the same space is now dock levers, two nice dock levers in that, tripled the speed at which we can unload lorries, and at least doubled the speed on loading vehicles as well. Below, the bottom left is some new racking. We've done another process of putting new racking throughout the warehouse. And you can imagine when you have to take all those products out of that area, and then put the racking in there, and then populate the racking with all the stock, you know, it is not an easy task, and we've done that. New IT office space there in the bottom central image.
Having your own IT team, you know, we've got eight programmers now, and it makes a massive difference in the business. And I've always invested in IT. That's, that's been the real cornerstone building block of this business. Whereas not many businesses have, you know, actual coders. They might have a guy that fixes a laptop or, or two or three guys that can do laptop, oven. Ours are actual coders that work for us. Now, the right-hand image, that shows some new VNA racking. The aisle space, so it's very narrow aisle racking, and that is only 1.8 meters wide. The existing space widths were four meters, existing aisles, so we've managed to condense virtually a warehouse into a third of a warehouse.
That's made a big, big difference to the efficiency, less damages, the speed of picking. So again, that's given us more space, and we feel like we can get GBP 250 million revenue out of this site. You know, our remit is to get to GBP 500 million, and with a 10% EBITDA or circa 10%, 9%-10% EBITDA margin. So we know we've got a way to go, but that is the plan. That's why we listed the business, that's what we're here for, and that's what we're gonna achieve. Hard work, we've had a few. H1 was tricky, but things are going very well. So the second half, we feel like we're really gonna make big headway. And we've made all these operational changes, and we're ready to leverage that investment.
So it's all the building blocks are in place, and let's see how we go. We've had a great start so far. Next slide, please, Matt. This is metrics in which-
Thanks, Matt. Yeah, we've covered a lot of the metrics on this slide. Obviously, the average revenue per employee has dropped off slightly as we've added that installation business, obviously, in-housing a brand-new team of 40 guys, really changes the average revenue per employee. But, we're still operating at a level that we believe is in excess of that of our competitors, so we are still operating quite effectively from an efficiency perspective. EPS has come down as a result of the profitability, but we do expect that to improve in the future, as we've discussed on the P&L slide. We've kept the dividend maintained.
We're obviously one of the few, companies out there that have recently floated, that has consistently paid a dividend since float, and we're keeping that dividend maintained at 0.3p. Working capital came down quite nicely as we improved those inventory days and made the working capital more efficient, so we actually became negative, which was, which was positive. We're not aiming to push, a negative working capital strategy, but it does show that, if we were to move from 64 days to, to 50 days, we, we could drive it even, even further negative. Operating cash conversion, 145% for the first half, will be around 100% or 100%+ for the full year, and you can see that impact on the net cash balance, nicely improving there.
Return on capital employed, you all know that we have quite a strong return on capital employed. As profitability improves in the second half, we will see an improvement in that return on capital employed. Obviously, one of the other factors that is reducing it, particularly down from 71% to 49%, is the fact that we've now got cash on the balance sheet. So with the cash, you know, that makes the return on capital employed slightly less efficient, but still a very healthy ROCE.
So outlook. So thanks, Josh, for that. So you can see here, guys, this is the outlook. We feel like we've got we're in a very, very strong position. We've had a good growth in H1, good cash conversion, so we feel we've done well there, but we've not helped on the profitability. We know that, we're aware of it, we're changing it. It's. We've had a great start to H2, and we feel we can still meet those objectives, and it's all to play for in the second half. So fire away with the questions, please. .
Thank you very much, Mark and Josh, for that overview. Viewers can continue to submit questions, and we've had a number through already, so-
That's fast moving, then!
Let's make a start then. You've talked about your margin hit as being a result of investing in the build-out of installation and pay rises to drivers. What makes you confident that margin pressure can ease going forward?
That's for Mark?
Yeah, sure, Josh.
Yeah. So I mean, as I mentioned on the P&L slide, I'm not suggesting that the 9% on distribution installation cost is gonna miraculously turn back to 7% overnight. I think, it'll be roughly the same in the second half, at the circa 9% level. And then I think, over the next few years ahead, it should come down slightly, maybe to kind of 8.5% or 8%. But I don't expect it to reverse completely back to 7%, now that we offer an installation business. It's just a choice that we've made. What we will have to do is to try and make up for that from the overhead perspective.
So we need to drive even better operating leverage on those overheads, really drive them down to the circa 5% level in the long run, which will allow the margin at the EBITDA level to creep up. We've been pretty honest on where marketing should be. We expect it should be about 5% of sales to grow the brand awareness. And as mentioned, we expect to see an improvement in the gross product margin in the second half. Generally, for the full year, we should be somewhere between 26%-28% gross product margin. So, more to go for, Matt, but we're quite happy with the direction of travel.
I suppose there's a, there's a follow-on question or a related question, I should say, here. Distribution and installation costs together were up over 60% in H1. Do you give a breakdown of the increased costs between distribution and installation? I suppose firstly, and then, and then as a follow-on, if installation services are now at breakeven, for example, what were the losses in H1, and what would be your expectations for H2 and beyond?
Yeah. So, at the EBITDA level, the installation business made a profit in the first half. It's margin diluted versus last year, because last year, it actually, it was very small as a proportion. Not many people selected installation because we used a third party, and the customer service and the customer journey was not as efficient. It was quite a long lead time to get an installation. Not many people selected installation at the basket. So now that we can offer it ourselves, that people add that service on, and it is margin diluted to us currently. But the actual installation business itself is breakeven. Better than breakeven, actually. It makes a small margin at the EBITDA level.
As density improves and we get better known for offering installation services, and we can do more installations on a run, because there's less driving time, because that density's improved, we will see, I expect, an improvement in the contribution from installation there. We've not given the split out between the two, and yes, it did grow at 60% in the first half, but as mentioned, that was partly down to the fact that the orders were up faster than revenue, partly down to the fact that there was a driver pay increase, and partly down to this new installation business.
I think some of this picks up on a comment you made, Josh, in the presentation. Are the higher margins in H2 than in H1 likely to become an annual occurrence?
Yeah. I mean, that's been an annual occurrence. I think it's fair to say, Mark, for your entire history, hasn't it, over 37 years?
Q1, we used to break even or even lose money, Matt. So Q2 was, you'd make a bit of money. So the first half was always, you know, if or the Q1 in particular, if you broke even, you were happy with that, and then you'd make the profit in the second half of the year. So it's always been like that, but since we've listed, obviously try and make a profit throughout the whole year, each quarter, but then this is like the, the golden quarter, the last three months of pre-Christmas. So, this is where we need to get skates on, which we are doing, incidentally. And, this is where we need to, like, catch up.
Thank you. We've got a two-part question here on, on the enterprise resource planning, ERP. How's it going, and when will it be completed? And then, what is the total ERP budget?
GBP 3 million in 2025.
There you go. It's going well.
Straight to the point.
Yeah.
Can you discuss the competitive environment? Where are your prices versus the main competition?
Yeah.
Is your sense that competitors are pricing their products rationally?
Well, competition need to all start making a profit. You can see that from the P&Ls and the market cap and market values, et cetera. But the competition has been pretty good at the moment. There's a lot of advertising going out there. There's probably a slightly smaller amount of consumers shopping than there were this time last year, so it's not about giving it all away. We've seen less discounting going on at the moment, which is great. And we're not chasing. We're not into discounting. We'll match where we need to match, Matt, but we're not going after. We're out here to make a profit, a return for our investors. That's what we said we'd do at the float, and that's what we're gonna do, going to do, I should say, not we're gonna do.
And the competition at the minute are, you know, holding fast. So hopefully we'll see that the prices stay where they are. There'll be a few extra special deals on Black Friday, there always are, but nothing out of the ordinary I don't foresee at the moment, because people have, you know, the brands have to make a profit.
Thanks, Mark. As you look into the, say, medium term, five years, five years ahead, what would be reasonable market share and return on capital employed targets, roughly speaking, in, for example, five years' time?
10%?
Yeah, I agree. 10% market share, and I'd say over 50% return on capital employed.
Yeah. That's the aim. We're all set for that, Matt.
Thank you. A specific question here: How many drops does the delivery crew do in a day?
We're not-
What percentage of those, on average, would be with installation?
We don't want to give away too many metrics, because we don't know who's listening. But, you know, it's, y ou can work the sums out yourself, and the revenue, and average order values. You can see how many vehicles, possibly. You know, there's a, it's all-
You can work it out, and it varies, doesn't it, Mark? Some of the most dense areas will have really high drops per day, and some of the not very dense areas in, you know, the far west of Wales might not have that many drops per day.
It doesn't really make a difference. You know, there'll be some vehicles that go out that don't actually make much profit, and there'll be other vehicles which go to Guildford, for example, and make a lot of money. It just depends where you're going, or the center of Manchester, you know? There's, w herever there's a wealthy area, you tend to find it's a higher average order value, but that's not rocket science. That's just information that's out there.
Thank you. A couple of questions here, which I'll just bring together, about enlarging your site.
Yeah.
One of the viewers has remembered that there's been a comment you've made before about having had a decent runway left of space in your warehouse. Is there anything you can say about the possibility of additional facilities in the medium term, if you outgrow your current site?
Yeah, that's still definitely on the horizon. You know, we've been in talks as, the property market's softening at the moment, as we all know, so there's more warehouse space coming up for grabs. We've actually seen quite a few potential sites close by. We'd, we still would want to stay as long as we can and not jump ship from this site, and sweat this asset. You know, it's, it's a, it's a great site. We've made a lot of operational changes, and we just need to, you know, keep the powder dry and sit here and build up a bit of a war chest, should we be ready to move and jump ship rapidly. That's the plan, get GBP 15 million-GBP 20 million in the bank, and if we need to jump ship quickly, we can do so.
We just want to stay here as long as we can, Matt.
Thanks, Mark. I think you touched on this, in part, Josh. A question here asking: Does reducing inventory days mean reducing magnitude of in-stock items? Does this mean there are plenty of stock or supply in the supply chain?
No, not really. It just means making sure that you know you're not holding too many of one SKU. So, you know, we'd much more have a decent spread of every SKU rather than have one SKU and have 400 of them.
Yeah. There's plenty of stock to go around, Matt.
Yes. Thank you. Another question here: Would you consider coming to the market for funding? And if not, why not finance additional growth?
We don't need it at the moment.
I don't think we need it at the moment. We've got a net cash position. We're investing nicely in advertising to grow the business. So, no, I don't think we need the funding.
Yeah.
Well, on advertising, that's a segue to the next question. One of our viewers has seen advertising recently on the London Underground and at Stansted Airport.
Right.
They ask, "Have you significantly increased spend on advertising?
No. Still, we're still holding there at 5%, Matt. Well, it's 5.6%, but you'll see-
It's gonna-
go down below 5%, probably. Certainly 5%, by the end of the year.
Do you communicate on your MDA average selling price? And is it fair to assume that the average selling price will trend down as you grow towards your GBP 500 million long-term target?
Well, I mean, the market's still GBP 8 billion, you know? So it's a pretty big market to go after, and we're selling distressed products at the end of the day. You know, people's washing machine breaks down. It just depends, really. I mean, you want to always be always trying to upsell products, and as the quality of your website improves, you can get over the method and the reason why someone should spend more money on a premium product rather than a basic product. So, you know, we want to sell more Miele and Bosch, Siemens, Samsung, et cetera, than we do Beko and Indesit, for example. Albeit, we're not neglecting those consumers. So even at GBP 500 million, you know, the market's still enormous. And people like value for money. People don't mind. We've seen that.
I mean, people used to, years ago, just spend GBP 200 on a washing machine. They're quite happy to spend over GBP 1,000 on a washing machine now. And going back, you know, 5 years, 10 years, people wouldn't have dreamt of that. They just wanted the, the cheapest thing they could get their hands on. People see the value of it now. You know, like the television market, it, it was, generally speaking, without being sexist, the guys tended to spend a lot more money. They'd spend 1,000 pound on a television, but they want the cheapest washing machine they could get. Whereas now we've seen that, that turning on its head in a way, whereas, you know, everyone looks at why they should spend more money on a product. You know, do you want your food looked after better within your fridge, freezer?
If so, you need to spend more money on a better quality refrigeration product. Do you want your nice, expensive shirts washed in an Indesitt washing machine? You know, or do you want them in a cheap product? So people will spend money if they can see a reason why there's added value in an appliance. So it's all, It's our job to educate people why they should spend more money and upsell them. It's like, you know, there's no brand in the world that doesn't make more money out of the premium product. So all brands want you to sell their premium product, and we're incentivized to push premium product and sell premium product. So probably a long-winded answer to the question, but I just wanted to elaborate a little bit more on it.
Thank you, Mark. There's another sort of follow-on just on ERP again. Has the ERP project work had any temporary adverse effects on business operations so far?
No. No. zero.
Very clear, thank you. You rightly emphasize that you're debt-free. Could you comment on long-term advantages this may give you in relation to competitors? For example, do you think this allows you to offer lower prices or less expensive installation? And what about the inability of non-debt-free competitors to maintain operations and market share?
Yeah. Well, I mean, it, it does give you the ability to sort of, if it was, if ever there was a race to the bottom, we've got the lowest overheads and, we've got cash in the bank, so we'd be advantaged. But the brands, they're very careful with the pricing of their products. They don't want them slashing, and a lot of it's controlled by sales out allowances, SOAs these are called. It came predominantly from the CE, consumer electronics, television market, where you would buy a product and you would get an allowance back from Sony, for example, every time you sell one of their TVs. But then that's if they're wanting to lower the price, and they control the price through these sales out allowances. And that's done in the, in the MDA market as well now.
So, there's not one retailer can go out there and sell an American fridge freezer at GBP 499 if they wanted to, because they'd be losing money. I suppose they could do, but how long are they gonna carry on doing it for? And the brands wouldn't allow it. Maybe some of the very unheard of peripheral brands, but, you know, the big brand names, Samsung, Bosch, LG, Siemens, you know, all the big brands, they're all very well-policed by the suppliers.
Thank you. One investor recalls that you previously have discussed employing senior people from companies like Toshiba to help grow TV sales, and asked simply, "So far, has it worked?
Well, Toshiba is one. I mean, I think we might actually be selling a few of them now at the moment, but I think we've almost come away from them. It's all about really selling the big brands and building up the loyalty in those big brands. We've done it with major domestic appliances, MDA, so now is the time to do it with the consumer electronics. And, in all honesty, the big brands have got a massive market share. You know, Samsung have got a 30% market share, so we don't need to reinvent the wheel with them. We can just go and take some of their revenue, and the same with LG. Panasonic has got a very small percentage of the market.
Sony's is more than Panasonic, and then you've got Hisense, who's got a fair share as well. So it's all about backing the right horses, basically. And we've got a TV buyer solely focused on television now, and his metrics are all stacking up well, margin, average order value, revenue. He's hitting all his targets, and we just need to keep on growing it, albeit we are at a very, very low level still, but we will grow it.
Thank you.
Profitably.
In the journey to 10% market share, which cohort of competitors are most likely to lose market share to yourselves? Is it likely to be the independents or the large incumbents?
John Lewis and the likes of small independents, probably. The ones who are, you know, they've been in business, and then they wanna try and leave it to their children. The children have got no interest in really taking on a sort of upright corner shop. They want to move into other careers, so generally, they own the building and you know, they sell the building, retire. So lots of that going on. The Mamas & Papas stores closing, and John Lewis are neglecting the consumers. They're converting a lot of the stores into office space or even apartments. And they weren't particularly good at that part of retail on domestic appliances anyway. So they're using suppliers delivery services, which are not very good.
You know, you can't go on John Lewis and pick a next day delivery. They just don't do it. So we'll see. They'll be the ones that will lose out, but they're not really that bothered about that thing anyway. That's how it appears.
You touched on it in your remarks, Josh, but in terms of geographic penetration, what would you consider to be the biggest incremental opportunity region in the U.K.? Do you have plans in place to address the untapped market there?
We don't really want to talk about that.
No, I mean, there's. You know, we've talked, we've talked at length in other presentations, how we've, you know, we've been very good at growing our presence in, in, in the London area. But there's loads of other areas to go after in the country, where we've just, we've barely touched them from a marketing perspective.
The Isle of Wight? We don't go there. The ferry is too expensive. I'm being facetious with that comment, sorry. But, I mean, wherever the chimney pots are, I mean, that's just common sense. That's where we'll head, as any other retailer in the U.K. does.
Right. I think we might finish where we sort of started, just with a couple of final questions on installation. You're at above 70% now, coverage on your installation offering. Is the plan for this to go much higher, or are you planning to keep it at similar levels, as today, if that provides the best economics?
Yeah, we'll, we'll stay where we are, Matt, for now, and just get better density of installation. You know, instead of getting so many vehicles, so many jobs on each vehicle, if you get one extra on each vehicle, that makes a big difference. And then try and just keep growing it and growing it. More density, less driving time, that helps us with the, getting more value on the vehicle.
Thank you. Maybe one final one then. What would you say is the main benefit to you, of the installation offering longer term? Is it to help boost top line by driving incremental revenue? Or is it as a differentiator of service versus your competitors?
Both.
Both.
Yeah, you know, it's not rocket science, that if people can get something installed, they'll, Generally speaking, the wealthier people will spend more money on installation, so therefore, you're getting a, you're securing a higher order value on that product.
I think we may, maybe one last question, sneaking in, which I think is just about-
Yeah, sure. Yeah.
In view of your lack of pricing freedom, are there any other levers you have for, e.g., would suppliers even consider moving to consignment inventory, whereby they would retain ownership of product until it sells?
I mean, there's no model like that currently, that I'm aware of, currently. I mean, they used to do it, Miele used to do it in Australia, where that's exactly what they would do, but for some reason, they never tried it in the U.K. Just didn't quite work properly for some reason. I'm not sure exactly why. Probably the way the population is distributed. But we're quite happy doing it as we do do it. If it did move that way, we're the best placed, because we've got our own installation teams, which is a jewel in the crown. And our own, you know, all our own vehicles, which not many people have. The manufacturers don't have a lot of home delivery vehicles like we do. So we are in a very good, strong position.
There's been a couple of questions on competition, but this is quite a specific one: Do you regard AO World as your most important or effective competitor, or would it be others?
No, not at all. I mean, AO is a very good business, so, you know, we, you know, full respect for what they're doing. You know, they've had a real shift in how they're running it, and it seems to be doing very well, from what I can see. We don't really look at the competition. We're not really interested in what they're doing. We're just gonna continue paddling our own canoe, not looking over the fence and checking out how green next door's lawn is. We're not really interested in that. It's all about being aware of what's going on in the market, but just continue what you're doing. I mean, some of the viewers might remember when there was Currys and AO, sorry, Currys and Comet, I should say. AO came along and took Comet out completely.
You know, John Lewis are there, and they're faltering somewhat. So you just got to get on with your own business and focus on what you're doing, and run it properly, and the numbers will then speak for themselves.
Great! Well, on that note, I think that's it for questions. So that just leaves me to thank our viewers for their, their time and their questions, and to thank Mark and Josh for a very interesting session. And we wish you the best for the peak trading season.
Thanks, Matt. Thanks very much indeed, everybody.
Thank you, Matt.
For you, and we try to be quick with the answers, just to canter through it all, because it's nice to try and answer everybody's questions. But thanks for some very good questions and appreciate you listening in.
Thanks a lot.
Buy the shares!
Thanks, Matt.
Thank you. Cheers.
Good bye.