Good morning, everyone, and thanks for joining us today at Hatton Garden. We've made this as efficient as possible, so I'm going to get straight into the numbers. So we first set out our strategy to pivot to profitability in July 2022, and I'm pleased to present the results for the year ending March 2024, which demonstrate the output of this strategy. Importantly, during the year, we've also been taking action to return us to growth, and in the final quarter, AO.com returned to revenue growth. We delivered our record-ever group adjusted PBT of GBP 34 million, up GBP 22 million on the previous year, which is now at 3.3% of revenue. EPS was 4.29p per share, up over 380% year-over-year, and we're progressing towards our medium-term PBT target of 5%.
Going forward, I expect revenue growth will leverage overheads to improve this metric further. Gross margin has also improved and is now just over 23%. This growth comes as a result of the increased MDA product mix, as well as an increase in the average product value, which has improved the amortization of delivery costs. This is further supported by our performance of our product protection plan customer base and is on top of the benefit from delivery charges and range rationalization, as well as further efficiency savings in our logistics operation. There are some headwinds going into FY 2025 as latent inflationary pressures materialize, and we're working hard to mitigate the impact. Our cash has converted well to profits. CapEx was in line with our plan, albeit the decision to buy Affordable Mobiles and BuyMobiles was an unforeseen opportunity.
The actions we've taken to improve profitability resulted in a net revenue decrease year-on-year of about 9%, albeit AO.com grew in the final quarter of the year. Our MDA market share remains strong at over 15%, and the market's down about 1% year-on-year, which we anticipate is the bottom of the cycle. The increase in service revenue is driven mainly by the introduction of delivery charges and membership income. Commission revenue is made up of product protection plans and mobile phone contract sales. Our product protection plan customers continue to recognize the value and peace of mind it represents, and the volume of plans fell in line with retail sales, but the retention of customers improved, which has positively impacted profitability this year. Our mobile business has had a very difficult year.
The new contract market was down about 14% year-on-year, which has been challenging as depressed customer demand placed volume pressure on our volume commitments to networks. With that suppressed market, competition for customers intensified, leading to increased expenditure in the acquisition of customers through affiliate channels and unsustainable discounts to try and achieve volume targets. Mobile remains a key part of our strategy. However, we could not feasibly continue to trade under the conditions seen in 2023. Therefore, at the start of the calendar year, we reset our approach. Firstly, we reengineered the business in partnership with the networks to remove the dysfunctionality so that our goals are aligned. Secondly, we strengthened our market position with the addition of Affordable Mobiles and BuyMobiles, and we expect this to reduce the pressure on acquisition costs and to be a source of natural traffic.
Finally, we continue to leverage our logistics and recycling network for third-party customers, where it doesn't distract from our core business. The actions we've discussed before on range and profit rationalization helped us to deliver record gross margin at 23.4%, with margins in H2 being similar to H1. We've discussed that the mobile business has been impacted by a shrinking market and the resultant competitive pressure, which has had a negative drag on overall margin. This was offset to some degree by the improvement in retention in our product protection plan base during the year, and we're committed to growing our retail business and the improved customer offerings through finance, membership, new categories, and so on, will be a key part of that growth, and John's going to explain this strategy for that shortly.
This changing mix will result in a slightly dilutive impact to gross margin in the coming financial year. So turning to our SG&A costs, we've delivered savings of GBP 19 million year-on-year and on a two-year basis of GBP 65 million, firmly demonstrating the output of our pivot to profit. For the long-term benefits of the business, we have continued to invest in marketing, although we have changed the focus of our spend away from direct acquisition towards brand investment as we look to cement our most trusted positioning with customers. As previously mentioned, the dynamics in mobile resulted in an increased cost of acquisition, which we don't expect to continue on a go-forward basis.
In warehousing costs, we've delivered a number of efficiencies which have contributed to us delivering not only a cash year-on-year saving, which you would expect with the decline in sales, but also an improvement in efficiency as we have reduced the cost as a percentage of sales, too. Our overhead control has continued with a year-on-year saving of about GBP 9 million. The nature of some contracts means there has been a lag in the increase of some costs, where inflationary pressures have continued to materialize despite the fall in the headline rate of inflation. We've experienced this as we exit FY 2024 and enter FY 2025, and government policy on minimum wage is driving high wage inflation in some of our lower-paid operational roles. We've also invested GBP 2 million in the year in the first stage of our ERP, ERP implementation.
The investment will continue and increase slightly in the coming two or three years as we ensure our systems and processes are resilient and scalable for future growth. So we've talked through our revenue and our cost lines, and I'm pleased with the PBT output, which shows year-on-year growth of GBP 22 million, delivering PBT of 3.3%, which is up 2.2% versus the previous year. We remain focused on efficiency savings as we now turn our focus to growth. So profits converted to cash during the period. The swings we witnessed in working capital over the last couple of years have now normalized, and we've chosen to make some investments in inventory as we look to maximize availability for customers.
This is particularly in slow-moving products, as well as those where manufacturer lead times can be long or inconsistent, and as a result, stock days have increased to 43. We've seen a cash inflow of about GBP 28 million as a reduction, as a result of the reduction in trade receivables and the receivables of the mobile business, as well as tidying up the legacy of B2B. Trade and other payables have also fallen year-over-year. Now, this is largely a timing impact in the mobile business, as purchasing cycles align themselves to sales. Investment in CapEx was GBP 8 million during the year, with the key assets being the site for our recycling operation in Telford and the acquisition of the mobile IP.
Now, we do expect to see CapEx increase into FY 2025 to about GBP 11 million, and the increase largely being the purchase of vehicles, which are in their normal renewal cycle, but we will now likely buy those rather than we previously leased them. We've extended our GBP 80 million revolving credit facility by another year to April 2027. This is on the same terms with our existing partners, and it's undrawn at the end of the year. As we exited FY 2024, we saw AO.com return to growth and expect this trajectory to continue in the coming year, and John's gonna cover the strategy for this shortly. We'll continue to leverage the fixed costs in our business, although we do expect to see some short-term inflation, which we'll proactively manage.
Our expectations for the coming year is to deliver double-digit growth and adjusted PBT between about GBP 36 million and GBP 41 million. And our medium-term aspirations remain unchanged: to improve PBT margins towards 5%, to grow our revenue in double digits, and to grow our EPS faster than revenue. And on that positive note, I'll pass you to John.
Okay, so, as you've just seen in Mark's section, we've made real progress in improving our profitability, and this is gonna be a continuous journey, but the heavy lifting of that is firmly done. And with the benefit of hindsight, while many businesses were paralyzed by issues like working from home and cost inflation, and I think a lot are still waiting for that storm to pass, we're really glad that we had the courage of our convictions to take early, decisive action. And I think that's the advantage of living through 24 years of storms, that you really do, learn how to dance in the rain.
That said, the depth of the effort in getting to here should not at all be underestimated, and I'm really grateful to the entire AO team, our supplier partners, our shareholders, for everyone's support over the last 18 months as we've gone through the journey. As a result, we've ended the year a much simpler business in a steady state, performing better than ever for customers with outstanding unit economics, and crucially, our culture, which underpins everything, is firmly back and even stronger than ever post-COVID. That's not to say that we won't get more profitable from here with growth, but the business foundations are now good, which is evidenced by today's numbers. Looking forward, our ambition is to be a double-digit growth business every year for the next five years.
Now, I know it's easy to be skeptical about this, especially in the current economic climate. So I just want to spend a little bit of time setting out the broad plan that underpins our confidence to achieve this ambition. Our approach is based entirely on self-help, taking share by offering customers a great proposition in a broadly flat market, which will create operational gearing and any replacement cycle that may come from the COVID peak, that will be incremental. For context on the opportunity, our current share of the MDA market is around 15%, give or take, and yet our share in all other categories is around 2% or less of the market. To manage your expectations, though, up front, we won't be releasing all the micro details about our plans.
Our overarching strategy is to create an even more loyal customer base and win a better share of wallet from total household spend in the electricals category. We have a number of mechanisms to achieve this with a range of customer cohorts. During the COVID period, we transacted with around 3 million new customers, and they all had a fantastic first-time experience with AO, and with our brand at a time when they really needed us. We believe, and we're seeing, that they continue to repeat and buy new categories from us, and it's really important that we're already seeing this. We've taken the first steps in improving our proposition and fixing the unit economics of those other categories as well.
Outside our MDA heritage, we're competing with a broader set of retailers, both online and in-store, where the reality is today is that we don't have an obvious right to win in those categories. So what are we doing about that? Well, let's start by looking at those customer cohorts that we can build and how we can drive loyalty to AO. Finance customers, well, they give us a greater share of their wallet across categories, and they shop more frequently. That's because once they've gone through the process of opening a credit account, it's more convenient for them to shop with us, and of course, they already have the reassurance of knowing that they have access to that credit.
We've been building our finance base, which currently stands at just over 500,000 active customers, and they have about GBP 750 million available to spend on their accounts. We now also have a growing AO Membership, and that base pay GBP 39 a year for the benefit of free delivery, free recycling, and great member deals. Those members are already demonstrating a willingness to give us a greater share of their wallet, giving us a clear right to win with them across new categories. Similarly, in our insurance business, we now have over 1 million customers paying us a monthly direct debit and trusting us for their peace of mind. And members with both finance accounts and insurance give us an even greater share of their wallet. In our mobile business, we now have over 1.1 million active customers.
And members who have finance accounts, insurance products, and a mobile phone, well, guess what? They give us an even greater share of their wallet. So I can see, I'm sure you can see where I'm going with it. The further that we deepen our relationship with customers at scale, the greater our right to win a bigger share of their wallet, and so the more our unit economics improve. In turn, this enables us to keep investing in the reasons for customers to share that wallet with us. All the data that sits behind this is clearly extremely commercially sensitive. So today, I'm really just outlining the principles of the flywheel that drives what we think of as our shared economics model. And this enables us to share those unit economics with customers and to share value creation with investors.
It also allows us to deepen our relationships with suppliers through a greater ability to directionally sell products to our members. Plus, from a people perspective, playing for a winning team is just a lot more fun than battling relegation, which is hugely rewarding for all AOers who thrive in that high-performance, fast-paced culture. Ultimately, it's the data that we can see building behind all that and the compounding effect of the customer co-cohorts that underpins our confidence in the ambition of double-digit growth. As Mark's alluded to, we also believe there's possibly a medium-term tailwind on the horizon as well because of the amount of volume that was pulled forward into the COVID lockdown period.
For context, MDA volumes were 16.2 million units in 2020, 15.4 million units in 2021, compared to only 12.9 million units in 2023. Now, our planning assumes that we stick with today's historically low volumes and that they will continue in the short term. But we are now four years from the start of the COVID spike, and even with slightly longer purchase cycles of electricals, it does seem reasonable to assume that there will be some growth returning to the replacement cycles from those COVID peaks four years ago in the not-too-distant future. As ever, none of this is gonna be absolute plain sailing or a perfectly smooth journey, and our desire to keep driving at AO speed and keep innovating will create oscillations on the trajectory of our growth.
But equally, the long-term trend will be upwards, just as it has been for the last 24 years. And building these cohorts will take time. It requires lots of lessons and learnings, and it'll also occasionally need investment at times, I'm sure. There will also need to be occasional leaps of faith and an unwavering commitment to the cause. But I am more convinced than ever that this is the best strategy to create value for everyone, from shareholders and customers to our people. And amidst all the talk of strategy, I don't want anyone to take for granted the brilliant retail basics that are so crucial to our business and will continue to underpin our success.
That's why we continue and always will obsess about them every day, be that range, price, delivery, speed of delivery, availability, delivery execution, delivery with a smile, installation, and always being there for customers with a human touch. That obsession recently manifested itself in us passing the 500,000 Trustpilot reviews milestone with a trust score of four point eight out of five, meaning that AO is now the biggest scale Trustpilot retailer in the U.K. with the highest quality rating. That's been a really, really, really proud moment, and frankly, it's the scorecard of just thousands and thousands of hours of great customer service lessons. All this forms the foundation for that very simple message that we are, as you all well know, the U.K.'s most trusted electrical retailer.
We have a firm conviction that the need for those brilliant retail basics is not going to change anytime soon, and that means that we can really continue to invest in them with confidence. Plus, as I've said many times before, the reality is that the best service is actually no service. It should all just work, and it's also the most profitable service, because every intervention costs money, and you've seen that in the results today. And all of this, in turn, gives us a clear structural advantage over time through the trust that it will generate with customers and other stakeholders. And so with that, I'll finish where I started by reiterating our confidence, which I hope some of you will now be more inclined to, to share a little of, that AO will be back to double-digit growth every year for the next five years.
With our medium-term PBT target in excess of 5% and having all that manifest into what I think of as just good old-fashioned cash. So thank you for everyone's time today. Thank you for coming along. And before we move to Q&A, as a point of housekeeping, we've got a microphone, so if you can take the microphone and before asking a question, if you can just state your name and organization so that anyone watching can hear. Thank you.
Hi, hi there, Ben Hunt from Investec. You talk about the need to improve unit economics, and it feels like more of a growth to achieve these medium-term objectives is, it's gotta come from the non-MDA categories. Historically, there's obviously been a, you know, your warehousing configuration is more set up for MDA. Can you perhaps talk about any sort of plans or progress you're making at improving perhaps those unit economics?
Yeah, I mean, quite simply, we fixed all the unit economics. You're dead right. All our operations in our heritage of MDA are built to move big stuff around with two-man home delivery. And you need a completely different operation with much more automation for smaller boxes. And so what we've done through the year is we've, in simple terms, moved all of that small stuff out of our two-man operation, and we've partnered with a business called DCC, leveraging their capital investment. There's no capital investment for us. And we put our volume through that, and it's been a careful journey to make sure that we do that, and we tie all that together from a tech and a customer proposition point of view, as well as fixing the unit economics.
And again, there's more stages of that to come through the year, but the growth that we will see in those newer categories, through repeat business, will drive us towards our 5% PBT target. So the economic element of that is done.
And then secondly, can you just talk a little bit more about the mobile market? The H2 looked quite poor. You know, you allude to the connections being down. And maybe with context to the two new mobile sites that you've acquired, and how that relation is gonna, how that relationship's gonna improve with the, you know, the mobile network operators and your volume commitments.
Yeah, so in simple terms, we were clear when we set out our update at the end of last year that the key part of our pivot to profit strategy was that if we could not see business units with a line of sight to profitability and cash generation, we'd come out of it, and we've got lots of examples, Germany being the biggest one, but you know, our partnership with Tesco was another one, House Builders was another one, and mobile was another one on the list. I was really clear that you know, the new contract market on mobile has got an enormous amount of dysfunctionality and you know, bad behavior that's built into it. That's not a business that we wanted. This will be the last year of paying for our mobile business.
We're building different agreements now in partnership with the networks, where we win together or we lose together. And obviously, as Mark's mentioned, you know, we opportunistically, wasn't in our plan to buy Affordable Mobiles, as what was our one of our biggest competitors in that market through the period as well. So it won't be a case of putting those two businesses together and it being the combined entity. It'll be smaller than the combined entity, but it'll be a much better business for us, and it should generate cash, and it should contribute profit.
Good morning, Caroline Gulliver from Equity Development. My first question was around operating leverage. You mentioned that obviously, there's minimum wage increases, putting a bit of sort of cost inflation still in this year. But as we look forward and you're generating double-digit revenue growth, what are some of the sort of levers or what might you like to invest in? How much should we expect might fall through to profitability in getting towards that 5% PBT margin?
Well, so, I mean, at its most simple level, we're guiding our journey towards 5% PBT. We'll have lots of choices then of how we think about that. If you look at a very macro level, I don't know the exact numbers, but it's about 11% of our sales that goes to pay central overhead. That central overhead is extremely well invested and doesn't rise in line with sales. Mark and I are quite expensive. We don't need another me, we don't need another Mark. And so we will be leveraging a lot of that central overhead as we go through. But naturally, we'll have improved unit economics through leverage of central warehousing and things like that. So it's across the piece. We will continue to obsess about efficiencies.
I've always said, even through the pivot to profit, you never cut your way to success. So this was about repositioning the business. We've done that. We are back to growth. We are confident. We can see all the things that are gonna drive growth, but it's not as though we're gonna go and spend, "Right, let's go and spend GBP 10 million on TV to drive the growth." This is about much more... You know, I've used the phrase many times, of reassuringly boring. When we've got these, building these cohorts in a high-value ticket environment with low frequency of purchase, is expensive and takes time. And the point that we're highlighting is, you know, we put 600,000 new customers into our business this year.
At the level of service that we're providing, they're seeds for next year's sales, they're seeds for this year's sales. And as we improve things like the awareness of the other categories that we're selling, and as we get more members, as we get more finance accounts, that engine and that flywheel just drives. There's no silver bullet in this. This is, this is now moving through the phases of growth, and it is broadly playing out exactly as we thought it would. And, and that drives our economic model. But the important thing is, for me, that we don't expect all that to flow to the bottom line because we're operating a shared economics model. So customers are paying GBP 39 for free delivery, free recycling, and member pricing.
The more profitable we can make the business, the more we can invest in that flywheel to give them better value for their GBP 39 as well. And we can do that across lots of different metrics with lots of different levers, and that's why I don't want to really go into the micro detail of that, 'cause there are so many choices for us to make. The key is for people to focus on us, us being back to being a double-digit growth business on a journey to 5% PBT.
Thank you. And then we know that sort of roughly 70%-80% of PBT converts into cash flow. Have you had any thoughts yet about what you might do with hopefully a growing cash flow?
Yeah, we're gonna make our business balance sheet bulletproof. That's priority one. You know, 2022 was a difficult year for us, and we're never gonna go there again. So absolute bulletproof, and then we'll think about it thereafter. It's in my category as high-class problems, and we'll deal with it when we get to it.
Thank you.
Good morning, guys, Alison from Deutsche Numis here. I wonder if you'd talk a bit about where you are on the journey in terms of kind of increasing that range of small domestic appliances, and if it really fits that category. I suppose, as well, just how you're thinking about maintaining that kind of customer experience, that trust, as you sort of move out and someone else takes responsibility for the fulfillment. I guess the delivery is gonna be a part of what's differentiated the, the proposition.
Yeah, not. So there's no massive change in that. So we primarily partner with DPD around delivery, but we have done, even when those products were coming out of our two-man warehouse, it's most of it still went on a DPD vehicle. Their service is very good. We've got everything in the background to deal with that. If it's not, you know, we fall back on. We've got amazing people in our customer service team, and our obsession with customer service makes sure that those customers get looked after. And so that DPD service has been in place for years, and so there won't be any outward change on that. In terms of where are we on the journey, I'd probably score us a three to four out of 10.
But that's material progress 'cause we were probably more like one and half to two. And so we will bring more of that range into our own stockholding, we'll take more of the risk of stock, we'll build more credibility in those categories. We're already seeing that. We'll deepen our relationships with the brands and the manufacturers of the products, and as the awareness within our existing customer base grows, then logically, you know, we're already seeing our market shares in those newer categories materially over-index with existing and repeat customers than it does with new customers. So it's just a journey. It's not. And again, it isn't a light switch, it's just a progression. But to be clear, you know, we're only 15% share in MDA.
It's not the end of our MDA growth journey, so those 600,000 new customers this year, I expect them to buy MDA from us as well.
Just to touch on that. Oh, is that one not working? Is that better? Reason to expect we should see kind of stock in terms of stockholding kind of trend up a bit as you move into those smaller domestic appliances categories with a bit more scale?
Yeah.
Yeah.
I think that should make sense. Nothing of any great materiality to be concerned about. In the same way that, you know, we've had supply chain disruption, you know, everybody's pretty well reported around, the disruption that's happened. Stuff that comes from the Far East is now taking longer. So, you know, our priority is to maintain the proposition and protect customers from any impact of that. So we have increased our stockholding in certain areas because of that as well. So it's a great investment. Stock is a wonderful investment for us. We have, relatively or microscopic obsolescence, within that stock, so, you know, it genuinely is a great investment for us.
From a working capital model point of view, I think, you know, you'll see an offset of trade creditors. So if there is an increase in stock in those newer categories, there will be an offset in credits. There's no investment.
Hi there, Andy Wade from Jefferies. I don't know which slide to go with. Following on the non-MDA theme, you sort of talked about helping that category helping drive towards 5% PBT margin. You talked about it being fixed from a unit economics perspective. Does that mean that this year, as in now, the unit economics are where they're gonna get to, or is there still a journey on gross margin, which you're gonna be going through over time as you scale? That's the first one.
Yeah, I mean, so yes, so we fixed the delivery element and the warehousing element of it. I think there is still a progression to go with the manufacturers of those products that will develop over time. So I think there's more opportunity to go, but the, you know, the day one, you know, do we not lose money on this stuff anymore? That's tick. Is there more to make? Yes, there is.
I think just to build on that, the very manual way of warehousing and moving those products around has been removed. We've got all the benefits of all the automation in effect without the CapEx operational.
Yeah. Okay, thanks. That's clear. Second one on that, from a customer-facing perspective on the non-MDA, what is gonna look different? Is the range gonna be bigger? Is it gonna be a bit more obvious and a bit more promotion on the web, not promotion as in cash putting in-
Yeah
... but promotion as in visibility, perhaps, on the website? And, ... Is price going to be a bit sharper? I don't know.
Everything. So, I mean, it literally is everything. So from a proposition perspective, we want to be able to, so the ultimate goal is next day delivery every day, seven days a week for up till midnight. So, how you get to that, so pushing back that time window so customers can shop longer for next day delivery, increasing the range, increasing the web, improving the web journey as well. You know, our website is, you know, it has some fundamental flaws in it because it was built for MDA. So if you want to download software in our system, it has to have a color. So you download white software.
And so in the background, we're sort of paying some of this, Mark talked about on the system debt, of paying some of that down so that we can present those products, those products specific by category. You know, we're here at Hatton Garden, which is at the heart of our creative hub, of how we create content for customers to be able to shop products better, and so we're getting ever better at how we tell those product stories with different complications. You know, shopping consumer electronics is just a minefield for the average consumer. What we are historically very good at is taking that customer journey and making that customer journey much better. So it really is across everything, and then, of course, price. You know, we want a price reason for customers to shop with us.
Those customers that are investing with us in being members, they're enabling us to invest back in their shared economics model.
Okay, thanks. And then, last one on, the other admin element of your cost base is about 11%, I think, now.
Yeah.
You talk about it being sort of substantially fixed from-
Yeah
... from here on in. Where, where can that get down to in time?
Uh.
Or is that entirely dependent on where top line gets to?
Yeah, and then that's the answer, right? Is that the, the cash amount is pretty fixed. It's gonna go up with inflation, but the, you know, it, it is a pretty fixed and, you know, well-invested number. And so the question is, where's the top line going in, in leverages to it?
Fine. All right, thanks.
But what we choose, importantly, though, Andy, what we choose to do with that in the shared economics model, if we drive another 4%-5% of saving out of that central overhead over time, that doesn't necessarily mean we're gonna choose to, you know, as Jeff Bezos used to say, "Your margin is my opportunity." We really want to drive that volume, shared economics model and choose where to reinvest those operational savings that we create.
Sounding more like a Costco model.
Say again?
Sounding more like a Costco model.
Funny, that.
Okay.
Okay, any other questions? All right, great. Well, it's great to be back to growth and, and to be delivering fantastic results today, record ever profit, and thanks for being here to listen to it. Thank you.
Thanks.