Okay, good morning, everyone, and thank you for joining us. I wanted to start today by reflecting back further than just the prior year, because there's a bit of a milestone today, which is it's 25 years since the now famous, or infamous, GBP 1 bet in a Bolton pub that conceived AO into being. It's been a fantastic journey of innovation and investment, resilience and rejuvenation, hard work, and a lot of heroism through that. We've come a long way, and there's definitely still a lot more to do. We really are just only getting started. Personally, I have never been more excited about our business. Today, we have operations spanning retail, warehousing, logistics, recycling, circularity, and insurance. We're vertically integrated to ensure absolute total control of the customer journey, while simultaneously capturing the maximum amount of the value that we create.
Mark's going to explain the numbers in detail, but I thought it's worth summarizing the headlines for some context for you. It's been a record year. Like-for-like group turnover is GBP 1.1 billion, and profit before tax is above the top end of the range at GBP 45.2 million, up 32% year on year, and growing faster than revenue on a comparable basis. We began this financial year with a commitment to grow our B2C retail sales by over 10%. I'm delighted to report that the team have delivered over 12%. It's all the clearest possible proof that our model is working, and these profits are converting, as expected, to free cash flow. All of this was achieved alongside stepping up our relentless commitment to amazing service. Consequently, we are now the number one rated company at scale in the world across all categories on Trustpilot.
That is across over 750,000 reviews at an average rating of over 4.9 out of five. I will return to the significance of that later. First, I wanted to remind you of the model that we have been building for the last five years and the scale of the opportunity that we are playing for. In 2014, when we did our IPO, we were an MDA-only retailer. One of the key reasons for the IPO was to raise the funding to facilitate our capability to broaden our proposition into other categories. There have been many challenges that we have underestimated on that journey and many eggs before chickens. I thought it was worth bringing a few to life. Ranging.
Simply getting the supply of product from brands like Apple, Shark, and Dyson on a direct basis, when you have no obvious right to win and no compelling point of difference, is not easy. You also have no scale or corresponding volume to offer. As examples, it took us over five years to get access to the full range of Samsung TV products and seven years to get a direct account with Apple. Pricing. Even if brands are willing to supply product, you won't immediately get the terms to enable you to compete profitably. In truth, nor should you. Fulfillment. When you don't have any scale, massive CapEx into automated warehousing doesn't make sense. All processes are manual and therefore expensive. This means that broadly, once you step out of premium and into the volume segments, you lose money on most orders that you fulfill.
There's a right to win. The most important thing here is our right to win with customers. The truth is, we didn't really have one other than, of course, for uber loyal AO customers. Our key differentiator in two-man home delivery doesn't transfer when delivering toasters. Competitors. Even without a right to win and no price, range, or convenience difference, it's going to be tough when the competitor set now includes Amazon and, of course, the brands themselves on top of our normal competitors. Marketing, therefore, is incredibly expensive as well, because to drive web traffic for categories that we are not top of mind for means that we're competing on terms like, let's say, Dyson vacuum cleaner, you're competing with, well, Dyson themselves or Amazon and one of their 15 million Prime customers. The summary of all that is that it's been very hard yards.
It's been expensive, and it's required patience and investment. Getting to 1% total market share is always going to be the hardest, because you have to fix all these things simultaneously. Nothing great, though, was ever achieved with easy, and the prize is huge. The total addressable market for us across all categories in which we play and have a meaningful presence is now about GBP 28 billion. You can see here on this slide that we've now crossed that magic 1% threshold in all key categories. It might not sound like a massive business, but 1% of GBP 10 billion is a decent start. All big companies start with small ones, and all journeys begin with first steps. Those journeys do not always come with a map, and the winners often get referred to as a 10-year overnight success story. It is 11 years since our IPO.
I realize we have not shone a light on category breakdown so far, and we do not plan to, for clarity, going forward. I wanted to bring to light with these slides the progress that we have actually made in the background. Understanding how we have done this and why we have the confidence in the flywheel that we have and the way that we have been building it is crucial. We have created an animation to explain how it all comes together and how it all drives the flywheel. Hopefully, that will shed some light on the confidence that we have in future performance and, critically, our right to win against the backdrop of the challenges that I have just set out that we have navigated.
Mark will then take you through the numbers for last year, and I'll return to take you through, in more detail, the rationale on our right to win in this GBP 28 billion opportunity. We will play the animation. I hope you find it useful.
Everything is built on a foundation of brilliant retail basics. These are the fundamental hygiene factors that determine why a customer should choose to shop with AO. We need to obsess about being brilliant on all these metrics and be forever resetting our bar and our ambition about just how good we can be. A customer's shopping journey begins with us helping them to make sure they buy the right product. We need to make sure we can offer awesome advice and help in whatever form, whether that's through a website journey, our video content to explain products, or good old-fashioned personal help on the phone. Of course, we need to make sure that we sell everything that a customer may want to buy from us and so have a full and complete range. We must always be the best price for a customer to buy that product.
We need to make sure that this is checked multiple times a day and proactively reset with the backup of an all-encompassing price promise. We are so confident about this that we now even display all our competitors' pricing on our own website so that customers do not even need to leave to check. Once we have helped you choose, we need to make sure we have everything physically in stock and available. That availability needs to power a complete delivery and service proposition. That means customers can order it as late in the day as possible for delivery the next day, seven days a week, in a time slot that is convenient for them and have all the additional services that they might need, such as installations, recycle and takeaway services, and be able to be completed at the point of delivery all in one go. Simple, no hassle.
The AO difference, of course, is not just what we do, but much more importantly, how we do it. All of this needs to be carried out with our world-class personal service, where our people are inspired and empowered to create magic for customers in the moments that matter, always looking for the opportunities to sprinkle a little AO pixie dust. All this capability can only happen because of the depth and breadth of our partnerships with great brands that run much more than skin deep and are built over decades, way past just selling products, but into supply chains, reverse logistics, and through to after-sales as well. We need to be their most trusted partner as well, not just for customers. If we were only to get these brilliant retail basics right, then the future should be very bright.
I have never spoken to a customer that has asked us to charge them more, make them wait longer for delivery, make it less convenient, or be less nice and happy. I do not ever expect them to in the future. I have also never met a customer who wants us to care less about the environment. This gives us a mandate for projects like creating new fridges from the materials we have recycled from old ones and scaling musicMagpie's expertise in refurbished tech into AO. We can therefore invest in all these areas forever with deep conviction, and we also expect the physical products, well, to stay physical for the foreseeable future. However, we want to deepen our relationships with customers way past these brilliant retail basics. We want to create a shared economics model with customers that they are able to understand and invest in with us.
The more customers spend with us, the more profitable the AO model becomes, and we are then able to share more of that profit opportunity with customers. You'll often hear me refer to this as putting more chicken in the chicken soup for customers. This is a simple idea, but one we take incredibly seriously, and we are baking it into our culture and decision-making every day. The primary driver here is for customers to give us a greater share of their wallet, or in other words, their total annual spend on electricals. We need to make it a no-brainer for them to buy all their electrical items from AO. This gives our operating model more operational gearing. Or in more simple terms, it means that as we grow, our overhead becomes a smaller percentage of our sales, which means we are more profitable.
The shared economics model begins with a commitment from a customer to pay GBP 39 to join the AO membership scheme. In return for this, they get free of charge recycling on every order, free delivery, and special extra discounts that are only available to our members. Critically, and just for clarity, the normal website price will always be the best price in the market. The member prices are therefore naturally lower than available anywhere. As we have now fixed most of the unit economics of our non-MDA categories, this principle now applies right across the whole range as well. We will continue to get better with time as members will have clear and meaningful reasons to save money on most of what they buy when shopping with AO.
This should encourage them to use their membership more and therefore should also make them more motivated to renew their membership because they're able to get more value across more products. This is what we think of as the economic chicken, and we keep buying it to make that soup taste even better. To be able to really drive this flywheel, it is critical that we are ruthlessly efficient and operate the lowest-cost operating model. This is why we have invested over the years to be as vertically integrated as possible so that we're in control of both the costs, value capture, and the experience for key areas of the business. The better and more efficiently we're able to operate everything, the more budget we can create for chicken to share with customers, which creates a significant structural advantage.
We are then planning to create more and more reasons for a customer to be sticky for other reasons as well. We see one of the key drivers of this being to encourage members to also have a finance account with us that makes transacting much quicker and simpler in the basket. It will also enable us to give them promotional finance offers to spread the costs that are only available to members, and we call this sticky chicken. We also want to use our market position within mobile to disrupt yet another sector. First, we will launch a virtual network under the AO Mobile brand. Through a customer lens, I hate how complicated tariffs are in the world of mobile. Our goal is to have just one tariff with unlimited minutes, data, and text for a market-leading price only for members.
We also want to disrupt the way that mobile handsets are bought by leveraging the residual value of the handset. The best way to think about this is as a personal contract plan in the same way that you would lease a car with a balloon payment. Our goal here is to have a super simple proposition of the latest handsets available for market-leading prices and the ability to change it every year or two. The payments are a lot lower because, in effect, they are only funding the financing and one-year depreciation cost, not the whole handset. We will innovate to reduce both these costs for customers to keep the handset cost as low as possible. Overall, we want to deepen our relationship with our members to get them as many brilliant exclusive deals as possible so that they use AO as their default for everything.
We want members to be delighted to renew each year because of the value they receive, and we're targeting to get all members fully aware of all the products and categories we now sell, all of them set up with a finance account and a PCP phone deal and an AO Mobile SIM. This will drive our frequency of transaction, familiarity, and therefore loyalty as long as we deliver on the brilliant retail basics. We will achieve all this by having the very best passionate people working in a high-performance culture. We need to keep obsessing about treating all customers like our own grands and doing things the right way with a long-term lens, making decisions that would make our moms proud, always with a human touch that makes the difference whenever it's required. Quite simply, the best service should always be no service.
We need to build everything to eliminate friction and waste. It must just work perfectly every time. When we do this, we will cement our position as the U.K.'s most trusted electrical retailer. This is the formula that we can build on for decades to come. Our members will be very difficult for our competitors to prise away, and we will have a much more meaningful, long-term, trusted relationship with them. We hope you share the vision and want to be part of the journey. AO, let's go.
Just to start, we obviously bought musicMagpie just before the end of the financial period, and all of our previous guidance and communication with the market was on numbers that excluded the impact of that acquisition.
Today, our announcement consolidates their results into the group, but for this presentation, we'll also discuss some numbers excluding musicMagpie using the phrase "like for like." I'm pleased to say that we've delivered against our guidance. Our VTC revenue is at GBP 832 million, up 12% on the year. This growth has been delivered on the foundations of our excellent customer experience, where we've enjoyed repeat customers returning as well as increased share of wallet from our members. Having now fixed the warehousing economics of some smaller products, we have extended the range available to customers. Our last profit before tax guidance was around the top end of a GBP 39million-44 million range, and I'm pleased to report GBP 45.2 million today on a like for like basis.
As John mentioned, our business model is working, and we're getting leverage on costs as we've grown revenues, so profit has increased faster than revenue. There are GBP 23 million of adjustments in the period, which are the non-cash impairments of goodwill and intangibles in mobile, which we noted in our pre-close in March of GBP 20 million and GBP 3 million of acquisition costs relating to musicMagpie. The mobile impairment is obviously significant, and I will come on to the plan for mobile shortly. We'll also discuss how a full year of musicMagpie trading will impact expectations for FY2026 when we go through the outlook statement. Performance since acquisition for musicMagpie, though, has been slightly better than we'd anticipated, and the opportunity is at least as big as it was in our investment case.
I'll come back to those numbers later, but for now, I'd like to say how happy we are to welcome Steve and the Magpie team to the AO family. John's going to talk a little more about how we expect to leverage the acquisition to continue to differentiate for our customers. Those record profits were delivered against a pretty tough macroeconomic backdrop. We had a consumer under pressure, government-driven pay inflation above long-term trends, and we saw cost inflation catch up where we've been protected by some medium-term contracts. We expect there's more of it to come. It's great that our underlying model resiliently delivers for us. As you've seen from the animation, our foundation of brilliant retail basics with the highest-rated customer service on Trustpilot delivered efficiently by our highly engaged employees all effectively helped to protect us from some of these headwinds.
Our largest category in major domestic appliances is inherently resilient. If your fridge or washing machine breaks down, you will replace it. In addition, 12.5 million people have now experienced buying from ao.com, which, along with our membership model, all compound to give us really solid revenue foundations. Whilst we're fortunate that our model helps us in this way, we've also been taking action with self-help too. Our membership model, while still in its infancy, and our increased range have helped to maintain and drive our share in a competitive market. We anticipate that both of these will continue to develop and be fuel for our engine in the future too. We know that for some customers, now is a time in the cycle when they have savings to fall back on. However, for many others, they need more support.
It has never been more important to have a range of finance products that can meet their differing needs. To that end, we extended our agreement with NewDay through to 2033 and look forward to further innovation in this area over the next 12 months. The acquisition of musicMagpie will help customers afford new products as trading lowers the overall effective price they have to pay. We think in time, this will provide a real win-win for both businesses. Changes in government legislation and policy, which have led to increased employment costs, have encouraged us to revisit our employment strategy. The first offshore call center agents went live in South Africa in the year, and it is imperative that we continue, though, to develop to deliver amazing service, which is so key to our reputation.
Knowing this and knowing that this structure could compromise that customer experience, it's been great to see the culture form over there and the enthusiasm in the team that we've recruited. We'll continue to look for offshoring or automation opportunities as we move forward, and making the model more efficient will help us to provide even more value to our members. Lastly, product confidence and security is very important to a lot of our customers. Our AO Care product, which has been provided by Domestic & General since 2007, does just that. With an excellent reputation for dealing with any product issues that arise, a real no-fuss service, I was delighted to renew our partnership in the year until 2033. Okay, we've faced a year of challenge in our mobile business.
Whilst we thought the renegotiation of contracts with the network operators had fixed the problems, the reality has been that the continued reduction in the post-pay channel where MPD, Affordable Mobiles, and Buy Mobiles operate has resulted in continued losses in FY2025. We have made some tactical progress becoming the handset supplier for Lebara and also entered into an agreement with Samsung to provide customers buying handsets on the Samsung website a bundled airtime contract. This progress, however, has not been enough to offset changes in consumer demand, and these graphs show the market evolution over the last few years of both new contracts and upgrades, and then the shift to SIM-free. The shrinking market not only directly affects revenue, but also puts pressure on margins and acquisition costs as competitors fight for share.
The financial result this year, the direction of travel of the market, and the uncertainty over our model means that we have assessed the carrying value of goodwill and certain of the intangible assets. These impairments, given the non-cash and one-off nature, have been included in adjustments in the income statement. However, as John highlighted earlier, mobile is the largest category in the electrical sector by value and strategically an important product for AO to make available to its customers. It is the product that they change the most frequently and have the most emotional attachment to. John will touch on it later, but our strategy on mobile is evolving. We will either fix the legacy websites once and for all, or we will close these channels.
As you saw in the animation, we will launch some exciting developments in the mobile space targeted at delivering exceptional value for our members during this financial year. We will become a mobile virtual network operator branded as AO Mobile. As well, we will introduce an innovative range of finance products for mobiles. We expect this to make membership an ever more sticky destination with more share of wallet and higher frequency of transaction. The musicMagpie trading capability will further improve customer affordability, turbocharging both AO and musicMagpie sales. We ended the year with GBP 147 million of available liquidity, up from GBP 116 million at the end of last year. We were pleased to increase our revolving credit facility to GBP 120 million, and we extended it out until October 2028.
During the year, we acquired musicMagpie with an effective cash cost of GBP 28 million, so a GBP 10 million purchase price, GBP 15 million of net debt, and GBP 3 million of costs. We also funded the EBT with GBP 11 million to purchase shares. It's worth noting that the EBT purchase represented three years of schemes, and whilst we might continue to do this as we go forward, levels will inevitably be much smaller. When we look through the operational elements of the cash flow, working capital, which we would normally expect to be broadly neutral, was slightly negative, and this was largely due to some fluctuations in timing in stock and in creditors near the end of the year.
You'll note that the tax payment in the cash flow is in line with U.K. corporation tax rates, and we would expect to see this going forward, which has not always been the case previously. Our approach to obtaining delivery vehicles has also changed over the last 12 months. In the commercial vehicle sector, historically, deeper discounts were available to lease companies than to end users, but now it makes economic sense for us to purchase these vehicles directly, backed off into asset finance rather than contracting through operating leases. We will therefore see over the next few years a change in the categorization of these assets, which results in a better long-term economic outcome for AO.
The GBP 9 million in CapEx during the period principally related to delivery vehicles and logistics, as I've just described, but it did also include an extruder in recycling, and that allows us to take the flake output from our plastic recycling center, which was a waste product, and transform it into higher value granulated plastic ready for the manufacturing process. In FY2026, we will see a step change from leasing to purchasing vehicles, and this is expected to increase headline CapEx to around GBP 20 million next year. Those purchases, though, will be backed off into asset financing, resulting in a minimal impact in free cash flow in the year. We will, however, see a contrasting reduction in lease payments phased in as we move forward. Whilst we've got a medium expectation of tailwinds, we haven't modeled that into our guidance.
What we have got in there is the cost that we know about and the output of our old-fashioned self-help. As we look forward to our expectations for FY2026, we ended FY2025 with our like-for-like record of GBP 45.2 million of profit. From that, we need to take the run rate of musicMagpie and the impact of the labor budget and the changes to national minimum wage. That gets us to an exit run rate of about GBP 31 million. We'll then build on this with the profits from our growth in VTC revenue, efficiency savings through automation and offshoring, fixing or closing our mobile post-pay operation, and realizing synergies from the integration of musicMagpie. We therefore expect profitability to be between GBP 40million-50 million for the coming year, with continued progress towards our medium-term target of at least 5% PBT.
It's worth noting the labor cost increases will impact from day one, but some of the efficiencies and innovations won't benefit until H2. The distribution of profit may be phased slightly differently than it was in FY2025. On that positive note, I will hand you back to John.
Thanks, Mark. The numbers are good, as you can see, but they are simply the output of the animation and that flywheel starting to work. Whilst this model may look simple, there are lots of complexities that we needed to bring together and some meaningful initiatives that actually we still have to deliver. I think it's worth spending a few minutes on the strategic moats that we've been building around our business for the last 25 years. Building scale in a low-frequency category is hard, and it takes time and patience.
Building trusted relationships with global brands and integrating service-level agreements deep into their supply chain, it takes time, patience, and consistency. Building brand awareness and trust in a category that, let's be honest, customers just don't wake up worrying about and they don't buy frequently, that takes time, investment, and patience. Operating a two-man home delivery network at scale is hard. The graveyard is full of those that have tried because stepping over a customer's threshold and performing complicated tasks like gas installations is not for the faint-hearted. Our customers must be in when we deliver, and so delivering in the time window is critical, and the impact on people's lives of not having a working washer, TV, or fridge freezer is immense.
To do all this at scale at the level of profitability we do to the globally leading standard of 4.9 out of five on Trustpilot on over 750,000 reviews is, I believe, a big moat that has required a lot of time, investment, and patience to dig. We often take this for granted, but we really shouldn't. Internally, we're doubling down on how we raise the bar again from here, and our membership model is resonating with customers, and we are deepening our relationships with those customers. You might not be surprised that building the membership model has taken a lot of time, investment, and patience to get to here, and we're really happy with how it's developing.
You don't build a finance book with over 500,000 customers with just under GBP 1 billion of available to spend in five minutes either, and the acquisition of that takes time, patience, and investment. We invented AO Care as a new way to look after your products back in 2007. As ever, inventing new things, honing the proposition, and making sure it's amazing for customers takes, guess what, time, patience. You're probably getting the picture, right? We now have over 1 million customers paying us a monthly direct debit for that AO Care service that they love. Members repeat more. They give us more share of wallet. Repeat customers cost less in acquisition, and they're more likely to buy products that we recommend, and they will also shop across categories.
In the last year, we've also attracted another 650,000 brand new customers into our base, which is more fuel as well for our future flywheel. As I said earlier, we've also fixed the unit economics in the newer non-MDA categories, whereby virtually all orders are now margin accretive compared to the first five years of that journey when they were margin dilutive as we built scale, reputation, and credibility, as I highlighted earlier. We are now through the magic 1% share threshold in all of those key categories. In the last 12 months, we've also added around 1,500 new products as well to the range, including fitness, drones, cameras, health, and beauty, and they'll all begin their journey as well to that magic 1% and beyond. Fundamentally, we have built a right to win.
Our gap now is simply one of education and making customers aware that we sell these new categories with a better price and proposition than our competitors. It'll take time, but we can do this very cost-effectively by marketing directly to our own base, and it is working. Add all of these together, and we are driving more and investing less, which means that we have great momentum now in the business, and we are fast approaching our medium-term target of 5% of PBT. As Mark mentioned, we still have a few things to do. We have to fix or close our post-pay mobile business, and I am still hopeful that after some hard yards, a lot of hard yards, that we will fix it in partnership with the networks.
To be clear, if it isn't possible and we do not have a clear line of sight to profit and cash generation, we will close it, and we will remove the distraction. We still need to integrate the musicMagpie business, which is just bursting with opportunity for us. As Mark said, it's great to welcome Steve Oliver and the Magpie team to the AO family, and it really is a classic AO deal. In that what we've bought is a culture that looks and feels like us and a capability where they too obsess about customers just like we do. Those are actually the hard bits to build. The rest is just integration and plugging it all together for customers to benefit from it over the next 12 months and beyond.
This is going to enable us to deliver a market-leading mobile affordability proposition to our members. As Mark mentioned, an enhanced trading capability, both in terms of price and convenience for members that I'll talk to you much more about at our half year. Bringing together membership, mobile, Magpie, and finance is probably the most exciting thing that I've seen in some time across our business. In summary, we're back to double-digit growth, our flywheel is working, profit is growing faster than sales, and we're at 4.1% PBT on our medium-term journey to 5% PBT. Our balance sheet and liquidity are in their best place ever, and our model is now highly cash-generative. Our big strategic bets are materially now all placed, and they are working, and they're compounding better than ever every day.
Our operational excellence and depth of relationships with our customers is of real strategic value to our manufacturers and brand partners. Our addressable market is GBP 28 billion, and we only have a 3% market share. None of this has been easy, and none of it has happened by accident. I would like to thank everyone that is connected with AO: our people, our suppliers, our trading partners, our investors, and most importantly, our customers for taking this journey with us over the last 25 years. It makes me really proud to be able to stand here and share all of this with you.
musicMagpie gets a number of mentions in your strategic plans. If you had not been able to buy it, roughly how much time and money would it have taken for you to develop their skills and experiences internally from scratch?
The simple answer to your question is, I don't know. That's the uncertainty of it. With buying musicMagpie, what we get is a very known entity at a very known price. My experience over the last 25 years of building things is that they are incredibly uncertain, and it is a niche capability that we've bought, so it's a very difficult question to answer.
Could you speak more on your main cost advantage? How can you compete with other offline and online retailers on costs, and how sustainable is this advantage in the medium term? Are costs the main source of your advantage?
I wouldn't say costs are—so I think we do have structural cost advantages, but I don't think they're the fundamental difference.
The single biggest difference for us is that we are globally rated the number one for customer service on Trustpilot across all categories, rated 4.9 out of five with three-quarters of a million reviews. There is a whole host, a whole myriad of things that go into making that happen. The best service ultimately actually is no service, i.e., you just have systems at scale that fundamentally work. You order something online, we never speak to you, it gets delivered, and the people that deliver it are amazing, and you never need to speak to us. That is our single most profitable order. When we are needed, then we are there as a point of difference.
Our cost base is structurally the lowest, and we get significant operational gearing with growth and scale, but we have crossed the minefield, if you like, of going from a small business to a big business, and that is an expensive and difficult journey to go across. Do you want to add anything to that, Mark?
No, I mean, I think our structural advantage, John says, is about getting it right first time and delivering excellently for customers. Actually, the amount of cost that saves us overall is one of our points of difference that allows us to invest back into the customer proposition, particularly for members. I think that is our real point of difference.
You have seen impressive growth of 12% in retail sales. Do you think you are gaining market share from any competitor in particular or from across the market generally?
I think from across the market generally. We do not target particularly any specific competitor. We are just getting the reward of having served a lot of people very well over a long period of time, and we called out that I think it is about 60% of our business is repeat business. Again, you go back to your last question on structural costs. Those customers are a lot cheaper to acquire than new customers, albeit we did put 650,000 new customers in as well. It is across the piece, and we have growth pretty much across all categories as well.
Okay, thanks. How do you feel the consumer is holding up following the autumn budget and inflationary consequences? Are you seeing any changes in consumer behavior such as trading up or down over the past 6 months-12 months?
I do not think I would call out anything materially different.
The overall market in volume terms is down. We're at sort of 10 years-15 year lows in the market of actual numbers of products sold into the market. From our point of view, Mark called it out in his presentation that it's incredibly resilient. The vast majority of what we sell is a distressed purchase. If your fridge freezer breaks, you will buy a new one. If you look at average saving rates of the consumer, they're about double the long-term average, something like that. If you like, the firepower to spend when the need exists is absolutely firmly there. I think it is much more a question of need, and that's why the saving rates are where they are, rather than more project-based purchases like a new fitted kitchen or projects and moving home and those kind of things.
That's a fundamental part of the core resilience of our model.
Yeah, and we fundamentally see that a shift in consumer confidence. There is cash there to unlock and to spend, and so medium term, we think there should be some tailwinds that bring the category back out of 20-year cyclical lows, and we're optimistic about what that can be. We don't know when the timing is, but we do know there are some tailwinds to help us.
I'd phrase it as plan for the worst and hope for the best.
You've won market share in smaller consumer electronics, which are big markets with several competitors. How are you going about educating your customers and potential customers on AO's product range?
The key answer to that is talking to our existing customer base, and over time, we create the education.
We are also mailing out old-fashioned brochures to our customer base, so we mail about a million every 8 weeks-12 weeks, something like that, out to the customer base, and it will just take time, but it is definitely getting traction. We are now through—I set the goal of internal goal and not a public goal—of getting through 1% total market share, and we are now through 1% of total market share in all those categories. The first 1% is by far the hardest of all the points of market share that you take. If you look at TVs as an example of the category, if you like, that we have been in properly for the longest, then we are through 3% in that. If you look at MDA, that obviously is our heritage, and we are at 16%-17% market share.
Overall, we're only at an average of 3% market share. There's just so much opportunity across those new categories as customers, and particularly members, we increasingly become their destination for those categories.
Will you consider paying a dividend?
Eventually.
You've built a GBP 1.1 billion revenue business over the last 25 years. What does the next 25 years hold?
A lot more than that. The first billion is always the hardest.
Why is adjusted PBT guidance potentially for a fall to GBP 40 million? How likely is that, and how much of the national insurance increases do you think you can offset?
I think we explained in the presentation the bridge of where we get to, and we exit this year on a GBP 45 million run rate, and obviously, that's about the midpoint of guidance for the next year.
Excuse me, there are two big things that go into there at the beginning of the year. We have our run rate of musicMagpie losses, which run at about GBP 6 million of the business we have acquired, and then we have about GBP 8 million of national insurance and national minimum wage that sort of go against us, and so our GBP 45 million drops to GBP 31 million as our opening position. We build back with efficiencies and with the growth in our B2C channel, with fixing or closing our mobile business, and with the synergies from the integration of musicMagpie. Some of those are unknown.
We talked about that we don't know exactly what the destination will be for our mobile business, except that we won't continue to suffer losses in that area, but we don't know whether that will be zero as enclosure, whether that will be some profits from an ongoing profitable business. There are a number of things that we don't know today. We don't know exactly how the market will react, and we don't know how some of our trials with offshoring will eventually pan out through the year and whether we will be able to deliver the quality that we need to and expect to deliver.
There are a number of unknowns, and that is why there is a range of outcomes, and the midpoint being flat year on year is, okay, there are two big headwinds that we have got from government and from Magpie in terms of that profit number and a bunch of actions to overcome them.
How confident are you in reaching a 5% PBT margin?
Totally. Yeah.
Okay. Can you talk about the potential for offshoring?
Yeah, so there is naturally, Mark has just touched on it, it is an opportunity for us. The first and biggest box that we need to tick is, can we deliver at least the same standard of service and culture that we have in the U.K.? If we get through that gate, then there is significant opportunity for cost savings within that. We will not in any way just do it blindly to save the money.
We have to absolutely prove that we can do it in the AO way, which is what we are working through at the minute. I am very encouraged. I'm also super encouraged by the engagement we have from our business in the U.K. of people that are going over and teaching people the AO way of doing things. We also, the day that we say, "Right, we've proved we can do this," that does not mean we close all U.K. operations and lift and shift everything over there. We would see ourselves firmly running this as a dual operation, and so there would be some savings, but we do not see—there are not wholesale redundancies in the U.K. We've spent years, we've got really good lengths of service and low churn in our call centers, and that's at the heart of how we serve customers.
We will not jeopardize the service, but assuming we can replicate it, there will be meaningful savings in the millions. It has to be service-orientated.
The projected operating cash in the next 12 months, and do you have any CapEx or acquisitions planned?
We do not have any acquisitions planned as we sit here today, but from a CapEx point of view, again, I went through that in the presentation, and we do expect to see an increased level of CapEx as we shift the way that we acquire vehicles. From a free cash flow point of view, it actually does not make any difference. We will put some asset finance into place to back off into those vehicles. It does mean a higher CapEx number, but does not affect free cash flow.
The mobile market seems very challenging.
How long do you plan to give the turnaround before deciding on another solution for the business?
Weeks, not months. That might be—we will make a decision within weeks, and that might then be, if we were to close it, it would not be an immediate close. I would not expect. We have got stock holdings that we need to wind out. We have got agreements that we need to get through with the networks, and it would be an orderly close done in the right way, as you would expect us to, and a lot of people are affected. It is not a decision that we will take lightly. I cannot reiterate enough that I am still hopeful that we can fix this. This is an important channel of new business for the networks, and VODA and O2 are important trading partners for us.
It is flagging today that if that is not possible and we do not have a clear line of sight to profitability and cash generation, then we will close it. Closing it is not our preferred route. It is just a reality that we want it to signpost.
Thank you to both of you for joining us and to our audience. As a reminder, if you do want to see forecasts, you can find the full note on our website, but otherwise, I wish the rest of you a good rest of your day. To you, gentlemen, thank you.
Thanks, Hannah.
Thank you.